<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 17, 1995
REGISTRATION NO. 33-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MYLEX CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 59-2291597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
34551 ARDENWOOD BOULEVARD
FREMONT, CALIFORNIA 94555
(510) 796-6100
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
A.E. MONTROSS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MYLEX CORPORATION
34551 ARDENWOOD BOULEVARD
FREMONT, CALIFORNIA 94555
(510) 796-6100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
DOUGLAS CLARK NEILSSON, ESQ. DOUGLAS J. REIN, ESQ.
CHARLES VAN COTT, ESQ. DAVID A. HUBB, ESQ.
Brown & Bain Gray Cary Ware & Freidenrich
600 Hansen Way, Suite 100 400 Hamilton Avenue
Palo Alto, California 94306 Palo Alto, California 94301
(415) 856-9411 (415) 328-6561
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / / ________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 2,300,000 shares(1) $15.19(2) $34,937,000(1)(2) $12,047.33
<FN>
(1) Includes 300,000 shares as to which the Company has granted the
Underwriters options to cover over-allotments.
(2) Estimated solely for purposes of calculating the registration fee.
</TABLE>
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 17, 1995
PROSPECTUS
2,000,000 Shares
[LOGO]
CORPORATION
Common Stock
--------------
All of the shares of Common Stock offered hereby are being sold by Mylex
Corporation. The Common Stock of the Company is traded on the Nasdaq National
Market under the symbol "MYLX." On August 16, 1995, the last reported sale price
of the Common Stock was $16.00 per share.
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE SHARES OF COMMON STOCK.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total (3).......................................... $ $ $
<FN>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$350,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
</TABLE>
-------------------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, and subject to the right of the Underwriters to reject any
order in whole or in part. It is expected that certificates for the shares of
Common Stock will be available for delivery in New York, New York, on or about
September , 1995.
-------------------
Needham & Company, Inc.
The date of this Prospectus is , 1995
<PAGE>
Mylex
Logo
THE MYLEX DAC 960PD PCI-BASED RAID CONTROLLER
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE
ACT. SEE "UNDERWRITING."
The Mylex logo is a registered trademark of the Company. All other
trademarks or brand names appearing in this Prospectus are the property of their
respective holders.
<PAGE>
[LOGO]
RAID is available in several levels that differ in the
ways they break down data for storage and achieve fault
tolerance. RAID Level 0, for example, distributes data in
stripes across the disk drives in an array but does not
calculate the parity values necessary for fault tolerance.
Level 1 achieves fault tolerance by creating mirror images of
all data and storing each image on a different disk than the
disk used to store the original. Because Level 1 creates
exact duplicates of all stored data, it uses one-half of
available storage capacity to achieve fault tolerance. Level
5 distributes data in stripes, calculates parity values for
all stripes and distributes the parity values evenly across
all disks in the array. Because level 5 uses the equivalent
of just one drive in the disk array to store parity values,
it increases usable system storage capacities over levels
achieved by RAID Level 1. Level 3 dedicates one of the disks
in the array to the storage of parity values and employs the
rest of the disks to read and write information in parallel.
Because Level 3 uses all drives to read and write
information, it can accommodate only one transaction at a
time. By allowing parallel reads, however, Level 3 is the
best choice for applications requiring access to large
amounts of information stored sequentially, such as
multimedia or video-on-demand.
<PAGE>
[LOGO]
TYPICAL COMMAND FLOW
1. The host issues a
command to the
controller to read (or
write) data from (or
to) a logical drive.
For a read command,
step 2 is skipped.
2. The i960 processor sets
up the host interface
device to transfer data
to the cache. Upon
completion, the host
interface device
notifies the i960.
3. For a read command, the
i960 processor
determines that the
data resides on
multiple disks and
instructs the SCSI I/O
processors (or "SIOPs")
to retrieve data from
the disk drives to the
cache. For a RAID 5
write command, the i960
processor determines
that some data may be
required from the SCSI
disks for parity
computation and
instructs the SIOPs to
retrieve this data.
4. The SIOPS transfer data from the
disks to the cache and notify the
i960 on completion. For a write
command, the i960 then computes
parity. For a read command, steps 5
and 6 are skipped.
5. The i960 instructs the SIOPs to transfer data and parity to the disk
drives.
6. The SIOPs transfer data from the cache to the disks and notify the i960
upon completion. The i960 in turns, notifies the host. This completes the
execution of a write command and step 7 is not needed.
7. The i960 sets up the host interface device to transfer data from the cache
to system memory. Upon completion, the host interface device notifies the
i960, which in turn, notifies the host.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
THE COMPANY
Mylex designs, manufactures, and markets RAID controllers that provide high
performance, capacity enhancing fault tolerant storage and input/output
solutions for client/server computer networks. Mylex controllers integrate the
Company's proprietary ASICs, firmware and software with standard industry
components. More than twenty leading network file server and storage subsystem
OEMs, including IBM, Hewlett-Packard Company, Digital Equipment Corporation, and
NEC, have designed Mylex RAID controllers into their server and storage
subsystem products.
During the late 1980s and early 1990s, the Company's principal business
involved the production and sale of system boards (so-called "mother boards")
for personal computers. In the early 1990s, Mylex responded to changes in the
computer industry by undertaking a series of product development initiatives
designed to reposition the Company to address the storage and input/output, or
"I/O," challenges facing the emerging client/server computing environment. In
1992, the Company introduced its first RAID controller product into the personal
computer network market. Sales of RAID controller products have grown rapidly
since 1992, and represented over 90% of the Company's net sales during the first
half of 1995. The higher gross margins from this new product line are reflected
in the increase in the Company's overall gross margins from 13.6% in 1992 to
19.4% in 1993 to 35.5% in 1994 to 37.4% in the first half of 1995.
The trend toward client/server computing that began in the mid-1980s has
placed particular demands on network storage systems and related I/O functions.
The development of faster microprocessors and more robust computer bus
architectures in network systems has often outstripped the capabilities of data
storage and I/O technologies, leading to systems "bottlenecks." To alleviate or
avoid such bottlenecks, networks require continual improvements in stored data
retrieval speed. In addition, the development of more complex applications and
operating systems has created the need for increased network storage capacity.
Meanwhile, the mission critical, enterprise-wide nature of networked computing
often requires a high level of "fault tolerance," or the ability to preserve
data from loss and to provide uninterrupted system service even if an individual
data storage device fails. The emergence of data-intensive applications such as
multimedia and video-on-demand are further driving the demands for speed,
capacity and reliability in network storage devices.
Mylex RAID controllers enable increased speed, greater capacity, and a high
degree of fault tolerance in network storage and I/O functions. RAID, which
stands for redundant array of independent disks, is a method for distributing
data across several disk drives and allowing the server microprocessor to access
those drives simultaneously, thus increasing system storage I/O performance. In
addition, lost data on any drive can be recreated using special RAID algorithms,
thus ensuring the immediate availability of RAID protected data even in the
event of a disk drive failure. Mylex controllers support all major operating
systems and bus types, and the Company endeavors to rapidly develop products for
new bus, operating system, and platform standards as they are defined. RAID
controller products based on the recently introduced PCI bus standard
represented a majority of its disk array product sales in the second quarter of
1995. The Company believes that its proprietary software and firmware is a key
competitive advantage in the RAID controller market.
The Company's goal is to maintain its position as the leading supplier of
RAID controllers and to become a leader and standard setter in the broader
market for intelligent I/O solutions in the networked personal computer
marketplace. In pursuit of this goal, the Company has worked in cooperation with
Intel to develop an implementation of RAID for the system board which would
offer an extremely cost-effective RAID solution for users of personal computer
networks. The Company believes that this product, which is scheduled to be
introduced along with the Intel P6 processor in 1996, will substantially broaden
the potential market for its RAID solutions.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,000,000 shares
Common Stock to be outstanding after
the offering................................. 16,825,617 shares (1)
Use of proceeds.............................. General corporate purposes, including working
capital, and repayment of borrowings
Nasdaq National Market symbol................ MYLX
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Net Sales.............................. $ 47,867 $ 54,268 $ 48,769 $ 45,234 $ 62,513 $ 27,775 $ 39,216
Gross Margin........................... 12,450 6,634 6,657 8,778 22,191 8,992 14,679
Operating Income (Loss)................ 5,703 (2,892) (4,008) (4,024) 10,624 3,633 7,436
Income (Loss) Before Income Tax........ 5,692 (3,297) (4,461) (4,490) 10,061 3,363 7,319
Net Income (Loss)...................... 3,384 (2,205) (3,000) (4,444) 7,509 2,522 4,757
Net Income (Loss) Per Share............ $ 0.28 $ (0.19) $ (0.25) $ (0.35) $ 0.51 $ 0.18 $ 0.30
Weighted Average Common and Equivalent
Shares................................ 12,299 11,337 12,103 12,740 15,247 14,591 15,783
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1995
DECEMBER 31, 1994 ------------------------
----------------- AS
ACTUAL ACTUAL ADJUSTED (2)
----------------- --------- -------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working Capital.................................................... $ 16,562 $ 22,352 $ 52,082
Total Assets....................................................... 27,358 38,949 66,179
Shareholders' Equity............................................... 17,760 23,620 53,350
<FN>
--------------------------
(1) Based on shares outstanding as of June 30, 1995. Does not include 2,407,000
shares of Common Stock reserved for issuance, as of June 30, 1995, under
the Company's stock option plans. On June 30, 1995, 563,000 shares of
Common Stock were issuable upon the exercise of outstanding options under
those plans.
(2) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby, at an assumed offering price of $16.00 per share, and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
</TABLE>
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT
THE UNDERWRITERS WILL NOT EXERCISE THEIR OVER-ALLOTMENT OPTION. SEE
"UNDERWRITING."
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING MYLEX CORPORATION (TOGETHER
WITH ITS SUBSIDIARIES, THE "COMPANY" OR "MYLEX") AND ITS BUSINESS BEFORE
PURCHASING THE SHARES OFFERED IN THIS PROSPECTUS.
DEPENDENCE ON RAID CONTROLLER PRODUCTS
Sales of the Company's RAID ("redundant array of independent disks")
controller products accounted for 81% of the Company's net sales in 1994 and 91%
of net sales in the first six months of 1995. RAID controller products are used
principally in personal computer network applications. The use of RAID
technology in the personal computer network market is relatively recent, and
there can be no assurance that another technology will not replace RAID in the
disk array controller marketplace or that there will be widespread acceptance or
continuing growth of the use of RAID products in general, or the Company's RAID
controllers in particular, in that market. Furthermore, even if the market
continues to grow, there can be no assurance that the Company will be able to
continue to market and sell its RAID controller products at the same rates, and
with the same gross margins, it has experienced to date. In addition, in order
to be able to compete successfully in the RAID controller market, the Company
will have to develop and market new RAID controller products. There can be no
assurance that the Company will be able to develop and introduce new RAID
controller products in a timely manner or that any such products will gain or
sustain market acceptance.
CUSTOMER CONCENTRATION
The Company's revenue depends on a customer base that is highly
concentrated. The Company's three largest customers, International Business
Machines ("IBM"), Digital Equipment Corporation ("DEC"), and Hewlett-Packard
Company ("HP"), collectively accounted for 53% of the Company's net sales in
1994. In the first six months of 1995, sales to IBM, DEC and HP collectively
accounted for 56% of the Company's net sales. Sales to IBM alone represented 31%
of the Company's net sales during the first six months of 1995. A limited number
of customers and customer orders have accounted for, and are likely to continue
to account for, a substantial portion of the Company's revenue in any period.
The Company has no long-term purchase commitments from its customers, and
customers generally may cancel their orders on 30-days notice. Accordingly,
there can be no assurance that orders from existing customers, including the
Company's principal customers, will continue at their historical levels, or that
the Company will be able to obtain orders from new customers. Loss of one or
more of the Company's current customers, particularly a principal customer, or
cancellation or rescheduling of orders already placed, could materially and
adversely affect the Company's business and operating results.
The Company's OEM customers have integrated the Company's RAID controller
products into their servers and storage subsystems. Any of these OEM customers
may choose to develop their own RAID controller products which could be
substituted for, and thus reduce or eliminate their purchases of, the Company's
RAID controller products. Most of the Company's OEM customers, and particularly
its principal customers, have extensive product development experience and
expertise, substantial financial resources and ongoing, substantial product
development activities. As a result, it is likely that those customers have been
and will be involved in RAID development programs on a continuing basis. Any
material reduction in purchases of a RAID controller product by any OEM
customers as a result of such customer developing its own competing product will
materially and adversely affect the Company's business and operating results.
COMPETITION
The markets for the Company's RAID controller products have been competitive
and are likely to become more competitive. Furthermore, there are numerous
companies with established reputations in the controller and personal computer
related markets, many of which have greater financial, manufacturing, and
marketing resources than those of the Company.
5
<PAGE>
Some OEMs (such as Compaq and Dell) have developed their own RAID
controllers. As noted, the customers historically accounting for the most
significant volumes of the Company's sales are major OEMs, any of which could
develop their own controllers at any time, rather than purchase such products
from the Company.
The Company's ability to compete successfully in either the RAID controller
market or the personal computer network market depends upon its ability to
continue to develop reliable products that obtain market acceptance and can be
sold at competitive prices while maintaining adequate gross margin levels. There
can be no assurance that the Company will be able to compete successfully in the
future in the market for such products or that other companies may not develop
products with greater performance or more favorable prices and thus reduce the
demand for the Company's products. Furthermore, as more companies enter the RAID
controller market, the Company expects to encounter price competition for such
products which could materially and adversely affect its gross margin.
NEW PRODUCTS AND TECHNOLOGICAL CHANGES
The markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards and relatively short product life
cycles. The Company's ability to compete successfully will depend on its
ability, on a timely and cost-effective basis, to enhance its existing products
and to introduce new products, such as its new PCI and SCSI to SCSI disk array
product families, with features that meet changing customer requirements and
with competitive prices. There can be no assurance that the Company will be
successful in doing so. Delays in product enhancement and development or the
failure of the Company's new products or enhancements to gain market acceptance
could have an adverse effect on the Company's business and operating results.
Despite testing, new products may be affected by quality, reliability or
interoperability problems, which could result in returns, delays in collecting
accounts receivable, unexpected service or warranty expenses, reduced orders and
a decline in the Company's competitive position. In addition, there can be no
assurance that new products or technologies developed by others, or the
emergence of new industry standards, will not render the Company's products or
technologies noncompetitive or obsolete. For example, efforts by the Company's
OEM customers and other manufacturers to integrate additional functions into
system boards, to use chip sets that incorporate additional functionality, or to
design their own controllers and other devices rather than purchase the
Company's products could have a material adverse effect on the Company's
business and operating results.
All of the Company's RAID controller products are based on the Intel i960
processor. If another company develops a processor for RAID applications which
renders the i960 processor noncompetitive, whether as a result of cost,
specifications or other advantages of the new processor, or if Intel ceases to
produce the i960 processor or support the Company's efforts to develop products
based on the i960 processor, the Company will be forced to develop new products
based on another processor. Such development efforts will be costly, and there
can be no assurance that the Company will be able to timely complete such
development efforts or that such products, if developed, will have the same
degree of market acceptance or the same gross margin as the Company's present
RAID products.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results could vary significantly depending
on a number of factors, such as the timing of receipt and shipment of
significant orders, changes in the mix of the Company's sales to OEM customers,
distributors, value added resellers and other channels of distribution, the cost
and timing of new product releases and product enhancements by the Company and
its competitors, variations in the Company's product mix, market acceptance of
new or enhanced versions of the Company's products, changes in pricing and
promotion policies by the Company and its competitors and general economic
conditions. Quarterly sales depend on the volume and timing of orders received
during a quarter, which are difficult to forecast. At the same time, the
Company's expenses are based, in part, on its expectations as to customer demand
for its products. Mylex customers generally have the right to cancel orders on
30-day notice, and the cancellation of orders already placed could have an
adverse effect on the Company's operating results in any quarter. In
6
<PAGE>
addition, due to the timing of customer orders, the Company often ships products
representing in excess of a majority of its revenues for a quarter during the
last month of that quarter. This factor increases the risk of an unanticipated
fluctuation in quarterly net sales because, in the last month of the quarter,
the Company has limited opportunities to take corrective action in the event a
customer cancels, reschedules or otherwise delays a shipment or it appears that
the Company may be incapable of timely manufacturing all orders scheduled for
shipment in that month. Operating results falling below expectations in any
quarter would have an adverse effect on the market price of the Company's Common
Stock.
SUPPLIER AND COMPONENT DEPENDENCE
The Company depends heavily on its suppliers to provide materials on a
timely basis, at reasonable prices. Although many of the components for the
Company's products are available from numerous sources at competitive prices,
some of the most critically needed components, such as the i960 processor,
ASICs, and SCSI chips, are presently available from only one source.
Furthermore, because of high industry demand for many of those components, their
manufacturers may, from time to time, not be able to make delivery on orders on
a timely basis. In addition, manufacturers of components on which the Company
relies may choose, for numerous reasons, not to continue to make those
components, or the next generation of those components, available to Mylex.
The Company and its competitors are currently experiencing a worldwide
shortage of DRAM SIMM memory modules and surface mount capacitors due to the
significant demand for such components. The Company is attempting to develop
different designs for its products which would allow it to avoid or reduce its
dependence on components for which there is a shortage. However, no assurance
can be given that the results of such design efforts will be timely or
effective.
The Company has no long-term supply contracts. There can be no assurance
that the Company will be able to obtain, on a timely basis, all the components
it requires. If the Company cannot obtain essential components as required, the
Company could be unable to meet demand for its products, thereby adversely
affecting its operating results and allowing competitors to gain market share.
In addition, scarcity of such components could result in cost increases and
adversely affect the Company's gross margin.
SUSTAINING AND MANAGING GROWTH
The Company is currently undergoing a period of rapid growth and there can
be no assurance that such growth can be sustained or managed successfully. This
expansion has resulted in a higher fixed cost structure which will require
increased revenue in order to maintain historical gross margin and operating
margins. There can be no assurance that the Company will obtain the increased
orders necessary to generate increased revenue sufficient to cover this higher
cost structure. Failure by the Company to manage growth successfully or have the
systems and capacities necessary to sustain its growth could materially and
adversely affect the Company's business and operating results.
INTERNATIONAL SALES AND OPERATIONS
Sales to customers outside the United States accounted for approximately 16%
of the Company's revenue in 1994 and 28% of its revenue in the first six months
of 1995, and the Company expects that international sales will continue to
represent a significant portion of the Company's revenue. International sales
pose certain risks not faced by companies that limit themselves to domestic
sales. Fluctuations in the value of foreign currencies relative to the U.S.
dollar, for example, could make the Company's products less price competitive
and, if the Company in the future denominates any of its sales in foreign
currencies, result in losses from foreign currency transactions. International
sales also could be adversely affected by factors beyond the Company's control,
including the imposition of government controls, export license requirements,
restrictions on technology exports, changes in tariffs and taxes and general
economic and political conditions. In some countries, the law does not protect
the Company's intellectual property rights to the same extent as the laws in the
United States.
7
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of key personnel, many of whom would be difficult to replace and
are not subject to employment or noncompetition agreements. If any of these
employees were to leave the Company, the Company's business could be adversely
affected. The Company believes its future success will also depend, in large
part, upon its ability to attract and retain highly skilled engineering,
managerial, sales and marketing personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel.
PROPRIETARY TECHNOLOGY CLAIMS
The Company does not presently hold any patents applicable to its RAID
controller products and relies on a combination of trade secret, copyright and
trademark laws and employee and third-party nondisclosure agreements to protect
its intellectual property rights. There can be no assurance that the steps taken
by the Company to protect its rights will be adequate to prevent
misappropriation of the Company's technology or to preclude competitors from
developing products with features similar to the Company's products.
Furthermore, there can be no assurance that, in the future, third-parties will
not assert infringement claims against the Company or with respect to its
products for which the Company has indemnified certain of its customers.
Asserting the Company's rights or defending against third-party claims could
involve substantial expense, thus materially and adversely affecting the
Company's results of operations. In the event a third party were successful in a
claim that one of the Company's products infringed its proprietary rights, the
Company may have to pay substantial damages or royalties, remove that product
from the marketplace or expend substantial amounts in order to modify the
product so that it no longer infringes such proprietary rights, any of which
could have an adverse effect on its business and results of operations. See
"Business -- Intellectual Property" and "Business -- Litigation."
LITIGATION
The Company is party to an arbitration proceeding initiated by American
Megatrends, Inc. ("AMI") in 1992. In the arbitration, AMI has alleged breach of
contract and other claims relating to an agreement under which AMI licensed
rights to the Company to use a basic input/output system for a 386 system board
that the Company ceased using in its products prior to the initiation of the
proceedings. AMI is seeking damages in an unspecified amount. The Company has
asserted certain defenses and counterclaims and intends to continue to defend
this action vigorously. It should be noted, however, that legal proceedings can
be unpredictable, no assurance can be given that the Company will prevail, and
an unfavorable outcome could have an adverse effect on the Company's business
and results of operations.
The former Chief Executive Officer of the Company, Dr. M.A. Chowdry, filed a
complaint against the Company and its outside directors in October 1994,
claiming breach of an employment agreement with the Company. Dr. Chowdry seeks
compensatory and consequential damages of at least $5 million and unspecified
punitive damages. The Company believes it has meritorious defenses and intends
to vigorously defend this lawsuit. Nonetheless, given the unpredictable nature
of legal proceedings, no assurance can be given that the Company will prevail.
Although there can be no assurance given with respect to the results of
legal proceedings, based on information currently available to the Company, it
believes that it does not have potential liability with respect to these
proceedings that would have a material adverse effect on the Company. However,
the Company's costs of defending these proceedings have been substantial, will
fluctuate from quarter to quarter and are likely to increase. See "Business --
Litigation."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock could be subject to wide
fluctuations in response to such factors as, among others, variations in the
Company's expected or actual results of operations, competitors' announcements
concerning products and operating results, and market conditions, which may be
unrelated to the Company's operating performance.
8
<PAGE>
USE OF PROCEEDS
The net proceeds to Mylex from the sale of 2,000,000 shares of Common Stock
offered by the Company are estimated to be approximately $29,730,000
($34,242,000 if the Underwriters exercise their over-allotment option in full),
assuming an offering price of $16.00 per share and after deducting the estimated
underwriting discount and offering expenses payable by the Company.
Mylex intends to use the proceeds of this offering for general corporate
purposes, including working capital. Approximately $2,500,000 will be used to
pay down borrowings under the Company's bank line of credit. Advances under the
line bear interest at a floating rate equal to the bank's prime rate and the
line matures on May 15, 1996. The Company presently has no other specific plans
for any significant portion of the proceeds.
The Company may use a portion of the proceeds to acquire technologies,
products or businesses that complement the Company's current business, as such
opportunities may arise. Although the Company does consider such acquisitions,
from time to time, as a part of its normal business operations and planning, it
has no present commitments or agreements with respect to any such acquisitions.
Pending their use, the proceeds will be invested in short-term, United States
Government or investment grade interest-bearing securities.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the National Association of
Securities Dealers, Inc. Automated Quotation System ("Nasdaq") under the symbol
"MYLX." The following table sets forth the range of high and low sales prices of
the Company's Common Stock for the periods indicated, as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1993
First Quarter......................................... $6 1/4 $4 1/8
Second Quarter........................................ 5 1/2 3 1/2
Third Quarter......................................... 5 5/8 3 1/2
Fourth Quarter........................................ 7 3/4 4 3/4
FISCAL 1994
First Quarter......................................... 7 3/8 4 7/8
Second Quarter........................................ 5 3/4 3 5/8
Third Quarter......................................... 9 5/8 4 3/8
Fourth Quarter........................................ 11 3/4 7 3/4
FISCAL 1995
First Quarter......................................... 12 1/16 8 3/8
Second Quarter........................................ 13 3/8 10
Third Quarter (through August 16, 1995)............... 16 1/2 13 1/2
</TABLE>
On August 16, 1995, the last reported sale price for the Common Stock on the
Nasdaq National Market was $16.00 per share. As of June 30, 1995, there were
approximately 650 holders of record of the Common Stock.
DIVIDEND POLICY
To date, Mylex has not declared or paid cash dividends on its Common Stock.
The Company presently intends to retain all earnings for use in the operation
and development of its business and, therefore, does not expect to declare or
pay any cash dividends on its Common Stock in the foreseeable future.
9
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at June 30, 1995, and (ii) as adjusted to reflect the Company's sale of
2,000,000 shares of Common Stock pursuant to this offering and the Company's
receipt of the estimated net proceeds from this offering (assuming a public
offering price of $16.00 per share and after deducting the estimated
underwriting discount and offering expenses payable by the Company):
<TABLE>
<CAPTION>
JUNE 30, 1995
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Line of credit payable to bank....................................... $ 2,500 $ --
Current portion of long-term capital lease obligations............... 359 359
--------- -----------
Long-term capital lease obligations.................................. 343 343
--------- -----------
Shareholders' equity
Common Stock, $.01 par value (25,000,000 shares authorized;
14,825,617 shares outstanding, 16,825,617 shares, as adjusted)
(1)............................................................... 148 168
Additional paid-in capital......................................... 14,627 44,337
Retained earnings.................................................. 8,845 8,845
--------- -----------
Total shareholders' equity....................................... $ 23,620 $ 53,350
--------- -----------
--------- -----------
Total liabilities and shareholders' equity........................... $ 38,949 $ 66,179
--------- -----------
--------- -----------
<FN>
------------------------
(1) Does not include 2,407,000 shares of Common Stock reserved for issuance
under the Company's stock option plans as of June 30, 1995. On that date,
563,000 shares of Common Stock were issuable upon exercise of outstanding
options.
</TABLE>
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data are qualified by reference
to, and should be read in conjunction with, the consolidated financial
statements, related notes and other financial information included elsewhere in
this Prospectus. The selected historical financial data set forth for each of
the five fiscal years ended December 31, 1994, are derived from the consolidated
financial statements of the Company included elsewhere in this Prospectus. The
selected historical financial data for and as of the six-month periods ended
June 30, 1994 and 1995, are unaudited, but in the opinion of management include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the Company's financial position and results of
operations as of and for such periods. The results of operations for the six
months ended June 30, 1995, may not be indicative of the results that may be
expected for the year ending December 31, 1995.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Net Sales............................. $ 47,867 $ 54,268 $ 48,769 $ 45,234 $ 62,513 $ 27,775 $ 39,216
Cost of Sales......................... 35,417 47,634 42,112 36,456 40,322 18,783 24,537
--------- --------- --------- --------- --------- --------- ---------
Gross Margin........................ 12,450 6,634 6,657 8,778 22,191 8,992 14,679
Operating Expenses:
Sales and Marketing................. 2,424 2,792 3,370 2,962 3,592 1,618 2,582
Research and Development............ 1,325 2,655 2,824 2,474 3,332 1,566 2,078
General and Administrative.......... 2,527 2,938 2,515 2,690 4,643 2,175 2,583
Provision for Uncollectible Accounts
Receivable(1)...................... 471 1,141 1,956 4,676 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total Operating Expense........... 6,747 9,526 10,665 12,802 11,567 5,359 7,243
--------- --------- --------- --------- --------- --------- ---------
Operating Income (Loss)........... 5,703 (2,892) (4,008) (4,024) 10,624 3,633 7,436
Other Income (Expense), Net........... (11) (405) (453) (466) (563) (270) (117)
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Before Income Tax....... 5,692 (3,297) (4,461) (4,490) 10,061 3,363 7,319
Provision for Income Tax.............. 2,308 (1,092) (1,461) (46) 2,552 841 2,562
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss)..................... $ 3,384 $ (2,205) $ (3,000) $ (4,444) $ 7,509 $ 2,522 $ 4,757
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) Per Share........... $ 0.28 $ (0.19) $ (0.25) $ (0.35) $ 0.51 $ 0.18 $ 0.30
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted Average Common and Equivalent
Shares............................... 12,299 11,337 12,103 12,740 15,247 14,591 15,783
CONSOLIDATED BALANCE SHEET DATA:
Working Capital..................... $ 11,107 $ 8,405 $ 6,286 $ 3,461 $ 16,562 $ 7,198 $ 22,352
Total Assets........................ 25,929 22,433 23,694 14,640 27,358 21,315 38,949
Shareholders' Equity................ 11,420 10,060 7,963 4,664 17,760 8,489 23,620
<FN>
--------------------------
(1) Virtually all of the provision for 1993 and 1992 related to accounts
receivables from Northgate Computer Systems, Inc. and Tandon Computer,
respectively. See "Certain Relationships and Related Transactions" for a
description of certain matters related to Northgate.
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Mylex was incorporated in 1983. Until late 1993, the Company's principal
business was the development and sale of system boards (so-called "mother
boards") for personal computers. Virtually all of its sales of such products
were to OEMs and wholesale distributors in the personal computer market. In
1993, the Company began withdrawing from the system board business, due in part
to the intense price competition it experienced for those products and the
resulting pressures on gross margin. In 1992, the Company completed the
development of its first disk array controller product, which used RAID
technology, and introduced that product into the personal computer network
market. By 1994, the Company's RAID controller products had become its principal
products and its sales of system board products had become relatively
insignificant.
The Company's RAID controller customers are OEMs, system integrators, value
added resellers and computer distributors and dealers. The Company's revenue
from its RAID controller products represented 44%, 81% and 91% of its net sales
for 1993, 1994 and the first six months of 1995, respectively. Aggregate revenue
derived from sales of its products to its three principal OEMs, IBM, DEC and HP,
represented 28%, 53% and 56% of its net sales for 1993, 1994 and the first six
months of 1995, respectively, with revenue from IBM representing 31% of net
sales for the first six months of 1995. Revenue from foreign sales, including
foreign sales to United States OEMs, represented 21%, 16% and 28% of its net
sales for 1993, 1994 and the first six months of 1995, respectively. A limited
number of customers are likely to continue to account for a substantial portion
of the Company's revenue in any period, and the loss of a principal customer
could materially and adversely affect the Company's business and operating
results.
Due principally to the timing of customer orders, the Company often ships
products representing in excess of a majority of its revenue for a quarter
during the last month of that quarter. As a result, the risk of an unanticipated
fluctuation in quarterly net sales is increased because, by the last month of
the quarter, the Company has limited opportunities to take corrective action in
the event a customer cancels, reschedules or otherwise delays a shipment or it
appears that the Company is incapable of timely manufacturing all orders
scheduled for shipment in that month.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statement of operations
data as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Sales................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales............................................ 86.4 80.6 64.5 67.6 62.6
--------- --------- --------- --------- ---------
Gross Margin........................................... 13.6 19.4 35.5 32.4 37.4
Operating Expenses:
Sales and Marketing.................................... 6.9 6.5 5.8 5.8 6.6
Research and Development............................... 5.8 5.5 5.3 5.7 5.3
General and Administrative............................. 5.2 6.0 7.4 7.8 6.6
Provision For Uncollectible Account Receivable......... 4.0 10.3 -- -- --
--------- --------- --------- --------- ---------
Total Operating Expense.............................. 21.9 28.3 18.5 19.3 18.5
--------- --------- --------- --------- ---------
Operating Income (Loss).............................. (8.3) (8.9) 17.0 13.1 18.9
Other Income (Expense), Net.............................. (0.9) (1.0) (0.9) (1.0) (0.3)
--------- --------- --------- --------- ---------
Income (Loss) Before Income Tax.......................... (9.2) (9.9) 16.1 12.1 18.6
Provision for Income Tax................................. (3.0) (0.1) 4.1 3.0 6.5
--------- --------- --------- --------- ---------
Net Income (Loss)........................................ (6.2)% (9.8)% 12.0% 9.1% 12.1%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
12
<PAGE>
SIX MONTHS ENDED JUNE 30, 1994 AND JUNE 30, 1995
NET SALES. Net sales for the six months ended June 30, 1995, increased 41%
to $39.2 million, compared to $27.8 million during the corresponding period of
1994. Sales increased primarily due to a 63% increase in shipments of the
Company's RAID controller products, particularly its PCI products, which more
than offset the decline in sales of the Company's system boards and other
peripheral products during the period.
GROSS MARGIN. Gross margin for the six months ended June 30, 1995, was
$14.7 million, or 37.4% of net sales, compared to $9.0 million, or 32.4% of net
sales, for the six months ended June 30, 1994. The increase in gross margins was
attributable to increased sales of the Company's higher margin RAID controller
products during the six months ended June 30, 1995, which more than offset the
declining margins of the Company's system boards during that period.
SALES AND MARKETING. Sales and marketing expenses for the six months ended
June 30, 1995, totaled $2.6 million, or 6.6% of net sales, compared to $1.6
million, or 5.8% of net sales, for the six months ended June 30, 1994. Increases
in sales and marketing expenditures resulted from increased staffing levels and
commission expenses, as well as increased advertising, promotional and travel
expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses for the six
months ended June 30, 1995, totaled $2.1 million, or 5.3% of net sales, compared
to $1.6 million, or 5.6% of net sales, for the six months ended June 30, 1994.
Research and development expenses increased during the six months ending June
30, 1995, due to higher salaries and increased staff levels.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the six
months ended June 30, 1995, totaled $2.6 million, or 6.6% of net sales, for the
six months ended June 30, 1995, compared to $2.2 million, or 7.8% of net sales,
for the six months ended June 30, 1994. General and administrative expenses
increased due to higher compensation and benefit expenses as a result of
increased staffing levels and bonus expenses. Legal expenses also increased over
those incurred during the same period in 1994.
INCOME TAXES. The Company's effective tax rate during the six months ended
June 30, 1995, was 35%, as compared to 25% in the corresponding period of the
prior year. The tax rate for the first six months of 1995 reflects the impact of
the reduction of previously available tax benefits.
FISCAL 1993 AND 1994
NET SALES. Net sales increased by 38% to $62.5 million in 1994 from $45.2
million in 1993. Sales of the Company's RAID controller products increased by
151% in 1994 over 1993 levels, reflecting the Company's design wins with its OEM
customers in late 1993 and 1994. The net sales growth in 1994 was attributable
to overall market growth and strong demand for the Company's RAID controller
products. Sales from RAID controller products represented 81% of total sales in
1994 compared to 44% in 1993.
GROSS MARGIN. The Company's gross margin was $22.2 million, or 35.5% of net
sales, in 1994, compared to $8.8 million, or 19.4% of sales, in 1993. The
increase was due to higher margin RAID controller products representing an
increased percentage of the product mix. Gross margin also increased because of
the replacement of several costly components on the controller boards with less
costly ASIC chips designed by the Company.
SALES AND MARKETING. Sales and marketing expenses were $3.6 million, or
5.7% of net sales, in 1994, compared to $3.0 million, or 6.5% of net sales, in
1993. The increase in sales and marketing expenses was primarily due to the
addition of employees to manage the increased volume and to higher commission,
advertising and travel related expenses.
13
<PAGE>
RESEARCH AND DEVELOPMENT. Expenditures for research and development were
$3.3 million, or 5.3% of net sales, in 1994, compared to $2.5 million, or 5.5%
of net sales, in 1993. Although research and development expenses increased by
35% from 1993 to 1994, these expenses, as a percentage of net sales, decreased
slightly between the periods due to the significant growth of net sales in 1994.
The growth in research and development expenses was primarily due to increased
technology development efforts related to intelligent input/output management
projects.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $4.6 million, or 7.4% of net sales, in 1994, compared to $2.7 million, or
5.9% of net sales, in 1993. The increase in general and administrative expenses
during 1994 was due to the addition of personnel to support the growth in the
Company's business and significantly increased legal expenses over those
incurred in 1993.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE. The provision for
uncollectible accounts receivable decreased by $4.7 million in 1994. The Company
did not incur any bad debt expense during the year as accounts written off
during 1994 had been fully reserved as of December 31, 1993. The Company wrote
off $4.8 million of uncollectible accounts receivable during 1994, $4.6 million
of which was related to products shipped to Northgate Computer Systems, Inc
("Northgate"). The receivable from Northgate was fully reserved during 1993 due
to the deterioration of Northgate's financial condition. The receivable from
Northgate was written off during 1994 as a result of Northgate's filing for
bankruptcy, after an analysis of the assets remaining to satisfy the claims of
Northgate's secured and unsecured creditors.
INCOME TAXES. The Company's combined federal and state effective income tax
provision rate of 25% is less than the federal statutory rate of 34% primarily
due to a change in the beginning of the year valuation allowance for which no
benefit had been recognized.
FISCAL 1992 AND 1993
NET SALES. The Company's net sales for 1993 decreased by $3.6 million to
$45.2 million, compared to $48.8 million for 1992. Sales declined primarily due
to aggressive price competition leading to a reduction in both the selling
prices and unit volumes of the Company's system boards. The number of system
boards shipped by the Company during 1993 totaled approximately 50,000, as
compared to approximately 80,000 shipped during 1992. Sales of the Company's
RAID controller products increased significantly during 1993 due to growing
industry acceptance of the Company's RAID disk array technology and product
family.
GROSS MARGIN. Gross margin for 1993 increased to $8.8 million, or 19.4% of
net sales, compared to $6.7 million, or 13.6% of net sales, for 1992. The
increase in gross margin in fiscal 1993 was due to the increased sales of higher
margin RAID controllers products, the sales of which more than offset the
declining margins of the Company's system boards. Sales of RAID controller
products accounted for 44.4% of net sales during 1993, compared to 2.4% of net
sales during 1992.
SALES AND MARKETING. Sales and marketing expenses were $3.0 million, or
6.5% of net sales, for 1993, compared to $3.4 million, or 6.9% of net sales, for
1992. The decrease in sales and marketing expenses was due to a reduction in the
number of sales and marketing personnel supporting the system board product line
and lower advertising expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses were $2.5
million, or 5.5% of net sales, for 1993, compared to $2.8 million, or 5.8% of
net sales, for 1992. This decrease in research and development expenses was due
to the completion or termination of several projects during early 1993,
resulting in lower engineering consulting and prototype expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for 1993
totaled $2.7 million, or 5.9% of net sales, compared to $2.5 million, or 5.2% of
net sales, for 1992. This increase was primarily due to higher legal expenses
and director and officer liability insurance premiums. Those increases in
general and administrative expenses were only partially offset by reduced
compensation and benefit expenses, resulting from lower staffing levels during
1993, as compared to 1992.
14
<PAGE>
PROVISION FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE. The provision for
uncollectible accounts receivable increased from $2.0 million for 1992 to $4.7
million for 1993. The increase was due to the rapid deterioration during the
third quarter of 1993 in the financial condition of one of the Company's
customers, Northgate.
INCOME TAXES. The Company had a net operating loss for 1993. The financial
statements reflect a tax benefit of $46,100 for that year, as compared to a tax
benefit of $1.5 million for 1992. The Company had recorded substantially all of
the tax benefits available to it in years prior to 1993.
QUARTERLY INFORMATION
The following tables present selected quarterly consolidated financial
information for the periods indicated in both dollars and as a percentage of net
sales. The information derives from unaudited consolidated financial statements
that, in the opinion of management, reflect all normal recurring adjustments
necessary to fairly present the information. The results of operations for any
quarter do not necessarily indicate the results to be expected for any future
period.
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995
------------------------------------------------ ------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1994 1994 1995 1995
----------- ----------- ----------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net Sales........................................ $ 13,642 $ 14,132 $ 16,119 $ 18,620 $ 17,085 $ 22,131
Cost of Sales.................................... 9,655 9,128 10,378 11,161 10,813 13,724
----------- ----------- ----------- --------- ----------- -----------
Gross Margin................................... 3,987 5,004 5,741 7,459 6,272 8,407
Operating Expense:
Sales and Marketing............................ 774 844 946 1,028 1,125 1,457
Research and Development....................... 735 830 814 953 957 1,121
General and Administrative..................... 875 1,300 1,014 1,454 973 1,610
----------- ----------- ----------- --------- ----------- -----------
Total Operating Expense...................... 2,384 2,974 2,774 3,435 3,055 4,188
----------- ----------- ----------- --------- ----------- -----------
Operating Income............................. 1,603 2,030 2,967 4,024 3,217 4,219
Other Income (Expense), Net...................... (151) (119) (119) (174) (78) (38)
----------- ----------- ----------- --------- ----------- -----------
Income Before Income Tax......................... 1,452 1,911 2,848 3,850 3,139 4,181
Provision for Income Tax......................... 363 478 712 999 1,099 1,463
----------- ----------- ----------- --------- ----------- -----------
Net Income....................................... $ 1,089 $ 1,433 $ 2,136 $ 2,851 $ 2,040 $ 2,718
----------- ----------- ----------- --------- ----------- -----------
----------- ----------- ----------- --------- ----------- -----------
Net Income Per Share............................. $ 0.07 $ 0.10 $ 0.14 $ 0.19 $ 0.13 $ 0.17
----------- ----------- ----------- --------- ----------- -----------
----------- ----------- ----------- --------- ----------- -----------
Weighted Average Common and Equivalent Shares.... 15,249 14,548 15,718 15,540 15,513 15,845
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995
------------------------------------------------ ------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1994 1994 1995 1995
----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales.................................... 70.8 64.6 64.4 59.9 63.3 62.0
----------- ----------- ----------- --------- ----------- -----------
Gross Margin................................... 29.2 35.4 35.6 40.1 36.7 38.0
Operating Expense:
Sales and Marketing............................ 5.7 6.0 5.9 5.5 6.6 6.6
Research and Development....................... 5.4 5.9 5.0 5.2 5.6 5.1
General and Administrative..................... 6.4 9.2 6.3 7.8 5.7 7.2
----------- ----------- ----------- --------- ----------- -----------
Total Operating Expense...................... 17.5 21.1 17.2 18.5 17.9 18.9
----------- ----------- ----------- --------- ----------- -----------
Operating Income............................. 11.7 14.3 18.4 21.6 18.8 19.1
Other Income (Expense), Net...................... (1.1) (0.8) (0.7) (0.9) (0.5) (0.2)
----------- ----------- ----------- --------- ----------- -----------
Income Before Income Tax......................... 10.6 13.5 17.7 20.7 18.3 18.9
Provision for Income Tax......................... 2.6 3.4 4.4 5.4 6.4 6.6
----------- ----------- ----------- --------- ----------- -----------
Net Income....................................... 8.0% 10.1% 13.3% 15.3% 11.9% 12.3%
----------- ----------- ----------- --------- ----------- -----------
----------- ----------- ----------- --------- ----------- -----------
</TABLE>
15
<PAGE>
The Company's results of operations over the six quarters ended June 30,
1995 reflect generally increasing net sales, excluding the first quarter of
1995. Net sales in the first quarter of 1995 were affected by the industry
transition from EISA bus based RAID controllers to the new PCI bus based RAID
controllers. Certain of the PCI server product introductions of the Company's
customers were delayed from the first to the second quarters of 1995, thereby
delaying some purchases of the Company's PCI RAID controllers until the second
quarter. Additionally, the Company's product mix shifted more towards RAID
controller products from the system board and other peripheral products. RAID
controller products sales represented 79% of the Company's net sales in each of
the first three quarters of 1994, rose to 84% of net sales in the fourth quarter
of 1994 and the first quarter of 1995 and rose again to 96% of net sales in the
second quarter of 1995.
Within the RAID product family, sales of disk array controllers by bus type
were as stated in the following table:
NET SALES OF DISK ARRAY PRODUCTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Q1 94 Q2 94 Q3 94 Q4 94 Q1 95 Q2 95
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
EISA Disk Array....................... $ 3,243 $ 8,214 $ 10,157 $ 10,155 $ 5,295 $ 4,640
Micro Channel DA...................... 7,468 2,641 1,828 1,902 3,220 3,816
PCI DA................................ -- 275 564 3,015 5,029 10,985
SCSI DA............................... -- 41 226 637 810 1,790
----------- ----------- ----------- ----------- ----------- -----------
Total Disk Array...................... $ 10,711 $ 11,171 $ 12,775 $ 15,709 $ 14,354 $ 21,231
</TABLE>
PERCENTAGE OF NET SALES OF DISK ARRAY PRODUCTS
<TABLE>
<CAPTION>
Q1 94 Q2 94 Q3 94 Q4 94 Q1 95 Q2 95
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
EISA Disk Array....................... 30.3% 73.5% 79.5% 64.6% 36.9% 21.9%
Micro Channel DA...................... 69.7 23.6 14.3 12.1 22.4 18.0
PCI DA................................ -- 2.5 4.4 19.2 35.0 51.7
SCSI DA............................... -- 0.4 1.8 4.1 5.7 8.4
----------- ----------- ----------- ----------- ----------- -----------
Total Disk Array...................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Disk Array % of Total Sales........... 78.5 % 79.0 % 79.3 % 84.4 % 84.0 % 95.9 %
</TABLE>
Gross margin percentage over the six quarters ranged from a low of 29% in
the first quarter of 1994 to a high of 40% in the fourth quarter of 1994, and
has generally increased due to the shift in product mix toward RAID controller
products. Gross margin was particularly high in the fourth quarter of 1994 due
to favorable channel and customer mix and better absorption of fixed costs due
to the increase in volume. Gross margin declined in the first quarter of 1995
from the previous quarter due primarily to a less favorable channel and customer
mix. RAID controller product sales through the alternate channels (distributors,
system integrators and VARs), which generally involve higher gross margins,
totaled approximately $7.0 million during 1994, and have increased each quarter
in 1995, totaling $7.5 million through the first six months. Gross margin was
negatively affected by rising prices of DRAM SIMM modules in the second quarter
of 1995.
Sales and marketing expenses increased over the six quarter period as the
Company increased its staffing levels to position itself to support increased
OEM sales volumes and to implement its strategy of selling RAID controller
products through distributors, systems integrators and VARs. Sales and marketing
expenses as a percent of sales have increased to 6.6% in each of the two
quarters in 1995, as compared to a range of 5.5% to 6.0% during 1994.
Research and development expenses increased over the six quarter period as
the Company implemented new technology projects related to the development of
RAID controllers for new bus types and subsequent generations of its RAID
controller products that are intended to provide
16
<PAGE>
enhanced performance and features. Research and development expenses have varied
as a percentage of sales during the six quarter period from a low of 5.0% in the
third quarter of 1994 to a high of 5.9% in the second quarter of 1994 primarily
due to changes in sales volumes, as well as variations in recruiting and
relocation expenses for newly hired engineers.
General and administrative expenses have fluctuated over the six quarter
period due to variations in legal expenses related primarily to the AMI
arbitration and the dispute with the Company's former CEO. Additionally, as
sales volumes have increased, additional employees have been hired to support
these higher volumes. As a percentage of sales, general and administrative
expenses have ranged from a low of 5.7% in the first quarter of 1995 to a high
of 9.2% in the second quarter of 1994.
The Company's effective income tax rate during each of the quarters in 1994
was 25%, and rose to 35% in the two quarters of 1995 as a result of a reduction
of previously available tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995, the Company's working capital had increased to $22.4
million from $16.6 million at December 31, 1994. This increase in working
capital was due primarily to a $4.3 million growth in accounts receivable and an
$8.6 million rise in inventories, which offset a decrease in cash of $1.7
million and an increase in accounts payable of $5.9 million, for a net increase
in working capital of $5.7 million.
Cash balances decreased by $1.7 million from $3.9 million at December 31,
1994, to $2.2 million at June 30, 1995. Cash used by operating activities during
the first six months of 1995 totaled $1.9 million, and resulted from increases
in inventories and accounts receivable, only partially offset by an increase in
accounts payable. The Company used $400,000 in investing activities for the
purchase of capital equipment in the same period. Cash provided by financing
activities during the period totaled $700,000 and resulted from the exercise of
options and warrants to purchase Common Stock. The net change in cash and cash
equivalents during the first six months of 1995 totaled $1.7 million.
Net accounts receivable increased to $15.1 million at June 30, 1995,
compared to $10.8 million at December 31, 1994, an increase of $4.3 million.
Accounts receivable increased over the balance at the end of 1994 because a high
percentage of the second quarter sales took place in June, the last month of the
quarter, and thus the related accounts receivable were not collected until the
following quarter.
Inventory increased to $18.9 million at June 30, 1995, compared to $10.2
million at December 31, 1994. Inventory increased over the six month period as a
result of the Company's decisions to purchase additional components to support
generally higher sales levels, as well as to increase its minimum stock levels
of DRAM SIMM modules to a two month supply.
Accounts payable increased to $9.1 million at June 30, 1995, compared to
$3.2 million at December 31, 1994, an increase of $5.9 million. This increase
was due to the high percentage of inventory purchases made during the final
month of the quarter.
The Company's line of credit with Imperial Bank (the "Bank") expires May 15,
1996, bears interest at the Bank's prime rate and is secured by all of the
Company's assets. Borrowings are subject to an overall limit of $8.0 million.
Under the agreement, the Company must maintain average profitability of $500,000
after tax over each successive two quarter period and must meet a working
capital financial ratio.
The Company presently expects to finance near-term and long-term operations
and capital requirements through the net proceeds of this offering, cash
provided by continuing operations, existing cash balances, and borrowings under
bank lines of credit. The Company believes that such capital resources will meet
the Company's working capital needs through at least the end of fiscal 1996.
17
<PAGE>
BUSINESS
Mylex designs, manufactures and markets RAID controllers that provide high
performance, capacity enhancing fault tolerant storage and input/output, or
"I/O," solutions for client/server computer networks. Mylex controllers
integrate the Company's proprietary ASICs, firmware and software with standard
industry components. More than twenty leading network file server and storage
subsystem OEMs, including IBM, HP, DEC, and NEC, have designed Mylex RAID
controllers into their server and storage subsystem products.
INDUSTRY BACKGROUND
A major trend in computing environments called "client/server" networks
began in the mid-1980s. This trend was driven by the proliferation of personal
computers and the development of networking applications that distributed
computer power to the desktop. Client/server computing provides an alternative
to the highly centralized, relatively expensive mainframe and mini-computer
systems that connect many "dumb" terminals to a central processor and were the
mainstays of the computing world until this decade. A client/server network
consists of multiple desktop "client" computers with their own microprocessors
and memory and the ability to access files and applications stored on higher
performance "servers." Client/server networks offer certain cost, performance
and flexibility advantages over traditional mainframe and mini-computer systems.
As a result, client/ server computing has spread rapidly. Network server
shipments alone grew from $2.3 billion in sales in 1989 to $5.5 billion in sales
in 1993, according to International Data Corporation, which estimates that the
market for servers will grow at a compound annual rate of 17.7% from 1994 to
1997.
A key component of client server networks is data storage and related data
access functions. These chores are typically handled by disk array subsystems,
which include disk drives, enclosures, controllers, and disk storage software.
The market for disk array subsystems for networked personal computers totaled
approximately $3.8 billion in 1994, according to the market research firm Disk
Trend, Inc., which also projects the market to grow to $10.0 billion in 1997.
The trend toward client/server computing has placed particular demands on
network storage systems and related I/O functions. The development of faster
microprocessors and more robust computer bus architectures in network systems
has often outstripped the capabilities of data storage and I/O technologies,
leading to system "bottlenecks." To alleviate or avoid such bottlenecks,
networks require continual improvements in stored data retrieval speed. In
addition, the development of more complex applications and operating systems has
created the need for increased network storage capacity. Meanwhile, the mission
critical, enterprise-wide nature of networked computing often requires a high
level of "fault tolerance," or the ability to preserve data from loss and to
provide uninterrupted system service even if an individual data storage device
fails. The emergence of data-intensive applications such as multimedia and
video-on-demand are further driving the demands for speed, capacity and
reliability in network storage devices.
THE RAID SOLUTION
A solution to the storage and I/O speed, capacity and reliability challenges
presented by network computing was first proposed by a team of researchers at
the University of California at Berkeley in a paper published in the late 1980s.
They called their solution "RAID," or redundant array of inexpensive disks (now
known in the industry as redundant array of independent disks). RAID is a way of
distributing data in stripes across several disk drives and allowing the
microprocessor to access those drives simultaneously, thus increasing system
storage I/O performance. In addition, the RAID configuration can provide a high
degree of fault tolerance because it continuously calculates and stores a unique
parity value, using exclusive/or logic, or "XOR," to accompany each data stripe.
Should any drive fail, the remaining drives in the system may use the parity
value to reconstruct the data on the failed drive, thus ensuring the immediate
availability of RAID protected data even in the event of a disk drive failure.
18
<PAGE>
RAID is available in several levels that differ in the ways they break down
data for storage and achieve fault tolerance. RAID Level 0, for example,
distributes data in stripes across the disk drives in an array but does not
calculate the parity values necessary for fault tolerance. Level 1 achieves
fault tolerance by creating mirror images of all data and storing each image on
a different disk than the disk used to store the original. Because Level 1
creates exact duplicates of all stored data, it uses one-half of available
storage capacity to achieve fault tolerance. Level 5 distributes data in
stripes, calculates parity values for all stripes and distributes the parity
values evenly across all disks in the array. Because level 5 uses the equivalent
of just one drive in the disk array to store parity values, it increases usable
system storage capacities over levels achieved by RAID Level 1. Level 3
dedicates one of the disks in the array to the storage of parity values and
employs the rest of the disks to read and write information in parallel. Because
Level 3 uses all drives to read and write information, it can accommodate only
one transaction at a time. By allowing parallel reads, however, Level 3 is the
best choice for applications requiring access to large amounts of information
stored sequentially, such as multimedia or video-on-demand.
The following table illustrates certain of the functions and benefits of the
different RAID levels:
[CHART]
19
<PAGE>
BENEFITS OF RAID
RAID technology can bring three key benefits to a networked computer system:
IMPROVED PERFORMANCE
Computers operate no faster than their slowest components. Currently
available disk drives often cannot keep pace with system demands and often
present a system bottleneck. RAID alleviates the bottleneck by distributing data
over many disk drives. By enabling the drives to operate concurrently, RAID
increases the speed with which users may read and write stored information and
enhances overall system performance. In addition, by managing the I/O function
for the entire client/server system, a RAID controller frees the main processor
to use its processing power for other important network management and
application tasks.
INCREASED CAPACITY
By allowing access to an array of independent disk drives, RAID enables
computer networks to have access to significantly higher storage capacities. To
create super-capacity storage systems, it is possible to link several
SCSI-to-SCSI RAID controllers to a single expansion slot, freeing other slots
for other peripherals.
FAULT TOLERANCE
Due to their electromechanical nature, disk drives typically suffer higher
failure rates than other system components. By providing data redundancy, RAID
preserves data when drives fail and allows system operators to replace failed
drives without shutting down their system, providing a high level of fault
tolerance.
The following chart describes the benefits of RAID in a number of different
network computer applications:
<TABLE>
<S> <C> <C>
RAID APPLICATIONS AND BENEFITS
<CAPTION>
INDUSTRY APPLICATION BENEFITS
--------------------- -------------------------------- --------------------------------
<S> <C> <C>
Insurance Policy Holder Data Bases Fault Tolerance; Cost
Effectiveness
Market Research Survey Analyses Capacity; Cost Effectiveness
Manufacturing CAD CAM Data Fault Tolerance; Performance
Local Government Environmental Data Capacity; Cost Effectiveness
Newspapers Storage and Editing Capacity; Performance
Communications Systems Control, Internet, Sequential Performance; Fault
Dialogue, Movies, Commercials Tolerance
Software Products Data Bases; Source Code Fault Tolerance; Performance;
Libraries Capacity
Accounting Services Client Data Fault Tolerance
Oil Companies Exploration and Statistical Data Fault Tolerance; Capacity;
Performance
Brokerage Firms Trading Floor Transaction Data High I/O Levels; Fault
Tolerance; Capacity
Aeronautics Flight Simulation Programs Performance; Capacity
Telephone Companies Customer Site Voicemail Fault Tolerance; Capacity
Installations
</TABLE>
20
<PAGE>
The wide range of network applications that can benefit from RAID has led to
the rapid adoption of RAID by network server OEMs. Of servers shipped in 1994,
26% had a RAID configuration, versus 5% in 1991. Disk Trend estimates that, by
1997, 47% of servers shipped will have a RAID configuration. OEMs shipping
servers with RAID include Compaq, IBM, DEC, HP, and NEC.
MYLEX'S ROLE IN THE RAID SOLUTION
Mylex designs, manufactures and markets RAID disk array controllers. More
than twenty of the leading network file server and storage subsystem OEMs,
including IBM, HP, DEC, and NEC, have designed Mylex controllers into their
server and storage subsystem products.
RAID controllers separate data into stripes for storage on multiple disks
and then reassemble data when the host computer requests it. For certain RAID
configurations that provide fault tolerance, the controller also must
continuously calculate the parity values necessary to reconstruct data lost when
drives fail. In addition to implementing RAID algorithms, Mylex's RAID
controllers also perform all SCSI storage device handling tasks, thus freeing
the host computer's central processor to perform other tasks.
Mylex has designed products to support the EISA, Micro Channel and PCI
computer bus architecture. Those busses evolved to increase the speed of the I/O
function. The original IBM AT system, for example, employed a computer bus
architecture known as Industry Standard Architecture, or "ISA," that had a
maximum data transfer speed of 8 megabytes per second, (or "MB/s.") After ISA,
an Extended Industry Standard Architecture, or "EISA," bus that allows the
transfer of data in bursts of up to 33 MB/s and an IBM proprietary Micro Channel
bus that allows the transfer of data in bursts of up to 40 MB/s were developed.
In early 1993, an industry consortium headed by Intel defined the Peripheral
Connect Interface, or "PCI," bus to increase maximum potential data transfer
speeds to bursts of 132 MB/s. The Company endeavors to bring its products
rapidly to market and believes that it was the first to introduce a RAID
controller for the PCI bus. Mylex also has developed SCSI to SCSI RAID
controllers that provide an interface between the server microprocessor and
peripherals for virtually any hardware platform.
21
<PAGE>
The architecture of Mylex RAID controller products includes a number of
features designed to increase the storage capacity and I/O speed of any given
system. Most servers use a SCSI interface to access tape and disk storage.
Although there are exceptions, most server network expansion slots are equipped
with just one SCSI channel. In a standard (or "narrow") configuration, a SCSI
channel can manage up to seven independent disk drives and achieve a data
transfer speed of 10 MB/s. So-called "wide-SCSI" can manage up to 15 independent
disk drives and achieve a data transfer rate of 20 MB/s. Mylex controllers have
the capability to include and address simultaneously up to five SCSI channels,
increasing the system's ability to address storage space and the speed of data
transfer through any expansion slot. It also is possible to link several Mylex
controllers to the same slot to achieve storage super-capacities.
In addition to offering multiple SCSI channels, each Mylex controller
includes a dynamic memory cache for the temporary storage of information being
written to or retrieved from the disk array.
THE DIAGRAMS ON THIS PAGE AND THE NEXT ILLUSTRATE HOW MYLEX'S CONTROLLERS
READ AND WRITE STORED DATA:
TYPICAL RAID CONTROLLER READ COMMAND FLOW
[CHART]
<TABLE>
<S> <C>
<FN>
------------------------
(1) The host instructs the controller to read data from a logical drive.
(2) The i960 processor determines that the data resides on multiple disks and
instructs the SCSI I/O processors, or "SIOPs," to retrieve data from the
disk drives in the array.
(3) The SIOPs transfer data from the disks to the memory cache and notify the
i960 upon completion.
(4) The i960 sets up the host interface device to transfer data from the memory
cache to system memory. Upon completion, the host interface device notifies
the i960, which in turn, notifies the host processor.
</TABLE>
22
<PAGE>
Depending on the product, the size of memory caches range from 2 to 64 MB. The
cache is not partitioned and allows the portion of the memory devoted to writing
to vary with demand. The cache assists Mylex products designed for use with the
PCI bus to achieve sustained data transfer rates of 29 MB/s in reading
sequential information from the disk array, and can burst data at the full 132
MB/s that the PCI bus can accomodate.
In addition to unique architecture, Mylex controllers incorporate
proprietary software and firmware, including algorithms that implement the
different RAID levels that Mylex products support, algorithms for data caching,
I/O device drivers and configuration administration and monitoring utilities
with graphical user interfaces. The software and the firmware work together to
detect disk drive failures or conditions likely to lead to disk drive failures
using the S.M.A.R.T. predictive failure analysis standard, as well as to monitor
certain performance factors.
TYPICAL RAID CONTROLLER WRITE COMMAND FLOW
[CHART]
<TABLE>
<S> <C>
<FN>
------------------------
(1) The host instructs the controller to write data to a logical drive.
(2) The i960 processor sets up the host interface device to transfer the data
to the cache. Upon completion, the host interface device notifies the i960.
(3) The i960 determines that some data may be required from the SCSI disks for
parity value computation and instructs the SIOPs to retrieve this data.
(4) The SIOPs transfer data from the disks to the cache and notify the i960
upon completion. The i960 then computes parity values.
(5) The i960 instructs the SIOPs to transfer data and parity values to the disk
drives.
(6) The SIOPs transfer data from the cache to the disks and notify the i960
upon completion. The i960, in turn, notifies the host.
</TABLE>
23
<PAGE>
COMPANY STRATEGY
The Company's goal is to maintain its position as the leading supplier of
RAID controllers and to become a leader and standard setter in the broader
market for intelligent I/O solutions in the networked personal computer
marketplace. To achieve this goal, the Company has adopted a business strategy
incorporating the following elements.
MAINTAIN MARKET LEADERSHIP IN RAID SOLUTIONS
Mylex intends that its next generation of RAID controllers will continue to
support multiple system buses and include various design and functional
improvements at the high end of the RAID controller market, including the
capability to support levels of RAID and high data transfer speeds necessary for
video on demand and multimedia applications. Lower cost designs of the Company's
RAID controller products also should expand market opportunities for the Company
at the low end of the RAID controller market. For example, the Company has
recently developed a software suite that will allow the implementation of RAID
on the system board, which is intended to give it the opportunity to capture
market share at the low end of the RAID controller market.
LEVERAGE OEM AND INDUSTRY RELATIONSHIPS
Mylex has an installed base of RAID controllers in more than 140,000 servers
or storage subsystems distributed by its customers. The Company maintains a
dialogue with its OEM customers regarding the features and capabilities required
for the computer networks of tomorrow, thus facilitating the rapid
implementation of new technologies and standards in its products. For example,
as a result of those dialogues the Company obtained customer input that enabled
Mylex to include additional features in the design of its RAID controller
products based on the recently introduced PCI bus standard. These PCI-based
controllers have been designed into server or storage subsystem products of
virtually all of the Company's major OEM customers. The Company is also actively
engaged in the pursuit of available cooperative and co-development activities
with other industry leaders in the hardware, software, silicon and systems
business. For example, the Company's initiative to implement RAID on the system
board was a cooperative effort with Intel in which Mylex provided a design
reference specific to the Company's RAID solutions for Intel's forthcoming
i960*RP I/O processor. As part of this effort, the Company also developed a
software suite that makes it possible to implement RAID on the system board. In
June 1995, Mylex announced that it will offer this suite of RAID software and
firmware for use with the Intel processor, starting delivery with Intel's
initial shipments presently scheduled for the first half of 1996. As another
example of the Company's pro-active strategy, Mylex teamed with AT&T, IBM, Intel
and XPoint Technologies to form the BusBIOS Advisory Committee.
FOCUS ON SOFTWARE
Mylex believes its software and firmware are a key competitive advantage for
the Company in the RAID controller market. In addition to programs implementing
RAID algorithms, Mylex software includes I/O device drivers, and configuration
administration and monitoring utilities with a graphical user interface. The
Company also designed and markets an Array Enclosure Monitoring Interface
software program, or "AEMI," to monitor various characteristics of disk array
enclosures, including thermal thresholds, power supply status, and management of
replacement and "hot spare" drives.
Mylex believes its RAID on the system board technology, which is designed to
provide users of personal computer networks an extremely cost-effective method
of implementing RAID in their networks, will substantially broaden the potential
market for its RAID solutions. The Company plans to distribute RAID on the
system board through a two step process. First, it will make the hardware
technology available at no cost to OEMs who manufacture their own RAID hardware.
Mylex will then market separately the software suite needed to enable RAID to
work on the system board. As a result, the Company expects that the introduction
of RAID on the system board will lead to software sales representing an
increasing share of its business.
24
<PAGE>
CONSOLIDATE TECHNOLOGY
In addition to continuing development of RAID controller products, Mylex
will pursue the acquisition and development of technologies that complement its
intelligent I/O solutions in an effort to enlarge the Company's presence in the
storage management market for networked personal computers. The Company also
provides high performance Ethernet cards and has licensed rights to build the
PNA960, a peer-to-peer Ethernet Switch designed for the PCI bus. The Company
also has the capability to develop proprietary chip designs, as shown by its
in-house design of a bus master chip for its PCI-based RAID controller when an
alternative chip was not available in the marketplace. In addition to developing
RAID controller products, the Company is exploring alternatives for acquiring or
developing SCSI chip technology for incorporation in its products, as well as
certain other technologies involving the communication aspects of networking.
EXPAND ALTERNATE CHANNELS
Historically, Mylex has relied extensively on sales to major OEM customers.
While the Company expects OEM sales to continue to account for a large share of
its business, it also intends to expand sales of RAID controller products
through other channels of distribution, including leading distributors, systems
integrators, value added resellers and others. Since the beginning of 1994, the
Company has added six employees to its alternative channel sales group, opened
sales offices in the United Kingdom and Florida for overseas sales, and added 10
manufacturing representatives in the United States and Canada. The Company also
renewed its distribution agreements with several distributors, including Tech
Data, Merisel, Ingram Micro and Gates/Arrow, and entered into relationships with
additional distributors such as Avnet Corporation and Wyle Electronics. RAID
sales into alternate channels totaled approximately $7.0 million in 1994 and
$7.5 million in the first six months of 1995. Mylex intends to continue its
efforts to build ACS sales in the future.
EXPAND GLOBAL PRESENCE
Sales to customers outside the United States increased from approximately
16% of the Company's revenue in 1994 to 28% of its revenue in the first six
months of 1995. Since mid-1994, several overseas OEMs, including NEC, Fujitsu,
Toshiba and Siemens Nixdorf, have selected Mylex controllers for their server
product lines. In addition, several existing major OEM customers have changed
their previous practice of accepting shipment of all Mylex products
domestically, with the result that the Company now is exporting products to
those OEMs' affiliates overseas. Through the expansion of its sales and
marketing team and the expansion of alternate channel sales, the Company intends
to continue its efforts to penetrate international markets.
PRODUCTS
During the last half of 1993, the Company shifted its principal activity
from the supply of system board products to the manufacture of I/O devices and
storage management enhancing computer peripheral products. Mylex designs its
products to provide solutions for all popular operating systems, including
Novell Netware (which approximately 70% of existing networks currently use),
Windows NT, SCO UNIX, Solaris, Unixware and Banyan. Mylex products also work
with all popular platforms. These include personal computer platforms that use
PCI, EISA, and Micro Channel bus architectures and workstation platforms,
including Sun Microsystems, Silicon Graphics and IBM RS-6000 workstations that
use the Company's SCSI to SCSI products. Since Mylex introduced its first PCI
compatible products in 1994, sales of PCI-based controllers have increased from
$275,000 in the second quarter of 1994 to almost $11.0 million in the second
quarter of 1995. See "Management's Discussion of Financial Condition and Results
of Operations -- Quarterly Information."
RAID CONTROLLERS
Each bus-based Mylex RAID controller includes a proprietary application
specific integrated circuit, or "ASIC," that serves as an interface with the
host computer, an Intel i960 RISC processor, up to five SCSI channels to manage
the transfer of data to and from the disk drives in the array and a dynamic
cache memory ranging in size from 2 to 64 MB, depending on the product, to
buffer the
25
<PAGE>
transfer of information to and from the disks. The controller also includes
Mylex firmware residing on an EEPROM that implements the RAID algorithms and the
algorithms necessary for the cache and supporting software, including I/O
drivers, configuration utilities and system monitoring programs.
Mylex disk array controllers DAC960E, DAC960 Micro Channel, DAC960P and
DAC960PD provide high performance, fault tolerant data storage solutions for
EISA, Micro Channel and PCI bus platforms. The Mylex SCSI-to-SCSI disk array
controllers (DAC960S/SI/SE) bring the performance of RAID technology to
virtually any hardware platform without requiring special host software. The
Mylex disk array products are designed for both internal and external storage
options and are compatible with most commonly used operating systems. The
selling prices for Mylex RAID controllers range from approximately $400 to
approximately $3,000, depending on their features and sales volumes, and the
distribution channels through which they are sold. The following tables
summarize the Company's current principal RAID controller product offerings:
<TABLE>
<S> <C> <C> <C> <C>
MYLEX RAID CONTROLLERS
<CAPTION>
CUMULATIVE
UNITS
SHIPPED
FIRST THROUGH
PRODUCT MARKET SPECIFICATIONS(1) SHIPPED JUNE 30, 1995
---------- ----------------------------- ----------------------------- --------- -------------
<S> <C> <C> <C> <C>
DAC960P Mid range to high end 29MB/s sustained sequential Q2 1994 15,252
PCI-based file and database read
servers with heavy access performance
requirements 2500 I/Os per sec.
RAID levels 0, 1, 5 and 0+1
DAC960PD Mid range to high end 29MB/s sustained sequential Q4 1994 4,537
PCI-based file and database read
servers with heavy access performance
requirements 2500 I/Os per sec.
RAID levels 0, 1, 5 and 0+1
Ultra high density connectors
DAC960PL Small to mid range PCI-based 16MB/s sustained sequential Q1 1995 4,346
file and database servers read
with moderate access performance
requirements 2000 I/Os per sec.
RAID levels 0, 1, 5 and 0+1
DAC960 Mid range to high end Micro 13 to 20 MB/s sustained Q3 1992 46,522
Micro Channel-based file and sequential read performance
Channel database servers with heavy 1500 to 2500 I/Os per sec.
access requirements RAID levels 0, 1, 5
DAC960E Mid range to high end range 13MB/s sustained sequential Q2 1992 66,450
EISA-based file and database read
servers with heavy access performance
requirements 1500 I/Os per sec.
RAID levels 0, 1, 5 and 0+1
DAC960S High end servers and Host independent multiple Q3 1994 2,597
workstations with heavy host
access requirements capacity expandable to almost
unlimited storage
Wide, narrow and differential
wide
SCSI
Dual host channel support
DAC960SI High end servers and Host independent multiple Q4 1994 628
workstations with heavy host
access requirements capacity expandable to almost
unlimited storage
Wide, narrow and differential
wide
SCSI
Dual host channel support
<FN>
------------------------------
(1) I/Os describe the number of random read and write operations involving
small blocks of data.
</TABLE>
26
<PAGE>
Products currently under development include new SCSI to SCSI controllers, a
controller optimized for multimedia and video imaging, controllers that will
provide for high speed serial interfaces to disk drives, a low-cost RAID
solution and a RAID implementation for the system board. There can be no
assurance that the Company will introduce its products under development. If
these products are introduced, there can be no assurance that they will gain
market acceptance or that their sales will produce adequate gross margins.
NETWORK ENHANCEMENT PRODUCTS
In addition to RAID controllers, Mylex produces the PNA960, an internal peer
to peer Ethernet Switch designed for the PCI bus, under a license agreement that
the Company entered with XPoint Technologies in early 1995. The PNA960
incorporates an on board microprocessor which relieves the server processor of
additional task management and substantially increases the speed of data
transfer over the network. The distribution price of the PNA960 is $1,795. Mylex
also provides high performance Ethernet Network Cards. All network enhancement
products are compatible with major operating systems and platforms.
SYSTEM BOARDS
Historically, the industry has recognized Mylex as a supplier of high
quality, high performance system boards. While off-shore manufacturers now
dominate the low end of this business, a market remains in the high end server
and multi-processor applications. The Company continues to provide small
quantities of system boards and enclosures to system integrators and to OEMs
with annual sales under $150 million. Selling prices for the Company's system
boards currently range between $200 and $400. With the implementation of system
boards incorporating RAID design references, the Company will be in a position
to provide RAID-capable system boards.
SALES AND MARKETING
As of August 1, 1995, the Company employed 28 sales and sales support
personnel who devoted substantially all their time to marketing, sales, and
technical and customer support. The Company plans to increase the number of
sales and marketing employees during 1995 to support its expanding customer base
and product lines.
The Company sales and marketing plan is based on a two-tier strategy: sales
to OEMs of servers and storage subsystems, and sales into alternate channels
that include distributors, system integrators and value added resellers.
OEM SALES
Sales to IBM accounted for 22% of net sales in 1994 and 31% of net sales
during the first six months of 1995. Sales to the next two largest customers,
DEC and HP, accounted for an additional 17% and 14%, respectively, of net sales
in 1994 and 15% and 10%, respectively, in the first six months of 1995. The
Company expects a limited number of customers and customer orders to continue to
account for a substantial portion of the Company's revenue in any period.
Although there are OEM agreements in place that define the terms of sale and
support services with some of the Company's largest customers, these agreements
do not include specific quantity commitments and generally allow customers to
cancel any orders on 30 days notice. The Company generally sells products on a
purchase order basis. As a result, historical sales are not necessarily an
accurate indicator of future sales.
During the second half of 1994 and the first half of 1995, the Company has
marketed its disk array products to several additional OEMs, including NEC
Japan, Siemens Nixdorf, Intel, Storage Dimensions, Advanced Logic Research,
Conner Peripherals and Fujitsu, each of which accounted for more than $250,000
in sales during the second quarter of 1995.
Most of the Company's OEM customers, and particularly its principal
customers, have extensive product development experience and expertise,
substantial financial resources and ongoing, substantial product development
activities. Any of these OEM customers may choose to develop their own
27
<PAGE>
products which could be substituted for, and thus reduce or eliminate their
purchases of, the Company's products. Any material reduction in purchases of a
controller product by any OEM customer will materially and adversely affect the
Company's business and operating results.
The OEM sales process is complex, requiring interaction with several layers
of the OEM customer's organization and extensive technical exchanges, product
demonstrations and commercial negotiations. As a result, the Company's typical
sales cycle is typically 4 to 6 months. OEM relationship commitments are
generally made at a high level within the customer's organization, and the sales
process involves broad participation across the Mylex organization, from the
Chief Executive Officer to the engineers who designed the product.
Sales to OEMs represented 69% of net sales during 1994 and 72% of net sales
in the first six months of 1995.
ALTERNATE CHANNEL SALES
The Company's alternate channel sales, or "ACS", group markets and
distributes the Company's products to system integrators, value added resellers
and commercial and industrial distributors (who also service major OEM customers
in some international markets) throughout the world. The ACS group also is
responsible for sales to OEM customers with less than $150 million in annual
sales. The Mylex ACS group also uses the services of manufacturer
representatives in the United States and Canada and employees at two remote
sales offices: one in the United Kingdom for sales activity in western Europe,
and one in Florida to serve an emerging Latin American market. Mylex administers
domestic sales and sales to eastern Europe and the Pacific Rim from its
headquarters in Fremont, California.
Mylex has distribution agreements with both commercial distributors,
including companies such as Tech Data, Merisel and Ingram Micro, and industrial
distributors, such as Avnet Corporation and Wyle Electronics. Mylex also has
agreements with various regional and specialty distributors, both domestic and
international. The Company also conducts extensive advertising in trade
publications, conducts various joint marketing activities with its distributors,
and sponsors exhibits at approximately 25 trade shows annually.
Alternate channel sales represented 31% of net sales during 1994 and 28% of
net sales in the first six months of 1995.
MANUFACTURING
Mylex organizes its manufacturing as a continuous flow process.
Manufacturing entails placing semiconductors and other electronic components on
printed circuit boards and soldering them in place through an automated process.
The Company accomplishes almost all manufacturing using Fuji Surface Mount
Technology equipment. This equipment automatically positions and attaches chips
and other components to circuit boards, increasing the speed and accuracy of the
manufacturing process.
The Company's manufacturing facility is located at its Fremont, California
headquarters. The Company manufactures approximately 60% of its products
in-house. For the remainder, the Company relies on selected local ISO 9000
certified subcontract manufacturers. Currently, the Company uses its outside
subcontractors for high-volume production activities, giving the Company the
flexibility to use its internal production capacity for new product
introductions to allow Mylex to bring those products to market at a rapid pace
and to meet unexpected short-term production demands. Despite its arrangements
with local subcontractors, however, there can be no assurance that the Company's
manufacturing resources always will be adequate to meet product demand.
Mylex performs quality control and inspection procedures throughout the
production process to ensure that products meet industry standards. Mylex
subjects all products, including those manufactured by subcontractors, to 100%
in circuit and functional testing at Mylex's facility. To continue this process,
the Company will be required to expand its in-house testing facilities and
personnel.
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<PAGE>
SUPPLIERS AND COMPONENTS
The Company's most critical components are the i960 RISC processor, the
Company's applications specific integrated circuits or "ASICs," the SCSI chip
and the DRAM SIMM memory module. The Company procures the i960 processor from
Intel and its ASICs, SCSI chip and DRAM SIMM modules from Toshiba, Symbios Logic
and FirstTech Corporation, respectively. One of the Company's OEM customers also
provides an ASIC for inclusion on its custom product, a proprietary chip that
frequently is in short supply. Other components are available from several
sources at competitive prices.
Currently, the Company is dealing with worldwide shortages of DRAM SIMM
memory modules and surface mount capacitors. DRAM SIMM modules are in heavy
demand throughout the personal computer industry, and surface mount capacitors
are in high demand for use in the manufacture of cellular telephones. The
Company is attempting to develop different design strategies which would allow
it to avoid or reduce its dependence on components for which there is a shortage
and has increased its safety stock levels to cope with these shortages.
The Company has no long-term supply contracts. There can be no assurance
that the Company will be able to obtain, on a timely basis, all the components
it requires. If the Company cannot obtain essential components as required, it
could be unable to meet demand for its products, thereby adversely affecting its
operating results. In addition, scarcity of such components could result in cost
increases and adversely affect the Company's gross margins.
The Company's need to manufacture products before receiving firm purchase
orders, combined with risks of technological obsolescence and rapid shifts in
market demand, could result in inventory devaluation or obsolescence, either of
which could have a material adverse effect on its operating results.
RESEARCH AND DEVELOPMENT
The Company conducts an active and ongoing research, development and
engineering program that focuses on the development of new products and new
features for the Company's existing products. The Company has expanded its
development activities and has added an additional 14 engineering and
development employees through August 1, 1995. The Company has budgeted for seven
more technical employees for 1995.
Products currently under development include new SCSI to SCSI controllers, a
controller optimized for multimedia and video imaging, controllers that will
provide for high speed serial interface to disk drives and a low-cost RAID
solution. In addition, in developing the next generation of its current
products, the Company will seek to improve its firmware and software to add
capabilities and performance based on marketplace needs.
As part of its product development strategy, the Company actively seeks
available, cooperative and codevelopment activities with industry leaders in the
hardware, software, silicon and system business. For example, the Company worked
on a cooperative basis with Intel to include a RAID design reference in the
i960*RP I/O processor, which Intel has announced for delivery in sample
quantities in the fourth quarter of 1995. The project, which was the culmination
of several months of cooperative work, makes it possible to implement RAID using
a processor residing on the computer system board. In June 1995, Mylex announced
that it will offer a suite of RAID software and firmware for use with the new
i960*RP I/O processors, starting delivery with Intel's initial shipments of the
processors.
The Company's ability to compete successfully will depend in large part on
its ability, on a timely and cost-effective basis, to enhance its existing
products and introduce new products with features that meet changing customer
requirements and with competitive prices. Despite testing, new products may be
affected by quality, reliability and interoperability problems, which could
result in returns, delays in collecting accounts receivable, unexpected service
or warranty expenses, reduced orders and a decline in the Company's competitive
position.
29
<PAGE>
As of August 1, 1995, the Company had 39 employees engaged in product
development.
COMPETITION
The markets for the Company's RAID controller products have been competitive
and are likely to become more competitive. Furthermore, there are numerous
companies with established reputations in the controller and personal computer
related markets, many of which have greater financial, manufacturing and
marketing resources than those of the Company.
The Company believes that its competitors include Adaptec, which recently
introduced a PCI bus based disk array controller and which has significantly
greater financial, manufacturing and marketing resources than the Company.
Unlike the Company's products, the Adaptec product does not include a processor
on the disk array board, but instead relies on the microprocessor on the system
board to accomplish the RAID function.
Some OEMs (such as Compaq and Dell) have developed their own RAID
controllers. As noted, the customers historically accounting for the most
significant volumes of the Company's sales are major OEMs, any of which could
develop their own controllers at any time rather than purchase such products
from the Company.
The Company's ability to compete successfully in either the personal
computer networking market or the RAID controller market depends upon its
ability to continue to develop products that obtain market acceptance, which can
be sold at competitive prices, while maintaining adequate gross margin levels,
and which are proven to be reliable. Although the Company believes that its RAID
controller products have certain competitive advantages, there can be no
assurance that the Company will be able to compete successfully in the future in
the market for such products or that other companies may not develop products
with greater performance or more favorable prices and thus reduce the demand for
the Company's products. Furthermore, as more companies enter the RAID controller
market, the Company expects to encounter price competition for such products
which could materially and adversely affect its gross margins.
INTELLECTUAL PROPERTY
The Company does not hold any patents applicable to its RAID controllers and
relies on a combination of trade secret, copyright and trademark laws and
employee and third party non-disclosure agreements to protect its intellectual
property. There can be no assurance that the steps taken by the Company to
protect its rights will be adequate to prevent misappropriation of the Company's
technology or to preclude competitors from developing products with features
similar to the Company's products.
Certain patents and copyrights owned by others are of critical importance to
the high technology electronic product industry segment in which the Company
operates. The Company has obtained licenses to certain technology protected by
patents and copyrights which the Company believes are adequate for the operation
of its business as presently conducted. It is likely that such licenses to
produce, use and market new technologies will continue to be important to the
Company. In the future, the Company may be required to obtain licenses from
others, and there are no assurances that such licenses would be available on
terms satisfactory to the Company.
There can be no assurance that third parties will not assert infringement or
related indemnity claims against the Company. Asserting the Company's rights or
defending against third party claims could involve substantial expense, thus
materially and adversely affecting the Company's results of operations.
LITIGATION
The Company and American Megatrends, Inc. ("AMI") entered into an agreement
on February 15, 1987, under which AMI licensed to the Company the rights to use
a basic input/output system and certain other technical information in
consideration for the payment of royalties. On May 5, 1992, AMI initiated
arbitration proceedings before the American Arbitration Association in Miami,
Florida,
30
<PAGE>
asserting a right under the agreement to audit the Company's books and records
for the purpose of calculating royalties. The Company counterclaimed against AMI
for breach of contract, failure to pay a written account, failure to pay for
goods sold and delivered, and failure to provide required information. The
arbitration includes claims and counterclaims asserted in a suit filed against
the Company on September 3, 1993, in the United States District Court in
Atlanta, Georgia, and then dismissed without prejudice in February 1995,
pursuant to a stipulation between the parties. The parties are presently
involved in preliminary conferences and discovery, and evidentiary hearings are
scheduled for late October and early November, 1995. The Company believes it has
numerous defenses to AMI's claims and intends to continue to vigorously defend
the arbitration. But there can be no assurance that the Company will ultimately
prevail. An unfavorable outcome could have an adverse effect on the Company's
business and results of operations. Neither the agreement nor the arbitration
concerns any technology used in any Mylex products manufactured after 1992.
In October 1994, the former Chief Executive Officer of the Company, Dr. M.A.
Chowdry, filed a complaint against the Company and its outside directors seeking
$5 million in compensatory damages and unspecified punitive damages, claiming
breach of an employment agreement that he entered into with the Company
approximately three months prior to his termination as the Company's Chief
Executive Officer. The Company believes it has meritorious defenses and will
vigorously defend this lawsuit. Nonetheless, given the unpredictable nature of
legal proceedings, there can be no assurance that the Company will prevail.
The Company has incurred and expects to continue to incur substantial legal
expenses in defending against the AMI arbitration and Dr. Chowdry's suit. Those
expenses may fluctuate from quarter to quarter and are likely to increase.
Although there can be no assurance given with respect to the results of
legal proceedings, based on information currently available to the Company, it
believes that it does not have potential liability with respect to these
proceedings that would have a material adverse effect on the Company.
In addition to matters discussed above, the Company is a party to routine
suits and claims arising in the ordinary course of its business which the
Company does not believe will have a material adverse effect on its business.
EMPLOYEES
As of August 1, 1995, the Company employed 155 people. The Company's
employees include 39 engineering and product development employees, 21 finance
and administration employees, 28 employees in the sales, marketing and technical
and customer support areas, and 67 manufacturing employees.
Recruitment of personnel in the computer industry is highly competitive. The
Company believes that its future success will depend in part on its ability to
attract and retain highly skilled management, sales, marketing, finance and
technical personnel. There can be no assurance of the Company's ability to
recruit the employees that it may need.
PROPERTIES
On April 1, 1991, the Company moved to its current headquarters and
manufacturing facility, located in a 73,887 square foot facility in Fremont,
California. The Company's lease on this facility extends through March 31, 1996,
and the Company has an option to renew the lease for an additional five years at
a rent equal to 95% of prevailing market rentals.
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<PAGE>
MANAGEMENT
The following table sets forth information regarding the executive officers
and all directors of the Company:
<TABLE>
<CAPTION>
NAME AGE OFFICE/POSITION
-------------------------------------- ----------- ----------------------------------------------------------
<S> <C> <C>
Al Montross 58 President and Chief Executive Officer; Director
Parveen Gupta 47 Senior Vice President and General Manager, Disk Array
Division
Colleen M. Gray 42 Vice President Finance and Chief Financial Officer
Peter Shambora 51 Vice President Sales and Marketing
Sherman W. Tom 40 Vice President Operations
Krishnakumar Rao Surugucchi 39 Vice President of Engineering
Joseph A. Schmidt 51 Vice President, Human Resources
Ismael Dudhia 60 Chairman of the Board
M. Yaqub Mirza 48 Director and Secretary
Inder M. Singh 48 Director
Richard Love 61 Director and Treasurer
Stephen McKensie 65 Director
</TABLE>
AL MONTROSS
Mr. Montross was appointed President and Chief Executive Officer of the
Company in April 1994 and became a Director in May 1994. In September 1993, Mr.
Montross joined the Company as Executive Vice President and in December 1993 was
appointed Acting President and Chief Operating Officer. From August 1992 to
September 1993, he held the position of Senior Vice President at Distributed
Processing Technology, a computer peripherals manufacturer. From 1989 to 1992,
Mr. Montross held the position of President and Chief Operating Officer at
Inacomp Computer Centers, Inc., a computer equipment and network reseller. He
currently serves as a director of American Speedy Printing Centers, Inc. Mr.
Montross holds a bachelor's degree in Economics from Siena College in New York.
PARVEEN GUPTA
Dr. Gupta joined the Company in January 1990 as Vice President, OEM Sales.
In April 1993, he was named Vice President and General Manger, Disk Array
Division. In September 1993, he was promoted to Senior Vice President and
General Manager, Disk Array Division. From May 1989 until January 1990, he
served as a general manager for HCL Limited, a computer manufacturer. From March
1988 through April 1989, he was Sales Manager and Technical Marketing Manager
for Zilog Incorporated, responsible for its microprocessor and computer
peripheral products. From 1973 to 1988, he held various marketing and
engineering positions with Visual Information Technologies, United Technologies,
Mostek Division, and Astronautics Corporation of America. He received a
doctorate in Electrical Engineering from the University of Wisconsin.
COLLEEN M. GRAY
Ms. Gray joined the Company in April 1992 as Controller and in December 1993
she was appointed Chief Financial Officer. She was appointed Vice President
Finance in December 1994. From November 1989 until August 1991, she served as
Controller of Voicemail International, Inc., a voice messaging equipment
manufacturer. From March 1987 through June 1989, she was Assistant Controller
for Alcatel Business Systems, Inc. From 1978 to 1987, she held a series of
financial management positions with ITT Courier Terminal Systems. She received a
bachelor of science degree in Accounting from Arizona State University.
32
<PAGE>
PETER SHAMBORA
Mr. Shambora joined Mylex in October 1993, as Vice President, Sales and
Marketing. From February 1992 to October 1993, he served as Vice President,
Sales and Marketing of Mass Microsystems, a storage subsystem manufacturer. From
January 1987 to February 1992, he served as Vice President, Worldwide Sales of
Storage Dimensions, a storage subsystem manufacturer. Before 1987, Mr. Shambora
held sales or marketing positions at various technology companies, including
Atasi, Four Phase Systems and Ampex. Mr. Shambora received his undergraduate
degree from San Jose State University in Industrial Management and a master's
degree from the University of Southern California in Systems Management.
SHERMAN W. TOM
Mr. Tom joined the Company in February 1994, as Vice President of
Operations. From October 1988 until July 1993, he served as Vice President of
Operations for Ultra Network Technologies, a manufacturer of high performance
network products and services. From December 1984 until August 1988, he held
positions of Director, Manufacturing Technology & Engineering Services, and
Director, Subsystems Manufacturing Group, for Silicon Graphics. Before his
employment with Silicon Graphics, from 1976 to 1984, Mr. Tom was involved in
senior management and technical positions in emerging technology companies,
including six years with Gould Inc., Biomation Division. He attended San Jose
State University, where he studied business and industrial technology.
KRISHNAKUMAR RAO SURUGUCCHI
Mr. Surugucchi joined the Company in February 1992, as Director of Hardware
Engineering. He was promoted to Vice President of Engineering in July 1994.
Before joining the Company, Mr. Surugucchi was Director of Engineering for the
Company's former subsidiary, Mylex, India, from April 1991 to February 1992.
Before that, Mr. Surugucchi was Deputy General Manager for PSI, India, an
engineering consulting firm, from November 1979 to March 1991. Mr. Surugucchi
received his undergraduate degree and master's degree in Electrical Engineering
from The Indian Institute of Technology, Bombay, India.
JOSEPH A. SCHMIDT
Mr. Schmidt joined the Company in March 1995 as its Vice President, Human
Resources. Prior to joining the Company, he served as Director of Human
Resources of Centex Telemanagement, a telecommunications outsourcing company,
from January 1994 to March 1995, and Associate Director of Human Resources for
Z.D. Exposition and Conference Company, a company in the trade show management
business, from May 1993 to December 1993. Mr. Schmidt also served as Vice
President-- Human Resources of Powerup Software Corp, a utility software
developer, from January 1991 to May 1993, and as Director of Corporate Human
Resources Planning for Diasonics, Inc., a medical equipment manufacturer, from
May 1986 through December 1990. Before May 1986, Mr. Schmidt served in human
resources positions with a variety of companies. Mr. Schmidt holds a bachelor's
degree from the University of Waterloo, Ontario, Canada, and a master's degree
in Human Resources and Manpower Development from the New School for Social
Research, New York, New York.
ISMAEL DUDHIA
Mr. Dudhia was elected a Director of the Company in July 1991 and became
Chairman in December 1993. From 1983 until October 1991, Mr. Dudhia was Chairman
of the Board and active in the management of Coolidge Bank and Trust Company,
which Mr. Dudhia owned from 1986 until 1991. In 1991, principally as a result of
the local and national recession and significant declines in the real estate
market in the Boston, Massachusetts area, Coolidge was declared insolvent and
its assets were sold by the Federal Deposit Insurance Corporation to another
bank. Mr. Dudhia received a degree of Barrister-at-Law from Lincolns Inn, an
educational institution in England. From November 1993 until April 1994, Mr.
Dudhia served as a director and Chairman of Northgate Computer Systems, Inc., a
Minnesota based computer company ("Northgate"). See "Certain Relationships and
Related Transactions."
33
<PAGE>
M. YAQUB MIRZA
Dr. Mirza has served as a Director of the Company since December 1988 and as
Secretary since February 1989. He is currently President and Chief Executive
Officer of Mar-Jac Investments, Inc., an investment and management consulting
firm that is one of the Company's shareholders. See "Principal Shareholders." He
currently serves as a Trustee and Treasurer on the Board of Trustees of Amana
Mutual Funds Trust, a mutual fund. He is also Chairman of the Board of Jugos
Concetrados, S.A. which is traded on the Santiago, Chile Stock Exchange. He also
serves as an officer of Safa Trust. Dr. Mirza holds a doctorate in Physics from
the University of Texas. From July 1992 until April 1994, Dr. Mirza served as a
member of the Board of Directors of Northgate. See "Certain Relationships and
Related Transactions."
INDER M. SINGH
Dr. Singh has served as a Director of the Company since December 1986 and
served as the Company's Treasurer from February 1989 to November 1989. Since
March 1988, Dr. Singh has been the President of Lynx Real-Time System, Inc., a
software company. From April 1985 to March 1988, he was the owner and operator
of Simran Associates, a computer consulting firm. From March 1982 to March 1985,
he served as President of Excelan, Inc. Before forming Excelan, Inc., Dr. Singh
held executive level positions with Zilog Incorporated and Amdahl Corporation.
Dr. Singh holds a doctorate in Electrical Engineering from Yale University.
RICHARD LOVE
Mr. Love has served as a Director of the Company since July 1993, and was
appointed Treasurer in January 1995. Mr. Love is currently a principal of RJL
Capital Management of Santa Barbara, an investment management firm. From 1973 to
1988, Mr. Love served as an investment counselor, then senior partner, with
Loomis, Sayles & Co. Before joining Loomis, Sayles & Co., Mr. Love held various
positions with James Capel Investment Banking from 1969 to 1973 and with Stein,
Roe & Farnham from 1959 to 1969. Mr. Love attended the Lawrenceville School and
received a bachelor's degree in Metallurgical Engineering from Cornell
University. He is an ICAA Chartered Investment Counselor. From July 1992 to
September 1993, Mr. Love served as a member of the Board of Directors of
Northgate. See "Certain Relationships and Related Transactions."
STEPHEN MCKENSIE
Mr. McKensie was appointed a Director in January 1995. Mr. McKensie is
currently Chief Executive Officer of Resource Management, a receivable financing
company. From December 1989 to January 1991, he was Senior Vice President of
Sales and Marketing and cofounder of Reply Corporation, a manufacturer of Micro
Channel personal computers. From February 1987 to September 1989, Mr. McKensie
was President of Acer America, Inc. He currently serves as the Chairman of the
Board of Microspeed Corporation, a manufacturer of personal computer input
devices. Mr. McKensie holds a bachelor's degree in Political Science from the
University of Nebraska.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1992, a group of investors purchased a majority interest in
Northgate Computer Systems, Inc. ("Northgate"). As a result of this transaction,
two current directors, Dr. Mirza and Mr. Love, were appointed to Northgate's
Board of Directors in July 1992. One former director of the Company, Dr. M.
Akram Chowdry, was appointed to the Northgate Board in September 1992 and later
became Chairman. Mr. Dudhia was appointed Chairman of Northgate's Board in
November 1993. Mr. Love resigned from the Northgate Board in September 1992,
shortly after election to the Company's Board. Dr. Chowdry resigned from the
Northgate Board in August 1993 and Dr. Mirza and Mr. Dudhia each resigned from
the Northgate Board in April 1994. The Company has no equity interest in
Northgate. However, the Company did have an ongoing business relationship with
Northgate pursuant to which Northgate had purchased products from the Company at
prices established by the Company for other third party purchasers who buy
similar quantities of products. During 1992 and the first seven months of 1993,
the Company provided commercial credit to Northgate for such purchases. For the
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<PAGE>
year ended December 31, 1994, sales to Northgate totaled $64,866 and the Company
made no sales to Northgate after May, 1994. In late 1994, certain of the
creditors of Northgate, including the Company, filed a bankruptcy petition
against Northgate, seeking its liquidation under the provisions of Chapter 7 of
the Federal Bankruptcy Act. Subsequently, the filing was converted to a
reorganization under Chapter 11 of the Act. After the filing, the Company wrote
off approximately $4,600,000, representing substantially all of its account
receivable from Northgate. The Company had fully reserved the receivable during
1993 due to the deterioration of Northgate's financial condition.
The Company, in 1994, utilized the services of Saicom, a company owned by
the wife of Dr. Parveen Gupta, an officer of the Company, for software
duplication and printing of product manuals. The Company determined, at the
time, that Saicom's prices, for comparable quantities, were competitive with
other providers of such services. All transactions were completed in the normal
course of business and the Company paid $101,717 for Saicom services in 1994.
The Company ceased using Saicom's services in 1994.
The Company and Mr. Montross, the Company's President, entered into an
employment agreement, dated January 1, 1995. The agreement will extend for a
term of four years. The basic terms provide for an annual salary of $250,000 and
a bonus based upon the Company's profitability. The terms also provide that Mr.
Montross be granted options to purchase shares of Common Stock as follows:
130,000 shares in January 1995; 130,000 shares in January 1996; and 110,000
shares in January 1997. Pursuant to the Agreement, Mr. Montross was paid a
special bonus of $75,000 in recognition of his prior contributions to the
Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, the Company will have outstanding
approximately 16,830,000 shares of Common Stock, virtually all of which,
including the 2,000,000 shares (assuming that the Underwriters do not exercise
their over-allotment option) sold in this offering, will be freely tradeable
without restriction or further registration under the Securities Act. In June
1995, the Company registered 912,081 shares of Common Stock, issued upon
conversion of its convertible debentures and the exercise of warrants, for
resale by holders of those shares. The Company believes that most of these
shares have not, as yet, been sold. In addition, the Company has reserved an
aggregate of 2,407,000 shares of Common Stock for issuance under its stock
option plans, virtually all of which will be freely tradeable upon their
issuance. Of those shares, 563,000 were subject, as of June 30, 1995, to
presently exerciseable options.
The directors and executive officers of the Company have agreed, at the
request of the Underwriters, not to sell or otherwise dispose of Common Stock in
the public market for 90 days after the date of this Prospectus without the
prior written consent of the Underwriters' Representative. Upon the expiration
of these "lock-up" agreements, such persons will have the right to sell an
aggregate of 1,389,061 shares, including shares subject to options, in the
public market.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Share by (i) each director and certain
officers of the Company; (ii) all directors and executive officers of the
Company as a group; and (iii) each person known by the Company to own more than
five percent of the Company's Common Stock. The table presents the information
both as of August 1, 1995, and as adjusted to reflect the sale of the shares
offered by this Prospectus.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHARES BENEFICALLY BENEFICALLY OWNED
OWNED --------------------------
------------------- PRIOR TO AFTER
NAME OFFERING OFFERING (1)
---------------------------------- ----------- -------------
<S> <C> <C> <C>
Al Montross....................... 102,500(2) * *
Parveen Gupta..................... 190,000(3) 1.2% 1.1%
Colleen M. Gray................... 25,000(3) * *
Peter Shambora.................... 8,500(3) * *
Sherman W. Tom.................... 17,250(4) * *
Ismael Dudhia..................... 82,491(5) * *
M. Yaqub Mirza.................... 864,251(6) 5.6% 5.0%
Inder M. Singh.................... 259,991(7) 1.7% 1.5%
Richard Love...................... 395,003(8) 2.6% 2.3%
Stephen McKensie.................. 12,501(3) * *
2,022,487(9) 13.1% 11.6%
All directors and executive
officers as a group
(12 persons).....................
</TABLE>
------------------------
* Less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) Includes 92,500 shares of Common Stock subject to options that may be
exercised on or before October 16, 1995. Does not include an option to
purchase 130,000 shares granted in January 1995 under Mr. Montross' January
1, 1995 employment agreement with the Company or a further 130,000 and
110,000 share option grant that Mr. Montross has the right to receive, under
the agreement, in January 1996 and January 1997, respectively.
(3) All of these shares of Common Stock are subject to options that are
exercisable on or before October 16, 1995.
(4) Includes 16,250 shares of Common Stock subject to options that are
exercisable on or before October 16, 1995.
(5) Includes 72,491 shares of Common Stock subject to options that are
exercisable on or before October 16, 1995.
(6) Includes 87,492 shares of Common Stock subject to options that are
exercisable on or before October 16, 1995. Also includes 276,759 shares held
in the name of Safa Trust and 375,000 shares held in the name of Mar Jac
Investments, Inc. Dr. Mirza is an officer of Safa Trust and the president
and a director of Mar Jac. As a result, Dr. Mirza may be deemed to
beneficially own all shares held by Safa Trust and Mar Jac. However, Dr.
Mirza disclaims ownership of all such shares.
(7) Includes 22,491 shares of Common Stock subject to options that are
exercisable on or before October 16, 1995.
(8) Includes 37,503 shares of Common Stock subject to options that are
exercisable on or before October 16, 1995.
(9) Includes 629,728 shares of Common Stock subject to options that are
exercisable on or before October 16, 1995, 276,759 shares of Common Stock
held in the name of Safa Trust, and 375,000 shares of Common Stock held in
the name of Mar Jac Investments, Inc.
36
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement,
the Underwriters named below, for whom Needham & Company, Inc. is acting as
representative (the "Representative"), have severally agreed to purchase from
the Company, and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite their respective
names in the table below. The Underwriting Agreement provides that the
obligations of the Underwriters to pay for and accept delivery of the shares of
Common Stock are subject to certain conditions precedent, and that the
Underwriters are committed to purchase and pay for all shares if any shares are
purchased.
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
--------------------------------------------------------------------- -------------
<S> <C>
Needham & Company, Inc...............................................
-------------
Total..........................................................
-------------
-------------
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the offering price
set forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow,
a concession to certain other dealers (who may include the Underwriters) not in
excess of $ per share. After the offering to the public, the offering
price and other selling terms may be changed by the Representative.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 300,000 shares of Common Stock at the public offering price per share, less
the underwriting discounts and commissions, set forth on the cover page of this
Prospectus. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. To the extent the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Common Stock to be purchased by such Underwriter, as shown in the
above table, bears to the total shown.
In connection with this offering, certain of the Underwriters and selling
group members may engage in passive market marking transactions in the Common
Stock of the Company in the Nasdaq National Market immediately prior to the
commencement of sales in this offering, in accordance with Rule 10b-6A under the
Exchange Act. Passive market making consists of displaying bids in the Nasdaq
National Market which are limited by the bid prices of independent market makers
and making purchases limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are generally limited
to a specified percentage of the passive market
37
<PAGE>
maker's average daily trading volume in the Company's Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock of the
Company at a level above that which might otherwise prevail in the open market
and, if commenced, may be discontinued at any time.
In the Underwriting Agreement, the Company and the Selling Shareholders have
agreed to indemnify the Underwriters against certain liabilities that may be
incurred in connection with this offering, including liabilities under the
Securities Act, or to contribute payments that the Underwriters may be required
to make in respect thereof.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Company and its directors and executive officers have agreed that,
without the prior written consent of the Representative, they will not directly
or indirectly offer to sell, sell, or otherwise dispose of shares of Common
Stock or any securities convertible or exchangeable therefor, for a period of 90
days after the date of this Prospectus, subject to certain limited exceptions.
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus will
be passed upon for the Company and the Selling Shareholders by Brown & Bain,
Palo Alto, California, and certain matters will be passed upon for the
underwriters by Gray Cary Ware & Freidenrich, Palo Alto, California.
EXPERTS
The annual consolidated financial statements, and the related financial
statement schedule, of Mylex included and incorporated by reference in this
Prospectus have been audited by KPMG Peat Marwick LLP, independent auditors, as
stated in their reports, which are included and incorporated by reference in
this Prospectus. Such financial statements and schedule are included and
incorporated herein in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits, referred to herein as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the shares being offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement, which may be obtained from the Commission at its
principal office in Washington, D.C. upon payment of the charges prescribed by
the Commission. Statements contained in this Prospectus or in any document
incorporated herein by reference as to the contents of any contract or document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
38
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder. In accordance therewith, the Company files
periodic reports, proxy and information statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
and information statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the following regional offices of the Commission: New York Regional
Office, Seven World Trade Center, New York, New York 10048 and Chicago Regional
Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60621-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Common Stock is quoted on the Nasdaq National Market.
Reports, proxy and information statements and other information statements and
other information described above may be inspected and copied at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission are incorporated into this
Prospectus by reference:
(1) The Company's Annual Report on Form 10-K for the year ended December 31,
1994, as amended;
(2) The Company's Quarterly Report on Forms 10-Q for the quarters ended
March 31 and June 30, 1995;
(3) The Company's Proxy Statement for its Annual Meeting of Shareholders
held on April 24, 1995;
(4) The description of the Company's Common Stock contained in Form 8-A
declared effective April 12, 1985; and
(5) All other reports and other documents filed by the Company since
December 31, 1994, pursuant to Section 13(a) or 15(d) of the Exchange
Act.
All documents filed by the Company after the date of this Prospectus
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering, shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of any of the Common Stock, to whom a copy of this Prospectus
has been delivered, upon the written or oral request of such person, a copy of
any and all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus, except that exhibits to such
documents shall not be provided unless they are specifically incorporated by
reference into such documents. Requests for such copies of any document should
be directed to: Mylex Corporation, 34551 Ardenwood Boulevard, Fremont,
California 94555, Attention: Chief Financial Officer, telephone: (510) 796-6100.
39
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
INDEX
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Financial Statements:
Balance Sheets as of December 31, 1993 and 1994, and
June 30, 1995 (Unaudited).............................................................................. F-3
Statements of Operations,
Years Ended December 31, 1992, 1993, and 1994, and Six Months
Ended June 30, 1994 and 1995 (Unaudited).............................................................. F-4
Statements of Stockholders' Equity,
Years Ended December 31, 1992, 1993, and 1994, and Six Months
Ended June 30, 1995 (Unaudited)....................................................................... F-5
Statements of Cash Flows,
Years Ended December 31, 1992, 1993, and 1994, and Six Months
Ended June 30, 1994 and 1995 (Unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mylex Corporation:
We have audited the accompanying consolidated balance sheets of Mylex
Corporation and subsidiary as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mylex
Corporation and subsidiary as of December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
San Jose, California
January 30, 1995
F-2
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
--------- --------- JUNE 30,
1995
-----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and equivalents....................................................... $ 3,253 $ 3,866 $ 2,242
Accounts receivable, including trade accounts receivable from affiliate of
$4,633 in 1993............................................................ 9,424 11,321 15,623
Allowance for doubtful accounts............................................ (5,403) (532) (509)
--------- --------- -----------
Net accounts receivable.................................................. 4,021 10,789 15,114
Inventories................................................................ 4,631 10,237 18,868
Prepaid expenses and other current assets.................................. 622 775 1,114
--------- --------- -----------
Total current assets..................................................... 12,527 25,667 37,338
Property and equipment, net.................................................. 2,001 1,579 1,499
Other assets................................................................. 112 112 112
--------- --------- -----------
$ 14,640 $ 27,358 $ 38,949
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 2,479 $ 3,187 $ 9,121
Accrued liabilities........................................................ 1,377 3,151 3,006
Line of credit payable to bank............................................. 2,500 2,350 2,500
Current portion of long-term capital lease obligations..................... 385 417 359
Convertible subordinated debentures........................................ 2,325 -- --
--------- --------- -----------
Total current liabilities................................................ 9,066 9,105 14,986
Long-term capital lease obligations.......................................... 910 493 343
Commitments and contingencies................................................
Stockholders' equity:
Common stock, $0.01 par value; 25,000,000 shares authorized; 13,036,000,
14,580,000, and 14,826,000 shares issued and outstanding in 1993, 1994,
and 1995, respectively.................................................... 130 146 148
Additional paid-in capital................................................. 8,149 13,526 14,627
Notes receivable from stockholders......................................... (194) -- --
Retained earnings (deficit)................................................ (3,421) 4,088 8,845
--------- --------- -----------
Total stockholders' equity............................................... 4,664 17,760 23,620
--------- --------- -----------
$ 14,640 $ 27,358 $ 38,949
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales, including sales to affiliate of $18,703 and
$5,020 in 1992 and 1993, respectively................. $ 48,769 $ 45,234 $ 62,513 $ 27,775 $ 39,216
Cost of sales.......................................... 42,112 36,456 40,322 18,783 24,537
--------- --------- --------- --------- ---------
Gross profit....................................... 6,657 8,778 22,191 8,992 14,679
Operating expenses:
Selling and marketing................................ 3,370 2,962 3,592 1,618 2,582
Research and development............................. 2,824 2,474 3,332 1,566 2,078
General and administrative........................... 2,515 2,690 4,643 2,175 2,583
Provision for uncollectible accounts receivable...... 1,956 4,676 -- -- --
--------- --------- --------- --------- ---------
Operating income (loss)............................ (4,008) (4,024) 10,624 3,633 7,436
Other income (expense)
Interest income...................................... 48 103 52 37 19
Interest expense..................................... (522) (475) (512) (265) (85)
Other income (expense)............................... 21 (94) (103) (42) (51)
--------- --------- --------- --------- ---------
Income (loss) before income tax expense
(benefit)......................................... (4,461) (4,490) 10,061 3,363 7,319
Income tax expense (benefit)........................... (1,461) (46) 2,552 841 2,562
--------- --------- --------- --------- ---------
Net income (loss).................................. $ (3,000) $ (4,444) $ 7,509 $ 2,522 $ 4,757
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (loss) per share:
Primary.............................................. $ (.25) $ (.35) $ .53 $ .18 $ .31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fully diluted........................................ $ (.25) $ (.35) $ .51 $ .18 $ .30
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of shares:
Primary.............................................. 12,103 12,740 14,208 13,975 15,578
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Fully diluted........................................ 12,103 12,740 15,247 14,591 15,783
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTES RETAINED TOTAL
------------------------- PAID-IN RECEIVABLE FROM EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT) EQUITY
------------ ----------- ----------- ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1991............. 11,612,000 $ 116 $ 5,921 $ -- $ 4,023 $ 10,060
Common stock issued for cash upon exercise of
options and warrants........................ 206,000 2 306 -- -- 308
Subordinated debentures converted............ 595,000 6 589 -- -- 595
Net loss..................................... -- -- -- -- (3,000) (3,000)
------------ ----- ----------- ------ ----------- ------------
Balances as of December 31, 1992............. 12,413,000 124 6,816 -- 1,023 7,963
Common stock issued for cash and notes
receivable from stockholders upon exercise
of options.................................. 442,000 4 633 (194) -- 443
Subordinated debentures converted............ 181,000 2 700 -- -- 702
Net loss..................................... -- -- -- -- (4,444) (4,444)
------------ ----- ----------- ------ ----------- ------------
Balances as of December 31, 1993............. 13,036,000 130 8,149 (194) (3,421) 4,664
Common stock issued for cash upon exercise of
options, net of 294,000 shares surrendered
at exercise................................. 863,000 9 494 -- -- 503
Subordinated debentures converted............ 681,000 7 2,631 -- -- 2,638
Tax benefit from disqualifying dispositions
of stock options............................ -- -- 2,252 -- -- 2,252
Notes receivable from stockholders........... -- -- -- 194 -- 194
Net income................................... -- -- -- -- 7,509 7,509
------------ ----- ----------- ------ ----------- ------------
Balances as of December 31, 1994............. 14,580,000 146 13,526 -- 4,088 17,760
Common stock issued for cash upon exercise of
options and warrants (unaudited)............ 246,000 2 726 -- -- 728
Tax benefit from disqualifying dispositions
of stock options (unaudited)................ -- -- 375 -- -- 375
Net income (unaudited)....................... -- -- -- -- 4,757 4,757
------------ ----- ----------- ------ ----------- ------------
Balances as of June 30, 1995 (unaudited)..... 14,826,000 $ 148 $ 14,627 $ -- $ 8,845 $ 23,620
------------ ----- ----------- ------ ----------- ------------
------------ ----- ----------- ------ ----------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1992 1993 1994 1994 1995
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ (3,000) $ (4,444) $ 7,509 $ 2,522 $ 4,757
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Tax benefit related to disqualifying dispositions of stock
options...................................................... -- -- 2,252 437 375
Depreciation and amortization................................. 849 987 1,192 557 475
Provision for uncollectible accounts receivable............... 1,956 4,676 -- -- --
Interest expense on convertible debentures converted to common
stock........................................................ -- 27 313 29 --
Changes in operating assets and liabilities:
Accounts receivable......................................... (3,678) (197) (6,768) (3,840) (4,325)
Inventories................................................. (1,430) 2,469 (5,606) (1,154) (8,631)
Prepaid expenses and other current assets................... 508 10 (153) 38 (339)
Tax refund receivable....................................... 199 2,807 -- -- --
Accounts payable............................................ 5,441 (5,737) 708 2,020 5,934
Accrued liabilities......................................... (21) (131) 1,774 1,683 (145)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities....... 824 467 1,221 2,292 (1,899)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures............................................ (487) (144) (770) (437) (395)
Change in other assets.......................................... (25) 14 -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing activities..................... (512) (130) (770) (437) (395)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Repayments against line of credit, net of borrowings............ (1,136) (1,864) (150) (241) 150
Proceeds from issuance of convertible subordinated debentures... -- 3,000 300 -- --
Repayment of convertible subordinated debentures................ -- -- (300) -- --
Repayment of capital lease obligations.......................... (330) (348) (385) (188) (208)
Proceeds from exercise of stock options and warrants............ 308 443 503 218 728
Repayment of notes receivable from stockholders................. -- -- 194 194 --
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities....... (1,158) 1,231 162 (17) 670
--------- --------- --------- --------- ---------
Net change in cash and equivalents................................ (846) 1,568 613 1,838 (1,624)
Cash and equivalents at beginning of year......................... 2,531 1,685 3,253 3,253 3,866
--------- --------- --------- --------- ---------
Cash and equivalents at end of year............................... $ 1,685 $ 3,253 $ 3,866 $ 5,091 $ 2,242
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash paid during the year:
Interest........................................................ $ 522 $ 363 $ 267 $ 146 $ 83
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income taxes.................................................... $ 1 $ 1 $ 594 $ 1 $ 2,588
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosure of noncash financing and investing
activities:
Conversion of subordinated debentures....................... $ 595 $ 702 $ 2,638 $ 454 $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1992, 1993, AND 1994
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The accompanying consolidated financial statements include
the accounts of Mylex Corporation (the Company or Mylex) and its wholly owned
subsidiary. All material intercompany accounts have been eliminated in the
consolidated financial statements.
INDUSTRY SEGMENT -- Mylex designs, produces, markets, and supports
high-performance storage management electronics products for both PC and non-PC
servers and workstation as well as system boards for personal computers, and
operates in this one industry segment.
REVENUE RECOGNITION -- Net sales are recognized upon shipment to customers,
including sales made to distributors under agreements allowing limited right of
return and price protection on merchandise unsold by the distributors. For sales
made to distributors, reserves are provided for expected returns and price
protection at the time of shipment.
CASH EQUIVALENTS -- Cash equivalents include all highly liquid investments,
consisting principally of money market accounts, purchased with a maturity of
three months or less.
INVENTORIES -- Inventories are valued at the lower of cost (first in, first
out) or market.
PROPERTY AND EQUIPMENT -- Property and equipment are carried at cost. Assets
recorded under capital leases are stated at the present value of future minimum
lease payments at the inception of the lease. Depreciation on property and
equipment is calculated on the straight-line method over the estimated useful
life of the asset (generally five years). Assets recorded under capital leases
are amortized using the straight-line method over the shorter of the lease term
or estimated useful life of the asset.
INCOME TAXES -- The Company accounts for income taxes using the asset and
liability method whereby deferred assets and liabilities are recorded for
differences between the book and tax carrying amounts of balance sheet items.
Deferred liabilities or assets at the end of each period are determined using
the tax rate expected to be in effect when the taxes are actually paid or
recovered. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits that are not expected to be realized.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
EARNINGS (LOSS) PER SHARE DATA -- Primary earnings (loss) per share is based
on the weighted average common and common equivalent shares, if dilutive,
outstanding each year. Common equivalent shares consist of shares issuable upon
the exercise of stock options and warrants, except where antidilutive. In
determining fully diluted earnings (loss) per share, convertible subordinated
debentures, if dilutive, are included in outstanding shares using the "if
converted" method.
(2) RELATED PARTY TRANSACTIONS
On July 17, 1992, a group of investors, consisting of certain directors and
several officers and stockholders of the Company, purchased a majority interest
in Northgate Computer Systems, Inc. (Northgate). As a result of this investment,
two directors and one officer of the Company have served on the Northgate Board
of Directors. The Company has no direct equity interest in Northgate.
As of December 31, 1993, $4,633,000 of the Company's gross accounts
receivable were attributable to Northgate. These receivables were fully
reserved. The reserve was increased to 100% of the outstanding balance as a
result of decreased payments from Northgate during the third quarter of 1993 and
the continued deterioration during 1993 of Northgate's financial condition.
Subsequent to
F-7
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
(2) RELATED PARTY TRANSACTIONS (CONTINUED)
August 1993, sales to Northgate have been minimal and on a cash-in-advance
basis. During 1994, all outstanding receivables from Northgate were written off
against the reserve. Northgate filed for bankruptcy in 1994.
(3) INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
--------- --------- JUNE 30,
1995
-----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials....................................................... $ 1,495 $ 6,924 $ 11,052
Work in process..................................................... 2,683 2,263 5,748
Finished goods...................................................... 453 1,050 2,068
--------- --------- -----------
$ 4,631 $ 10,237 $ 18,868
--------- --------- -----------
--------- --------- -----------
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
--------- --------- JUNE 30,
1995
-----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment............................................... $ 3,656 $ 4,122 $ 4,308
Furniture and fixtures................................................ 511 656 661
Computer equipment and software....................................... 1,213 1,372 1,550
--------- --------- -----------
5,380 6,150 6,519
Less accumulated depreciation and amortization........................ 3,379 4,571 5,020
--------- --------- -----------
$ 2,001 $ 1,579 $ 1,499
--------- --------- -----------
--------- --------- -----------
</TABLE>
As of December 31, 1994, equipment recorded under capital leases was
$2,079,000 and accumulated amortization thereon was $1,648,000.
(5) ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
--------- --------- JUNE 30,
1995
-----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued compensation and benefits..................................... $ 400 $ 1,234 $ 1,117
Accrued legal......................................................... -- 855 855
Other................................................................. 977 1,062 1,034
--------- --------- -----------
$ 1,377 $ 3,151 $ 3,006
--------- --------- -----------
--------- --------- -----------
</TABLE>
(6) LINE OF CREDIT
The Company has a $6,000,000 line of credit expiring in May 1995 which bears
interest at the bank's prime rate plus 0.75% (8.5% as of December 31, 1994).
Borrowings under this line of credit are limited to 80% of eligible accounts
receivable and are secured by the Company's unencumbered assets.
F-8
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
(6) LINE OF CREDIT (CONTINUED)
The agreement requires the Company to maintain a $500,000 compensating balance
and contains covenants that include the maintenance of specific financial ratios
and prohibitions on dividend payments, stock repurchases, and additional
indebtedness without the prior consent of the bank. As of December 31, 1994, the
Company was in compliance with these covenants, except for the covenant related
to inventory turns, which was waived by the bank. The compensating balance is
not legally restricted. See Note 12.
(7) INCOME TAXES
Income taxes for the years ended December 31, 1992, 1993, and 1994, were
comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal............................................................... $ (1,927) $ (472) $ 911
State................................................................. 1 1 27
--------- --------- ---------
Total current....................................................... (1,926) (471) 938
--------- --------- ---------
Deferred tax expense (benefit):
Federal............................................................... 465 425 (638)
State................................................................. -- -- --
--------- --------- ---------
Total deferred...................................................... 465 425 (638)
--------- --------- ---------
Charge in lieu of taxes attributable to employer stock
option plans:
Current year.......................................................... -- -- 1,222
Prior years........................................................... -- -- 1,030
--------- --------- ---------
Total charge........................................................ -- -- 2,252
--------- --------- ---------
Total tax expense (benefit)......................................... $ (1,461) $ (46) $ 2,552
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-9
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
(7) INCOME TAXES (CONTINUED)
The reconciliation between the amount computed by applying the federal
statutory rate of 34% to income (loss) before income taxes and the actual income
tax expense (benefit) were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax, at 34%................................... $ (1,517) $ (1,527) $ 3,421
State income tax, net of federal tax benefit........................... 1 (275) 102
Foreign sales corporation benefit...................................... -- -- (41)
Credits available from application of loss carryback................... -- (335) --
Change in the beginning of the year valuation allowance, including
losses and credits for which no benefit has been recognized........... -- 2,081 (1,986)
Credit to paid-in capital.............................................. -- -- 1,030
Other, net............................................................. 55 10 26
--------- --------- ---------
Total tax expense (benefit).......................................... $ (1,461) $ (46) $ 2,552
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities is presented
below (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable valuation reserves.......................................... $ 1,800 $ 214
Lower of cost or market adjustments to inventory and other tax related
adjustments.................................................................... 190 145
Reserves and accruals for reporting purposes not taken for tax purposes......... 220 1,059
Other credits................................................................... 600 --
State tax benefit, including net operating loss carryovers, net of federal tax
reduction...................................................................... 675 --
Valuation allowance............................................................. (3,285) (1,299)
--------- ---------
Net deferred tax assets....................................................... 200 119
--------- ---------
Deferred tax liabilities:
Depreciation and amortization................................................... (200) (119)
--------- ---------
Net deferred tax liabilities.................................................. (200) (119)
--------- ---------
Net deferred tax assets....................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The net change in the valuation allowance for the year ended December 31,
1994, was a decrease of $956,000, after adjustment for approximately $1,030,000
realized benefit from prior years' disqualifying disposition of stock options
credited to paid-in capital. Management believes sufficient uncertainty exists
regarding the realizability of these net deferred tax assets such that a
valuation allowance is required.
F-10
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1992, 1993, and 1994
(Information as of June 30, 1995 and for the six-month
periods ended June 30, 1994 and 1995 is unaudited)
(7) INCOME TAXES (CONTINUED)
As of December 31, 1994, for California tax purposes, the Company had net
operating loss carryforwards of approximately $975,000, which expire in 1997
through 1998. The Company had no loss carryforwards for federal tax purposes.
The difference between the net operating loss carryforwards for federal income
tax purposes and for California income tax purposes results from limitations on
the carryback of losses in California.
(8) CONVERTIBLE SUBORDINATED DEBENTURES
During 1993, the Company sold $3,000,000 of 8% convertible debentures
through a private placement. The debentures paid interest semiannually and
provided for conversion of the principal and any outstanding accrued interest
into common stock at conversion prices ranging from $3.875 to $5.00 per share.
Members of the Company's Board of Directors purchased $775,000 of the
debentures, and, during 1993, $675,000 of the debentures held by Board members,
along with $27,300 of related accrued interest, were converted to common stock.
Of the $2,325,000 debentures outstanding as of December 31, 1993, $300,000
were due December 31, 1993, and $2,025,000 were due at the earlier of December
31, 1994, or the closing date of a public offering of stock or debt pursuant to
which the Company receives proceeds of at least $10,000,000. The debentures due
December 31, 1993, were repaid in January 1994.
During 1994, an additional $300,000 of 8% convertible debentures were issued
to replace those repaid in January 1994. These debentures and the $2,025,000
outstanding as of December 31, 1993, along with $313,000 of related accrued
interest, were converted to common stock during 1994 at a rate of $3.875 per
share.
With respect to common stock issued upon conversion of the debentures, the
holders may require, at the Company's expense, filing of a registration
statement under the Securities Act of 1993 covering the securities issued upon
conversion. See Note 12.
(9) COMMITMENTS AND CONTINGENCIES
Future minimum payments under leases as of December 31, 1994, will be as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
1995.................................................................. $ 493 $ 631
1996.................................................................. 522 211
--------- -----
Total future minimum lease payments..................................... 1,015 $ 842
-----
-----
Less amount representing interest....................................... 105
---------
Present value of capital lease obligations.............................. 910
Less current portion.................................................... 417
---------
Noncurrent portion of capital lease obligations......................... $ 493
---------
---------
</TABLE>
The Company leases its facility under a noncancelable lease agreement that
expires in 1996 and provides for renewal options. Under this lease, Mylex is
required to pay property taxes, insurance, and normal maintenance costs.
Rent expense was $768,000, $824,000, and $743,000 in 1992, 1993, and 1994,
respectively.
F-11
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is party to an action that alleges breach of contract and other
claims relating to a royalty agreement entered into by the Company. The amount
of damages sought is unspecified. The Company has certain defenses and
counterclaims and intends to defend this action vigorously.
The former chief executive officer of the Company filed a complaint against
the Company and its outside directors in October 1994, claiming breach of his
employment agreement. The claim is for compensatory and consequential damages of
at least $5 million. The Company believes it has meritorious defenses and will
vigorously defend this lawsuit.
The results of legal proceedings cannot be predicted with certainty;
however, in the opinion of management, the Company does not have a potential
liability in connection with these and any other proceedings that would have a
material adverse effect on the Company.
(10) STOCKHOLDERS' EQUITY
Mylex's 1983 and 1993 incentive and nonqualified stock option plans provide
for the grant, by the Board of Directors, of stock options to employees,
officers, consultants, and outside directors at an exercise price per share not
less than the fair market value on the date of grant. Incentive stock options
granted under the 1983 plan generally vest ratably over 3 years from date of
grant and expire 10 years from date of grant. Nonqualified stock options begin
vesting immediately and expire 5 years from date of grant. Options granted under
the 1993 plan generally vest ratably over 4 years from the date of grant and
expire 10 years from the date of grant.
F-12
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
(10) STOCKHOLDERS' EQUITY (CONTINUED)
The 1983 and 1993 plans also provide for automatic grants to outside
directors of options to purchase 50,000 common shares upon election to the Board
of Directors. A summary of stock option transactions under the plans are as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
SHARES ---------------------------------
AVAILABLE NUMBER
FOR GRANT OF SHARES EXERCISE PRICE
------------ ------------ -------------------
<S> <C> <C> <C>
Balances as of December 31, 1991................................ 42,000 2,386,000 $1.125 - 5.06
Increases in number of shares available for grant............. 750,000 -- --
Granted....................................................... (300,000) 300,000 4.25 - 4.75
Exercised..................................................... -- (163,000) 1.125 - 2.75
Canceled...................................................... 320,000 (320,000) 1.125 - 4.75
------------ ------------
Balances as of December 31, 1992................................ 812,000 2,203,000 1.15 - 5.06
Increases in number of shares available for grant............. 750,000 -- --
Granted....................................................... (1,168,000) 1,168,000 3.87 - 7.00
Exercised..................................................... -- (442,000) 1.15 - 4.63
Canceled...................................................... 29,000 (29,000) 2.75 - 4.63
Shares expiring with 1983 plan................................ (404,000) -- --
------------ ------------
Balances as of December 31, 1993................................ 19,000 2,900,000 1.25 - 7.00
Increases in number of shares available for grant............. 625,000 -- --
Granted....................................................... (566,000) 566,000 4.63 - 10.25
Exercised..................................................... -- (1,157,000) 1.25 - 4.13
Canceled under 1983 plan...................................... -- (491,000) 1.50 - 5.75
Canceled under 1993 plan...................................... 41,000 (41,000) 3.88 - 10.25
------------ ------------
Balances as of December 31, 1994................................ 119,000 1,777,000 1.56 - 10.25
Increases in number of shares available for grant
(unaudited).................................................. 700,000 -- --
Granted (unaudited)........................................... (424,000) 424,000 10.50 - 10.63
Exercised (unaudited)......................................... -- (188,000) 1.56 - 5.75
Canceled under 1983 plan (unaudited).......................... -- (1,000) 4.13
Canceled under 1993 plan (unaudited).......................... 51,000 (51,000) 5.00 - 10.25
------------ ------------
Balances as of June 30, 1995 (unaudited)........................ 446,000 1,961,000 1.56 - 10.63
------------ ------------
------------ ------------
Exercisable as of December 31, 1994............................. 553,000 1.56 - 5.06
------------
------------
Exercisable as of June 30, 1995 (unaudited)..................... 563,000 1.56 - 5.06
------------
------------
</TABLE>
As of December 31, 1994, the Company had warrants outstanding for the
purchase of 7,500 shares at $1.125 per share.
(11) CONCENTRATION OF CREDIT RISK AND SALES TO MAJOR CUSTOMERS
The Company sells its products primarily to original equipment manufacturers
and distributors in the personal computer industry. The Company generally
requires no collateral on trade receivables,
F-13
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1992, 1993, AND 1994
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
(11) CONCENTRATION OF CREDIT RISK AND SALES TO MAJOR CUSTOMERS (CONTINUED)
although certain export sales are guaranteed by letters of credit. As described
in Note 2, the Company's largest customer in 1992, Northgate, was an affiliate.
Receivables from Northgate were fully reserved during 1993 due to the
deterioration of Northgate's financial condition. The receivable from Northgate
was written off during 1994 as a result of Northgate's filing for bankruptcy.
Sales to major customers, as a percentage of net sales, and the amount
receivable (in thousands) as of December 31, 1994, from such customers were as
follows:
<TABLE>
<CAPTION>
GROSS AMOUNT RECEIVABLE
--------------------------
DECEMBER 31,
CUSTOMER 1992 1993 1994 1994
--------------------------------------- ----- ----- ----- SIX-MONTHS -------------
ENDED
JUNE 30, 1995 JUNE 30,
--------------- 1995
(UNAUDITED) -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
A...................................... -- 18% 22% 31% 1,426 5,831
B...................................... -- -- 17% 15% 1,788 700
C...................................... -- 10% 14% 10% 1,018 1,783
D...................................... -- 3% 5% 1% 1,631 1,106
E...................................... 1% 10% 4% -- 95 7
Northgate.............................. 38% 11% -- -- -- --
</TABLE>
Export sales, principally to Europe, comprised 29%, 21%, and 16% of net
sales in 1992, 1993, and 1994, respectively.
(12) SUBSEQUENT EVENTS (UNAUDITED)
CREDIT LINE AGREEMENT
Effective May 15, 1995, the Company renegotiated its revolving line of
credit, described at Note 6, with its bank. The renegotiated line of credit
expires May 15, 1996, bears interest at the Bank's prime rate, is secured by all
of the Company's assets and is subject to an overall borrowing limit of $8
million. Under the agreement, the Company must achieve certain financial results
and maintain compliance with certain financial covenants. The Company was in
compliance with these covenants as of June 30, 1995.
REGISTRATION OF COMMON STOCK
In June, 1995 the Company filed a registration statement under the
Securities Act of 1993 covering the 862,000 shares of common stock issued during
1993 and 1994 upon conversion of the convertible subordinated debentures
described at Note 8.
F-14
<PAGE>
DESCRIPTION APPENDIX
1. The table in page 19 illustrates the functions of RAID Levels 0,1,3 and 5
and summarizes the benefits offered by each level.
2. The diagram on page 22 depicts a Mylex RAID controller and illustrates the
command flow, typically associated with the reading of stored data.
3. The diagram on page 23 depicts a Mylex RAID controller and illustrates the
command flow typically associated with the writing of data to storage.
4. The diagram on the gatefold depicts a Mylex RAID controller and explains how
different levels of RAID function.
5. The inside front cover contains a picture of a Mylex DAC960PD RAID
controller.
<PAGE>
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR SINCE THE
DATES AS OF WHICH INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary................................ 3
Risk Factors...................................... 5
Use of Proceeds................................... 9
Price Range of Common Stock....................... 9
Dividend Policy................................... 9
Capitalization.................................... 10
Selected Historical Financial Data................ 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 12
Business.......................................... 18
Management........................................ 32
Certain Relationships and Related Transactions.... 34
Shares Eligible for Future Sale................... 35
Principal Shareholders............................ 36
Underwriting...................................... 37
Legal Matters..................................... 38
Experts........................................... 38
Additional Information............................ 38
Available Information............................. 39
Information Incorporated by Reference............. 39
Index to Consolidated Financial Statements........ F-1
</TABLE>
2,000,000 Shares
[LOGO]
CORPORATION
Common Stock
--------------
PROSPECTUS
--------------
Needham & Company, Inc.
------------
, 1995
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which (other
than underwriting discounts and commissions) will be paid by the Company, in
connection with the sale and distribution of the securities being registered.
All of the amounts shown, except the Securities and Exchange Commission
registration fee, the NASDAQ NMS additional shares listing application fee and
the NASD filing fee, are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee...................... $ 12,048
NASD filing fee.......................................................... 3,994
NASDAQ NMS additional shares listing application fee..................... 17,500
Printing expenses........................................................ 85,000
Legal fees and expenses.................................................. 95,000
Accounting fees and expenses............................................. 90,000
Blue Sky fees and expenses (including legal fees)........................ 9,000
Transfer agent and registrar fees and expenses........................... 5,000
Miscellaneous expenses................................................... 32,458
---------
Total................................................................ $ 350,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company provide that any officer, director, employee or
agent who was or is made a party or is threatened to be made a party in any
action, suit or proceeding, civil, criminal, administrative or investigative,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while serving
as a director, officer, employee or agent, shall be indemnified and held
harmless by the Company to the fullest extent authorized by the Florida 1989
Business Corporation Act (the "Florida Act") against all expenses, liabilities
and losses (including all expenses, judgments, fines, settlements) reasonably
incurred or suffered by such person in connection therewith. Section 607.0850 of
the Florida Act authorizes a court to award, or a corporation's Board of
Directors to grant, indemnity to directors and officers in terms sufficiently
broad to permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Florida Act.
These indemnification provisions may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
(including reimbursement of expenses incurred) arising under the Securities Act
of 1933, as amended (the "Securities Act").
The Company currently has in place directors and officers liability
insurance which, subject to customary exclusions and specified limits, insures
its directors and officers against certain losses and expenses suffered or
incurred by such persons as a result of serving in such capacity.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification of the
Company by the Underwriters for certain liabilities, including liabilities
arising under the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- ----------------------------------------------------------------------------------------------
<C> <S>
1.1 (a) Form of Underwriting Agreement
3.1 (c) Articles of Incorporation of Registrant, as amended
3.2 (c) Bylaws of Registrant, as amended
5.1 (a) Opinion and Consent of Brown & Bain
10.10 (b) 1983 Incentive Stock Option Plan of Registrant, as amended and restated
10.11 (g) 1993 Stock Option Plan, as amended
10.20 (b) Lease Agreement of premises at 34551 Ardenwood Boulevard, dated March 6, 1991
10.21 (f) Security and Loan Agreement, dated May 15, 1995, with Imperial Bank
10.25 (d) Digital Equipment Corporation Basic Order Agreement
10.28 (b) License Agreement with IBM, effective December 1, 1990
10.40 (e) 401(k) Plan, Target Investment Advisory Agreement and Standardized Adoption Agreement
10.41 (a) Employment Agreement, dated as of January 1, 1995, with Al Montross
23.1 Consent of KPMG Peat Marwick LLP (Page II-5)
23.2 Consent of Brown & Bain (included in Exhibit 5.1)
24.1 Power of Attorney (Page II-4)
</TABLE>
(b) Financial Statement Schedules None
------------------------
(a) Filed herewith
(b) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992, Commission File No. 0-13381, and incorporated
herein by reference
(c) Filed as an exhibit to Registration Statement on Form S-8 and Form 3, on
July 24, 1989, No. 33-30104, and incorporated herein by reference
(d) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q, for the
period ended September 30, 1993, and incorporated herein by reference
(e) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, Commission File 0-13381, and incorporated herein by
reference
(f) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q, for
period ended June 30, 1994, and incorporated herein by reference
(g) Filed as an exhibit to Registration Statement on Form S-8, which was filed
with the Commission on August 17, 1995, and incorporated by reference herein
All other schedules are omitted as the required information is inapplicable
or is presented in the consolidated financial statements or related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
II-2
<PAGE>
otherwise, the Registrant has been advised that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
persons 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 appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that (1) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of Prospectus filed as part of this Registration Statement in reliance
upon 430A and contained in a form of Prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective,
and (2) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Mylex Corporation, a corporation organized and existing under the laws of the
State of Florida, certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fremont, State of California, on this 17th day
of August, 1995.
MYLEX CORPORATION
By: /s/ AL MONTROSS
-----------------------------------
Al Montross
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Al Montross and Colleen Gray, and each of them,
his true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution, for him and her, respectively, in any and all
capacities, to sign any and all amendments to this Registration Statement and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that either of said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------------ ------------------------------------------ -------------------
<C> <S> <C>
/s/ AL MONTROSS
-------------------------------------- President and Chief Executive Officer and
Al Montross Director August 17, 1995
/s/ COLLEEN GRAY
-------------------------------------- Chief Financial Officer (Principal
Colleen Gray Financial and Accounting Officer) August 17, 1995
/s/ ISMAEL DUDHIA
--------------------------------------
Ismael Dudhia Chairman of the Board August 17, 1995
/s/ M. YAQUB MIRZA
--------------------------------------
M. Yaqub Mirza Director August 17, 1995
--------------------------------------
Inder M. Singh Director August , 1995
/s/ RICHARD LOVE
--------------------------------------
Richard Love Director August 17, 1995
/s/ STEPHEN MCKENSIE
--------------------------------------
Stephen McKensie Director August 17, 1995
</TABLE>
II-4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Mylex Corporation:
We consent to the use of our reports included herein and incorporated herein by
reference and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG Peat Marwick LLP
San Jose, California
August 15, 1995
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- ----------------------------------------------------------------------------------------------
<C> <S>
1.1 (a) Form of Underwriting Agreement
3.1 (c) Articles of Incorporation of Registrant, as amended
3.2 (c) Bylaws of Registrant, as amended
5.1 (a) Opinion and Consent of Brown & Bain
10.10 (b) 1983 Incentive Stock Option Plan of Registrant, as amended and restated
10.11 (g) 1993 Stock Option Plan, as amended
10.20 (b) Lease Agreement of premises at 34551 Ardenwood Boulevard, dated March 6, 1991
10.21 (f) Security and Loan Agreement, dated May 15, 1995, with Imperial Bank
10.25 (d) Digital Equipment Corporation Basic Order Agreement
10.28 (b) License Agreement with IBM, effective December 1, 1990
10.40 (e) 401(k) Plan, Target Investment Advisory Agreement and Standardized Adoption Agreement
10.41 (a) Employment Agreement, dated as of January 1, 1995, with Al Montross
23.1 Consent of KPMG Peat Marwick LLP (Page II-5)
23.2 Consent of Brown & Bain (included in Exhibit 5.1)
24.1 Power of Attorney (Page II-4)
</TABLE>
(b) Financial Statement Schedules None
------------------------
(a) Filed herewith
(b) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992, Commission File No. 0-13381, and incorporated
herein by reference
(c) Filed as an exhibit to Registration Statement on Form S-8 and Form 3, on
July 24, 1989, No. 33-30104, and incorporated herein by reference
(d) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q, for the
period ended September 30, 1993, and incorporated herein by reference
(e) Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, Commission File 0-13381, and incorporated herein by
reference
(f) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q, for
period ended June 30, 1994, and incorporated herein by reference
(g) Filed as an exhibit to Registration Statement on Form S-8, which was filed
with the Commission on August 17, 1995, and incorporated by reference herein
All other schedules are omitted as the required information is inapplicable
or is presented in the consolidated financial statements or related notes.
<PAGE>
[2,300,000] SHARES
MYLEX CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
NEEDHAM & COMPANY, INC.
400 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
Mylex Corporation, a Florida corporation (the "Company"), proposes to sell
[2,000,000] shares of Common Stock of the Company, par value $0.01 (the "Common
Stock"), to you and to the several other Underwriters (as defined below).
Certain shareholders of the Company named in Schedule II hereto (hereinafter
called the "Selling Shareholders"), acting severally and not jointly, propose to
sell an aggregate of [300,000] shares of authorized and outstanding shares of
the Company's Common Stock to the several Underwriters. The shares of Common
Stock sold by the Company are hereinafter called the "Company Shares" and the
shares of Common Stock to be sold by the Selling Shareholders are hereinafter
called the "Selling Shareholder Shares." The Company Shares and the Selling
Shareholder Shares are hereinafter collectively referred to as the "Firm
Shares." The Company also has agreed to grant to you and the other Underwriters
an option (the "Option") to purchase up to an additional 345,000 shares of
Common Stock (the "Option Shares") on the terms and for the purposes set forth
in Section 1(b). The Firm Shares and the Option Shares are referred to
collectively herein as the "Shares."
It is understood that, subject to the conditions hereinafter stated, the
Firm Shares will be sold (and the Option Shares may be sold) to you and the
several other Underwriters named in Schedule I hereto (collectively, the
"Underwriters"), for whom you are acting as the representative (the
"Representative").
The Company and the Selling Shareholders confirm as follows their agreement
with the Representative and the several other Underwriters.
1. AGREEMENT TO SELL AND PURCHASE.
a. On the basis of the representations, warranties and agreements herein
contained and subject to all the terms and conditions of this Agreement, (i) the
Company agrees to issue and sell an aggregate of [2,000,000] shares of Common
Stock to the several Underwriters, (ii) the Selling Shareholders, acting
severally and not jointly, agree to sell an aggregate of [300,000] shares of
Common Stock to the several Underwriters, and (iii) each of the Underwriters,
severally and not jointly, agrees to purchase from the Company and the Selling
Shareholders the respective number of Firm Shares set forth opposite that
Underwriter's name in SCHEDULE I hereto, at the purchase price of $ for
each Firm Share.
b. Subject to all the terms and conditions of this Agreement, the Company
grants the Option to the several Underwriters to purchase, severally and not
jointly, up to the maximum number of Option Shares from the Company at the same
price per share as the Underwriters shall pay for the Firm Shares. The Option
may be exercised only to cover over-allotments in the sale of the Firm Shares by
the Underwriters and may be exercised in whole or in part at any time (but not
more than once) on or before the 30th day after the date of this Agreement upon
written or telegraphic notice (the "Option Shares Notice") by the Representative
to the Company, no later than 12:00 noon, New York City time, at least two and
no more than five business days before the date specified for closing in the
Option Shares Notice (the "Option Closing Date"), setting forth the aggregate
number of Option Shares to be purchased and the time and date for such purchase.
On the Option Closing Date, the Company will sell to the Underwriters the number
of Option Shares set forth in the Option Shares Notice, and each
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Underwriter will purchase such percentage of the Option Shares as is equal to
the percentage of the Firm Shares that such Underwriter is purchasing, as
adjusted by the Representative in such manner as it deems advisable to avoid
fractional shares.
2. DELIVERY AND PAYMENT. Delivery of the Firm Shares shall be made to the
Representative for the accounts of the Underwriters against payment of the
purchase price by certified or official bank checks payable in New York Clearing
House (next-day) funds to the order of the Company, at the offices of Brown &
Bain, 600 Hansen, Suite 100, Palo Alto, California 94306, at 7:00 a.m., Palo
Alto time, on the fourth business day following the commencement of the offering
contemplated by this Agreement, or at such time on such other date, not later
than seven business days after the date of this Agreement, as may be agreed upon
by the Company and the Representative (such date is hereinafter referred to as
the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares against
payment by the Underwriters (in the manner specified above) will take place at
the offices specified above for the Closing Date at the time and date (which may
be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and shall be
registered in such names and in such denominations as the Representative shall
request at least two business days prior to the Closing Date or the Option
Closing Date, as the case may be, by written notice to the Company. For the
purpose of expediting the checking and packaging of certificates for the Shares,
the Company agrees to make such certificates available for inspection at least
24 hours prior to the Closing Date or the Option Closing Date, as the case may
be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Shares by the Company to the respective
Underwriters shall be borne by the Company. The Company will pay and save each
Underwriter and any subsequent holder of the Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
Federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale to
such Underwriter of the Shares.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents,
warrants and covenants to each Underwriter that:
a. A registration statement (Registration No. 33- ) on Form S-3
relating to the Shares, including a preliminary prospectus and such
amendments to such registration statement as may have been required to the
date of this Agreement, has been prepared by the Company under the
provisions of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (collectively referred to as the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission. The term "preliminary
prospectus" as used herein means a preliminary prospectus as contemplated by
Rule 430 or Rule 430A of the Rules and Regulations included at any time as
part of the registration statement. Copies of such registration statement
and amendments and of each related preliminary prospectus have been
delivered to the Representative. If such registration statement has not
become effective, a further amendment to such registration statement,
including a form of final prospectus, necessary to permit such registration
statement to become effective will be filed promptly by the Company with the
Commission. If the registration statement has become effective, a final
prospectus containing information permitted to be omitted at the time of
effectiveness by Rule 430A of the Rules and Regulations will be filed
promptly by the Company with the Commission in accordance with Rule 424(b)
of the Rules and Regulations. The term "Registration Statement" means the
registration statement as amended at the time it becomes or became effective
(the "Effective Date"), including financial statements and all exhibits and
any information deemed to be included by Rule 430A. The term "Prospectus"
means the prospectus
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<PAGE>
as first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations or, if no such filing is required, the form of final prospectus
included in the Registration Statement at the Effective Date.
b. On the Effective Date, the date the Prospectus is first filed with
the Commission pursuant to Rule 424(b) (if required), at all times
subsequent to and including the Closing Date and, if later, the Option
Closing Date and when any post-effective amendment to the Registration
Statement becomes effective or any amendment or supplement to the Prospectus
is filed with the Commission, the Registration Statement and the Prospectus
(as amended or as supplemented if the Company shall have filed with the
Commission any amendment or supplement thereto), including the financial
statements included in the Prospectus, did and will comply with all
applicable provisions of the Act and the Rules and Regulations and will
contain all statements required to be stated therein in accordance with the
Act and the Rules and Regulations. On the Effective Date and when any
post-effective amendment to the Registration Statement becomes effective, no
part of the Registration Statement, the Prospectus or any such amendment or
supplement did or will contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading. At the Effective Date,
the date the Prospectus or any amendment or supplement to the Prospectus is
filed with the Commission and at the Closing Date and, if later, the Option
Closing Date, the Prospectus did not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The foregoing representations and warranties in
this Section 3(b) do not apply to any statements or omissions made in
reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representative specifically for
inclusion in the Registration Statement or Prospectus or any amendment or
supplement thereto. The Company acknowledges that the statements set forth
under the heading "Underwriting" in the Prospectus constitute the only
information relating to any Underwriter furnished in writing to the Company
by the Representative specifically for inclusion in the Registration
Statement.
c. The Company is, and at the Closing Date and, if later, the Option
Closing Date will be, a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. The
Company has, and at the Closing Date and, if later, the Option Closing Date
will have, full power and authority to conduct all the activities conducted
by it, to own or lease all the material assets owned by or leased by it and
to conduct its business as described in the Registration Statement and the
Prospectus. The Company is, and at the Closing Date and, if later, the
Option Closing Date will be, duly licensed or qualified to do business and
in good standing as a foreign corporation in all jurisdictions in which the
nature of the activities conducted by it or the character of the assets
owned or leased by it makes such license or qualification necessary, except
to the extent that the failure to be so qualified or be in good standing
would not materially and adversely affect the Company or its business,
properties, business prospects, condition (financial or other) or results of
operations. Except as disclosed in the Registration Statement and
Prospectus, the Company (i) does not own, and at the Closing Date and, if
later, the Option Closing Date will not own, directly or indirectly, any
shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any corporation, firm,
partnership, joint venture, association or other entity and (ii) is not, and
at the Closing Date and, if later, the Option Closing Date will not be,
engaged in any discussions or a party to any agreement or understanding,
written or oral, regarding the acquisition of an interest in any
corporation, firm, partnership, joint venture, association or other entity
where such discussions, agreements or understandings would require amendment
to the Registration Statement pursuant to applicable securities laws.
Complete and correct copies of the articles of incorporation and of the
by-laws of the Company and all amendments thereto have been delivered to the
Representative, and no changes therein will be made subsequent to the date
hereof and prior to the Closing Date or, if later, the Option Closing Date.
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<PAGE>
d. All of the outstanding shares of capital stock of the Company
(including the Shares when delivered and paid for as contemplated herein)
have been duly authorized and validly issued, are fully paid and
nonassessable and were issued in compliance with all applicable state and
federal securities laws; the Firm Shares and the Option Shares issued by the
Company (if any) have been duly authorized and when issued and paid for as
contemplated herein will be validly issued, fully paid and nonassessable; no
preemptive or similar rights exist with respect to any of the Shares or the
issue and sale thereof. The description of the capital stock of the Company
in the Registration Statement and the Prospectus is, and at the Closing Date
and, if later, the Option Closing Date will be, complete and accurate in all
respects. Except as set forth in the Prospectus, the Company does not have
outstanding, and at the Closing Date and, if later, the Option Closing Date
will not have outstanding, any options to purchase, or any rights or
warrants to subscribe for, or any securities or obligations convertible
into, or any contracts or commitments to issue or sell, any shares of Common
Stock, or any such warrants, convertible securities or obligations.
e. The financial statements and schedules included in the Registration
Statement or the Prospectus present fairly the financial condition of the
Company as of the respective dates thereof and the results of operations and
cash flows of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the entire period involved, except as otherwise
disclosed in the Prospectus. No other financial statements or schedules of
the Company are required by the Act or the Rules and Regulations to be
included in the Registration Statement or the Prospectus. KPMG Peat Marwick
LLP (the "Accountant"), who has reported on such financial statements and
schedules, is an independent accountant with respect to the Company as
required by the Act and the Rules and Regulations. The summary financial and
statistical data included in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with
the financial statements presented therein.
f. Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus and prior to the Closing
Date and, if later, the Option Closing Date, except as set forth in or
contemplated by the Registration Statement and the Prospectus, (i) there has
not been and will not have been any change in the capitalization of the
Company (other than in connection with the exercise of options to purchase
the Company's Common Stock granted pursuant to the Company's stock option
plans from the reserves as described in the Registration Statement), or any
material adverse change in the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company,
arising for any reason whatsoever, (ii) the Company has not incurred nor
will it incur, except in the ordinary course of business as described in the
Prospectus, any material liabilities or obligations, direct or contingent,
nor has it entered into nor will it enter into, except in the ordinary
course of business as described in the Prospectus, any material transactions
other than pursuant to this Agreement and the transactions referred to
herein and (iii) the Company has not and will not have paid or declared any
dividends or other distributions of any kind on any class of its capital
stock.
g. The Company is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company,"
as such terms are defined in the Investment Company Act of 1940, as amended.
h. Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
of its officers in their capacity as such, nor any basis therefor, before or
by any Federal or state court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, wherein an
unfavorable ruling, decision or finding would materially and adversely
affect the Company or its business, properties, business prospects,
condition (financial or otherwise) or results of operations.
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<PAGE>
i. The Company has, and at the Closing Date and, if later, the Option
Closing Date will have, performed all its obligations required to be
performed by it, and is not, and at the Closing Date and, if later, the
Option Closing Date will not be, in default, under any contract or other
instrument to which it is a party or by which its property is bound or
affected, which default might materially and adversely affect the Company or
its business, properties, business prospects, condition (financial or other)
or results of operations. To the Company's best knowledge, no other party
under any contract or other instrument to which it is a party is in default
in any respect thereunder, which default would materially and adversely
affect the Company or its business, properties, business prospects,
condition (financial or other) or results of operations. The Company is not,
and at the Closing Date and, if later, the Option Closing Date will not be,
in violation of any provision of its articles of incorporation or by-laws.
j. No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for
the consummation by the Company of the transactions on its part contemplated
herein, except such as have been obtained under the Act or the Rules and
Regulations and such as may be required under state securities or Blue Sky
laws or the by-laws and rules of the National Association of Securities
Dealers, Inc. (the "NASD") in connection with the purchase and distribution
by the Underwriters of the Shares to be sold.
k. The Company has full corporate power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except as to (i) rights to indemnity and contribution hereunder which may be
limited by applicable law, (ii) bankruptcy and laws relating to the rights
and remedies of creditors generally and (iii) the availability of equitable
remedies. The performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in the action or imposition
of any lien, charge or encumbrance upon any of the assets of the Company
pursuant to the terms or provisions of, or result in a breach or violation
of any of the terms or provisions of, or constitute a default under, or give
any party a right to terminate any of its obligations under, or result in
the acceleration of any obligation under the articles of incorporation or
by-laws of the Company, any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other evidence
of indebtedness, lease, contract or other agreement or instrument to which
the Company is a party or by which the Company or any of its properties is
bound or affected, or violate or conflict with any judgment, ruling, decree,
order, statute, rule or regulation of any court or other governmental agency
or body applicable to the business or properties of the Company presently in
effect, a breach or violation of which, a default under which, a termination
of which, an acceleration under which, or a conflict with which would
materially and adversely affect the Company and its business, properties,
business prospects, condition (financial or other) or results of operations.
l. The Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, free and clear of all
liens, charges, encumbrances or restrictions, except such liens, charges,
encumbrances or restrictions as are described in the Prospectus and those
which, individually and in the aggregate, are not material in amount or
which, individually and in the aggregate, do not adversely affect the use
made or proposed to be made of such properties and assets by the Company.
The Company, as lessee, has valid, subsisting and enforceable leases for the
properties described in the Prospectus as leased by it, except such as are
described in the Prospectus or are not material to the business of the
Company. The agreements to which the Company is a party described in the
Prospectus are valid agreements, enforceable by the Company (as applicable),
except as the enforcement thereof may be limited by bankruptcy and laws
relating to the rights and remedies of creditors generally or by the
availability of general equitable remedies. The Company owns or leases all
such properties as are necessary to its
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<PAGE>
operations as now conducted or as proposed to be conducted, except where the
failure to so own or lease would not materially and adversely affect the
Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations.
m. There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement (including those incorporated by
reference) which is not described or filed as required. All such contracts
to which the Company is a party have been duly authorized, executed and
delivered by the Company, constitute valid and binding agreements of the
Company and are enforceable against the Company in accordance with the terms
thereof, except as to (i) rights to indemnity and contribution thereunder
which may be limited by applicable law, (ii) bankruptcy and laws relating to
the rights and remedies of creditors generally and (iii) the availability of
equitable remedies.
n. No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
Section 7(k) of this Agreement to be delivered to the Representative was or
will be, when made, inaccurate, untrue or incorrect.
o. Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action designed,
or which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of
the Shares.
p. No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement, which rights have not been waived by the holder as
of the date hereof.
q. The Common Stock is listed and duly admitted to trading on the
Nasdaq National Market (the "NASDAQ/NM"), and the Company has received
notification that the listing by the NASDAQ/NM of the Shares has been
approved, subject to official notice of issuance of the Shares.
r. Except as disclosed in the Prospectus, (i) the Company has
sufficient trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals and governmental authorizations to conduct its business
as now conducted, where the failure to have any such right would have a
material and adverse effect on the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of
operations; (ii) the Company is not infringing any mask works rights,
copyrights, trade secrets or other similar rights of others or, to the best
knowledge of the Company, any trademarks, trade name rights or patent rights
of others, where such infringement would have a material and adverse effect
on the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations; and (iii) no claim has
been made again the Company regarding trademark, trade name, patent, mask
work, copyright, license, trade secret or other infringement which would
have a material and adverse effect on the Company or its business,
properties, business prospects, condition (financial or otherwise) or
results of operations.
s. The Company has filed all federal, state and foreign income tax
returns which have been required to be filed and has paid all taxes and
assessments received by it to the extent that such taxes or assessments have
become due. The Company has no tax deficiency which has been or might be
asserted or threatened against the Company which could have a material and
adverse effect on the Company or its business, properties, business
prospects, condition (financial or otherwise) or results of operations.
t. The Company owns or possesses all authorizations, approvals, orders,
licenses, registrations, other certificates and permits of and from all
governmental regulatory officials and bodies necessary to conduct its
business as contemplated in the Prospectus, except where the failure to
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<PAGE>
own or possess all such authorizations, approvals, orders, licenses,
registrations, other certificates and permits would not materially and
adversely affect the Company or its business, properties, business
prospects, condition (financial or otherwise) or results of operations.
There is no proceeding pending or threatened, or any basis therefor known to
the Company, which may cause any such authorization, approval, order,
license, registration, certificate or permit to be revoked, withdrawn,
canceled, suspended or not renewed; and the Company is conducting its
business in compliance with all laws, rules and regulations applicable
thereto, including, without limitation, all applicable local, state and
federal environmental laws and regulations.
u. The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect.
v. The Company has not at any time during the last five years (i) made
any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof.
w. The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or
result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
x. The Company has complied in all respects with the requirements of
the Securities and Exchange Act of 1934, as amended, and the rules and
regulation thereunder (the "Exchange Act"), including the periodic reporting
requirements thereof, and each such filing has conformed in all respects to
the requirements of the Exchange Act and, as of its date, did not include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
y. The Company has not since the filing of the Registration Statement,
except in connection with the sale of the Company Shares, (i) sold, bid for,
purchased, attempted to induce any person to purchase, or paid anyone any
compensation for soliciting purchases of, the Shares or (ii) paid or agreed
to pay any person any compensation for soliciting another to purchase any
other securities of the Company.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each
Selling Shareholder, severally and not jointly, represents and warrants to and
agrees with each Underwriter and the Company that:
a. Such Selling Shareholder now has and on the Closing Date, and on any
later date on which Option Shares are purchased, if applicable, will have
valid marketable title to such of the Shares as are to be sold by such
Selling Shareholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than pursuant to this
Agreement; such Selling Shareholder has full right, power and authority to
sell, assign, transfer and deliver the Shares to be sold by such Selling
Shareholder hereunder; and upon delivery of such Shares hereunder and
payment of the purchase price as herein contemplated, each of the
Underwriters will obtain valid marketable title to the Shares purchased by
it from such Selling Shareholder, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest, including any
liability for estate or inheritance taxes, or any liability to or claims of
any creditor, devisee, legatee or beneficiary of such Selling Shareholder.
b. Such Selling Shareholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the
Representative, a Power of Attorney (the "Power of Attorney") appointing and
as attorneys-in-fact (collectively, the "Attorneys" and individually, an
"Attorney") and a Letter of Transmittal and Custody Agreement (the "Custody
Agreement")
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<PAGE>
with , as custodian (the "Custodian"); each of the Power of Attorney and the
Custody Agreement constitutes a valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of
such Selling Shareholder's Attorneys, acting alone, is authorized to execute
and deliver this Agreement and the certificate referred to in Section 7(l)
hereof on behalf of such Selling Shareholder, to determine the purchase
price to be paid by the several Underwriters to such Selling Shareholder as
provided in Section 1(a) hereof, to authorize the delivery of the Selling
Shareholder Shares under this Agreement and to duly endorse (in blank or
otherwise) the certificate or certificates representing such Shares or a
stock power or powers with respect thereof, to accept payment therefor, and
otherwise to act on behalf of such Selling Shareholder in connection with
this Agreement. Certificates in negotiable form for all Shares to be sold by
such Selling Shareholder under this Agreement, together with a stock power
or powers duly endorsed in blank by such Selling Shareholder, have been
placed in custody with the Custodian for the purpose of effecting delivery
hereunder.
c. All authorizations, approvals, consents and orders necessary for the
execution and delivery by such Selling Shareholder of the Power of Attorney
and the Custody Agreement, the execution and delivery by or on behalf of
such Selling Shareholder of this Agreement and the sale and delivery of the
Selling Shareholder Shares under this Agreement (other than, at the time of
the execution hereof (if the Registration Statement has not yet been
declared effective by the Commission), the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state or
other securities or Blue Sky laws) have been obtained and are in full force
and effect; such Selling Shareholder, if other than a natural person, has
been duly organized and is validly existing and in good standing under the
laws of the jurisdiction of its organization as the type of entity that it
purports to be; and such Selling Shareholder has full right, power and
authority to enter into and perform its obligations under this Agreement and
such Power of Attorney and Custody Agreement, and to sell, assign, transfer
and deliver the Shares to be sold by such Selling Shareholder under this
Agreement.
d. Such Selling Shareholder will not, for a period commencing on August
7, 1995, and ending ninety (90) days after the Registration Statement has
been declared effective by the Commission, offer to sell, contract to sell
or otherwise sell or dispose of, loan, pledge, or grant any rights with
respect to any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, now owned or hereafter acquired
directly by such Selling Shareholder or with respect to which such Selling
Shareholder has or hereafter acquires the power of disposition.
e. For all Shares to be sold by such Selling Shareholder under this
Agreement, certificates in negotiable form, together with a stock power or
powers duly endorsed in blank by such Selling Shareholder, have been placed
in custody with the Custodian for the purpose of effecting delivery
hereunder.
f. This Agreement has been duly authorized by such Selling Shareholder
that is not a natural person and has been duly executed and delivered by or
on behalf of such Selling Shareholder and is a valid and binding agreement
of such Selling Shareholder, enforceable in accordance with its terms,
except as the indemnification and contribution provisions hereunder may be
limited by applicable law and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles; and the performance of this Agreement and the
consummation of the transactions herein contemplated will not result in a
breach of or default under any material bond, debenture, note or other
evidence of indebtedness, or any material contract, indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument to
which such Selling Shareholder is a party or by which such Selling
Shareholder
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or any Selling Shareholder Shares of such Selling Shareholder hereunder may
be bound or, to such Selling Shareholder's knowledge, result in any
violation of any law, order, rule, regulation, writ, injunction or decree of
any court or governmental agency or body or, if such Selling Shareholder is
other than a natural person, result in any violation of any provisions of
the charter, bylaws or other organizational documents of such Selling
Shareholder.
g. Such Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to, or which might reasonably be expected
to, cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
h. Such Selling Shareholder has not distributed and will not distribute
any prospectus or other offering material in connection with the offering
and sale of the Shares.
i. All information furnished by or on behalf of such Selling
Shareholder relating to such Selling Shareholder and the Selling Shareholder
Shares (other than information relating to the percentage of the shares of
Common Stock held by such Selling Shareholder if such percentage is less
than one percent of the total shares of Comon Stock) that is contained in
the representations and warranties of such Selling Shareholder in such
Selling Shareholder's Power of Attorney or set forth in the Registration
Statement and the Prospectus is, and on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, will
be, true, correct and complete, and does not, and on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may
be, will not, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
such statements not misleading.
j. Such Selling Shareholder will review the Prospectus and will comply
with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing
Date, and will advise one of its Attorneys prior to the Closing Date if any
statement to be made on behalf of such Selling Shareholder in the
certificate contemplated by Section 7(l) would be inaccurate if made as of
the Closing Date.
k. Such Selling Shareholder does not have, or has waived prior to the
date hereof, any preemptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Shares that are to be sold by
the Company or any of the other Selling Shareholders to the Underwriters
pursuant to this Agreement; and such Selling Shareholder does not own any
warrants, options or similar rights to acquire, and does not have any right
or arrangement to acquire, any capital stock, rights, warrants, options or
other securities from the Company which are required to be described in the
Registration Statement and the Prospectus, other than those described in the
Registration Statement and the Prospectus.
l. Such Selling Shareholder is not aware that any of the
representations and warranties of the Company set forth in Section 3 above
is untrue or inaccurate in any material respect.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLING OFFICERS. Each Selling
Shareholder identified with an asterisk next to his or her name on SCHEDULE II
hereto (each a "Selling Officer") severally, and not jointly, represents and
warrants to and agrees with each Underwriter that:
a. To the knowledge of such Selling Officer, neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto,
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they were made
not misleading.
b. The sale of the Shares by such Selling Officer pursuant hereto is
not prompted by any adverse information concerning the Company or its
subsidiary which is not set forth in the Registration Statement and the
Prospectus.
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6. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
a. The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or
dealer, file any amendment or supplement to the Registration Statement or
the Prospectus, unless a copy thereof shall first have been submitted to the
Representative within a reasonable period of time prior to the filing
thereof and the Representative shall not have objected thereto in good
faith.
b. The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representative promptly,
and will confirm such advice in writing, (1) when the Registration Statement
has become effective and when any post-effective amendment thereto becomes
effective, (2) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus or for
additional information, (3) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose or the threat thereof, (4) of
the happening of any event during the period mentioned in the second
sentence of Section 6(e) that makes any statement made in the Registration
Statement or the Prospectus untrue or that requires the making of any
changes in the Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances in which they are made,
not misleading, and (5) of receipt by the Company or any representative or
attorney of the Company of any other communication from the Commission
relating to the Company, the Registration Statement, any preliminary
prospectus or the Prospectus. If at any time the Commission shall issue any
order suspending the effectiveness of the Registration Statement, the
Company will make every reasonable effort to obtain the withdrawal of such
order at the earliest possible moment. If the Company has omitted any
information from the Registration Statement pursuant to Rule 430A of the
Rules and Regulations, the Company will use its best efforts to comply with
the provisions of, and make all requisite filings with the Commission
pursuant to, said Rule 430A and to notify the Representative promptly of all
such filings.
c. The Company will furnish to the Representative, without charge,
three signed copies of the Registration Statement and of any post-effective
amendment thereto, including financial statements and schedules, and all
exhibits thereto, and will furnish to the Representative, without charge,
for transmittal to each of the other Underwriters, a copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, but without exhibits.
d. The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.
e. On the Effective Date, and thereafter from time to time, but only
for the nine-month period referred to in Section 10(a)(3) of the Act, the
Company will deliver to each of the Underwriters, without charge, as many
copies of the Prospectus or any amendment or supplement thereto as the
Representative may reasonably request. The Company consents to the use of
the Prospectus or any amendment or supplement thereto by the several
Underwriters and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for any period of
time thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during such period of time any event
shall occur which in the judgment of the Company or counsel to the
Underwriters should be set forth in the Prospectus in order to make any
statement therein, in light of the circumstances under which it was made,
not misleading, or if it is necessary to supplement or amend the Prospectus
to comply with law, the Company will forthwith prepare and duly file with
the Commission an appropriate supplement or amendment thereto, and will
deliver to each of the Underwriters, without charge, such number of copies
of such supplement or amendment to the Prospectus as the Representative may
reasonably request.
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f. Prior to any public offering of the Shares, the Company will
cooperate with the Representative and counsel to the Underwriters in
connection with the registration or qualification of the Shares for offer
and sale under the securities or Blue Sky laws of such jurisdictions as the
Representative may request; provided that in no event shall the Company be
obligated to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to general service
of process in any jurisdiction where it is not now so subject.
g. During the period of five years commencing on the Effective Date,
the Company will furnish to the Representative, and each other Underwriter
who may so request, copies of such financial statements and other periodic
and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock, and will furnish
to the Representative, and each other Underwriter who may so request, a copy
of each annual or other report it shall be required to file with the
Commission.
h. The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in
which the Effective Date falls, an earnings statement (which need not be
audited but shall be in reasonable detail) for the applicable 12-month
period after the Effective Date, satisfying the provisions of Section 11(a)
of the Act (including Rule 158 of the Rules and Regulations).
i. Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or
reimburse if paid by the Representative, all costs and expenses incident to
the performance of the obligations of the Company under this Agreement,
including but not limited to costs and expenses of or relating to (1) the
preparation, printing and filing by the Company of the Registration
Statement and exhibits to it, each preliminary prospectus, Prospectus and
any amendment or supplement to the Registration Statement or Prospectus, (2)
the preparation and delivery of certificates representing the Shares, (3)
the printing of this Agreement, the Agreement Among Underwriters, any Dealer
Agreements and any Underwriters' Questionnaires, (4) furnishing (including
costs of shipping and mailing) such copies of the Registration Statement,
the Prospectus and any preliminary prospectus, and all amendments and
supplements thereto, as may be requested for use in connection with the
offering and sale of the Shares by the Underwriters or by dealers to whom
Shares may be sold, (5) the listing of the Shares on the NASDAQ/NM, (6) any
filings required to be made by the Underwriters with the NASD, and the fees,
disbursements and other charges of counsel for the Underwriters in
connection therewith, (7) the registration or qualification of the Shares
for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 6(f), including the fees,
disbursements and other charges of counsel to the Underwriters in connection
therewith, and the preparation and printing of preliminary, supplemental and
final Blue Sky memoranda, (8) fees, disbursements and other charges to the
Company (but not those of counsel for the Underwriters, except as otherwise
provided herein) and (9) the transfer agent for the Shares.
j. If this Agreement shall be terminated by the Company pursuant to any
of the provisions hereof (otherwise than pursuant to Section 10 hereof) or
if for any reason the Company shall be unable to perform its obligations
hereunder, the Company will reimburse the several Underwriters for all
reasonable out-of-pocket expenses (including the fees, disbursements and
other charges of counsel to the Underwriters) reasonably incurred by them in
connection herewith.
k. The Company will not at any time, directly or indirectly, take any
action designed, or which might reasonably be expected, to cause or result
in, or which will constitute, stabilization of the price of the shares of
Common Stock to facilitate the sale or resale of any of the Shares.
l. The Company will apply the net proceeds from the offering and sale
of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds," and
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<PAGE>
shall file such reports with the Commission with respect to the sale of the
Shares and the application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
m. During the period of 90 days commencing at the Closing Date, without
the prior written consent of the Representative and other than pursuant to
the exercise of outstanding stock options or otherwise pursuant to the
Company's stock option, employee stock purchase or other stock plans
disclosed in the Prospectus, the Company will not issue, offer, sell, grant
options to purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable with its
Common Stock or other equity security.
n. The Company will cause each of its officers, directors and certain
shareholders designated by the Representative to enter into lock-up
agreements with the Representative to the effect that they will not, without
the prior written consent of the Representative, sell, contract to sell or
otherwise dispose of any shares of Common Stock or rights to acquire such
shares according to the terms set forth in SCHEDULE III hereto.
7. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
each Underwriter hereunder are subject to the following conditions:
a. Notification that the Registration Statement has become effective
shall be received by the Representative not later than 5:00 p.m., New York
City time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by the Representative and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall have
been made.
b. (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for the purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or
registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened or contemplated by the Commission or the
authorities of any such jurisdiction, (iii) any request for additional
information on the part of the staff of the Commission or any such
authorities shall have been complied with to the satisfaction of the staff
of the Commission or such authorities and (iv) after the date hereof no
amendment or supplement to the Registration Statement or the Prospectus
shall have been filed unless a copy thereof was first submitted to the
Representative and the Representative does not object thereto in good faith,
and the Representative shall have received certificates, dated the Closing
Date and the Option Closing Date and signed by the Chief Executive Officer
and the Chief Financial Officer of the Company (who may, as to proceedings
threatened, rely upon the best of their knowledge), to the effect of clauses
(i), (ii) and (iii) of this Section 7(b).
c. Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business
prospects, properties, management, condition (financial or otherwise) or
results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, in each case other than as
described in or contemplated by the Registration Statement and the
Prospectus, and (ii) the Company shall not have sustained any material loss
or interference with its business or properties from fire, explosion, flood,
earthquake or other casualty, whether or not covered by insurance, or from
any labor dispute or any court of legislative or other governmental action,
order or decree, which is not described in the Registration Statement and
the Prospectus, if in the judgment of the Representative any such
development makes it impracticable or inadvisable to consummate the sale and
delivery of the Shares by the Underwriters at the public offering price.
d. Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the
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<PAGE>
Company or any of its officers or directors in their capacities as such,
before or by any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in
which litigation or proceeding an unfavorable ruling, decision or finding
would materially and adversely affect the business, properties, business
prospects, condition (financial or otherwise) or results of operations of
the Company.
e. Each of the representations and warranties of the Company contained
herein shall be true and correct in all material respects at the Closing
Date and, with respect to the Option Shares, at the Option Closing Date, and
all covenants and agreements contained herein to be performed on the part of
the Company and all conditions contained herein to be fulfilled or complied
with by the Company at or prior to the Closing Date and, with respect to the
Option Shares, at or prior to the Option Closing Date, shall have been duly
performed, fulfilled or complied with.
f. The Representative shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date,
satisfactory in form and substance to the Representative and counsel for the
Underwriters, from Brown & Bain, counsel to the Company and the Selling
Shareholders, covering the following matters:
(i) the Company has been duly organized, is validly existing as a
corporation in good standing under the laws of the State of Florida, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to be so
qualified or be in good standing would not materially and adversely
affect the Company or its business, properties, financial condition or
results of operations;
(ii) to such counsel's knowledge and except as disclosed in the
Registration Statement and Prospectus, the Company does not have any
subsidiaries or own or control any other corporation, association, or
other business entity;
(iii) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;
(iv) the authorized, issued and outstanding capital stock of the
Company was as set forth under the caption "Capitalization" in the
Prospectus as of the date therein; the shares of Common Stock outstanding
prior to the issuance of the Firm Shares have been duly authorized and
are validly issued, fully paid and non-assessable;
(v) the specimen certificate evidencing the Firm Shares filed as an
exhibit to the Registration Statement is in due and proper form under
Florida law, the Firm Shares have been duly authorized and, when the
certificates evidencing the Firm Shares have been issued and delivered in
accordance with the terms of this Agreement, the Firm Shares will be
validly issued, fully paid and non-assessable, and the issuance of such
Firm Shares is not subject to any preemptive rights, or, to the best of
such counsel's knowledge, other rights to subscribe for or purchase
securities;
(vi) the Registration Statement has become effective under the Act,
and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are pending or threatened by the Commission; any required
filing of the Prospectus and any supplement thereto pursuant to Rule
424(b) of the Rules and Regulations has been made in the manner and
within the time period required by such Rule 424(b);
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<PAGE>
(vii) the Registration Statement and the Prospectus and any
supplements or amendments thereto (except for financial statements,
schedules and financial information included therein, as to which such
counsel need not express any opinion) comply as to form in all material
respects with the Act and the rules and regulations of the Commission
thereunder;
(viii) this Agreement has been duly authorized, executed and delivered
by the Company, and the Company has all requisite corporate power and
authority to enter into this Agreement and consummate the transactions
contemplated hereby;
(ix) this Agreement is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
to (a) rights to indemnity and contribution thereunder which may be
limited by applicable law, (b) bankruptcy and laws relating to the rights
and remedies of creditors generally, and (c) the availability of
equitable remedies; the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement does
not contravene any provision of applicable law or the articles of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company that is material to the Company or,
to the best of such counsel's knowledge, any judgment or decree of any
governmental body, agency or court having jurisdiction over the Company,
presently in effect and a breach or violation of which, a default under
which, a termination of which, an acceleration under which, or a conflict
with which would materially and adversely affect the Company or its
business, properties, financial condition or results of operations, and
no consent, approval or authorization or order of, or qualification with,
any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may have
been obtained under the Act and such as required by the securities or
Blue Sky laws of the various states in connection with the offer and sale
of the Shares by the Underwriters;
(x) the statements in the Prospectus under "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future Sale" and
in the Registration Statement in Item 14, insofar as such statements
constitute a summary of the legal matters, documents or proceedings
referred to therein, fairly present and summarize the information with
respect to such legal matters, documents and proceedings required under
the Act and the Rules and Regulations;
(xi) to such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened to which the Company is a party or to
which any of the properties of the Company is subject that are required
to be described in the Registration Statement or the Prospectus and are
not so described;
(xii) to such counsel's knowledge, no holder of securities of the
Company has rights, which have not been waived, to require the Company to
register with the Commission shares of Common Stock or other securities,
as part of the offering contemplated hereby;
(xiii) such counsel does not know of any contracts or documents
required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or Prospectus or any supplements
or amendments thereto which are not so filed, or described as required,
and to such counsel's knowledge, each description of such contracts and
documents as is contained in the Registration Statement and Prospectus
fairly presents in all material respects the information required under
the Act and the Rules and Regulations;
(xiv) as of the Effective Date, the Shares were duly authorized for
listing on the NASDAQ/NM upon official notice of issuance;
(xv) Each Selling Shareholder which is not a natural person has full
right, power and authority to enter into and to perform its obligations
under the Power of Attorney and Custody Agreement to be executed and
delivered by it in connection with the transactions
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<PAGE>
contemplated herein; the Power of Attorney and Custody Agreement of each
Selling Shareholder that is not a natural person has been duly authorized
by such Selling Shareholder; the Power of Attorney and Custody Agreement
of each Selling Shareholder has been duly executed and delivered by or on
behalf of such Selling Shareholder; and the Power of Attorney and Custody
Agreement of each Selling Shareholder constitutes the valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general equitable
principles. Such counsel may render such opinion as to such counsel's
knowledge with respect to Selling Shareholders that are natural persons;
(xvi) Each of the Selling Shareholders has full right, power and
authority to enter into and to perform its obligations under this
Agreement and to sell, transfer, assign and deliver the Shares to be sold
by such Selling Shareholder hereunder. Such counsel may render such
opinion as to such counsel's knowledge with respect to Selling
Shareholders that are natural persons;
(xvii) This Agreement has been duly authorized by each Selling
Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Shareholder and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of such Selling Shareholder, enforceable in accordance with its
terms, except insofar as the indemnification and contribution provisions
hereunder may be limited by applicable law and except as the enforcement
hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles. Such counsel may
render such opinion as to such counsel's knowledge with respect to
Selling Shareholders that are natural persons; and
(xviii) Upon the delivery of and payment for the Shares as contemplated
in this Agreement, each of the Underwriters will receive valid marketable
title to the Shares purchased by it from such Selling Shareholder, free
and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest. In rendering such opinion, such counsel may assume
that the Underwriters are acquiring such shares without notice of any
defect in the title of any of such Selling Shareholders to the Shares
being purchased from such Selling Shareholders.
Such counsel shall state its belief that, to its knowledge (except for
financial statements, schedules and financial information, as to which such
counsel need not express any belief) the Registration Statement and the
Prospectus, as amended, included therein at the time the Registration Statement
became effective did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus, as amended or
supplemented, if applicable, does not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
In rendering such opinion, such counsel may rely upon opinions of counsel
satisfactory in form and substance to the Representative and counsel for the
Underwriters, in which case, the opinion of counsel for the Company shall state
that it has no reason to believe that such counsel, the Representative and
counsel for the Underwriters are not justified in so relying.
g. The Representative shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date, from
Gray Cary Ware & Freidenrich, A Professional Corporation, counsel to the
Underwriters, with respect to the Registration Statement, the Prospectus and
this Agreement, which opinion shall be satisfactory in all respects to the
Representative.
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h. The Representative shall have received, on or prior to the Closing
Date, agreements from the directors, officers, and certain shareholders as
set forth on SCHEDULE III hereto, and the form of which is attached hereto,
stating that each of such persons, without the prior written consent of the
Representative, will not offer, sell, contract to sell, or grant any option
to purchase or otherwise transfer or dispose of any Common Stock, or any
securities convertible into or exchangeable for Common Stock of the Company
(including, without limitation, Common Stock of the Company that may be
deemed to be beneficially owned by the undersigned in accordance with the
rules and regulations of the Commission and Common Stock that may be issued
upon exercise of a stock option or warrant), or rights to acquire such
Common Stock, whether now owned or hereafter acquired in the public market
or otherwise, from the date hereof through the dates specified in SCHEDULE
III and in such agreements.
i. Concurrently with the execution and delivery of this Agreement, the
Accountant shall have furnished to the Representative a letter, dated the
date of its delivery, addressed to the Representative and in form and
substance satisfactory to the Representative, confirming that it is an
independent accountant with respect to the Company as required by the Act
and the Rules and Regulations and with respect to certain financial and
other statistical and numerical information contained in the Registration
Statement. At the Closing Date, and, as to the Option Shares, the Option
Closing Date, the Accountant shall have furnished to the Representative a
letter, dated the date of its delivery, which shall confirm, on the basis of
a review in accordance with the procedures set forth in the letter from the
Accountant, that nothing has come to its attention during the period from
the date of each letter referred to in the prior sentence to a date
(specified in each letter) not more than five days prior to the Closing Date
and the Option Closing Date, as the case may be, which would require any
change in either letter dated the date hereof if they were required to be
dated and delivered at the Closing Date and the Option Closing Date.
j. The Representative shall have received, on or prior to the Closing
Date, copies of a letter to the Company from the Accountant stating that its
review of the Company's system of internal accounting controls, to the
extent it deemed necessary in establishing the scope of its examination of
the Company's financial statements as of and at December 31, 1994, did not
disclose any weakness in internal controls that it considered to be material
weaknesses.
k. Concurrently with the execution and delivery of this Agreement and
at the Closing Date and, with respect to the Option Shares, the Option
Closing Date, there shall be furnished to the Representative a certificate,
dated the date of its delivery, signed by the Chief Executive Officer and
the Chief Financial Officer of the Company, in form and substance
satisfactory to the Representative, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, the Registration Statement and the Prospectus do not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein not misleading and (B) in the case of the certificate
delivered at the Closing Date and the Option Closing Date, since the
Effective Date no event has occurred as a result of which it is necessary
to amend or supplement the Prospectus in order to make the statements
therein not untrue or misleading in any material respect.
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the
time such certificate is delivered, true and correct in all material
respects.
(iii) Each of the covenants required to be performed by the Company
herein on or prior to the date of such certificate has been duly, timely
and fully performed and each condition herein required to be satisfied or
fulfilled on or prior to the date of such certificate has been duly,
timely and fully satisfied or fulfilled.
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l. You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, from the Attorneys for each
Selling Shareholder to the effect that, as of the Closing Date, or any later
date on which Option Shares are to be purchased, as the case may be, they
have not ben informed that:
(i) The representations and warranties made by such Selling
Shareholder herein are not true or correct in any material respect on the
Closing Date or on any later date on which Option Shares are to be
purchased, as the case may be; or
(ii) Such Selling Shareholder has not complied with any obligation or
satisfied any condition which is required to be performed or satisfied on
his or its part at or prior to the Closing Date or any later date on
which Option Shares are to be purchased, as the case may be.
m. The Shares shall be qualified for sale in such jurisdictions as the
Representative may reasonably request, and each such qualification shall be
in effect and not subject to any stop order or other proceeding on the
Closing Date or the Option Closing Date.
n. Prior to the Closing Date, the Shares shall have been duly
authorized for listing on the NASDAQ/NM upon official notice of issuance.
o. The Company shall have furnished to the Representative such
certificates, in addition to those specifically mentioned herein, as the
Representative may have reasonably requested as to the accuracy and
completeness at the Closing Date and the Option Closing Date of any
statement in the Registration Statement or the Prospectus, as to the
accuracy at the Closing Date and the Option Closing Date of the
representations and warranties of the Company herein, as to the performance
by the Company of its obligations hereunder, or as to the fulfillment of the
conditions concurrent and precedent to the obligations hereunder of the
Representative.
8. INDEMNIFICATION.
a. The Company and the Selling Shareholders jointly and severally agree to
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person, if any, who controls, within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
Underwriter, from and against any and all losses, claims, liabilities, expenses
and damages (including any and all investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject under the Act, the Exchange Act or other Federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, liabilities, expenses or damages (i) arise out of or are based
on any untrue statement or alleged untrue statement of a material fact contained
in any preliminary prospectus, the Registration Statement or the Prospectus or
any amendment or supplement to the Registration Statement or the Prospectus, or
the omission or alleged omission to state in such document a material fact
required to be stated in it or necessary to make the statements in it not
misleading in light of the circumstances in which they were made, (ii) arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company or the Selling Shareholders contained herein or (iii)
arise out of or are based upon any failure of the Company or the Selling
Shareholders to perform their obligations hereunder or under law in connection
with the transactions contemplated hereby; provided that the Company or the
Selling Shareholders will not be liable to the extent that such loss, claim,
liability, expense or damage arises from the sale of the Shares in the public
offering to any person by a Underwriter and is based on an untrue statement or
omission or alleged untrue statement or omission made in reliance on and in
conformity with information relating to any Underwriter furnished in writing to
the Company by the Representative, on behalf of any Underwriter, expressly for
inclusion in the Registration Statement, the preliminary prospectus or the
Prospectus, or any amendment or supplement thereto, and provided further that
the Company or the Selling Shareholders will not be liable to any Underwriter,
the directors, officers, employees or agents of such Underwriter or any
17
<PAGE>
person controlling such Underwriter with respect to any loss, claim, liability,
expense, or damage arising out of or based on any untrue statement or omission
or alleged untrue statement or omission or alleged omission to state a material
fact in the preliminary prospectus which is corrected in the Prospectus if the
person asserting any such loss, claim, liability, charge or damage purchased any
of the Shares from such Underwriter but was not sent or given a copy of the
Prospectus at or prior to the written confirmation of the sale of such Shares to
such person. The Company and the Selling Shareholders acknowledge that the
statements set forth under the heading "Underwriting" in the preliminary
prospectus and the Prospectus constitute the only information relating to any
Underwriter furnished in writing to the Company by the Representative on behalf
of the Underwriters expressly for inclusion in the Registration Statement, the
preliminary prospectus or the Prospectus. This indemnity will be in addition to
any liability that the Company or the Selling Shareholders might otherwise have.
b. Each Selling Shareholder, severally and not jointly, agrees to indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
breach of any representation, warranty, agreement or covenant of such Selling
Shareholder contained in Section 4 or any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company or such Underwriter by such Selling Shareholder,
directly or through such Selling Shareholder's representatives, specifically for
inclusion therein, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that such Selling Shareholder shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by any Underwriter,
through you, specifically for use in the preparation thereof and, provided
further, that the indemnity agreement provided in this Section 8(b) with respect
to any Preliminary Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any losses, claims, charges, liabilities or
litigation based upon any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state therein a material fact
purchase Shares, if a copy of the Prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected has not
been sent or given to such person within the time required by the Act and the
Rules and Regulations thereunder, unless such failure is the result of
noncompliance by the Company with Section 6(c) hereof. The liability of such
Selling Shareholder under Section 3 and Section 8 of this Agreement shall be in
addition to any liabilities which such Selling Shareholder may otherwise have.
c. Each Underwriter, severally and not jointly, agrees to indemnify and
hold harmless the Company and each Selling Shareholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Shareholder may become subject under the Act or otherwise, specifically
including but not limited to losses, claims, damages or liabilities related to
negligence on the part of the Company or such Selling Shareholder, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any breach of any representation, warranty,
agreement or covenant of such Underwriter herein contained or any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of
18
<PAGE>
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company and each such
Selling Shareholder by such Underwriter, directly or through you, specifically
for inclusion therein, and will reimburse the Company and each such Selling
Shareholder for any legal or other expenses reasonably incurred by the Company
and each such Selling Shareholder in connection with investigating or defending
any such loss, claim, damage, liability or action. This indemnity agreement
shall be in addition to any liabilities which each Underwriter may otherwise
have.
d. Any party that proposes to assert the right to be indemnified under this
Section 8 shall, promptly after receipt of notice of commencement of any action
against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 8, notify each such
indemnifying party in writing of the commencement of such action, enclosing with
such notice a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section unless, and
only to the extent that, such omission results in the loss of substantive rights
or defenses by the indemnifying party. If any such action is brought against any
indemnified party and it notifies the indemnifying party of its commencement,
the indemnifying party will be entitled to participate in and, to the extent
that it elects by delivering written notice to the indemnified party promptly
after receiving notice of the commencement of the action from the indemnified
party, jointly with any other indemnifying party similarly notified, to assume
the defense of the action, with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense, the indemnifying party will not be
liable to the indemnified party for any legal or other expenses except as
provided below and except for the reasonable costs of investigation subsequently
incurred by the indemnified party in connection with the defense. The
indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (i) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party, (ii)
there are legal defenses available to it or other indemnified parties that are
different from or in addition to those available to the indemnifying party,
(iii) the indemnified party has reasonably concluded that a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (iv) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. All such fees, disbursements and other charges will be reimbursed by
the indemnifying party promptly as they are incurred. Any indemnifying party
will not be liable for any settlement of any action or claim effected without
its written consent (which consent will not be unreasonably withheld).
e. In order to provide for just and equitable contribution in circumstances
in which the indemnification provided for in the foregoing paragraphs of this
Section 8 is applicable in accordance with its terms, but for any reason is held
to be unavailable from the Company, the Selling Shareholders or the
Underwriters, the indemnifying party will contribute to the total losses,
claims, liabilities, expenses and damages (including any investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted, but
after deducting any contribution received by the Company or the Selling
Shareholders from persons other than the Underwriters, such as persons who
control the Company within the meaning of the
19
<PAGE>
Act, officers of the Company who signed the Registration Statement and directors
of the Company, who also may be liable for contribution) to which the Company,
the Selling Shareholders and any one or more of the Underwriters may be subject
in such proportion as shall be appropriate to reflect the relative benefits
received by the Company, the Selling Shareholders and the Underwriters. The
relative benefits received by the Company and the Selling Shareholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
respective proportions as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholders and the
total underwriting discount received by the Underwriters, as set forth in the
table on the cover page of the Prospectus bear to the aggregate public offering
price of the Shares. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of contribution
shall be made in such proportion as is appropriate to reflect not only the
relative benefits referred to in the foregoing sentence, but also the relative
fault of the Company, the Selling Shareholders and the Underwriters with respect
to the statements or omissions which resulted in such loss, claim, liability,
expense or damage, or action in respect thereof, as well as any other relevant
equitable considerations with respect to such offering. Such relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company, the Selling Shareholders or
the Representative on behalf of the Underwriters, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Shareholders and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 8(e) were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 8(e) shall be deemed to
include, for purpose of this Section 8(e), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8(e), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts received by it and no person found guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 8(e) are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section 8(e), any
person who controls a party to this Agreement within the meaning of the Act will
have the same rights to contribution as that party, and each officer of the
Company who signed the Registration Statement will have the same rights to
contribution as the Company, subject in each case to the provisions hereof. Any
party entitled to contribution, promptly after receipt of notice of commencement
of any action against any such party in respect of which a claim for
contribution may be made under this Section 8(e), will notify any such party or
parties from whom contribution may be sought from any other obligation it or
they may have under this Section 8(e). No party will be liable for contribution
with respect to any action or claim settled without its written consent (which
consent will not be unreasonably withheld).
f. Notwithstanding anything to the contrary contained herein, the aggregate
liability of each Selling Shareholder under the representations and warranties
contained in Section 4 hereof and under the indemnity and reimbursement
agreements contained in the provisions of this Section 8 shall be limited to an
amount equal to the net proceeds received by such Selling Shareholders from the
sale of the stock sold by the Selling Shareholders to the Underwriters. The
Company and the Selling Shareholders may agree, as among themselves and without
limiting the rights of the Underwriters under this Agreement, as to the
respective amounts of such liability for which they shall be responsible.
g. The indemnity and contribution agreements contained in this Section 8
and the representations and warranties of the Company and the Selling
Shareholders contained in this Agreement shall
20
<PAGE>
remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of the Underwriters, (ii) acceptance of any
of the Shares and payment therefor or (iii) any termination of this Agreement.
9. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to its other obligations
under Section 8(a) of this Agreement, the Company hereby agrees to reimburse on
a quarterly basis the Underwriters for all reasonable legal and other expenses
incurred in connection with investigating or defending any claim, action,
investigation, inquiry or other proceeding arising out of or based upon in whole
or part, (i) as described in Section 8(a), any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus, or the omission or alleged omission to
state in such document a material fact required to be stated in it or necessary
to make the statements in it not misleading in light of the circumstances in
which they were made, (ii) any inaccuracy in the representations and warranties
of the Company or the Selling Shareholders contained herein or (iii) any failure
of the Company or the Selling Shareholders to perform their respective
obligations hereunder or under law in connection with the transactions
contemplated hereby, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the obligations under this Section 9 and
the possibility that such payment might later be held to be improper; provided,
however, that, to the extent any such payment is ultimately held to be improper,
the persons receiving such payments shall promptly refund them.
10. TERMINATION. The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date), by
notice to the Company from the Representative, without liability on the part of
any Underwriter to the Company or the Selling Shareholders, if, prior to
delivery and payment for the Firm Shares or Option Shares, as the case may be,
in the sole judgment of the Representative, (a) trading in any of the equity
securities of the Company shall have been suspended by the Commission, by an
exchange that lists the Shares or by the NASDAQ/NM, (b) trading in securities
generally on the New York Stock Exchange shall have been suspended or limited or
minimum or maximum prices shall have been generally established on such
exchange, or additional material governmental restrictions, not in force on the
date of this Agreement, shall have been imposed upon trading in securities
generally by such exchange or by order of the Commission or any court or other
governmental authority, (c) a general banking moratorium shall have been
declared by either Federal or New York State authorities or (d) any material
adverse change in the financial or securities markets in the United States, or
in political, financial or economic conditions in the United States or any
outbreak or material escalation of hostilities or other calamity or crises,
shall have occurred, the effect of which is such as to make it, in the sole
judgment of the Representative, impracticable to market the Shares.
11. SUBSTITUTION OF UNDERWRITERS. If any one or more of the Underwriters
shall fail or refuse to purchase the Firm Shares which it or they have agreed to
purchase hereunder, and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the aggregate number of Firm Shares, the other
Underwriters shall be obligated, severally, to purchase the Firm Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase, in the proportions which the number of Firm Shares which they have
respectively agreed to purchase pursuant to Section 1 bears to the aggregate
number of Firm Shares which all such non-defaulting Underwriters have so agreed
to purchase, or in such other proportions as the Representative may specify;
provided that in no event shall the maximum number of Firm Shares which any
Underwriter has become obligated to purchase pursuant to Section 1 be increased
pursuant to this Section 11 by more than one-ninth of such number of Firm Shares
without the prior written consent of such Underwriter. If any Underwriter or
Underwriters shall fail or refuse to purchase any Firm Shares and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase exceeds
21
<PAGE>
one-tenth of the aggregate number of the Firm Shares and arrangements
satisfactory to the Representative and the Company for the purchase of such Firm
Shares are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company for the purchase or sale of any Shares under this Agreement. In any such
case either the Representative or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or in
any other documents or arrangements may be effected. Any action taken pursuant
to this Section 11 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
12. FAILURE OF THE SELLING SHAREHOLDERS TO SELL AND DELIVER. If one or
more of the Selling Shareholders shall fail to sell and deliver to the
Underwriters the shares to be sold and delivered by such Selling Shareholders at
the Closing Date under the terms of this Agreement, then the Underwriters may at
their option, by written notice from you to the Company and the Selling
Shareholders, either (i) terminate this Agreement without any liability on the
part of any Underwriter or, except as provided in Section 8 hereof, the Company
or the Selling Shareholders, or (ii) purchase the shares which the Company and
other Selling Shareholders have agreed to sell and deliver in accordance with
the terms hereof. In the event of a failure by one or more of the Selling
Shareholders to sell and deliver as referred to in this Section, either you or
the Company shall have the right to postpone the Closing Date for a period not
exceeding [seven (7) business days] in order that the necessary changes in the
Registration Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected.
13. MISCELLANEOUS. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and, unless otherwise specified, shall be mailed
or delivered (a) if to the Company, at the offices of the Company, 34551
Ardenwood Boulevard, Fremont, California 94537-5035, Attention: Chief Executive
Officer, with a copy to Douglas Clark Neilsson, Esq., Brown & Bain, 600 Hansen,
Suite 100, Palo Alto, California 94306, (b) if sent to one or more of the
Selling Shareholders, to or , as Attorney-in-Fact for the Selling Shareholders,
at , or (c) if to the Underwriters, to the Representative at the offices of
Needham & Company, Inc., 400 Park Avenue, New York, New York 10022, Attention:
Corporate Finance Department, with a copy to Douglas J. Rein, Esq., Gray Cary
Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, California 94301-1825. Any
such notice shall be effective only upon receipt. Any notice may be made by
telex or telephone, but if so made shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the several
Underwriters and the Company, the Selling Shareholders and the controlling
persons, directors and officers referred to in Section 8, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" as used
in this Agreement shall not include a purchaser, as such purchaser, of Shares
from any of the several Underwriters.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
22
<PAGE>
Please confirm that the foregoing correctly sets forth the Agreement among
the Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
MYLEX CORPORATION
By: __________________________________
Title: _______________________________
SELLING SHAREHOLDERS
By: __________________________________
Attorney-in-Fact for the Selling
Shareholders named in
SCHEDULE II hereto
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
NEEDHAM & COMPANY, INC.
As Representative of the several
Underwriters listed on SCHEDULE I
By: __________________________________
Title: _______________________________
23
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
UNDERWRITERS TO BE PURCHASED
----------------------------------------------------------------------------- ---------------
<S> <C>
Needham & Company, Inc.......................................................
Total......................................................................
---------------
---------------
</TABLE>
24
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF
COMPANY SHARES
COMPANY TO BE SOLD
----------------------------------------------------------------------------- ---------------
<S> <C>
Mylex Corporation............................................................
Total......................................................................
---------------
---------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SELLING
SHAREHOLDER SHARES SHARES TO BE SOLD
-------------------------------------------------------------------------- ------------------
<S> <C>
Shareholder Shares........................................................
Total...................................................................
----------
----------
</TABLE>
25
<PAGE>
SCHEDULE III
FORM OF LOCK-UP AGREEMENT
AND DIRECTORS, OFFICERS AND SHAREHOLDERS
OF THE COMPANY WHO SHALL SIGN SUCH AGREEMENT
The undersigned is a holder of securities or options to purchase securities
of Mylex Corporation, a Florida corporation (the "Company"), and wishes to
facilitate the public offering of shares of the Common Stock (the "Common
Stock") of the Company (the "Offering"). The undersigned recognizes that such
Offering will be of benefit to the undersigned.
In consideration of the foregoing and in order to induce you to act as an
underwriter in connection with the Offering, the undersigned hereby agrees that
he, she or it will not, without the prior written approval of Needham & Company,
Inc., acting on its own behalf, directly or indirectly, sell, contract to sell,
make any short sale, pledge, or otherwise dispose of, any shares of Common
Stock, options to acquire shares of Common Stock or securities exchangeable for
or convertible into shares of Common Stock which he, she or it may own,
exclusive of any shares of Common Stock purchased in connection with the
Offering or purchased in the public trading market, for a period commencing on
the date of this Agreement and ending on the date which is ninety (90) days
after the Form S-3 Registration Statement to be filed on behalf of the Company
in connection with the Offering (the "Registration Statement") shall have become
effective by order of the Securities and Exchange Commission. The undersigned
confirms that he, she or it understands that Needham & Company, Inc. and the
Company will rely upon the representations set forth in this Agreement in
proceeding with the Offering. The undersigned further confirms that the
agreements of the undersigned are irrevocable and shall be binding upon the
undersigned's heirs, legal representatives, successors and assigns. The
undersigned agrees and consents to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of securities held by the
undersigned except in compliance with this Agreement.
This Agreement shall be binding on the undersigned and his, her or its
respective successors, heirs, personal representatives and assigns as of the
date of this Agreement.
In the event that the Registration Statement shall not have been declared
effective on or before October 15, 1995, this Agreement shall be of no further
force or effect.
26
<PAGE>
EXHIBIT 5.1
[BROWN & BAIN - Letterhead]
August 16, 1995
Mylex Corporation
34551 Ardenwood Boulevard
Fremont, California 94555
REGISTRATION STATEMENT ON FORM S-3
Dear Gentlemen:
We have examined the Registration Statement on Form S-3 to be filed by you
with the Securities and Exchange Commission on or about August 17, 1995 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of 2,300,000 shares of your Common Stock.
As your legal counsel, we have examined the proceedings taken and are familiar
with the proceedings proposed to be taken by you in connection with the sale and
issuance of such shares of Common Stock.
It is our opinion that, when issued and sold in the manner referred to
in the Registration Statement and the Underwriting Agreement referred to
therein, such shares of Common Stock will be legally and validly issued,
fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including any Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
/s/ Brown & Bain
------------------------------
BROWN & BAIN
<PAGE>
EXHIBIT 10.41
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of this 1st day of January 1995 by and between
Mylex Corporation, a Florida corporation having its principal office at 34551
Ardenwood Boulevard, Fremont, California 94537-5035 (the "Company") and Albert
E. Montross, whose address is 1015 Forest Court, Palo Alto, California 94301
(the "Employee").
RECITAL
The Company desires to employ employee in an executive capacity as
President and Chief Executive Officer on the terms and conditions set forth
herein, and the Employee is willing to accept and undertake such employment.
THE PARTIES agree as follows:
1. EMPLOYMENT.
The Company agrees to and does hereby employ the Employee, and the Employee
agrees to and does hereby accept employment by the Company, as President and
Chief Executive Officer, for a period of four (4) years, beginning January 1,
1995 (the "Employment Period").
2. DUTIES; FULL-TIME SERVICES.
2.1 DUTIES. Employee's responsibilities and duties shall be those
which are ordinarily possessed by presidents and chief executive officers of
public companies comparable in size and nature of business to the Company,
including, without limitation, the right to manage and conduct all of the
business of the Company, subject only to the directives of, and policies set by,
the Board of Directors of the Company (the "Board of Directors"). Employee
shall perform such other reasonable and appropriate duties as are assigned to
him from time to time by the Board of Directors, provided that such other
duties shall not diminish the normal responsibilities and duties of Employee's
position.
2.2 FULL-TIME SERVICES. The Employee agrees that during the
Employment Period he will devote all normal working time and energies to his
responsibilities and duties for the Company, and will faithfully, and to the
best of his ability, discharge those responsibilities and duties to the
reasonable satisfaction of the Board of Directors. During the Employment Period
the Employee will not accept other gainful employment or consulting appointments
or
1
<PAGE>
become or remain an employee, officer or director of, or consultant to, any
other corporation except with the approval of the Board of Directors.
3. COMPENSATION.
3.1 SPECIAL BONUS; SALARY. For all services performed by the
Employee for the Company during the Employment Period, the Employee will be
compensated as follows:
a. SPECIAL BONUS. The Employee will be paid a special bonus of
$75,000 on January 1, 1995, in recognition of his contributions to the Company
since his employment on September 22, 1993. The Board of Directors also shall
consider annually paying Employee a special bonus if, in its opinion, conditions
and Employee's performance so warrant. The bonuses payable under this Section
3.1(a) shall be paid in cash, and except with respect to the bonus payable on
January 1, 1995, shall be payable within 30 days after completion of the
Company's annual audit for the respective year.
b. SALARY. During the Employment Period Employee's annual
salary will be $250,000. Such salary shall be paid bi-monthly on the same days
on which the other officers of the Company are paid salary. The Board of
Directors shall consider annually increasing Employee's annual salary if, in its
opinion, conditions and Employee's performance so warrant.
3.2 OPERATING INCOME BONUSES. As set forth below, the Employee will
be entitled to receive Operating Income bonuses each calendar year. The
bonuses, based upon the Company's Operating Income as a percentage of Net Sales
(all as shown in the Company's audited financial statements for the applicable
year), shall in turn be a percentage of Operating Income:
Operating Income Percentage Bonus Percentage
--------------------------- ----------------
Under six percent None
Six to ten percent Two percent
Ten percent or more Two and one-half percent
For example, if the Company has Operating Income of $7 million, representing ten
percent of Net Sales, Employee's bonus would be $175,000. The bonus shall be
paid within 30 days after completion of the Company's annual audit for the
respective year. If the Operating Income bonus is payable for a calendar year
during which Employee is not entitled to payments of Operating Income bonus for
the entire year, the amount of such Operating Income bonus shall be prorated,
based on the number of days during such year that Employee is entitled to such
Operating Income bonus, and paid as provided above.
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3.3 NONQUALIFIED DEFERRED COMPENSATION PLAN. The Company shall
establish and maintain for the benefit of Employee a nonqualified deferred
compensation plan (the "Plan") under which Employee is permitted to elect to
defer payment of all or any part of the compensation otherwise payable to
Employee under this Agreement. Such election(s) under the Plan shall be made on
or before the times specified in the Plan. The Company shall also establish a
trust (the "Trust") and contribute to the Trust all of the amounts deferred by
Employee under the Plan. The trustee of the Trust shall hold all amounts
required to be contributed under the Plan subject to the claims of the Company's
creditors in the event of the insolvency of the Company, as defined in the trust
agreement. The parties intend that the Trust shall constitute an unfunded
arrangement and shall not affect the status of the Plan as an unfunded plan
maintained for the purpose of providing deferred compensation for a select group
of management or highly compensated employees for purposes of Title I of the
Employee Retirement Income Security Act of 1974. The Plan and Trust shall be in
forms mutually agreed to by the parties.
3.4 OTHER BENEFITS. Employee will be entitled to receive such
health, life, workmen's compensation, disability and other insurance benefits,
and to participate in such retirement and other plans, as are generally made
available to other employees and executive officers of the Company, from time to
time, subject to the terms and conditions of such benefits and plans. The level
of Employee's participation, or the amount of his benefits, shall be
commensurate with Employee's position as President and Chief Executive Officer
to the extent not prohibited by applicable law. In addition, the Company shall
obtain, at no cost to Employee, key-man life insurance on Employee's life in an
amount of $1 million. Employee shall submit to such insurance physical and
tests as may be reasonably required to obtain such insurance. A portion of the
proceeds of such policy shall be payable to beneficiaries designated by Employee
as follows:
<TABLE>
<CAPTION>
Year Proceeds Payable Percentage of Proceeds
--------------------- ----------------------
<S> <C>
1995 20%
1996 30%
1997 40%
1998 50%
</TABLE>
4. STOCK OPTIONS.
4.1 THE GRANT. The Company has granted, or will grant to the
Employee options (the "Options") to purchase shares of the Company's Common
Stock ("Shares") under the Company's 1993 Stock Option Plan (the "Option Plan")
as follows:
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a. 30,000 Shares on December 4, 1994, at an exercise price of
$9.375 per Share, and
b. 370,000 Shares at an exercise price equal to the fair market
value of the Shares on the date of grant, as follows, or in such larger annual
increments as may now or hereafter be permitted under the Option Plan:
(i) 130,000 Shares on a date to be determined in January,
1995;
(ii) 130,000 Shares on a date to be determined in January,
1996; and
(iii) 110,000 Shares on a date to be determined in January,
1997.
Each of the Options will vest at the rate of 25 percent of the Shares
subject to such Option on each anniversary date of its grant. Each of the
Options will be an incentive option to the extent it, at the time of grant,
qualifies as an incentive option; otherwise, it will be a non-qualified option.
For example, the first 7,500 Shares of the Options described in subsection
4.1(a) will vest on December 4, 1995. An additional 7,500 Shares of those
Options will vest on each succeeding December 4. If the Shares which are the
subject of the Options described in this Section 4.1 are not registered, the
Company shall use its best efforts to register such Shares by the filing of a
Form S-3, or such other method as is most appropriate in the circumstances to
enable Employee to sell such Shares. Except to the extent modified by this
Agreement, the Options shall have such terms and conditions as are provided in
the Company's form of Stock Option Agreement under the Option Plan.
4.2 TRANSFER UPON DEATH OR DISABILITY. Upon the Employee's death or
a disability which reasonably prevents Employee from performing his duties and
responsibilities under Section 2.1 hereof, all Options which have not vested
prior to such death or disability will be deemed to have accelerated and vested
immediately prior to such death or disability, and, in the event of Employee's
death, all rights with respect to Options provided for under this Agreement will
transfer to the Employee's representative. All Options will be canceled one
year after both of the following have occurred: (a) the Employee dies or
becomes disabled as provided above, and (b) the Shares have been registered so
that they can be sold by the Employee or his representative.
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<PAGE>
5. DISCHARGE OF EMPLOYEE; RELEASE FROM DUTIES; RESIGNATION.
5.1 TERMINATION FOR CAUSE - CRIMINAL ACT. The Company may discharge
the Employee immediately and without notice, if the Employee is convicted of a
felony or any criminal act affecting the Company. If the Employee is discharged
under this Section 5.1, this Agreement will terminate as of the date of
discharge, and the Employee will have no further right to compensation or
benefits under Section 3.1, 3.2 or 3.4 hereof, except for salary already earned
but not yet paid, and all of the Employee's unvested Options granted under
Section 4.1 of this Agreement shall be canceled as of the date of such
discharge.
5.2 TERMINATION FOR CAUSE - OTHER EVENTS. The Company may discharge
the Employee, upon giving the Employee ten days written notice of its intention
to do so, upon the occurrence of any of the following events:
a. Failure by the Employee to comply in any material respect
with any written agreement between the Employee and the Company, including,
without limitation, this Agreement, or written policies of the Company adopted
by the Board of Directors, which failure is not corrected within thirty days
after written notice setting forth in reasonable detail the nature of such
failure is corrected or is received by the Employee; provided, however, if such
failure is corrected or is not capable of being cured, such failure shall not
constitute cause unless and until such failure is repeated, at which time such
second failure shall constitute cause for termination without any further notice
from the Company or opportunity for Employee to correct;
b. Fraud or misappropriation by the Employee with respect to
the business of the Company; and
c. Knowing failure by the Employee to perform any of his
responsibilities and duties under this Agreement or habitual neglect in the
performance of any of such responsibilities or duties, which failure is not
corrected, in all material respects, within thirty days after written notice
setting forth in reasonable detail the nature of such failure is received by the
Employee, provided, however, if such failure is corrected or is not capable of
being cured, such failure shall not constitute cause unless and until such
failure is repeated, at which time such second failure shall constitute cause
for termination without any further notice from the Company or opportunity for
Employee to correct;
If the Company discharges the Employee for any of the reasons set
forth in this Section 5.2, this Agreement will terminate as of the date of
discharge and all of the Employee's unvested Options granted under Section 4.1
hereof shall be canceled as of the date of such discharge, but the Company will
pay to the
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<PAGE>
Employee the remaining salary payments due the Employee for the
remainder of the Employment Period, or an amount equal to one year of such
salary payments at Employee's base rate of pay upon date of discharge, whichever
is less, plus the portion of the Operating Income bonus payable pursuant to
Section 3.2 hereof through Employee's date of discharge. The Employee shall be
paid the foregoing amounts periodically, as though he were still on the
Company's payroll. In addition, the Company will provide the Employee life and
health insurance and such other similar benefits as the Employee is receiving
upon the date of discharge for the same term that it is making salary payments
pursuant to this Section 5.2.
5.3 RELEASE FROM DUTIES. The Employee and the Company expressly
agree that nothing in this Agreement shall prohibit the Company from relieving
the Employee of his duties as President and Chief Executive Officer for any
reason, and that any such action ("Action") will not constitute a breach of this
Agreement. If the Company takes such Action for any reason other than as set
forth in Section 5.1 or 5.2 hereof, the Company will pay to the Employee the
greater of the remaining salary payments due the Employee for the remainder of
the Employment Period, or an amount equal to one year's salary payments at
Employee's base rate of pay upon date of such Action, plus the portion of the
Operating Income Bonus payable pursuant to Section 3.2 hereof through the date
of such Action. The Employee shall be paid the foregoing salary bimonthly. In
addition, the Company will provide Employee life and health insurance and such
other similar benefits as Employee is receiving upon the date of discharge for
the remaining term of the Employment Period or one year, whichever is longer.
Employee shall be deemed to have "Continuing Status as an Employee" for all
purposes under the Stock Option Plan for the duration of the period in which
Employee is entitled to receive salary payments under this Section 5.3. As a
consequence, Options unvested as of the date of such Action will continue to
vest during said period.
5.4 CONSULTATION; NONCOMPETE.
a. Consultation. If the Employee is terminated under Section
5.2 or relieved of his duties under Section 5.3 of this Agreement, the Employee
agrees that, during the period of salary continuation provided for under such
section, he will make himself available for consultation to the Company. Such
periods of consultation shall be upon reasonable advance notice to Employee,
shall be reasonable in number and duration, and shall in no event impede
Employee's rights to obtain alternative employment.
b. Noncompete. During the period of salary continuation,
Employee also agrees that he will not compete, either directly or indirectly, by
providing consultation services to, or
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<PAGE>
becoming an employee of, any entity whose business is in competition with that
of the Company.
5.5 RESIGNATION. If the Employee resigns during the Employment
Period, this Agreement will terminate and the Employee's unvested Options will
be canceled as of the date of resignation. The Employee's vested Options under
this Agreement will be canceled unless exercised within one year after the date
such Shares are registered so that they can be sold by the Employee. Upon
resignation, except as provided in this Section 5.5, the Employee will have no
further right to compensation under Section 3.1, 3.2 or 3.4 hereof, except for
salary already earned but not yet paid.
5.6 CHANGE OF CONTROL. If there is a Change of Control (as defined
below), and Employee's employment with the Company is terminated by the Company
within one year after such Change of Control for reasons other than as provided
in Section 5.1 or 5.2 hereof, then Employee shall be paid, in addition to those
amounts provided in Section 5.3 hereof, an amount equal to twelve month's salary
at Employee's rate of pay (pursuant to Section 3.1(b) hereof) upon the date of
discharge. A Change of Control shall be deemed to have occurred at such time as
any person purchases, in one transaction or a series of related transactions,
for a price of less than $20 per share the "beneficial ownership" (as defined in
rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
of 30% or more of the combined voting power of voting securities then
ordinarily having the right to vote for directors of the Company.
5.7 RETURN OF PERSONAL PROPERTY. Upon the termination of this
Agreement, or Employee's release from duties under Section 5.3 hereof, Employee
shall immediately deliver to the Company all personal property in his possession
owned by the Company, including, without limitation, any computer or other
equipment, written materials, software or database, and automobile.
6. CONFIDENTIALITY.
6.1 CONFIDENTIAL INFORMATION. As used in this Agreement,
"Confidential Information" means trade secrets and any other proprietary or
confidential information that derives independent economic value to the Company
from not being generally known to the public or to other persons who can obtain
economic value from its disclosure or use and that is the subject of efforts by
the Company that are reasonable under the circumstances to maintain its secrecy.
Confidential Information may include, but not be limited to, inventions,
disclosures, processes, systems, know-how, methods, techniques, drawings,
applications, solutions, materials, devices, research activities and plans,
scientific data, specifications, costs of production, prices, promotional
methods,
7
<PAGE>
financial information, marketing plans or customer and supplier information.
The Employee agrees that any Confidential Information which Employee
may acquire in the course of employment with the Company, shall be regarded as
held by him in a fiduciary capacity solely for the benefit of the Company, and
shall not at any time, either during the term of this Agreement or thereafter,
be disclosed, divulged, furnished or made available to any third party or be
otherwise used by Employee other than in the regular course of business of the
Company. Information or collections of information shall be considered covered
by the preceding sentence if not known by the public generally, even though
portions of such information may be publicly available or may be available to
certain third parties pursuant to arrangements with the Company.
6.2 RETURN TO COMPANY. Upon termination of his employment with the
Company, the Employee will deliver to the Company all writings relating to or
containing Confidential Information, including, without limitation, notes,
memoranda, letters, drawings, diagrams, printouts, computer tapes, computer
discs, and any other form of recorded information.
7. DEVELOPMENTS.
Employee agrees promptly to disclose to the Company all inventions,
improvements, enhancements, discoveries and developments which are within the
scope of the Company's business during the Employment Period and which are made,
developed, or conceived by him, either solely or jointly with others, during the
Employment Period. All such inventions, improvements, enhancements, discoveries
and developments shall become and remain the property of the Company, whether or
not patent or copyright applications are filed thereon or with respect thereto,
and the Employee, in consideration for the execution of this Agreement and his
employment by the Company, hereby sells, assigns and transfers to the Company
all right, title and interest in an to such inventions, improvements,
enhancements, discoveries and developments and further agrees that he will
cooperate fully and unconditionally in all reasonable requests by the Company in
furtherance of protecting, developing or exploiting commercially any inventions,
improvements, enhancements, discoveries and developments disclosed pursuant to
this Section 7. Further, Employee agrees that he will promptly execute all
necessary documents requested of him by the Company incidental to any patent or
copyright applications, assignments, powers of attorney and all other documents
and do such other things as, in the opinion of counsel for Company, may be
necessary or useful for the full enjoyment thereof throughout the world by the
Company and its designees.
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<PAGE>
8. ABILITY TO PERFORM.
The Employee hereby represents and warrants to the Company that he is under
no legal disability and has entered into no agreements which in any way limit or
render the Employee incapable of performing his obligations under this Agreement
or his fiduciary duties as the President and Chief Executive Officer of the
Company. The Employee further covenants that he will not impair his ability to
carry out his obligations under this Agreement or his fiduciary duties as
President and Chief Executive Officer of the Company by entering into any
agreement or in any way assisting others, directly or indirectly, to enter into
any agreement which will violate the nondisclosure and confidentiality
provisions of this Agreement.
9. INDEMNIFICATION.
The Company shall include Employee in the coverage provided by its
indemnity insurance, in place from time to time, which insures directors and
officers against any liability arising out of their employment by the Company.
In addition, the Company shall indemnify Employee to the fullest extent
permitted by California law, consistent with the Company's Certificate of
Incorporation and By-Laws. Without limiting the foregoing, but to the maximum
extent permitted by applicable law, the Company specifically agrees to indemnify
and hold harmless the Employee from and against any and all claims, losses or
damages and expenses (including reasonable attorneys' fees) judgments, fines,
settlements and other amounts actually incurred in connection with any
proceeding arising by reason of Employee's employment by the Company, including
any employment prior to the date of this Agreement. The Company shall advance
to Employee any expenses incurred in defending any such proceeding to the
maximum extent permitted by law.
10. SURVIVAL OF OBLIGATIONS.
The covenants and agreements set forth in this Agreement shall survive any
termination of this Agreement and remain in full force and effect regardless of
the cause of the termination to the full extent necessary to protect the
interest of the party in whose favor they run; provided, however, upon such
termination, the Employee shall cease to have any rights under Sections 1 or 2
hereof and the Employee's sole rights to compensation, stock options and
benefits from the Company, after such termination, shall be as provided in
Section 5 hereof.
11. ASSIGNABILITY OF AGREEMENT.
11.1 BY EMPLOYEE. Except as otherwise provided in this Agreement, the
Employee shall not be entitled to assign (voluntarily or involuntarily, by
operation of law or otherwise)
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<PAGE>
any of his rights under this Agreement, nor delegate any of his duties or
obligations under this Agreement, without the prior written consent of the
Company.
11.2 BY THE COMPANY. The benefits hereunder with respect to the
rights of the Company to the services of the Employee may be assigned by the
Company, with the consent of the Employee, to any other Company or other
business entity which succeeds to all or substantially all of the business of
the Company through merger, consolidation, corporate reorganization or by
acquisition of all or substantially all of the assets of the Company or to a
company controlled by it, or controlling it, or under common control with it;
provided, however, that the obligations and liabilities of the Company under
this Agreement shall be binding upon any such successors in interest or
transferees so long this Agreement is in effect.
12. NOTICES.
All notices, consents, waivers or demands of any kind which either party to
this Agreement may be required or may desire to serve on the other party in
connection with this Agreement, shall be in writing and may be delivered by
personal service or sent by facsimile, telegraph or cable or sent by registered
or certified mail, return receipt requested, with postage thereon fully prepaid.
All such communications shall be addressed as follows:
Company: Mylex Corporation
34551 Ardenwood Boulevard
P.O.Box 5035
Fremont, California 94537-5035
Attn: Chairman and Chief Financial Officer
Employee: Albert E. Montross
1015 Forest Court
Palo Alto, California 94301
With a copy
to: Gerald J. Kitchen, Esq.
Thoits, Love, Hershberger & McLean
525 University Avenue, Suite 1200
Palo Alto, California 94301
If sent by telegraph or cable, a confirmed copy of such telegraphic or
cable notice shall promptly be sent by mail (in the manner provided above) to
the applicable address. Service of any such communication made only by mail
shall be deemed complete on the date of actual delivery as shown by the
addressee's registry or certification receipt or at the expiration of the third
(3rd) business day after the date of mailing, whichever is earlier in time.
Either party thereto may from time to time, by notice in
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<PAGE>
writing served upon the other as aforesaid, designate a different mailing
address or a different person to which such notices or demands are thereafter to
be addressed or delivered. Nothing contained in this Agreement shall excuse
either party from giving oral notice to the other when prompt notification is
appropriate, but any oral notice given shall not satisfy the requirement of
written notice as provided in this Section.
13. SUPERSEDES OTHER AGREEMENTS.
This Agreement supersedes and replaces all prior negotiations, proposed
agreements and agreements, written or oral.
14. GOVERNING LAW.
This Agreement shall be interpreted and enforced according to the laws of
the State of California (regardless of that jurisdiction's or any other
jurisdiction's choice of law principles).
15. SEVERABILITY.
If any provision of this Agreement is or becomes or is deemed invalid,
illegal, or unenforceable in any jurisdiction, (a) such provision will be deemed
amended to conform to applicable laws of such jurisdiction so as to be valid,
legal and enforceable, or, if it cannot be so amended without materially
altering the intention of the parties, it will be stricken, (b) the validity,
legality and enforceability of such provision will not in any way be affected or
impaired thereby in any other jurisdiction, and (c) the remainder of this
Agreement will remain in full force and effect.
16. ATTORNEYS' FEES.
If any party brings any suit, action or claim to enforce the provisions of
this Agreement, the prevailing party shall be entitled to reasonable attorneys'
fees and litigation expenses, in addition to court costs with respect to such
enforcement.
17. COUNTERPARTS.
This Agreement may be executed in two original counterparts. Both
counterparts shall constitute one and the same Agreement.
18. WAIVER.
The failure by a party to insist on the strict performance of any provision
of this Agreement, or to exercise any right, power or remedy upon a breach
hereof, shall not constitute a waiver of any provision of this Agreement or
limit the party's right thereafter to enforce any provision or exercise any
right. No waiver of any
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<PAGE>
right or obligation under this Agreement shall be enforceable unless it is in
writing, specifying such waiver, and duly executed by the party against which
such waiver is being enforced. No waiver of any such right or obligation on one
occasion shall constitute a further or future waiver of such right or obligation
or of any other right or obligation.
19. MODIFICATION.
No modification of this Agreement shall be valid unless made in writing,
specifying such modification, and duly executed by the parties.
IN WITNESS WHEREOF, the parties hereto have entered into the above
Agreement as of the day and year first above written.
________________________________
Albert E. Montross, Employee
MYLEX CORPORATION
By: ____________________________
Name:
Title:
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