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As filed with the Securities and Exchange Commission on February 8, 2000
Registration No. 333-95681
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
To
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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NETWORK PERIPHERALS INC.
(Exact name of registrant as specified in its charter)
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Delaware 77-0216135
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2859 Bayview Drive
Fremont, California 94538
(510) 897-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
WILLIAM F. ROSENBERGER
President and Chief Executive Officer
NETWORK PERIPHERALS INC.
2859 Bayview Drive
Fremont, California 94538
(510) 897-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
SCOTT M. STANTON, ESQ. STANTON D. WONG, ESQ.
CHRISTIAN WAAGE, ESQ. KAREN A. DEMPSEY, ESQ.
JAMES CARTONI, ESQ. WILLIAM A. HINES, ESQ.
Gray Cary Ware & Freidenrich LLP Pillsbury Madison & Sutro LLP
4365 Executive Drive, Suite 1600 P.O. Box 7880
San Diego, California 92121-2189 San Francisco, California 94120
(858) 677-1400 (415) 983-1000
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Approximate date of commencement of proposed sale to the 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, 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, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title of Each Class of Securities Proposed Maximum Proposed Maximum Amount of
to Amount to be Offering Price Aggregate Registration
be Registered Registered(1) Per Share(2) Offering Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.. 2,875,000 shares $47.3125 $136,023,438 $35,911
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</TABLE>
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(1) Includes 375,000 shares issuable upon the exercise of an option granted to
the underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, and based on the
average of the high and low sales prices of the common stock, as reported
on the Nasdaq National Market, on January 26, 2000.
(3) Previously paid. ---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information contained in this prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities, and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated February 8, 2000
PROSPECTUS
2,500,000 Shares
[LOGO]
Network Peripherals Inc.
Common Stock
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We are offering 2,500,000 shares of common stock. Our common stock is quoted
on the Nasdaq National Market under the symbol "NPIX." On February 4, 2000, the
last reported sale price of our common stock on the Nasdaq National Market was
$59.00 per share.
Investing in our shares involves risks. "Risk Factors" begin on page 4.
<TABLE>
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Per Share Total
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<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discount ....................................
Proceeds to Network Peripherals ..........................
</TABLE>
We have granted the underwriters a 30 day option to purchase up to 375,000
additional shares of common stock to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers expects to deliver the shares on or about , 2000.
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Lehman Brothers
Bear, Stearns & Co. Inc.
Prudential Volpe Technology
a unit of Prudential Securities
, 2000.
<PAGE>
Inside Cover Artwork
Gate Fold cover with first page containing our NuWaveArchitecture logo. The
second and third page spread contains a graphical representation of our Gigabit
Ethernet switches. The following text appears across the entire gatefold
"Gigabit Ethernet Switches' Powered by NuWaveArchitecture from NPI." On the
left side of the spread pages appears a text box entitled "NPI Gigabit Ethernet
switches." Set forth below this title are the following four paragraphs:
High performance at low cost
Non-blocking, wire speed
performance at affordable prices
Scalable
Add additional Layer 3 switches
to LAN as needed without
sacrificing performance
Flexibility
Create new product
configurations using common
NuWaveArchitecture
Manageability
Device, Network and Policy-based
management application suite.
Continuing across the spread pages from left to right appear pictures of our
products stacked in the following order: the Cornerstone6g, Keystone24g,
Capstone8f, Capstone24t, and Keystone24mg. Each of these products is connected
to a single Cornerstone6g on the left and a series of workstations and servers
pictured on the right. Text appearing under the Cornerstone6g reads "Data
Center, wiring closet or backbone switch, 6 Gigabit ports, expandable to 12
Gigabit ports and 16 Fast Ethernet ports. Text appearing under the Keystone24g
reads "Fully managed, standalone switch, 24 Fast Ethernet ports, 2 Gigabit
ports." Text appearing under the Capstone8f reads "Stack Slave, 8 Fast Ethernet
ports over fiber connection." Text appearing over the Capstone24t reads "Stack
Slave, 24 Fast Ethernet ports over copper connection." Text appearing under the
Keystone24mg reads "Stack Master Switch with 24 Fast Ethernet ports, scalable
to 96 ports; 2 Gigabit ports; stackable switch; stack is managed as a single
unit. Text appearing to the left of the Capstone8f, Capstone24t and
Keystone24mg reads "Dedicated stacking, interface connects directly to 64 Gbps
Switch Fabric, enabling wirespeed, non-blocking performance through the stack."
An asterisk appears next to each of the product names. The asterisk notes that
each of the products is scheduled for shipment in the first quarter of 2000.
The following logo and text appear across the bottom of the spread pages "NPI
The Gigabit Ethernet Company."
<PAGE>
TABLE OF CONTENTS
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Page
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Prospectus Summary........... 1
Risk Factors................. 4
Use of Proceeds.............. 13
Dividend Policy.............. 13
Price Range of Common Stock.. 14
Capitalization............... 15
Business..................... 16
Management................... 25
</TABLE>
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Page
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Principal Stockholders......... 27
Underwriting................... 28
Legal Matters.................. 30
Experts........................ 30
Where You Can Find Additional
Information About Network
Peripherals................... 30
Documents Incorporated by
Reference..................... 31
</TABLE>
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ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy our common stock in any jurisdiction where it
is unlawful. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. This preliminary prospectus is
subject to completion prior to this offering.
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Business" and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in this prospectus that are not
historical facts. When used in this prospectus, the words "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "seeks," "should" or "will" or the negative of these terms or similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed
under "Risk Factors."
All trademarks and trade names appearing in this prospectus are the property
of their holders.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering appearing elsewhere in this prospectus and in our consolidated
financial statements and related notes and other documents incorporated herein
by reference.
Our Company
We design and sell highly scalable, cost-effective Gigabit Ethernet switching
solutions designed for local area networks, or LANs. All of our switches are
based on our highly flexible NuWaveArchitecture, which combines our advanced
design and our proprietary application specific integrated circuits, or ASICs.
This architecture is designed to enable us to deliver standards-based switches
that can work seamlessly with a wide variety of existing LAN infrastructures
and technologies. We believe our NuWaveArchitecture offers the industry's only
wire-speed, non-blocking performance capability on all ports in a stackable
configuration and facilitates the creation of multiple configurations of Fast
Ethernet and Gigabit Ethernet switches. We are focusing our sales and marketing
resources on original equipment manufacturers, or OEMs. Our NuWaveArchitecture
allows OEMs to quickly create or expand their product lines for the rapidly
growing and changing enterprise market at lower costs and with greater
functionality than possible with other currently available switch
architectures.
As the Internet and complex applications such as enterprise resource
planning, data warehousing and data backup have become pervasive, the volume of
data traffic over LANs has increased dramatically and created bottlenecks on
LANs that degrade network performance. Enterprises have historically
implemented Layer 2 switches and software-based Layer 3 routers to manage
increased traffic and to provide the intelligence necessary to process
increasingly complex multi-protocol traffic. However, increasing bandwidth
requirements and transmission speeds combined with multiple traffic types such
as voice, data and video have strained the performance capabilities of
software-based Layer 3 routers. In response to these developments, LAN managers
have begun to implement hardware-based Layer 3 switches in their networks to
replace both Layer 2 switches and software-based Layer 3 multi-protocol
routers. The Dell'Oro Group, an independent research firm, estimates that the
market for Layer 3 switches totaled $1.7 billion in 1999 and that it will grow
to $4.7 billion in 2003.
Despite the performance improvements of Layer 3 switches versus Layer 3
routers, many of today's Layer 3 switching solutions still have limitations,
such as traffic blocking when additional switches are stacked to increase
capacity. We address this issue and others through our proprietary
NuWaveArchitecture, which allows us to deliver the following benefits to our
customers and end-users:
. High performance at low cost. We believe our advanced architecture and
modular design enables us to deliver products with exceptional
price/performance advantages regardless of scale or configuration.
. Scalability. We believe we offer the only wire-speed, non-blocking Layer
3 stacked switching solution, thereby enabling enterprises to expand
their LANs without creating bottlenecks or impacting network performance.
We designed our products to enable true stacking, where additional
modular units can connect to existing units via internal high bandwidth
channels that do not block traffic or reduce switch resources.
. Flexibility. Our proprietary technology enables us to rapidly create new
product configurations without redesigning our proprietary ASICs that
form the core of the switches. As a result, we believe our OEM customers
will be able to bring new products to market more quickly than would be
possible using competitive product offerings or internally developed
technology. In addition, our architecture enables us to add software-
based Layer 4-7 capabilities.
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. Manageability. Our products' true stacking capabilities simplify network
management because management software views the stacked modules as a
single unit. We believe our products reduce the complexity of network
management, thereby lowering overall cost of ownership.
Our objective is to be a leading OEM supplier of Layer 3-7 Gigabit Ethernet
switching solutions. The key elements of our strategy include:
. Focus on OEM customers;
. Leverage our Gigabit Ethernet Layer 3 technology leadership;
. Expand our product offering and functional capability;
. Leverage our ASIC core competencies to reduce product cost; and
. Provide high quality customer service and support.
Our principal executive offices are located at 2859 Bayview Drive, Fremont,
California. Our telephone number is (510) 897-5000. We were incorporated in
California in March 1989 and reincorporated in Delaware in June 1994. Our Web
site address is www.npix.com. Information contained on our Web site does not
constitute part of this prospectus.
As used in this prospectus, the terms "we," "us," "our" and NPI mean Network
Peripherals Inc. and its subsidiaries (unless the context indicates another
meaning), and the term "common stock" means our common stock, par value $0.001
per share.
2
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The Offering
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<S> <C>
Common stock offered by us........ 2,500,000 shares
Common stock to be outstanding
after this offering.............. 15,249,414 shares
Use of proceeds................... For general corporate purposes, principally
working capital. See "Use of Proceeds."
Nasdaq National Market symbol..... NPIX
</TABLE>
The number of shares of common stock outstanding after this offering is based
on shares outstanding as of December 31, 1999, and excludes 2,800,358 shares of
common stock issuable upon exercise of outstanding options with a weighted
average exercise price of $7.13 per share, and 734,059 shares reserved for
future grant under our option plans.
Summary Consolidated Financial Data
The following table summarizes our consolidated financial data. The as
adjusted column of the consolidated balance sheet data reflects the sale by us
of 2,500,000 shares in this offering at an assumed public offering price of
$59.00 per share after deducting the estimated underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales...................... $47,144 $ 53,080 $ 34,798 $28,585 $ 10,231
Gross profit................... 22,454 24,490 9,457 11,335 821
Income (loss) from operations.. 8,098 (13,039) (27,648) (9,394) (15,867)
Net income (loss).............. 6,717 (11,902) (22,442) (7,889) (14,959)
Net income (loss) per share:
Basic........................ 0.60 (1.01) (1.85) (0.64) (1.19)
Diluted...................... 0.57 (1.01) (1.85) (0.64) (1.19)
Shares used in per share
computations:
Basic........................ 11,147 11,760 12,154 12,281 12,584
Diluted...................... 11,736 11,760 12,154 12,281 12,584
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
1999
--------------------
Actual As Adjusted
------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments.......... $ 9,715 $149,071
Working capital............................................ 12,565 151,921
Total assets............................................... 20,852 160,208
Long term debt............................................. -- --
Total stockholders' equity................................. 17,909 157,265
</TABLE>
3
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RISK FACTORS
You should carefully consider the risks described below, together with all of
the other information included in this prospectus, before making an investment
decision. If any of the following risks actually occurs, our business,
financial condition or operating results could suffer. In this case, the
trading price of our common stock could decline, and you may lose all or part
of your investment. The risks described below are not the only risks facing us.
Additional risks and uncertainties not presently known to us, or that we
currently see as immaterial, may also harm our business.
We have a history of losses, expect future losses and cannot assure you that we
will achieve profitability.
We have experienced net losses in each of the last four fiscal years, and we
cannot be certain that we will realize sufficient revenue to achieve
profitability. We expect that we will continue to incur significant sales and
marketing and product development costs associated with the recent introduction
of the Gigabit Ethernet products based on our NuWaveArchitecture. Consequently,
we will need to generate significantly higher revenue to achieve and sustain
profitability. If sales of our NuWaveArchitecture products do not meet our
expectations, we will continue to experience losses indefinitely. In addition,
we have discontinued production of the Layer 2 Fast Ethernet and fiber
distributed data interface products that accounted for our historical revenue.
We intend to complete end-of-life sales of these products in the first half of
2000. We cannot assure you that we will be able to sell all inventory relating
to these products. If we are required to write-off any unsold inventory, our
operating results could be adversely affected.
Substantially all of our future revenue depends on the commercial success of
products based on our NuWaveArchitecture, and if these products are not
introduced in time or do not achieve market acceptance our business will be
seriously harmed.
Substantially all of our future revenue depends on the commercial success of
Gigabit Ethernet products based on our NuWaveArchitecture. We recently
introduced the first product based on our NuWaveArchitecture, and we intend to
introduce several new products based on this technology in the near future. If
we experience delays in introducing new products, if these products fail to
meet the needs of our target customers, or if they do not compare favorably in
price and performance to competing solutions, our revenue will not grow. We
cannot assure you that these products will achieve market acceptance. We have
made only limited sales of these products, and it is possible they may not
satisfy our customers' requirements. Failure of products based on our
NuWaveArchitecture to satisfy our customers' requirements could delay or
prevent their adoption. If our target customers do not widely adopt, purchase
and successfully deploy our new products, our revenue will not grow
significantly, or possibly at all, and our business, financial condition and
results of operations will be seriously harmed.
A number of factors could cause our quarterly and annual financial results to
be worse than expected, which could result in a decline in our stock price.
To support anticipated sales of our NuWaveArchitecture products, we plan to
increase our operating expenses to expand our sales and marketing activities,
broaden our customer support capabilities, develop new distribution channels
and fund increased levels of research and development. We base our operating
expenses on anticipated revenue trends, and a high percentage of our expenses
are fixed in the short term. Consequently, any delay or failure in generating
revenue could cause our quarterly and annual operating results to be below the
expectations of public market analysts or investors, which could cause the
price of our common stock to decline.
We may fail to generate or experience a delay in generating revenue for a
number of reasons. Our customer agreements typically provide that the customer
may delay scheduled delivery dates and cancel orders within specified time
frames without significant penalty. Accordingly, we may incur significant
expenses without meeting corresponding anticipated revenue levels for a given
period. In addition, the timing of product
4
<PAGE>
releases, purchase orders and product availability could result in significant
product shipments scheduled for the end of a quarter. Failure to ship these
products by the end of a quarter may adversely affect our operating results.
Our periodic revenue and operating results have varied significantly in the
past and may vary significantly in the future due to a number of factors,
including:
. market acceptance of and demand for our NuWaveArchitecture products;
. decreased average selling prices of our products;
. unexpected product returns or the cancellation or rescheduling of
significant orders;
. our ability to develop, introduce, ship and support new products and
product enhancements and manage product transitions;
. announcements and new product introductions by our competitors;
. our ability to achieve cost reductions;
. our ability to obtain sufficient supplies of components for our products
for which we rely on sole or limited source suppliers;
. increased prices of the components we purchase;
. our ability to attain and maintain production volumes and quality levels
for our products;
. the mix of products sold and the mix of distribution channels through
which they are sold; and
. costs relating to possible acquisitions and integration of technologies
or businesses.
Due to the foregoing factors, we believe that period-to-period comparisons of
our operating results should not be relied upon as an indicator of our future
performance.
Intense competition in the market for LAN equipment could prevent us from
increasing revenue or achieving or sustaining profitability.
The market for local area network, or LAN, equipment is intensely
competitive. Our principal competitors include Alcatel, Bay Networks, Cabletron
Systems, Cisco Systems, Ericsson, Extreme Networks, Foundry Networks, Lucent
Technologies, Nortel Networks, Siemens, and 3Com. Many of our current and
potential competitors have substantially greater financial, technical, sales,
marketing and other resources, as well as greater name recognition and larger
installed customer bases, than we do. These competitors have developed or could
in the future develop new technologies that compete with our products or even
render our products obsolete. We believe that this market will consolidate over
time and that this consolidation could adversely affect our ability to compete
effectively. A number of companies developing technologies similar to ours have
been acquired by our larger competitors. These acquisitions are likely to
permit our competitors to devote significantly greater resources to the
development and marketing of new competitive products and the marketing of
existing products to their installed bases. We expect that competition will
increase as a result of these and other industry consolidations and alliances.
To remain competitive, we believe we must, among other things, invest
significant resources in developing new products with superior performance at
competitive prices, enhance our NuWaveArchitecture products and maintain
customer satisfaction. If we fail to do so, our products may not compete
favorably, and our revenue and future profitability could suffer.
The average selling prices of our products may decrease rapidly, which may
reduce gross margins or revenue if we are unable to reduce our cost of goods
sold.
The enterprise LAN equipment industry has experienced rapid erosion of
average selling prices due to a number of factors, including competitive
pricing pressures and rapid technological change. We may experience substantial
period-to-period fluctuations in future operating results due to the erosion of
our average selling prices. We anticipate that the average selling prices of
our products will decrease in the future in response to competitive pricing
pressures, increased sales discounts, new product introductions by us or our
competitors or other factors. Therefore, to maintain our gross margins, we must
develop and introduce on a timely basis new products and product enhancements
and continually reduce our product costs, particularly the cost of ASICs.
5
<PAGE>
To reduce the cost of ASICs we intend to integrate chips and reduce die sizes.
However, we cannot be certain when or if price reductions will occur. Our
failure to achieve cost reductions would cause our revenue and gross margins to
decline, which would harm our operating results.
We must develop and expand our OEM relationships and other indirect
distribution channels to increase revenue and improve our operating results.
Our distribution strategy focuses primarily on developing and expanding
indirect distribution channels through original equipment manufacturers, or
OEMs, and, to a lesser extent, resellers, as well as expanding our field sales
organization. If we fail to develop and cultivate relationships with
significant OEMs, or if these OEMs are not successful in their marketing and
sales efforts, sales of our products may fail to increase and may even
decrease. Our ability to generate increased revenue depends significantly upon
the ability and willingness of our OEM customers to develop and promote
products that incorporate our technology on a timely basis. If our OEM
customers do not successfully develop and market the solutions that incorporate
our products, then sales of our products to our OEM customers will be adversely
affected. The ability and willingness of OEM customers to develop and promote
our products is based upon a number of factors beyond our control. In addition,
some of our current and potential OEM customers could develop products
internally that would replace our products. The resulting lost sales of our
products to any such OEMs, in addition to the increased competition presented
by these OEMs, could harm our business, financial condition and operating
results.
Although we have secured a limited number of OEM customers for our
NuWaveArchitecture products, nearly all of these customers are still at the
early stages of initial commercial shipments. If our OEM customers are unable
to or otherwise do not ship systems that are based on our products, or if their
shipped systems are not commercially successful, our business, operating
results or financial condition could suffer.
In order to support our indirect distribution channels, we plan to expand our
field sales and support staff. We cannot assure you that this internal
expansion will be successfully completed, that the cost of this expansion will
not exceed the revenue generated or that our expanded sales and support staff
will be able to compete successfully against the significantly more extensive
and well-funded sales and marketing operations of many of our current or
potential competitors. Our inability to effectively establish our distribution
channels or manage the expansion of our sales and support staff could limit our
ability to grow and increase revenue.
Our market is subject to rapid technological change, and we must continually
introduce new products that achieve broad market acceptance to compete
effectively.
The LAN equipment market is characterized by rapid technological change,
frequent new product introductions, changes in customer requirements and
evolving industry standards. If we do not address these changes by regularly
introducing new products, our product line will become obsolete. Developments
in routers and routing software could also significantly reduce demand for our
products. Alternative technologies could achieve widespread market acceptance
and displace the Ethernet technology on which our product lines and
architecture are based. We cannot assure you that our technological approach
will achieve broad market acceptance or that other technologies or devices will
not supplant our approach.
When we announce new products or product enhancements that have the potential
to replace or shorten the life cycle of our existing products, customers may
defer purchasing our existing products. These actions could harm our operating
results by unexpectedly decreasing sales, increasing our inventory levels of
older products and exposing us to greater risk of product obsolescence. The
market for enterprise LAN switching products is evolving, and we believe our
ability to compete successfully in this market is dependent upon the continued
compatibility and interoperability of our products with products offered by
other vendors. In particular, the networking industry has been characterized by
the successive introduction of new technologies and standards that have
dramatically reduced the price and increased the performance of LAN equipment.
To remain competitive, we need to introduce products in a timely manner that
incorporate or are compatible with
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<PAGE>
these new technologies as they emerge. We may experience delays in product
development in the future, and any delay in product introduction could
adversely affect our ability to compete and cause our operating results to be
below our expectations or the expectations of public market analysts or
investors.
Because we expect to depend on a small number of OEM and distribution channel
customers for a significant portion of our revenue in any period, the loss of
any of these customers or any cancellation or delay of a large purchase by any
of these customers could significantly reduce our revenue.
Our sales strategy is to focus on selling our NuWaveArchitecture products to
OEM customers, and we anticipate that, although our largest customers may vary
from period-to-period, a small number of key OEM customers will account for a
significant portion of our revenue in each fiscal period. We cannot assure you
that we will be able to obtain OEM customers, and even if we are successful,
this strategy will pose a number of significant risks. The loss of any key OEM
customers, or a significant reduction in sales to those customers, could
significantly reduce our revenue below anticipated levels. Because our expense
levels are based on our expectations as to future revenue and to a large extent
are fixed in the short term, a substantial reduction or delay in sales of our
products to, or the loss of any significant OEM, reseller or other customer, or
unexpected returns from resellers could harm our business, operating results
and financial condition. While we expect that our financial performance in any
given period will depend on orders from a small number of OEMs, resellers and
other significant customers, we do not have contracts with customers binding
them to minimum purchase quantities, except as set forth in particular purchase
orders. For example:
. our customers can stop purchasing, and our OEMs and resellers can stop
marketing our products, at any time;
. our reseller agreements generally are not exclusive and are for one
year terms, with no obligation of the resellers to renew the
agreements; and
. our OEM and reseller agreements provide for discounts based on expected
or actual volumes of products purchased or resold by the reseller in a
given period.
In the future we expect to establish a program which, under specified
conditions, enables some distributors to return products to us. The amount of
potential product returns will be estimated and provided for in the period of
the sale; however, we cannot assure you that our estimates will be adequate to
cover actual returns.
The sales cycle for our products is long, and we may incur substantial non-
recoverable expenses or devote significant resources to sales that do not occur
when anticipated.
Our sales cycle, particularly to OEMs, typically involves a lengthy
qualification process during which we generally invest significant resources to
address customer specifications. Because of the length of the sales cycle, we
may experience delays between increasing expenses for research and development
and sales and marketing efforts and the generation of higher revenue, if any,
from such expenditures. If sales forecasted from a specific customer for a
particular quarter are not realized in that quarter, we may be unable to
compensate for the shortfall, which could harm our operating results. The
purchase of our products or of solutions that incorporate our products
typically involves significant internal procedures associated with the
evaluation, testing, implementation and acceptance of new technologies. This
evaluation process frequently results in a lengthy sales cycle, typically
ranging from three months to longer than a year, and subjects each sale to a
number of significant risks, including budgetary constraints and internal
acceptance reviews. The length of our sales cycle also may vary substantially
from customer to customer.
We purchase several key components for our products from single or limited
sources and could lose sales if these sources fail to meet our needs.
We currently purchase several key components used in the manufacture of our
products from single or limited sources and depend upon supply from these
sources to meet our needs. We may encounter shortages and delays in obtaining
components in the future that materially adversely affect our ability to meet
customer
7
<PAGE>
orders. In particular, NEC Corporation is the sole manufacturer of the ASICs
that form the core of our NuWaveArchitecture products. We do not have a long-
term supply contract with NEC that obligates them to continue to supply
components to us, and it is possible that they could allocate their resources
to their other customers in the future, which could materially disrupt our
ability to manufacture our products and meet customer demands. Qualifying an
alternative manufacturer of our ASICs would be time consuming, costly and
disruptive. In addition, we acquire certain microprocessors and other
integrated circuits as well as a custom designed power supply from sole source
suppliers. While we believe we could qualify alternative suppliers for these
products, any delays caused by supply disruptions could result in increased
component prices that could adversely affect our gross margins. We also use
certain components, including memory components and printed circuit boards,
that we acquire from limited sources that create risks similar to those created
by our sole source supply arrangements.
We use a rolling six-month forecast based on anticipated product orders to
determine our material requirements. Lead times for materials and components we
order vary significantly and depend on factors such as the specific supplier,
contract terms and market demand for a component at a given time. If orders do
not match forecasts, we may have excess or inadequate inventory of certain
materials and components, which could harm our operating results and financial
condition. From time to time we have experienced shortages and allocations of
certain components, resulting in delays in filling orders. In the future we may
again experience these shortages, particularly with respect to the supply of
semiconductors.
We may need to expand or relocate our manufacturing operations and may depend
on contract manufacturers for a significant portion of our manufacturing
requirements.
We currently manufacture all of our products at our facility in Taiwan. If
the demand for our products grows, we will need to increase our material
purchases, internal manufacturing capacity and internal test and quality
functions. Any disruptions in product flow could limit our revenue, adversely
affect our competitive position and reputation and result in additional costs
or cancellation of orders under agreements with our customers. The property on
which our Taiwan facility is located is currently in receivership. If, as a
result of this receivership, we are unable to maintain our lease of this
property, we may need to relocate our facility. There is no guarantee that we
will be able to find a suitable replacement facility on equal terms or of
sufficient quality.
We have augmented our manufacturing capacity by entering into an agreement
with Solectron Corporation, a contract manufacturer, to manufacture a portion
of our product requirements. As a result of entering into this agreement we may
experience, among others, the following problems, any of which could harm our
business and operating results:
. delays in product shipments;
. reduced control over quality and quantity of products; and
. interruption in the supply of products caused by, among other factors,
the loss of a contract manufacturer.
If we lose key personnel or are unable to hire additional qualified personnel
as necessary, we may not be able to successfully manage our business or achieve
our objectives.
Our success depends to a significant degree upon the continued contributions
of our key management, engineering, sales and marketing, finance and
manufacturing personnel, many of whom would be difficult to replace. In
particular, we believe that our future success is highly dependent on William
Rosenberger, our President and Chief Executive Officer, and Robert Zecha, our
Vice President, Research and Development. We do not have key person insurance
covering any of our personnel.
We believe our future success will also depend in large part upon our ability
to attract and retain highly skilled managerial, engineering, sales and
marketing, finance and manufacturing personnel. Competition for
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<PAGE>
these personnel is intense and we have had difficulty hiring employees,
particularly software engineers, in the timeframe we desire. There can be no
assurance that we will be successful in attracting and retaining the personnel
we require. The loss of the services of any of our key personnel, the inability
to attract or retain qualified personnel in the future, or delays in hiring
required personnel, particularly engineers and sales personnel, could make it
difficult for us to manage our business and meet key objectives. In addition,
companies in the networking industry whose employees accept positions with
competitors frequently claim that competitors have engaged in unfair hiring
practices. We could incur substantial costs in defending ourselves against any
such claims, regardless of the merits of such claims.
If our products do not comply with evolving industry standards and complex
government regulations, they may not achieve market acceptance, which may
prevent us from increasing our revenue or achieving profitability.
The market for LAN equipment is characterized by the need to support industry
standards as they emerge, evolve and achieve acceptance. We will not be
competitive unless we continually introduce new products and product
enhancements that meet these emerging standards. We may not be able to
effectively address the compatibility and interoperability issues that arise as
a result of technological changes and evolving industry standards. In addition,
in the United States, our products must comply with various regulations and
standards defined by the Federal Communications Commission, or FCC, and
Underwriters Laboratories. Internationally, products that we develop may be
required to comply with standards established by telecommunications authorities
in various countries as well as with recommendations of the International
Telecommunication Union. If we do not comply with existing or evolving industry
standards or if we fail to obtain timely domestic or foreign regulatory
approvals or certificates, we may experience delays in product shipments or be
unable to sell our products where these standards or regulations apply, which
could prevent us from increasing our revenue or achieving profitability.
We need to expand our sales and support organizations to increase market
acceptance of our products.
Our products and services require a sophisticated sales effort targeted at
several levels within a prospective customer's organization. We have recently
expanded our sales force and plan to hire additional sales personnel. Unless we
expand our sales force we will not be able to increase revenue. However,
competition for qualified sales personnel is intense, and we might not be able
to hire an adequate number of sales personnel.
We currently have a small customer service and support organization and will
need to increase our staff to support new customers and the expanding needs of
existing customers. The design and installation of networking products can be
complex. Accordingly, we need highly-trained customer service and support
personnel. Hiring customer service and support personnel is very competitive in
our industry due to the limited number of people available with the necessary
technical skills and understanding of our products.
Our ability to increase our revenue depends on successfully expanding our
international sales.
Our ability to grow will depend in part on our ability to increase sales of
our NuWaveArchitecture products to international customers, particularly in
Asia. We anticipate that sales to international customers will constitute a
significant portion of our future sales. There are a number of risks arising
from our international business, including:
. longer accounts receivable collection cycles;
. difficulties in managing operations across disparate geographic areas;
. difficulties associated with enforcing agreements under foreign legal
systems;
. import or export licensing requirements;
. potential adverse tax consequences; and
. unexpected changes in regulatory requirements.
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<PAGE>
Our international sales are denominated in U.S. dollars. As a result, an
increase in the value of the U.S. dollar relative to foreign currencies could
make our products less competitive in international markets.
We may engage in future acquisitions that dilute the ownership interests of our
stockholders and cause us to incur debt and assume contingent liabilities.
As part of our business strategy, we expect to review acquisition prospects
that would complement our current product offerings, augment our market
coverage, enhance our technical capabilities or otherwise offer growth
opportunities. While we have no current agreements or negotiations underway
with respect to any material acquisitions, we may acquire businesses, products
or technologies in the future. In the event of any future acquisitions, we
could:
. issue equity securities which would dilute stockholders' percentage
ownership;
. incur substantial debt; or
. assume contingent liabilities.
Such actions by us could harm our operating results and cause the price of
our common stock to decline. We cannot assure you that we will be able to
successfully integrate any businesses, products, technologies or personnel that
we might acquire in the future, and our failure to do so could harm our
business, operating results and financial condition.
To fund our future operations, we may need additional capital which may not be
available when needed.
We believe that our existing working capital together with proceeds from this
offering and cash available from credit facilities and future operations will
enable us to meet our working capital requirements for at least the next 12
months. However, if cash from future operations is insufficient, or if cash is
used for acquisitions or other currently unanticipated uses, we may need
additional capital. The development and marketing of new products and the
expansion of distribution channels and associated support personnel is expected
to require a significant commitment of resources. In addition, if the market
for enterprise Layer 3 LAN switches were to develop more slowly than we
anticipate, or if we fail to establish significant market share and achieve a
meaningful level of revenue, we may continue to incur significant operating
losses and utilize significant amounts of capital. As a result, we could be
required to raise substantial additional capital. To the extent that we raise
additional capital through the sale of equity or convertible debt securities,
the issuance of such securities could result in dilution to existing
stockholders. If we raise additional funds through the issuance of debt
securities, the securities would have rights, preferences and privileges senior
to holders of common stock and the terms of such debt could impose restrictions
on our operations. We cannot assure you that additional capital, if required,
will be available on acceptable terms, or at all. If we are unable to obtain
additional capital, we may be required to reduce the scope of our planned
product development and marketing efforts, which would harm our business,
financial condition and operating results.
Our management will have broad discretion over the use of the net proceeds.
Failure to use the net proceeds in an effective and beneficial manner could
impede our ability to expand our sales and marketing activities and make
strategic investments.
We have no current specific plans for the use of the net proceeds from this
offering. We intend generally to use the net proceeds from this offering to
fund anticipated increases in inventory and accounts receivable and planned
expansion of our sales and marketing and research and development efforts. We
have not yet determined the actual expected expenditures and thus cannot
estimate the amounts to be used for each specified purpose. The actual amounts
and timing of these expenditures will vary significantly depending on a number
of factors, including, but not limited to, the amount of cash generated by our
operations and the market response to the introduction of any new service
offerings. Depending on future developments and circumstances, we may use some
of the proceeds for uses other than those described above. Our management will
therefore have significant flexibility in applying the net proceeds of this
offering and may use them in a manner with which our stockholders disagree. Our
success and growth depend on the beneficial use of the net proceeds.
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If our products contain undetected software or hardware errors, we could incur
significant unexpected expenses and lose sales.
Complex LAN equipment frequently contains undetected software or hardware
errors when first introduced or as new versions are released. We have
experienced these errors in the past, and we expect that these errors will be
found from time to time in new or enhanced products after commencement of
commercial shipments. These problems may harm our business by causing us to
incur significant warranty and repair costs, diverting the attention of our
engineering personnel from our product development efforts and causing
significant customer relations problems.
Problems arising from the use of our products together with other vendors'
products could disrupt our business and harm our financial condition.
Our products must successfully interoperate with products from other vendors.
As a result, when problems occur in a network, it may be difficult to identify
the source of the problem. The occurrence of hardware and software errors,
whether caused by our products or another vendor's products, could result in
the delay or loss of market acceptance of our products and any necessary
revisions may require us to incur significant expenses. The occurrence of any
such problems would likely harm our business, operating results and financial
condition.
We may be subject to intellectual property infringement claims that are costly
to defend and may adversely affect our business and ability to compete.
Our industry is characterized by the existence of a large number of patents
and frequent claims and related litigation regarding patent and other
intellectual property rights. In particular, many leading network companies
have extensive patent portfolios with respect to networking technology, while
we do not own any patents nor do we have any patent applications pending that
relate to our NuWaveArchitecture products. We may not have taken actions that
adequately protect our intellectual property rights. From time to time, third
parties, including leading companies, have asserted against others and may
assert against us exclusive patent, copyright, trademark and other intellectual
property rights to technologies and related standards that are important to us.
Third parties may assert claims or initiate litigation against us or our
manufacturers, suppliers or customers alleging infringement of their
proprietary rights with respect to our existing or future products. Any of
these claims, with or without merit, could be time-consuming, result in costly
litigation and diversion of technical and management personnel, or require us
to develop non-infringing technology or enter into royalty or license
agreements. These royalty or license agreements, if required, may not be
available on acceptable terms, if at all. If there is a successful claim of
infringement or if we fail to develop non-infringing technology or license the
proprietary rights on a timely basis, our business could be harmed.
If we fail to protect our intellectual property, or if others use our
proprietary technology without authorization, our competitive position may
suffer.
Our success and ability to compete are substantially dependent upon our
internally developed technology and know-how. We rely on a combination of
copyright, trademark and trade secret laws and restrictions on disclosure to
protect our intellectual property rights. As noted above, we have no patents
relating to our NuWaveArchitecture. We also enter into confidentiality or
license agreements with our employees, consultants and corporate partners, and
control access to and distribution of our software, documentation and other
proprietary information. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology.
We or our suppliers and customers may have been adversely affected by the
transition to the Year 2000 in a manner that is not yet apparent.
Although it is now past January 1, 2000, we have not experienced immediate
adverse impact from the transition to the Year 2000. We cannot assure you that
we or our suppliers and customers have not been affected in a manner that is
not yet apparent. In addition, some computer programs that were date sensitive
to
11
<PAGE>
the Year 2000 may not have been programmed to process the Year 2000 as a leap
year, and any negative consequential effects remain unknown. As a result, we
will continue to monitor our Year 2000 compliance and the Year 2000 compliance
of our suppliers and customers.
Our stock price is extremely volatile, and you may not be able to resell your
shares at or above the offering price.
The trading price of our common stock has fluctuated significantly in recent
periods, and it is likely that it will continue to be volatile. See "Price
Range of Common Stock" for information regarding trading prices in recent
periods. It is possible that the price of the common stock will decline below
the offering price, and that you would lose all or part of your investment.
Equity markets, particularly for technology companies, have recently
experienced significant price and volume fluctuations that are unrelated to the
operating performance of individual companies. These broad market fluctuations
may cause the market price of our common stock to decline. In the past,
securities class action litigation has often been instituted against companies
following periods of volatility in the market price of their securities. Any
such litigation, if instituted against us, could result in substantial costs
and a diversion of management's attention and resources.
Changes to financial accounting standards may affect our reported results of
operations.
We prepare our financial statements to conform with generally accepted
accounting principles, or GAAP. GAAP are subject to interpretation by the
American Institute of Public Accountants, the SEC and various bodies formed to
interpret and create appropriate accounting policies. A change in those
policies can have a significant effect on our reported results and may even
affect our reporting of transactions completed before a change is announced.
Accounting policies affecting many other aspects of our business, including
rules relating to purchase and pooling-of-interests accounting for business
combinations and employee stock option grants have recently been revised or are
under review. Changes to those rules or the questioning of current practices
may adversely affect our reported financial results or on the way we conduct
our business. In addition, our preparation of financial statements in
accordance with GAAP requires that we make estimates and assumptions that
affect the recorded amounts of assets and liabilities, disclosure of those
assets and liabilities at the date of the financial statements and the recorded
amounts of expenses during the reporting period. A change in the facts and
circumstances surrounding those estimates could result in a change to our
estimates and could impact our future operating results.
Provisions in our charter documents may delay or prevent a change of control.
Provisions in our certificate of incorporation and bylaws may delay or
prevent a change of control or changes in our management. These provisions
include:
. the division of the board of directors into three separate classes;
. the right of the board of directors to elect a director to fill a
vacancy created by the expansion of the board of directors;
. the ability of the board of directors to alter our bylaws without
getting stockholder approval; and
. the requirement that at least 10% of the outstanding shares are needed
to call a special meeting of stockholders.
Furthermore, we are subject to the provisions of section 203 of the Delaware
General Corporation Law. These provisions prohibit large stockholders, in
particular those owning 15% or more of the outstanding voting stock, from
consummating a merger or combination with a corporation unless this stockholder
receives board approval for the transaction or 66 2/3% of the shares of voting
stock not owned by the stockholder approve the merger or combination.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 2,500,000 shares of
common stock we are offering will be approximately $139.4 million. If the
underwriters fully exercise the over-allotment option, the net proceeds will be
approximately $160.3 million. Net proceeds are what we expect to receive after
we pay the estimated underwriting discount and other estimated expenses for
this offering. For the purpose of estimating net proceeds, we are assuming that
the public offering price will be $59.00 per share.
We expect to use the net proceeds for working capital and general corporate
purposes, particularly to fund anticipated increases in inventory and accounts
receivable and for the planned expansion of our sales and marketing and
research and development efforts. We also may use a portion of the net proceeds
to acquire or invest in businesses, technologies, products or services that are
complementary to our business. We are not currently in discussions regarding
any acquisitions or investments and have no agreements or commitments to
complete any such transaction. Pending our uses of the proceeds, we intend to
invest the net proceeds of this offering primarily in short-term, interest-
bearing instruments.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock and do
not anticipate paying any cash dividends in the foreseeable future. Our current
policy is to retain all of our earnings to finance the growth and development
of our business.
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PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol "NPIX" since our initial public offering in June 1994. The following
table sets forth, for the periods indicated, the high and low closing sales
prices per share of the common stock, as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1997:
First Quarter................................................. $20.08 $ 8.63
Second Quarter................................................ 10.94 6.50
Third Quarter................................................. 7.94 5.38
Fourth Quarter................................................ 7.25 4.94
1998:
First Quarter................................................. $ 8.69 $ 6.25
Second Quarter................................................ 6.94 3.75
Third Quarter................................................. 4.88 3.00
Fourth Quarter................................................ 4.88 2.31
1999:
First Quarter................................................. $ 7.25 $ 3.69
Second Quarter................................................ 19.38 5.75
Third Quarter................................................. 19.94 16.00
Fourth Quarter................................................ 47.75 18.88
2000:
First Quarter (through February 4, 2000)...................... $59.00 $41.88
</TABLE>
On February 4, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $59.00 per share. As of December 31, 1999, there
were approximately 120 holders of record of our common stock. We estimate that
as of December 31, 1999 there were more than 4,000 beneficial holders of our
common stock.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999 on
an actual basis and as adjusted to reflect the sale of the 2,500,000 shares of
common stock that we are offering at an assumed public offering price of
$59.00, after deducting the estimated underwriting discount and estimated
offering expenses:
<TABLE>
<CAPTION>
December 31, 1999
---------------------
Actual As Adjusted
-------- -----------
(unaudited)
(in thousands)
<S> <C> <C>
Long-term debt........................................... -- --
Stockholders' Equity:
Preferred stock: $0.001 par value; 2,000,000 shares
authorized; no shares issued and outstanding, actual
and as adjusted....................................... -- --
Common stock: $0.001 par value; 20,000,000 shares
authorized; 12,749,414 shares issued and outstanding,
actual; 15,249,414 shares issued and outstanding, as
adjusted(1)........................................... $ 13 $ 15
Additional paid-in capital............................. 65,955 205,309
Accumulated deficit.................................... (48,059) (48,059)
-------- ---------
Total stockholders' equity........................... 17,909 157,265
-------- ---------
Total capitalization............................... $ 17,909 $ 157,265
======== =========
</TABLE>
- --------
(1) The share numbers above exclude 2,800,358 shares of common stock issuable
upon exercise of outstanding options with a weighted average exercise price
of $7.13 per share and 734,059 shares reserved for future grants under our
option plans.
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BUSINESS
Industry Background
In today's information-based economy, enterprises depend upon their local
area networks, or LANs, to provide access to information and applications that
are central to their success. As the Internet and complex applications such as
enterprise resource planning, data warehousing and data backup have become
pervasive, the volume of data traffic over LANs has increased dramatically,
thus creating bottlenecks on LANs that degrade performance. In addition,
emerging bandwidth intensive applications that combine voice, graphics and
video are placing even greater demands on LANs. In response to these demands,
enterprises are seeking LAN infrastructure solutions that increase available
bandwidth and improve network performance.
Early LANs and Switches
The first widely deployed enterprise LANs emerged in the 1980s and typically
connected a limited number of computers located near each other to share files
and printing capabilities. Network traffic on these LANs was fairly stable and
predictable because it originated and resided entirely within the LAN, but LANs
varied based on competing technologies, such as Ethernet, Token Ring and
Appletalk. As network traffic grew and Ethernet became the dominant LAN
standard, the basic LAN architecture proved to be inefficient because the
communication activity of every user reduced the ability of other users to
access resources on the LAN. To minimize this impact, LAN designers began
segmenting the LAN into smaller, interconnected networks, or subnets.
Communication between subnets was managed through devices known as hubs and
bridges. To improve LAN performance and manageability as data traffic continued
to increase, LAN designers decreased the size but increased the number of
subnets. The increased number of subnets strained the ability of the connecting
hubs and bridges to provide adequate performance. To manage the increasing
amount of traffic destined for other subnets, many enterprises implemented
Layer 2 switches that provide a direct link between the LAN backbone and each
desktop, thereby eliminating the unnecessary flow of information to every
desktop. Although these Layer 2 switches addressed increased traffic volume,
they were unable to manage increased traffic complexity created by
proliferating incompatible network protocols developed by IBM, DEC and others.
To provide the intelligence necessary to process this multi-protocol traffic,
enterprises began to deploy expensive, software-based Layer 3 routers to
supplement the capabilities of the Layer 2 switches.
Increasing Demands on LAN Infrastructure
Although software-based Layer 3 multi-protocol routers solved many of the
problems with early LANs, the LAN infrastructure is evolving in the face of an
even more demanding environment that highlights some of the limitations of
these devices.
. IP has achieved widespread adoption. In response to increasing user
demands for interoperability between computers from different
manufacturers, Internet Protocol, or IP, has largely replaced
proprietary network protocols in the LAN to become the most widely
adopted network protocol. As a result, the need for multi-protocol
routing has diminished substantially.
. Bandwidth requirements continue to increase rapidly. Recent increases in
the number of users of the Internet have led to an increase in the size
of enterprise LANs and a corresponding increase in the demand for
bandwidth and additional network resources. In addition, data intensive
applications such as e-mail, Internet access, e-commerce, corporate
intranets and enterprise resource planning result in extremely high and
uneven bandwidth demands. This trend is likely to continue as a result
of the convergence of telephony, data and image information onto the
LAN. The resulting intense and uneven bandwidth demands on multi-
protocol routers create delays in processing data traffic, or blocking,
that degrade overall LAN performance.
. Transmission speeds have increased dramatically. Gigabit Ethernet
transmissions now possible on LANs are 100 times faster than the
transmission speed based on the original Ethernet standard. Ethernet has
evolved from 10 million bits per second, or 10Mbps, transmission rates
to 100Mbps Fast Ethernet
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transmission rates to 1000Mbps Gigabit Ethernet transmission rates.
Existing software-based multi-protocol routers have too much processing
overhead to run effectively at Gigabit Ethernet speeds.
. Multiple traffic types require network intelligence. The proliferation
of different types of data traffic, from e-mail to voice to video, has
created a need to distinguish among and prioritize different types of
traffic. Enterprises also need to implement policy management features
in their LANs that enable them to regulate the network response to
traffic and address security issues in accordance with specific business
procedures. The ability to control the delivery of traffic based upon
its level of importance is referred to as quality of service, or QoS.
Enterprises and Internet service providers also need the ability to
distribute traffic across multiple servers and to increase network
security that is most effectively achieved by implementing Layer 4-7
functionality. Because they are designed principally to work at Layer 3,
software-based routers degrade overall network performance when required
to perform Layer 4-7 functions, such as QoS, load balancing and network
security.
Layer 3 Switching
In response to these developments, LAN managers have begun to implement Layer
3 switches in their networks to replace both Layer 2 switches and Layer 3
software-based multi-protocol routers. In Layer 3 switches, the software
functions that enabled multi-protocol routers to move traffic around the
network are embedded in application specific integrated circuits, or ASICs,
built into the switch. As a result, this new class of ASIC-based Layer 3 switch
functions as a less expensive, hardware-based router that offers much faster
performance than a software-based router. These Layer 3 switches can play a
major role in the elimination of performance bottlenecks as enterprises
increasingly use routers to interconnect LANs with the Internet and other wide
area networks, or WANs.
According to the Dell'Oro Group, an independent research firm, the market for
Layer 3 switches totaled $1.7 billion in 1999 and is projected to grow to $4.7
billion in 2003. One of the principal reasons the Layer 3 switching market is
expected to grow so substantially is that enterprise LANs are increasing in
size to accommodate more users. At the same time, the number of users on each
subnet is decreasing to ensure adequate network performance. As the number of
users, network connections and subnets grows, enterprises must deploy more
switches or routers to link the subnets together or to a high-speed corporate
backbone. Because Layer 3 switches offer significant price and performance
advantages over software-based routers, they are becoming a significant element
of the enterprise LAN. Enterprises are demanding Layer 3 switches capable of
operating at Gigabit Ethernet transmission rates that can be part of their
growing and complex networks.
Despite the strong price and performance characteristics of Layer 3 switches
compared to software-based multi-protocol routers, many Layer 3 switch
solutions still have limitations. For example, many Layer 3 Gigabit Ethernet
switches available today block traffic and are not able to operate at the
maximum line rate, or wire speed, in high traffic volume scenarios. Further,
most Layer 3 switches block traffic when additional switches are connected
together, or stacked, to increase port density. Thus, as the size of the LAN
increases, LAN operators must add new Layer 3 switches that increase the
complexity and cost of the LAN. At the same time, network operators are seeking
ways to manage the multiple types of data traffic on their expanding LAN
infrastructures, but many Layer 3 switches have only limited policy management
and QoS capabilities.
The NPI Solution
We design and sell highly scalable, cost-effective Gigabit Ethernet Layer 3
switching solutions designed for the enterprise LAN. All of our Gigabit
Ethernet switching products are based on our proprietary NuWaveArchitecture and
offer wire-speed, non-blocking performance and Layer 4 policy management. As a
result of our advanced product architecture, we are able to deliver the
following benefits to our customers and end-users:
. High performance at low cost. We believe our products deliver
exceptional price/performance advantages regardless of scale or
configuration. Our Layer 3 switches operate at Gigabit Ethernet speeds
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without blocking network traffic. Further, our proprietary
NuWaveArchitecture enables us to offer our products at a lower cost than
current competing Layer 3 switching solutions.
. Scalability. We believe that we offer the only wire-speed, non-blocking
Layer 3 stacked switch solution, thereby enabling enterprises to expand
their LANs without creating bottlenecks or impacting network
performance. We designed our products to enable true stacking, where
additional modular units can connect to existing units via internal high
bandwidth channels that do not block traffic or reduce switch resources.
Using our products, we believe enterprises can increase the number of
Layer 3 switches in their LANs at lower cost and with less performance
degradation and network complexity than current competing switching
solutions.
. Flexibility. We have designed our NuWaveArchitecture to be the basis of
a broad product family. Our proprietary ASIC technology enables us to
rapidly create new product configurations without redesigning the ASICs.
As a result, we believe we can enable our original equipment
manufacturer, or OEM, customers to bring new products to market more
quickly than would be possible using competitive product offerings or
internally developed technology. We believe that this enables us to
effectively pursue additional opportunities to design and produce
products for OEMs. We have also designed our architecture to allow for
implementation of Layer 4-7 functionality and directory-enabled policy
management features.
. Manageability. All of our products are designed to operate with widely
deployed network equipment and protocols to facilitate integration with
growing and changing enterprise LAN infrastructures. In addition, our
products' true stacking capabilities simplify network management because
our management software views the stacked modules as a single unit.
NuSightGEMS, our suite of software management applications, is designed
to support network management functions, and we are enhancing it to
offer policy management capabilities. As a result of these features, we
believe our products can reduce the complexities of network management
and the overall cost of ownership.
Strategy
Our objective is to be the leading OEM supplier of Layer 3-7 Gigabit Ethernet
switching solutions. The key elements of our strategy are highlighted below.
. Focus on OEM customers. We believe that a significant number of network
equipment vendors desire to rapidly enter the Layer 3 switching market
and that our product architecture can help them achieve this goal. We
have designed our NuWaveArchitecture to satisfy OEM requirements and are
focusing our sales and marketing resources primarily on obtaining OEM
customers. We offer OEM customers high performance, modular and cost-
effective products that are designed to enable them to compete
effectively in the Layer 3 switching market.
. Leverage Gigabit Ethernet Layer 3 switching technology leadership. Our
technological leadership is based on our NuWaveArchitecture and our
proprietary ASICs. We intend to continue to invest our engineering
resources in ASIC and product architecture development to increase the
performance and functionality of our products. We also intend to
actively participate in standards setting organizations to ensure that
we design our products and product enhancements to leverage the
capabilities of evolving standards and to achieve widespread market
adoption.
. Expand product offering and functional capability. We intend to
introduce new products and product enhancements based on our
NuWaveArchitecture to address the evolving needs of enterprises and
Internet service providers. We plan to leverage the flexibility of the
NuWaveArchitecture to offer Layer 3 switches with higher port densities
in a variety of configurations, including stackable configurations that
support wire-speed, non-blocking operations across the entire stack. We
also plan to increase the port densities of certain configurations as
well as the types of form factors supported by augmenting our stackable
configurations with chassis-based designs. We are currently developing
new Layer 4-7 capabilities designed to meet evolving market requirements
such as load balancing, improved web
18
<PAGE>
hosting support, caching support, more robust security, application
awareness, class of service support and enhanced quality of service
support.
. Leverage ASIC core competencies to reduce product cost. We intend to
continue to refine our ASICs and product architecture to reduce the
component and manufacturing costs of our products. We believe that our
technology will continue to give us a competitive advantage as the
prices of Layer 3 switches decline.
. Provide high quality customer service and support. We intend to leverage
and expand our existing customer service and support organization to
enhance our relationships with our customers. For OEM customers, we plan
to extend our network directly to our customers to improve information
flow and strengthen the relationship with our customers. In addition to
offering a one-year warranty on all of our Layer 3 switches, we offer
several support contracts of varying lengths at additional cost.
Technology and Products
All of our Gigabit Ethernet switches are based on our flexible
NuWaveArchitecture, which combines advanced design and proprietary ASICs to
deliver standards-based switches that are intended to work seamlessly with any
existing LAN. Our NuWaveArchitecture offers the industry's only wire-speed,
non-blocking performance capability on all ports in a stackable configuration
and facilitates the creation of multiple configurations of Fast Ethernet and
Gigabit Ethernet switches. This architecture offers a 64 Gigabit per second, or
64-Gbps, crosspoint switch fabric that enables standard configurations of up to
96 Fast Ethernet ports or 16 Gigabit Ethernet ports or a combination of Fast
Ethernet and Gigabit Ethernet ports. All ports operate at Layer 2 and Layer 3
and provide Layer 4 functionality. In addition, the NuWaveArchitecture
eliminates blocking with multiple input buffers, separate queues for unicast
and multicast traffic and other special queuing and buffering techniques.
Further, our architectural approach gives us the capability to increase
functionality and reduce cost in future generations of NuWaveArchitecture.
19
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Per
Per Port Port
Price Price
Current (Fast (All
Product Name Status Configuration Ethernet) Ports)
<C> <C> <S> <C> <C>
STANDALONE SWITCHING SOLUTIONS
Keystone24g Shipping 24 Fast Ethernet ports and $196 $254
option slots for 2 Gigabit ports
STACKABLE SWITCHING SOLUTIONS
Keystone24mg Shipping 24 Fast Ethernet ports and $258 $315
option slots for 2 Gigabit ports
- -------------------------------------------------------------------------------
Capstone24t Scheduled Stacking slave with 24 Fast $178 n/a
to ship Ethernet ports for 24mg
first
quarter
2000
- -------------------------------------------------------------------------------
Capstone8f Scheduled Stacking slave with 8 Fast $524 n/a
to ship Ethernet fiber ports for 24mg
first
quarter
2000
BACKBONE SWITCHING SOLUTIONS
Cornerstone6g Scheduled 12 Gigabit ports (SX/LX and $112 $542
to ship Copper)
first
quarter
2000
</TABLE>
Standalone LAN Switching Solutions
Keystone24g. We began commercial shipments of the Keystone24g in December
1999. It was the first commercially available Gigabit Ethernet switch based on
our NuWaveArchitecture. It is a fully managed standalone Layer 3 switch with 24
fixed Fast Ethernet ports and two optional Gigabit up-links. The Keystone24g
features advanced, traffic-enhancing capabilities such as wire-speed IP routing
and support for QoS traffic classes, IP Multicast and protocol-based virtual
LANs.
Stacking LAN Switching Solutions
Keystone24mg Stack Master. We began commercial shipments of the Keystone24mg
Stack Master in January 2000. It is a highly scalable, fully managed Layer 3
switch that supports high capacity Gigabit Ethernet and Fast Ethernet
interfaces. The Keystone24mg incorporates a powerful, non-blocking 64-Gbps
switching fabric. The Keystone24mg Stack Master has 24 fixed Fast Ethernet
ports and in a stacked environment can provide up to 96 Fast Ethernet ports
without blocking. Enterprises can combine the Keystone24mg with up to three
Capstone24t and/or Capstone8f Stack Slaves to provide a highly scalable, cost-
effective Layer 3 stacked switching solution. The Keystone24mg Stack Master
communicates with and manages all Capstone Stack Switch ports over the stacking
interface as if they were built directly into the Keystone24mg chassis. The use
of dedicated, separate channels for user data and management and control
information is designed to ensure wire-speed performance even under sustained
periods of high traffic volume while maintaining network integrity.
Capstone24t Stack Slave. We expect to commence commercial shipments of our
Capstone24t Stack Slave in the first quarter of 2000. The Capstone24t connects
to the Keystone24mg over an advanced stacking interface based on our
proprietary ASICs. The interface connects the Capstone24t directly to the
Keystone24mg's 64-Gbps switching fabric. The Capstone24t sends data over a
dedicated 6-Gbps channel and sends management and control information over a
separate 2-Gbps link. The Capstone24t has 24 fixed, full-duplex, auto-
negotiating Fast Ethernet ports. One Capstone24t and one Keystone24mg create a
48-port stack, while a combination of one Keystone24mg and three Capstone24t
switches creates a 96-port stack. The
20
<PAGE>
addition of two optional Gigabit up-links on the Keystone24mg can expand the
stack functionality and extend the price/performance advantages.
Capstone8f Stack Slave. We expect to commence commercial shipments of the
Capstone8f Stack Slave in the first quarter of 2000. The Capstone8f is similar
in features and functions to the Capstone24t except that it is designed to
communicate over a fiber connection rather than a copper connection used in the
Capstone24t. Each Capstone8f offers 8 fixed Fast Ethernet ports. A combination
of one Keystone24mg and three Capstone8f switches builds a 48-port stack.
Backbone Switching Solutions
Cornerstone6g Switch. We expect to commence commercial shipments of the
Cornerstone6g in the first quarter of 2000. The Cornerstone6g provides up to 12
Gigabit ports and 16 Fast Ethernet ports. The Cornerstone6g is a fully managed
standalone switch that supports high capacity Gigabit Ethernet and Fast
Ethernet port configurations. The base unit has six fixed Gigabit Ethernet
ports. Customers can also choose an additional six Gigabit Ethernet ports and a
16 port Fast Ethernet option. Gigabit Ethernet ports on the Cornerstone6g are
available in short-haul fiber (SX) and long-haul fiber (LX), and we are
developing a configuration that utilizes copper. We believe this combination of
port options makes our Cornerstone6g suitable for a range of high performance
applications, including data centers, network backbones and power workgroups.
Management Software
NuSightGEMS is our Gigabit Ethernet management software that we bundle and
ship with our NuWaveArchitecture products. The initial version shipped with our
Keystone24g in December 1999, and we intend to offer enhanced versions for each
of our NuWaveArchitecture products as they are produced. NuSightGEMS provides
advanced and easy to use management capabilities that simplify user
configuration of our products as well as diagnostic and management tools. This
software allows users to define policies to prioritize traffic flowing through
the switch according to user name, user group, time of day and location.
NuSightGEMS is based on widely accepted industry standards and interoperates
with a variety of management software applications. Further, we are enhancing
NuSightGEMS to interact with Novell's Network Directory Services to provide
customers with Directory Enabled Network functions that can establish network
behavior based on user-defined procedures. We expect that future releases of
NuSightGEMS will take advantage of the various QoS functions incorporated into
our NuWaveArchitecture to give customers greater management control and
flexibility over our products and their LANs.
Customers, Sales and Marketing
Customers and Markets. Our NuWaveArchitecture enables us to design products
for the enterprise and service provider markets, including Internet service
providers, competitive local exchange carriers and incumbent local exchange
carriers. Our Keystone24g is targeted at the growing small- to medium-sized
enterprise market. The Keystone24g can be used on desktops, wiring closets and
in the corporate backbone network. Our stackable switching solution, the
Keystone24mg, is aimed at the enterprise market as well as at the rapidly
growing service provider market. When combined with the Capstone24t and the
Capstone8f, we believe the Keystone24mg will offer the only true stacked Layer
3 switching solution designed to meet the growth objectives of enterprises and
service providers without sacrificing network performance. The Cornerstone6g is
designed to meet the increased speed, performance and bandwidth demands of the
medium to large enterprise LAN and of the growing service provider markets.
These switches are designed for use in wiring closets and in backbone
environments.
We focus our sales and marketing efforts on OEMs, value added resellers, or
VARs, system integrators and distributors. As of December 31, 1999, our
worldwide sales and marketing organization included 34 full-time technically
trained marketing, sales and support personnel located in the United States,
the Netherlands
21
<PAGE>
and Taiwan. We have domestic sales offices located in Fremont and Los Angeles,
California, and Boston, Massachusetts.
OEMs. We anticipate that the majority of our sales in future periods will be
to OEM customers. OEMs frequently require that suppliers modify their product
configuration to meet specific parameters such as port density or management
functionality. Our NuWaveArchitecture is designed to allow OEMs to quickly
create or expand their product lines for the rapidly growing enterprise market
at lower costs and with greater functionality than possible with other switch
architectures. We intend to leverage the flexibility of the NuWaveArchitecture
to integrate our products into OEMs' product lines. OEMs can exercise
significant influence in the development of our target market because they
utilize our products to deliver to end users complete, factory-configured
solutions that are installed and field-serviced by the OEM's technical support
organizations. We intend to partner with leading OEMs to introduce new products
and develop new markets. OEMs will provide critical input as we develop the
next generation of products. Our sales personnel, in addition to traditional
marketing and sales functions, are responsible for initiating and developing
relationships with OEM leaders in the computer networking industry. While we do
not generally obtain long-term purchase commitments from OEM customers, we
enter into contracts with OEM customers to establish the terms and conditions
of sales made pursuant to orders from OEMs. Further, the OEM customers
typically provide us with a rolling forecast up to three months in advance of
shipment.
VARs, System Integrators and Distributors. We also expect to derive future
revenue from sales to VARs, system integrators and distributors. We have
existing relationships with a large number of these distribution channel
customers due to our experience with our legacy products. We intend to leverage
this base of resellers to seek new opportunities in the deployment of the
NuWave product line. Our technically trained staff is responsible for
initiating and developing relationships with these customers by providing
insight into the evolution of the network environment and facilitating the
development and deployment of optimal network solutions, domestically and
internationally.
Customer Service and Support and Quality Assurance
Our customer service and support organization maintains and supports products
sold by our sales force to end users, and provides technical support to our
VARs and OEMs. Generally, our VARs and OEMs provide installation, maintenance
and support services to their customers, and we assist them in providing such
support. Questions and problems from end users, VARs and OEMs can be handled
via telephone, e-mail and facsimile. Our website is continually updated to
enable our customers to download the latest technical information and tips,
along with firmware, software and product manuals. This same group also
conducts new product Beta testing to ensure that our new products will meet
customer requirements when those products reach the marketplace.
Our quality assurance organization is tied to our customer service and
support organization in order to maintain its focus on satisfaction of customer
requirements and expectations. This group conducts network testing, OEM and
third party testing, problem reproduction and resolution and validation of
manufacturing tools in order to ensure compliance with industry standards,
product performance and interoperability with our customer's existing
equipment.
Manufacturing
Our manufacturing operations consist of procurement of components and the
assembly, testing and quality assurance of finished goods for shipment to
customers. We purchase the components of our products, including our
proprietary ASICs, circuit boards, integrated circuits and power supplies, from
third parties. NEC is the sole manufacturer of our ASICs. We monitor the
quality of the purchased components through quality assurance procedures at our
manufacturing facility in Taiwan and in our headquarters in Fremont,
California. We currently conduct final test and assembly of our products at our
manufacturing facility in Taiwan, which is
22
<PAGE>
staffed by 52 full-time personnel experienced in advanced manufacturing, test
engineering and quality assurance. Our manufacturing operation is ISO 9002
certified.
In January 2000, we entered into an agreement with Solectron Corporation, a
major contract manufacturer with global capabilities, located in Milpitas,
California, to provide additional manufacturing capacity. This arrangement will
enable us to manufacture our products near our customers and accommodate
significant increases in production volume, if necessary. Under this contract,
Solectron will purchase the components for our products and assemble them to
our specifications. We believe this will enable us to leverage Solectron's
established relationships with suppliers to procure materials at reduced costs
and mitigate potential supply constraints. We intend to utilize Solectron's
resources and expertise to assist us in manufacturing, engineering, repair and
product testing and burn-in. We intend to continue to perform all component and
supplier qualification, quality assurance and document control at our
facilities.
We select suppliers on the basis of technology, manufacturing capacity,
quality and cost. Whenever possible and practicable, we strive to have at least
two manufacturing locations for each component. Nevertheless, our reliance on
third party suppliers and manufacturers involves risks, including possible
limitations on availability of products due to market abnormalities or lack of
control over delivery schedules, manufacturing yields and total production
costs. The inability of our suppliers to deliver products of acceptable quality
and in a timely manner or our inability to procure adequate supplies of our
products could have a material adverse effect on our business, financial
condition or operating results.
Competition
The markets in which we compete are intensely competitive and are
characterized by frequent new product introductions, changing customer
preferences and evolving technology and industry standards. Our competitors
continue to introduce products with improved price/performance characteristics,
and we will have to do the same to remain competitive. Increased competition is
likely to result in significant price reductions and may result in lower than
expected revenues or profit margins, any of which could harm our business,
financial condition or operating results.
Many of our current and potential competitors have significantly broader
product offerings, greater financial, technical, marketing and other resources,
and larger installed base of customers than we do. The Layer 3 switching market
is in the early stage of development with competition in this market coming
from relatively new market entrants such as Extreme Networks and Foundry
Networks, as well as from more established companies such as Nortel Networks,
Cisco Systems and 3Com. We believe that this market will consolidate over time
and that this consolidation could adversely affect our ability to compete
effectively. A number of companies developing technologies similar to ours have
been acquired by our larger competitors. These acquisitions are likely to
permit our competitors to devote significantly greater resources to the
development and marketing of new competitive products and the marketing of
existing products to their installed bases. We expect that competition will
increase as a result of these and other industry consolidations and alliances.
Some of our current and potential OEM customers could develop products
internally that would replace our products. The resulting lost sales of our
products to any such OEMs, in addition to the increased competition presented
by these OEMs, could harm our business, financial condition and operating
results.
We believe that the principal competitive factors in the LAN equipment market
include the completeness of product offerings, product quality, price and
performance, adherence to industry standards, the degree of interoperability
with other networking equipment and time to market for new products. We believe
that we compete favorably with respect to each of these factors. In particular,
we believe that our true stacking Layer 3 switching solutions compete favorably
with respect to price when compared to other Layer 3 switches available today.
23
<PAGE>
Employees
As of December 31, 1999, we employed 145 persons, including 29 in research
and development, 34 in sales, marketing and technical support, 61 in
manufacturing and support and 21 in finance and administration. Of these
employees, 71 were in international locations. None of our employees is
represented by a labor union. We consider our relations with our employees to
be good. Competition for employees in our industry and geographical areas is
intense, and there can be no assurance that we will be successful in attracting
and retaining such personnel.
Facilities
Our principal executive offices are located in Fremont, California, and
consist of 22,500 square feet under a lease that will expire in October 2004.
Additionally, we have research and development facilities in Long Island, New
York and manufacturing facilities in Taiwan. The property on which our Taiwan
facility is located is currently in receivership. If, as a result of this
receivership, we are unable to maintain our lease of this property, we may need
to relocate our facility, which could result in delays in the manufacturing of
our products. There is no guarantee that we will be able to find a suitable
replacement facility on equal terms or of sufficient quality. We have
international sales offices in the Netherlands and Taiwan, as well as satellite
offices in Los Angeles, California and Boston, Massachusetts. We expect that
these existing facilities will be generally adequate to meet our immediate and
foreseeable needs.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our operations. As of the date of this prospectus, we are not a
party to any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on our business, financial
condition or results of operations.
24
<PAGE>
MANAGEMENT
The names of our directors and executive officers and their ages as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---------------------------- --- -------------------------------------------
<C> <C> <S>
President, Chief Executive Officer and
William F. Rosenberger...... 50 Director
Robert J. Zecha............. 42 Vice President, Research and Development
James T. Sullivan........... 47 Vice President, Sales
Vice President, Finance and Chief Financial
Wilson Cheung............... 36 Officer
Joseph R. Botta............. 59 Vice President, Operations
Jerry D. McDowell........... 54 Vice President, Marketing
Glenn E. Penisten........... 68 Chairman of the Board of Directors
Steve Bell.................. 45 Director
Michael S. Gardner.......... 55 Director
Charles J. Hart............. 61 Director
</TABLE>
William Rosenberger has served as the President, Chief Executive Officer and
a director of NPI since July 1998. From January 1996 to June 1998, Mr.
Rosenberger was President and Chief Executive Officer of NetAccess, Inc., a
wide area networking equipment manufacturer. From October 1995 to December
1995, Mr. Rosenberger was Vice President of Sales and Business Development for
NetVision Corporation, an Ethernet switching company. From March 1993 to June
1995, Mr. Rosenberger was General Manager of ACSYS, Inc., a networking
equipment manufacturer. Prior to March 1993, Mr. Rosenberger was President and
Chief Executive Officer of Netronix, Inc., a networking hardware designer and
manufacturer.
Robert Zecha has served as Vice President of Research and Development of NPI
since April 1997. From January 1997 to April 1997, Mr. Zecha served as
President and Chief Technology Officer of NetVision Corporation, an Ethernet
switching company. From November 1993 to January 1997, Mr. Zecha was a Vice
President and Chief Technology Officer of NetVision Corporation. Mr. Zecha was
a director of NetVision Corporation from November 1993 through April 1997.
Prior to November 1993, Mr. Zecha held engineering management positions at
Standard Microsystems Corporation, a networking company.
James Sullivan has served as Vice President of Sales since joining NPI in
October 1997. From July 1985 to July 1997 he held several sales management
positions with Novell, Inc., including Vice President of Worldwide OEM Sales
and Senior Director of North American Channel Sales.
Wilson Cheung has served as Vice President of Finance and Chief Financial
Officer of NPI since October 1998. Preceding the appointment to this office,
Mr. Cheung held various management positions since joining NPI in July 1995.
From July 1994 to June 1995, Mr. Cheung was a financial analyst at Sybase Inc.,
a software company. From 1992 through June 1994, Mr. Cheung held various senior
financial analyst positions at Raychem Corporation, a materials component
company. From 1988 to 1991 Mr. Cheung was a senior auditor at Coopers &
Lybrand.
Joseph Botta has served as Vice President of Operations of NPI since June
1999. Previously, Mr. Botta was the Principal Owner of Silver Creek
Investments. From March 1997 through November 1997, he was the Vice President
of Operations at ACT Networks, Inc., a wide area network products manufacturer.
From 1988 to 1997, he held various management positions at Whittaker
Corporation, formerly Hughes LAN Systems, a network company, most recently
serving as Executive Vice President.
Jerry McDowell has served as Vice President of Marketing of NPI since
November 1998. From June 1996 to November 1998 he was President and Executive
Director of Research of The Robert Frances Group, a syndicated market research
firm that he co-founded. From March 1994 to November 1996, Mr. McDowell was
Senior Director of Marketing and Business Development at Objective Systems
Integrators, a software company.
25
<PAGE>
Mr. McDowell has also served in executive and management positions at
Dataquest, the Meta Group, Wang Laboratories, Paradyne and others.
Glenn Penisten has served as the Chairman of the Board of Directors of NPI
since June 1996. From 1985 to present, he has been a partner of Alpha Partners,
a venture capital firm. He has served as Chief Executive Officer for several
leading technology companies, including: Superconductor Technologies, Inc.,
from May 1987 to June 1988; American Microsystems, Inc., from July 1976 to
December 1984; and Data Transmission Co., from February 1972 to April 1976. Mr.
Penisten has also held director level positions at Dataproducts Corporation,
Sanders Associates and Gould, Inc. He served as a corporate officer at Texas
Instruments, Inc., and chairman of the American Electronics Association. Mr.
Penisten currently serves as director for Ikos Systems, Bell Microproducts,
Pinnacle Systems and Superconductor Technologies, Inc.
Steve Bell has served as a director of NPI since July 1998. From March 1998
to the present, Mr. Bell has served as President and Chief Executive Officer of
SVNL of Agilent (formerly Silicon Valley Networking Laboratory, Inc.), a
provider of networking testing services. From November 1999 to the present, he
has served as General Manager of Agilent Technologies West Coast, a networking
lab business. From September 1993 to present, Mr. Bell has been founder and
President of Bell Consulting, Inc., a networking industry consultancy. Mr. Bell
has also held marketing and engineering management positions at AT&T Bell Labs,
Western Digital, National Semiconductor and Hughes LAN Systems.
Michael Gardner has served as a director of NPI since May 1998. From July
1999 to the present, Mr. Gardner has been Senior Vice President, Operations of
Blue Pumpkin Software, a software company. From February 1998 to April 1999,
Mr. Gardner served as Senior Vice President for Sybase, Inc., an information
management software company. From November 1996 to February 1998, Mr. Gardner
was Chief Operating Officer for ACT Networks, a wide-area network access
products manufacturer. From May 1995 to November 1996, Mr. Gardner was
President of Whittaker Communications (formerly Hughes LAN Systems), a
networking company. From April 1993 to April 1995, Mr. Gardner was Senior Vice
President of Worldwide Sales for UB Networks, a supplier of networking systems.
Charles Hart has served as a director of NPI since November 1996. From
February 1999 to present, he has been the Chief Executive Officer of
SANetworks, Inc., a manufacturer of networking interface cards and switches.
Previously in 1998, he served as the Chief Executive Officer and a director of
Micronics Computers Inc., a supplier of advanced system boards for high-
performance personal computers. From April 1997 through February 1998, he
served as the Executive Vice President, Business Development, for NPI. From
August 1995 to May 1997, he was a founding board member of InsWeb Corporation,
an internet technology company providing a vertically integrated marketplace
for the insurance industry on the World Wide Web. From July 1992 through July
1995, he was President and Chief Executive Officer of Semaphore Communications
Corporation. Previously, he held positions of President and Chief Executive
Officer with Phaser Systems, Etak, Inc. and Nestar Systems, Inc.
26
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to beneficial
ownership of our common stock as of December 31, 1999 and as adjusted to
reflect the sale of the common stock offered by this prospectus, by the
following:
. each of our directors and executive officers;
. all of our directors and executive officers as a group; and
. each person or entity who is known by us to beneficially own more than 5%
of our common stock.
<TABLE>
<CAPTION>
Percentage of Ownership
Directors and Executive Number of Shares --------------------------------------
Officers Beneficially Owned Prior to Offering(1) After Offering(1)
----------------------- ------------------ -------------------- -----------------
<S> <C> <C> <C>
Seneca Ventures (2)..... 1,016,000 8.0% 6.7%
68 Wheatley Road
Brookville, New York
11545
Glenn Penisten(3)....... 466,925 3.5 3.0
William F.
Rosenberger(4)......... 211,333 1.6 1.4
Robert Zecha(5)......... 78,332 * *
Steve Bell(5)........... 21,916 * *
James Sullivan(5)....... 69,165 * *
Charles Hart(5)......... 18,540 * *
Wilson Cheung(6)........ 28,069 * *
Michael Gardner(5)...... 14,249 * *
Joseph Botta............ -- * *
Jerry McDowell(5)....... 42,800 * *
All directors and
executive officers as a
group (10 persons)(7).. 951,329 7.0% 5.9%
</TABLE>
- --------
*Represents less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person
that are currently exercisable, or will become exercisable within 60 days
after December 31, 1999, are deemed outstanding. Such shares, however, are
not deemed outstanding for purposes of computing the percentage ownership
of any other person. Unless otherwise indicated in the footnotes to this
table, the persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
(2) Based on information contained in the Schedule 13G filed on October 8, 1999
by the above entity and other members of a group of which that entity is a
part, including Woodland Venture Fund, Woodland Partners, Barry Rubenstein,
Marilyn Rubenstein and Woodland Services Corp.
(3) Includes 446,667 shares issuable upon the exercise of outstanding stock
options, which were exercisable at December 31, 1999 or within 60 days
thereafter.
(4) Includes 208,333 shares issuable upon the exercise of outstanding stock
options, which were exercisable at December 31, 1999 or within 60 days
thereafter.
(5) Represents the number of shares issuable upon the exercise of outstanding
stock options, which were exercisable at December 31, 1999 or within 60
days thereafter.
(6) Includes 28,019 shares issuable upon exercise of outstanding stock options,
which were exercisable at December 31, 1999 or within 60 days thereafter.
(7) Includes 928,021 shares issuable upon exercise of outstanding stock
options, which were exercisable at December 31, 1999 or within 60 days
thereafter.
27
<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Bear, Stearns & Co. Inc. and Prudential
Securities Incorporated are acting as representatives, have each agreed to
purchase from us the respective number of shares of common stock shown opposite
its name below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Lehman Brothers Inc. ...........................................
Bear, Stearns & Co. Inc. .......................................
Prudential Securities Incorporated..............................
---------
Total......................................................... 2,500,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement. It also provides that, if any of the
shares of common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock that the underwriters have
agreed to purchase under the underwriting agreement must be purchased. The
conditions contained in the underwriting agreement include the requirement
that:
. the representations and warranties made by us to the underwriters are
true,
. there is no material change in the financial markets; and
. we deliver to the underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus. The representatives have also
advised us that the underwriters propose to offer the shares of common stock to
dealers, who may include the underwriters, at the public offering price less a
selling concession not in excess of $ . per share. The underwriters may
allow, and the dealers may reallow, a concession not in excess of $ . per
share to brokers and dealers. After completion of the offering, the
underwriters may change the offering price and other selling terms.
We have granted to the underwriters an option to purchase up to 375,000
additional shares of common stock, exercisable to cover over-allotments, if
any, at the public offering price less the underwriting discounts shown on the
cover page of this prospectus. The underwriters may exercise this option at any
time until 30 days after the date of the underwriting agreement. If this option
is exercised, each underwriter will be committed, so long as the conditions of
the underwriting agreement are satisfied, to purchase a number of additional
shares of common stock proportionate to the underwriter's initial commitment as
indicated in the table above and we will be obligated, under the over-allotment
option, to sell the shares of common stock to the underwriters.
The following table shows the per share and total underwriting discount to be
paid to the underwriters by us. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares.
<TABLE>
<CAPTION>
Paid by Network Peripherals Inc. No Exercise Full Exercise
-------------------------------- ----------- -------------
<S> <C> <C>
Per share........................................ $ $
Total............................................
</TABLE>
We estimate that the total expenses of the offering, excluding the
underwriting discount, will be approximately $400,000.
28
<PAGE>
We have agreed that, without the prior written consent of Lehman Brothers
Inc., we will not, directly or indirectly, offer, sell or otherwise dispose of
any shares of common stock or any securities that may be converted into or
exchanged for any shares of common stock for a period of 90 days from the date
of this prospectus. All of our executive officers and directors have also
agreed under lock-up agreements that, without the prior written consent of
Lehman Brothers Inc., they will not, directly or indirectly, offer, sell or
otherwise dispose of any shares of common stock or any securities that may be
converted into or exchanged for any shares of common stock for the period
ending 90 days after the date of this prospectus.
Our common stock is quoted on the Nasdaq National Market under the symbol
"NPIX."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The representatives also may impose a penalty bid on underwriters and selling
group members. This means that, if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members that sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the securities by purchasers
in an offering.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters make any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
Prudential Securities Incorporated facilitates the marketing of new issues
online through its Prudential Securities.com division. Clients of Prudential
AdvisorSM, a full service brokerage firm program, may view offering terms and a
prospectus and place orders through their financial advisors.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter in this offering, and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
29
<PAGE>
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
page of this prospectus.
As permitted by Rule 103 of Regulation M promulgated by the Securities and
Exchange Commission under the Exchange Act, the underwriters, if any, that are
market makers, referred to as passive market makers, in the common stock, may
make bids for or purchases of the common stock on the Nasdaq National Market
until the time, if any, when a stabilizing bid for the securities has been
made. Rule 103 generally provides that:
. a passive market maker's net daily purchases of the common stock may not
exceed 30% of its average daily trading volume in the securities for the
two full consecutive calendar months (or any 60 consecutive days ending
within the 10 days) immediately preceding the filing date of the
registration statement of which this prospectus forms a part;
. a passive market maker may not effect transactions or display bids for
the common stock at a price that exceeds the highest independent bid for
the common stock by persons who are not passive market makers; and
. bids made by passive market makers must be identified as such.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by
Gray Cary Ware & Freidenrich LLP, San Diego, California. Pillsbury Madison &
Sutro LLP, San Francisco, California, is acting as counsel for the underwriters
in connection with selected legal matters relating to the shares of common
stock offered by this prospectus.
EXPERTS
The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K of Network Peripherals Inc. for the year ended
December 31, 1999 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
ABOUT NETWORK PERIPHERALS
We have filed with the SEC a registration statement on Form S-3, including
the exhibits and schedules thereto, under the Securities Act with respect to
the shares to be sold in this offering. This prospectus does not contain all
the information set forth in the registration statement. For further
information about us and the shares to be sold in this offering, please refer
to the registration statement. Statements contained in this prospectus as to
the contents of any contract, agreement or other document referred to, are not
necessarily complete, and in each instance please refer to the copy of the
contract, agreement or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by this reference.
You may read and copy all or any portion of the registration statement or any
reports, statements or other information we file with the SEC at the SEC's
public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.C.,
Washington, D.C. 20549 and at the regional offices of the SEC located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can
request copies of these documents upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our SEC filings, including the
registration statement, will also be available to you on the SEC's Web site.
The address of this site is http://www.sec.gov.
30
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The Securities and Exchange Commission, or the SEC, allows us to incorporate
by reference the information we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information we file later with the SEC will automatically
update and supersede this information. We incorporate by reference the
documents listed below and any future filings made by us with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until the sale of all of the shares of common stock that are part of this
offering. The documents we are incorporating by reference are as follows:
. our Annual Report on Form 10-K for the year ended December 31, 1999; and
. the description of our common stock contained in our registration
statement on Form 8-A declared effective by the SEC on June 28, 1994,
including any amendments or reports filed for the purpose of updating
that description.
Any statement contained in a document that is incorporated by reference will
be modified or superseded for all purposes to the extent that a statement
contained in this prospectus (or in any other document that is subsequently
filed with the SEC and incorporated by reference) modifies or is contrary to
that previous statement. Any statement so modified or superseded will not be
deemed a part of this prospectus except as so modified or superseded.
You may request a copy of these filings at no cost by writing or telephoning
our investor relations department at the following address and telephone
number:
Network Peripherals Inc.
2859 Bayview Drive
Fremont, California 94538
(510) 897-5000
31
<PAGE>
2,500,000 Shares
[NPI Logo]
Common Stock
-------------
PROSPECTUS
, 2000
-------------
Lehman Brothers
Bear, Stearns & Co. Inc.
Prudential Volpe Technology
a unit of Prudential Securities
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fees, the NASD fee
and the Nasdaq Stock Market listing fee.
<TABLE>
<CAPTION>
To be Paid
by the Registrant
-----------------
<S> <C>
SEC Registration Fee....................................... $ 35,911
Nasdaq filing fee.......................................... 17,500
NASD filing fee............................................ 14,103
Accounting fees and expenses............................... 100,000
Legal fees and expenses.................................... 150,000
Printing fees.............................................. 75,000
Miscellaneous expenses..................................... 7,486
--------
Total.................................................. $400,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
indemnification of officers, directors and other corporate agents under certain
circumstances and subject to certain limitations. The Registrant's Certificate
of Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by the
DGCL, including in circumstances in which indemnification is otherwise
discretionary under such law. In addition, with the approval of the Board of
Directors and the stockholders, the Registrant has entered into separate
indemnification agreements with its directors, officers and certain employees
which require the Registrant, among other things, to indemnify them against
certain liabilities which may arise by reason of their status or service (other
than liabilities arising from willful misconduct of a culpable nature) and to
obtain directors' and officers' insurance, if available on reasonable terms.
These indemnification provisions may be sufficiently broad to permit
indemnification of the Registrant's officers, directors and other corporate
agents for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act of 1933.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
The Registrant has obtained liability insurance for the benefit of its
directors and officers.
Item 16. Exhibits.
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1* Power of Attorney (included in the Signature Page contained in Part II
of the Registration Statement)
</TABLE>
- --------
* Previously filed.
II-1
<PAGE>
Item 17. Undertakings.
A. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
B. The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of the registration statement as of the time it was declared
effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Fremont, State of California on February 7,
2000.
NETWORK PERIPHERALS INC.
By:
/s/ William F. Rosenberger
----------------------------------
William F. Rosenberger
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ William F. Rosenberger President, Chief Executive February 7, 2000
_____________________________________ Officer and Director (Principal
William F. Rosenberger Executive Officer)
* Chairman of the Board February 7, 2000
_____________________________________
Glenn Penisten
* Chief Financial Officer February 7, 2000
_____________________________________ (Principal Financial and
Wilson Cheung Accounting Officer)
* Director February 7, 2000
_____________________________________
Steve Bell
* Director February 7, 2000
_____________________________________
Michael Gardner
* Director February 7, 2000
_____________________________________
Charles Hart
*By: /s/ William F. Rosenberger
_____________________________________
William F. Rosenberger
Attorney-in-fact
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1* Power of Attorney (included in the Signature Page contained in Part II
of the Registration Statement)
</TABLE>
- --------
*Previously filed.
<PAGE>
EXHIBIT 1.1
2,500,000 SHARES
NETWORK PERIPHERALS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
__________ __, 2000
Lehman Brothers Inc.
Bear, Stearns & Co. Inc.
Prudential Volpe Technology
a unit of Prudential Securities Incorporated
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
Network Peripherals, Inc., a Delaware corporation (the "Company") proposes
to sell 2,500,000 shares (the "Firm Stock") of the Company's Common Stock par
value $0.001 per share (the "Common Stock"). In addition, the Company proposes
to grant to the Underwriters named in Schedule 1 hereto (the "Underwriters") an
option to purchase up to an additional 375,000 shares of the Common Stock on the
terms and for the purposes set forth in Section 2 (the "Option Stock"). The Firm
Stock and the Option Stock, if purchased, are hereinafter collectively called
the "Stock." This is to confirm the agreement concerning the purchase of the
Stock from the Company by the Underwriters named in Schedule 1 hereto (the
"Underwriters").
1. Representations, Warranties and Agreements of the Company. The Company
---------------------------------------------------------
represents, warrants and agrees that:
(a) A registration statement on Form S-3, and amendments thereto, with
respect to the Stock has (i) been prepared by the Company in conformity
with the requirements of the United States Securities Act of 1933 (the
"Securities Act") and the rules and regulations (the "Rule and
Regulations") of the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under the
Securities Act and (iii) become effective under the Securities Act. Copies
of such registration statement and the amendments thereto have been
delivered by the Company to you as the representatives (the
"Representatives") of the Underwriters. As used in this Agreement,
"Effective Time" means the date and the time as of which such registration
statement, or the most recent post-effective amendment thereto, if any, was
declared effective by the Commission; "Effective Date" means the date
<PAGE>
of the Effective Time; "Preliminary Prospectus" means each prospectus
included in such registration statement, or amendments thereof, before it
became effective under the Securities Act and any prospectus filed with the
Commission by the Company with the consent of the Representatives pursuant
to Rule 424(a) of the Rules and Regulations; "Registration Statement" means
such registration statement, as amended at the Effective Time, including
any documents incorporated by reference therein at such time and all
information contained in the final prospectus filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations in accordance with
Section 5 hereof and deemed to be a part of the registration statement as
of the Effective Time pursuant to paragraph (b) of Rule 430A of the Rules
and Regulations; and "Prospectus" means such final prospectus, as first
filed with the Commission pursuant to paragraph (1) or (4) of Rule 424(b)
of the Rules and Regulations. Reference made herein to any Preliminary
Prospectus or to the Prospectus shall be deemed to refer to and include any
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Securities Act, as of the date of such Preliminary Prospectus or
the Prospectus, as the case may be, and any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be deemed
to refer to and include any document filed under the United States
Securities Exchange Act of 1934 (the "Exchange Act") after the date of such
Preliminary Prospectus or the Prospectus, as the case may be, and
incorporated by reference in such Preliminary Prospectus or the Prospectus,
as the case may be; and any reference to any amendment to the Registration
Statement shall be deemed to include any annual report of the Company filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
after the Effective Time that is incorporated by reference in the
Registration Statement. The Commission has not issued any order preventing
or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to the
requirements of the Securities Act and the Rules and Regulations and do not
and will not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing date
(as to the Prospectus and any amendment or supplement thereto) contain an
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; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be,
-2-
<PAGE>
conformed in all material respects to the requirements of the Securities
Act or the Exchange Act, as applicable, and the rules and regulations of
the Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further documents so filed and incorporated by
reference in the Prospectus, when such documents become effective or are
filed with Commission, as the case may be, will conform in all material
respects to the requirements of the Securities Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder and
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 the
statements therein not misleading.
(d) The Company and each of its subsidiaries (as defined in Section
15) have been duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good standing
as foreign corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses requires such qualification (except where the failure to be so
qualified would not have a material adverse effect on the business,
reputation, condition (financial or otherwise), results of operations or
prospects of the Company and its subsidiaries, taken as a whole (a
"Consolidated Material Adverse Effect"), and have all power and authority
necessary to own or hold their respective properties and to conduct the
businesses in which they are engaged; and none of the subsidiaries of the
Company is a "significant subsidiary", as such term is defined in Rule 405
of the Rules and Regulations.
(e) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims.
(f) The unissued shares of the Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly authorized
and, when issued and delivered against payment therefor as provided herein,
will be duly and validly issued, fully paid and non-assessable; and the
Stock will conform to the description thereof contained in the Prospectus.
(g) This Agreement has been duly authorized, executed and delivered by
the Company.
-3-
<PAGE>
(h) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of the
Company or any of its subsidiaries or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties or
assets; and except for the registration of the Stock under the Securities
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and applicable
state securities laws in connection with the purchase and distribution of
the Stock by the Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental agency
or body is required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby.
(i) There are no contracts, agreements or understandings between the
Company and any person granting such person the right (other than rights
which have been waived or satisfied) to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
(j) Except as described in the Prospectus, the Company has not sold or
issued any shares of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act, other than shares issued
pursuant to employee benefit plans, qualified stock options plans or other
employee compensation plans or pursuant to outstanding options, rights or
warrants.
(k) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus; and, since such date, there has not been
any material change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the
-4-
<PAGE>
general affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, otherwise than
as set forth or contemplated in the Prospectus.
(l) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included or incorporated by reference in the Prospectus present fairly the
financial condition and results of operations of the entities purported to
be shown thereby, at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved.
(m) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company, whose report appears in the Prospectus or is
incorporated by reference therein and who have delivered the initial letter
referred to in Section 9(f) hereof, are independent public accountants as
required by the Securities Act and the Rules and Regulations.
(n) The Company and each of its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to
all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and all real property
and buildings held under lease by the Company and its subsidiaries are held
by them under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries.
(o) The Company and each of its subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties.
(p) The Company and each of its subsidiaries own or possess adequate
rights in all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights or processes or licenses
("Intellectual Property") necessary for its business, without any conflict
with or infringement of the interests of others, and has taken all
reasonable steps necessary to secure interests in such Intellectual
Property from its contractors. Except as set forth in the Prospectus, the
Company is not aware of outstanding options, licenses or agreements of any
kind relating to the Intellectual Property of the Company that are required
to be described in the Prospectus, and, except as set forth in the
Prospectus, the Company is not a party to or bound by any options, licenses
or agreements with respect to the Intellectual Property of any other person
or entity that are required to be set forth in the Prospectus. None of the
technology
-5-
<PAGE>
employed by the Company has been obtained or is being used by the Company
in violation of any contractual obligation binding on the Company or any of
its officers, directors, employees or otherwise in violation of the rights
of any persons. Except as disclosed in the Prospectus, the Company has not
received any written or oral communications alleging that the Company has
violated, infringed or conflicted with, or, by conducting its business as
set forth in the Prospectus, would violate, infringe or conflict with any
of the Intellectual Property of any other person or entity. The Company
knows of no material infringement by others of Intellectual Property owned
by or licensed to the Company.
(q) There are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any property
or assets of the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its subsidiaries, might
have a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, business or prospects of the
Company and its subsidiaries; and to the best of the Company's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(r) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(s) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement or incorporated therein by reference as permitted by
the Rules and Regulations.
(t) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company on the other hand, which is required
to be described in the Prospectus which is not so described.
(u) No labor disturbance by the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent which
might be expected to have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations, business
or prospects of the Company and its subsidiaries.
(v) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to
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<PAGE>
incur liability under (i) Title IV of ERISA with respect to termination of,
or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(w) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had (nor does
the Company have any knowledge of any tax deficiency which, if determined
adversely to the Company or any of its subsidiaries, might have a material
adverse effect on the consolidated financial position, stockholders'
equity, results of operations, business or prospects of the Company and its
subsidiaries.
(x) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company has not (i) issued or granted any securities, (ii)
incurred any liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the ordinary course of
business, (iii) entered into any transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital stock.
(y) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only
in accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at
reasonable intervals.
(z) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws, (ii) is in default in any material
respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or observance
of any term, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is in violation in any material
respect of any law, ordinance, governmental rule, regulation or court
decree to which it or its property or assets may be subject or has failed
to obtain any material license, permit, certificate, franchise or other
governmental
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<PAGE>
authorization or permit necessary to the ownership of its property or to
the conduct of its business.
(aa) Neither the Company nor any of its subsidiaries, nor to the
Company's knowledge any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any of its
subsidiaries, has used any corporate funds for any unlawful contribution,
gift, entertainment or other unlawful expense relating to political
activity; made any direct or indirect unlawful payment to any foreign or
domestic government official or employee from corporate funds; violated or
is in violation of any provision of the Foreign Corrupt Practices Act of
1977; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(bb) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of
its subsidiaries (or, to the knowledge of the Company, any of their
predecessors in interest) at, upon or from any of the property now or
previously owned or leased by the Company or its subsidiaries in violation
of any applicable law, ordinance, rule, regulation, order, judgment, decree
or permit or which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except for
any violation or remedial action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; there has been no material
spill, discharge, leak, emission, injection, escape, dumping or release of
any kind onto such property or into the environment surrounding such
property of any toxic wastes, medical wastes, solid wastes, hazardous
wastes or hazardous substances due to or caused by the Company or any of
its subsidiaries or with respect to which the Company or any of its
subsidiaries have knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or
would not be reasonably likely to have, singularly or in the aggregate with
all such spills, discharges, leaks, emissions, injections, escapes,
dumpings and releases, a material adverse effect on the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and the terms "hazardous
wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall
have the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
(cc) Neither the Company nor any subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940
and the rules and regulations of the Commission thereunder.
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<PAGE>
(dd) The Company's preparedness for the Year 2000 has been accurately
described in the Registration Statement and Prospectus. The Company has
inquired of material vendors as to their preparedness for the Year 2000 and
has disclosed in the Registration Statement or Prospectus any issues that
the Company knows of that would result in any material adverse change.
(ee) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of
the Shares.
2. Purchase of the Stock by the Underwriters. On the basis of the
-----------------------------------------
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 2,500,000 shares of
the Firm Stock, severally and not jointly, to the several Underwriters and each
of the Underwriters, severally and not jointly, agrees to purchase the number of
shares of the Firm Stock set opposite that Underwriter's name in Schedule 1
hereto. The respective purchase obligations of the Underwriters with respect to
the Firm Stock shall be rounded among the Underwriters to avoid fractional
shares, as the Representatives may determine.
In addition, the Company grants to the Underwriters an option to purchase
up to 375,000 shares of Option Stock. Such option is granted for the purpose of
covering over-allotments in the sale of Firm Stock and is exercisable as
provided in Section 4 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Stock other than in 100 share amounts. The
price of both the Firm Stock and any Option Stock shall be $_____ per share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on any Delivery Date (as hereinafter defined), as the case may be,
except upon payment for all the Stock to be purchased on such Delivery Date as
provided herein.
3. Offering of Stock by the Underwriters.
-------------------------------------
Upon authorization by the Representatives of the release of the Firm Stock,
the several Underwriters propose to offer the Firm Stock for sale upon the terms
and conditions set forth in the Prospectus.
4. Delivery of and Payment for the Stock. Delivery of and payment for the
-------------------------------------
Firm Stock shall be made at the office of Gray Cary Ware & Freidenrich LLP, 4365
Executive Drive, Suite 1600, San Diego, California, at 10:00 A.M., New York City
time, on the fourth full business day following the date of this Agreement or at
such other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are
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<PAGE>
sometimes referred to as the "First Delivery Date." On the First Delivery Date,
the Company shall deliver or cause to be delivered certificates representing the
Firm Stock to the Representatives for the account of each Underwriter against
payment to or upon the order of the Company of the purchase price by wire
transfer in immediately available funds. Time shall be of the essence, and
delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. Upon delivery, the
Firm Stock shall be registered in such names and in such denominations as the
Representatives shall request in writing not less than two full business days
prior to the First Delivery Date. For the purpose of expediting the checking and
packaging of the certificates for the Firm Stock, the Company shall make the
certificates representing the Firm Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the First Delivery Date.
The option granted in Section 2 will expire 30 days after the date of this
Agreement and may be exercised in whole or in part from time to time by written
notice being given to the Company by the Representatives. Such notice shall set
forth the aggregate number of shares of Option Stock as to which the option is
being exercised, the names in which the shares of Option Stock are to be
registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when the
shares of Option Stock are to be delivered; provided, however, that this date
and time shall not be earlier than the First Delivery Date nor earlier than the
second business day after the date on which the option shall have been exercised
nor later than the fifth business day after the date on which the option shall
have been exercised. The date and time the shares of Option Stock are delivered
are sometimes referred to as a "Second Delivery Date" and the First Delivery
Date and any Second Delivery Date are sometimes each referred to as a "Delivery
Date".
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 4 (or at
such other place as shall be determined by agreement between the Representatives
and the Company) at 10:00 A.M., New York City time, on such Second Delivery
Date. On such Second Delivery Date, the Company shall deliver or cause to be
delivered the certificates representing the Option Stock to the Representatives
for the account of each Underwriter against payment to or upon the order of the
Company of the purchase price by wire transfer in immediately available funds.
Time shall be of the essence, and delivery at the time and place specified
pursuant to this Agreement is a further condition of the obligation of each
Underwriter hereunder. Upon delivery, the Option Stock shall be registered in
such names and in such denominations as the Representatives shall request in the
aforesaid written notice. For the purpose of expediting the checking and
packaging of the certificates for the Option Stock, the Company shall make the
certificates representing the Option Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to such Second Delivery Date.
5. Further Agreements of the Company. The Company agrees:
---------------------------------
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b) under
the
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<PAGE>
Securities Act not later than Commission's close of business on the second
business day following the execution and delivery of this Agreement or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) under
the Securities Act; to make no further amendment or any supplement to the
Registration Statement or to the Prospectus prior to the last Delivery Date
except as permitted herein; to advise the Representatives, promptly after
it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish the Representatives with copies thereof; to file promptly all
reports and any definitive proxy or information statements required to be
filed by the Company with the Commission pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus
and for so long as the delivery of a prospectus is required in connection
with the offering or sale of the Stock; to advise the Representatives,
promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus, of the suspension of
the qualification of the Stock for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional information;
and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or suspending any such qualification, to use promptly its best
efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel
for the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with
the Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits
other than this Agreement) (ii) each Preliminary Prospectus, the Prospectus
and any amended or supplemented Prospectus and (iii) any document
incorporated by reference in the Prospectus (excluding exhibits thereto);
and, if the delivery of a prospectus is required at any time after the
Effective Time in connection with the offering or sale of the Stock or any
other securities relating thereto and if at such time any events shall have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when
such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary to amend or supplement the Prospectus or to file
under the Exchange
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<PAGE>
Act any document incorporated by reference in the Prospectus in order to
comply with the Securities Act or the Exchange Act, to notify the
Representatives and, upon their request, to file such document and to
prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as the Representatives may from time to time
reasonably request of an amended or supplemented Prospectus which will
correct such statement or omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Representatives,
be required by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus, any document
incorporated by reference in the Prospectus or any Prospectus pursuant to
Rule 424 of the Rules and Regulations, to furnish a copy thereof to the
Representatives and counsel for the Underwriters and obtain the consent of
the Representatives to the filing;
(f) As soon as practicable after the Effective Date, to make generally
available to the Company's security holders and to deliver to the
Representatives an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Securities
Act and the Rules and Regulations (including, at the option of the Company,
Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for as
long as may be necessary to complete the distribution of the Stock;
provided that in connection therewith the Company shall not be required to
--------
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(i) For a period of 90 days from the date of the Prospectus, not to,
directly or indirectly, (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to,
or could be expected to,
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<PAGE>
result in the disposition by any person at any time in the future of) any
shares of Common Stock or securities convertible into or exchangeable for
Common Stock (other than the Stock and shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee compensation
plans existing on the date hereof or pursuant to currently outstanding
options, warrants or rights), or sell or grant options, rights or warrants
with respect to any shares of Common Stock or securities convertible into
or exchangeable for Common Stock (other than the grant of options pursuant
to option plans existing on the date hereof), or (2) enter into any swap or
other derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of such shares of
Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or other securities, in
cash or otherwise, in each case without the prior written consent of Lehman
Brothers Inc.; and to cause each officer and director of the Company to
furnish to the Representatives, prior to the First Delivery Date, a letter
or letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree not to,
directly or indirectly, (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or securities convertible
into or exchangeable for Common Stock or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in part, any
of the economic benefits or risks of ownership of such shares of Common
Stock, whether any such transaction described in clause (1) or (2) above is
to be settled by delivery of Common Stock or other securities, in cash or
otherwise, in each case for a period of 90 days from the date of the
Prospectus, without the prior written consent of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the listing of the Stock
on the National Market System and to use its best efforts to complete that
listing, subject only to official notice of issuance, prior to the First
Delivery Date;
(k) To apply the net proceeds from the sale of the Stock being sold by
the Company as set forth in the Prospectus; and
(l) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident to the
--------
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statement as
originally filed and each amendment thereto and any post-effective
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<PAGE>
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus or
any document incorporated by reference therein, all as provided in this
Agreement; (d) the costs of producing and distributing this Agreement and any
other related documents in connection with the offering, purchase, sale and
delivery of the stock; (e) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
sale of the Stock; (f) any applicable listing or other fees; (g) the fees and
expenses of qualifying the Stock under the securities laws of the several
jurisdictions as provided in Section 5(h) and of preparing, printing and
distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the Underwriters); and (h) all other costs and expenses incident to
the performance of the obligations of the Company.
7. Conditions of Underwriters' Obligations. The respective obligations of
---------------------------------------
the Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company contained
herein, to the performance by the Company of its obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 5(a); no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened by
the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus or
otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company
on or prior to such Delivery Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of Pillsbury Madison & Sutro LLP,
counsel for the Underwriters, is material or omits to state a fact which,
in the opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Stock, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall
be reasonably satisfactory in all material respects to counsel for the
Underwriters, and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters.
(d) Gray Cary Ware & Friedenrich LLP shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed
to the Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
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(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in
which the ownership or lease of property or the conduct of its
businesses requires such qualification and has all power and authority
necessary to own or hold its properties and conduct the businesses in
which it is engaged;
(ii) The Company's NPI Asia and Netvision subsidiaries (the
"Material Subsidiaries") have been duly incorporated and are validly
existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation, to the knowledge of such
counsel are duly qualified to do business and are in good standing as
foreign corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses requires such qualification and have all power and
authority necessary to own or hold their respective properties and
conduct the businesses in which they are engaged;
(iii) The Company has an authorized capitalization as set forth
in the Prospectus, and to the knowledge of such counsel all of the
issued shares of capital stock of the Company (including the shares of
Stock being delivered on such Delivery Date) have been duly and
validly authorized and issued, are fully paid and non-assessable; the
issued shares of capital stock of the Company (including the shares of
Stock delivered on such Delivery Date) conform to the description
thereof incorporated by reference in the Prospectus; and to the
knowledge of such counsel all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly authorized
and issued and are fully paid, non-assessable and (except for
directors' qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or
claims;
(iv) There are no preemptive or other rights to subscribe for or
to purchase, nor any restriction upon the voting or transfer of, the
Stock pursuant to the Company's charter or by-laws or any agreement or
other instrument known to such counsel;
(v) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending
to which the Company or any of its subsidiaries is a party or of which
any property or assets of the Company or any of its subsidiaries is
the subject; and, to such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others;
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<PAGE>
(vi) The Registration Statement was declared effective under the
Securities Act as of the date and time specified in such opinion, the
Prospectus was filed with the Commission pursuant to the subparagraph
of Rule 424(b) of the Rules and Regulations specified in such opinion
on the date specified therein and no stop order suspending the
effectiveness of the Registration Statement has been issued and, to
the knowledge of such counsel, no proceeding for that purpose is
pending or threatened by the Commission;
(vii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company prior to
such Delivery Date (other than the financial statements and related
schedules and other financial data therein, as to which such counsel
need express no opinion) comply as to form in all material respects
with the requirements of the Securities Act and the Rules and
Regulations; and the documents incorporated by reference in the
Prospectus and any further amendment or supplement to any such
incorporated document made by the Company prior to such Delivery Date
(other than the financial statements and related schedules and other
financial data therein, as to which such counsel need express no
opinion), when they became effective or were filed with the
Commission, as the case may be, complied as to form in all material
respects with the requirements of the Securities Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission
thereunder;
(viii) To such counsel's knowledge, there are no contracts or
other documents which are required to be described in the Prospectus
or filed as exhibits to the Registration Statement by the Securities
Act or by the Rules and Regulations which have not been described or
filed as exhibits to the Registration Statement or incorporated
therein by reference as permitted by the Rules and Regulations;
(ix) This Agreement has been duly authorized, executed and
delivered by the Company;
(x) The issue and sale of the shares of Stock being delivered on
such Delivery Date by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of
the transactions contemplated hereby will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any agreement or instrument filed as an
exhibit to the Registration Statement, nor will such actions result in
any violation of the provisions of the charter or by-laws of the
Company or any of its subsidiaries or any statute or any order, rule
or regulation known to such counsel of any court or governmental
agency or body having jurisdiction
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<PAGE>
over the Company or any of its subsidiaries or any of their properties
or assets; and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act and applicable state securities laws in connection with the
purchase and distribution of the Stock by the Underwriters, no
consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated
hereby; and
(xi) To such counsel's knowledge, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right (other than rights which have been
satisfied or waived) to require the Company to file a registration
statement under the Securities Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States of
America, the laws of California and the General Corporation Law of the
State of Delaware. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the Underwriters and
dated such Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that (x) such counsel has acted as counsel
to the Company in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that the Registration
Statement, as of the Effective Date, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, or that the Prospectus contains any untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The foregoing
opinion and statement may be qualified by a statement to the effect that
such counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or incorporated by reference therein except for
the statements made in the Prospectus or incorporated by reference therein
(except as specified in the foregoing opinion).
(e) The Representatives shall have received from Pillsbury Madison &
Sutro LLP, counsel for the Underwriters, such opinion or opinions, dated
such
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<PAGE>
Delivery Date, with respect to the issuance and sale of the Stock, the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably require, and the Company shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.
(f) At the time of execution of this Agreement, the Representatives
shall have received from PricewaterhouseCoopers LLP a letter, in form and
substance satisfactory to the Representatives, addressed to the
Underwriters and dated the date hereof (i) confirming that they are
independent public accountants within the meaning of the Securities Act and
are in compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date hereof), the conclusions and
findings of such firm with respect to the financial information and other
matters ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings.
(g) With respect to the letter of Pricewaterhouse Coopers LLP referred
to in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial letter"),
the Company shall have furnished to the Representatives a letter (the
"bring-down letter") of such accountants, addressed to the Underwriters and
dated such Delivery Date (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in compliance
with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date of the bring-down letter),
the conclusions and findings of such firm with respect to the financial
information and other matters covered by the initial letter and (iii)
confirming in all material respects the conclusions and findings set forth
in the initial letter.
(h) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its President or a Vice President
and its chief financial officer stating that:
(i) The representations, warranties and agreements of the Company
in Section 1 are true and correct as of such Delivery Date; the
Company has complied with all its agreements contained herein; and the
conditions set forth in Sections 7(a) and 7(i) have been fulfilled;
and
-18-
<PAGE>
(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (B) since the Effective Date no event has
occurred which should have been set forth in a supplement or amendment
to the Registration Statement or the Prospectus.
(i) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus or (ii) since such date there shall not
have been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated
in the Prospectus, the effect of which, in any such case described in
clause (i) or (ii), is, in the judgment of the Representatives, so material
and adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(j) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
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<PAGE>
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
8. Indemnification and Contribution.
--------------------------------
(a) The Company shall indemnify and hold harmless each Underwriter, its
officers and employees and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Stock), to which that Underwriter, officer,
employee or controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action arises out
of, or is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement thereto, (ii) the
omission or alleged omission to state in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not misleading or (iii) any
act or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Stock or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided that the Company shall not be
liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the Representatives
by or on behalf of any Underwriter specifically for inclusion therein which
information consists solely of the information specified in Section 8(e). The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to any Underwriter or to any officer, employee or controlling
person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and hold
harmless the Company, its officers and employees, each of its directors and each
person, if any, who controls the Company within the meaning of the Securities
Act, from and against any loss, claim, damage or liability, joint or several, or
any action in respect thereof, to which the
-20-
<PAGE>
Company or any such director, officer or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or (ii) the omission or
alleged omission to state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or supplement thereto, or in
any Blue Sky Application any material fact required to be stated therein or
necessary to make the statements therein not misleading, but in each case only
to the extent that the untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of that Underwriter specifically for inclusion
therein, and shall reimburse the Company and any such director, officer or
controlling person for any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any Underwriter may
otherwise have to the Company or any such director, officer, employee or
controlling person.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of any claim or the commencement of any action, the indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
claim or the commencement of that action; provided, however, that the failure to
-----------------
notify the indemnifying party shall not relieve it from any liability which it
may have under this Section 8 except to the extent it has been materially
prejudiced by such failure and, provided further, that the failure to notify the
----------------
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party otherwise than under this Section 8. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof 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 of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
-----------------
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Company under this Section 8 if, in the reasonable judgment of the
Representatives, it is advisable for the Representatives and those Underwriters,
officers, employees and controlling persons to be jointly represented by
separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Company. No indemnifying party shall (i) without
the prior written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened
-21-
<PAGE>
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding,
or (ii) be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with the consent of the indemnifying party or if there be a final
judgment of the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability,
or any action in respect thereof, referred to therein, then each indemnifying
party shall, in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability, or action in respect thereof, (i) in such proportion
as shall be appropriate to reflect the relative benefits received by the Company
on the one hand and the Underwriters on the other from the offering of the Stock
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other with respect to
the statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other with respect to such offering shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Stock purchased under this Agreement (before deducting expenses) received by the
Company on the one hand, and the total underwriting discounts and commissions
received by the Underwriters with respect to the shares of the Stock purchased
under this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the shares of the Stock under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to 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 or 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 and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 8 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, damage or liability, or action in respect
thereof, referred to above in this Section 8 shall be deemed to include, for
purposes of this Section 8(d), 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(d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Stock underwritten by it and distributed
to the public was offered to the public exceeds the amount of any damages which
such Underwriter has otherwise paid or become liable to pay by reason of
-22-
<PAGE>
any untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute as provided in this Section 8(d) are several in
proportion to their respective underwriting obligations and not joint.
(e) The Underwriters severally confirm and the Company acknowledges that
the statements with respect to the public offering of the Stock by the
Underwriters set forth on the cover page of, the legend concerning
over-allotments on the inside front cover page of and the concession and
reallowance figures appearing under the caption "Underwriting" in, the
Prospectus are correct and constitute the only information concerning such
Underwriters furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
9. Defaulting Underwriters.
-----------------------
If, on either Delivery Date, any Underwriter defaults in the performance of
its obligations under this Agreement, the remaining non-defaulting Underwriters
shall be obligated to purchase the Stock which the defaulting Underwriter agreed
but failed to purchase on such Delivery Date in the respective proportions which
the number of shares of the Firm Stock set opposite the name of each remaining
non-defaulting Underwriter in Schedule 1 hereto bears to the total number of
shares of the Firm Stock set opposite the names of all the remaining
non-defaulting Underwriters in Schedule 1 hereto; provided, however, that the
-----------------
remaining non-defaulting Underwriters shall not be obligated to purchase any of
the Stock on such Delivery Date if the total number of shares of the Stock which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
date exceeds 9.09% of the total number of shares of the Stock to be purchased on
such Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of shares of the Stock which
it agreed to purchase on such Delivery Date pursuant to the terms of Section 2.
If the foregoing maximums are exceeded, the remaining non-defaulting
Underwriters, or those other underwriters satisfactory to the Representatives
who so agree, shall have the right, but shall not be obligated, to purchase, in
such proportion as may be agreed upon among them, all the Stock to be purchased
on such Delivery Date. If the remaining Underwriters or other underwriters
satisfactory to the Representatives do not elect to purchase the shares which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
Delivery Date, this Agreement (or, with respect to the Second Delivery Date, the
obligation of the Underwriters to purchase, and of the Company to sell, the
Option Stock) shall terminate without liability on the part of any
non-defaulting Underwriter or the Company except that the Company will continue
to be liable for the payment of expenses to the extent set forth in Sections 6
and 11. As used in this Agreement, the term "Underwriter" includes, for all
purposes of this Agreement unless the context requires otherwise, any party not
listed in Schedule 1 hereto who, pursuant to this Section 9, purchases Firm
Stock which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If other
underwriters are obligated
-23-
<PAGE>
or agree to purchase the Stock of a defaulting or withdrawing Underwriter,
either the Representatives or the Company may postpone the Delivery Date for up
to seven full business days in order to effect any changes that in the opinion
of counsel for the Company or counsel for the Underwriters may be necessary in
the Registration Statement, the Prospectus or in any other document or
arrangement.
10. Termination. The obligations of the Underwriters hereunder may be
-----------
terminated by the Representatives by notice given to and received by the Company
prior to delivery of and payment for the Firm Stock if, prior to that time, any
of the events described in Sections 7(i) or 7(j), shall have occurred or if the
Underwriters shall decline to purchase the Stock for any reason permitted under
this Agreement.
11. Reimbursement of Underwriters' Expenses. If the Company shall fail to
---------------------------------------
tender the Stock for delivery to the Underwriters by reason of any failure,
refusal or inability on the part of the Company to perform any agreement on its
part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company is not fulfilled,
the Company will reimburse the Underwriters for all reasonable out-of-pocket
expenses (including fees and disbursements of counsel) incurred by the
Underwriters in connection with this Agreement and the proposed purchase of the
Stock, and upon demand the Company shall pay the full amount thereof to the
Representative(s). If this Agreement is terminated pursuant to Section 9 by
reason of the default of one or more Underwriters, be obligated to reimburse any
defaulting Underwriter on account of those expenses.
12. Notices, etc. All statements, requests, notices and agreements
------------
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy, in the case of any notice pursuant to Section
8(c), to the Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., 3 World Financial Center, 10th Floor, New York, NY 10285;
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: President and Chief Executive Officer
(Fax: (510) 897-5056);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
- -----------------
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
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<PAGE>
13. Persons Entitled to Benefit of Agreement. This Agreement shall inure to
----------------------------------------
the benefit of and be binding upon the Underwriters, the Company, and their
respective successors. This Agreement and the terms and provisions hereof are
for the sole benefit of only those persons, except that (A) the representations,
warranties, indemnities and agreements of the Company contained in this
Agreement shall also be deemed to be for the benefit of the person or persons,
if any, who control any Underwriter within the meaning of Section 15 of the
Securities Act and (B) the indemnity agreement of the Underwriters contained in
Section 8(b) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act. Nothing in this Agreement is intended or
shall be construed to give any person, other than the persons referred to in
this Section 13, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
14. Survival. The respective indemnities, representations, warranties and
--------
agreements of the Company and the Underwriters contained in this Agreement or
made by or on behalf on them, respectively, pursuant to this Agreement, shall
survive the delivery of and payment for the Stock and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
15. Definition of the Terms "Business Day" and "Subsidiary". For purposes
-------------------------------------------------------
of this Agreement, (a) "business day" means each Monday, Tuesday, Wednesday,
Thursday or Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to close and (b)
"subsidiary" has the meaning set forth in Rule 405 of the Rules and Regulations.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of New York.
17. Counterparts. This Agreement may be executed in one or more
------------
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
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<PAGE>
18. Headings. The headings herein are inserted for convenience of reference
--------
only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement between the Company and
the Underwriters, please indicate your acceptance in the space provided for that
purpose below.
Very truly yours,
NETWORK PERIPHERALS, INC.
By_________________________________
Title _______________________________
Accepted:
LEHMAN BROTHERS INC.
BEAR, STERNS & CO. INC.
PRUDENTIAL VOLPE TECHNOLOGY
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
___________________________________________
Authorized Representative
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<PAGE>
SCHEDULE 1
Number of
Underwriters Shares
- ------------ ------------
Lehman Brothers Inc. ...........................................
Bear, Sterns & Co. Inc. ........................................
Prudential Volpe Technology.....................................
a unit of Prudential Securities Incorporated
------------
Total................................................. 2,500,000
============
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<PAGE>
EXHIBIT 5.1
[Gray Cary Ware & Freidenrich LLP Letterhead]
February 8, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Network Peripherals Inc.
Registration Statement on Form S-3
Ladies and Gentlemen:
As legal counsel for Network Peripherals Inc., a Delaware corporation (the
"Company"), we are rendering this opinion in connection with the preparation and
filing of a registration statement on Form S-3 (the "Registration Statement")
relating to the registration under the Securities Act of 1933, as amended, of up
to 2,875,000 shares of Common Stock, including 2,500,000 shares to be issued and
sold by the Company (the "Company Shares") and 375,000 shares for which the
Underwriters have been granted an over-allotment option (the "Shares").
We have examined such instruments, documents and records as we deemed relevant
and necessary for the basis of our opinion herein after expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity
to the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the Shares, when sold and
issued in accordance with the terms of the Registration Statement and related
Prospectus, will be, duly authorized, validly issued, fully paid, and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement referred to above and the use of our name wherever it
appears in said Registration Statement.
This opinion is to be used only in connection with the issuance of the Shares
while the Registration Statement is in effect.
Respectfully submitted,
GRAY CARY WARE & FREIDENRICH LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated January 17, 2000 relating to the
consolidated financial statements and financial statement schedule, which
appears in the Network Peripherals Inc. Annual Report on Form 10-K for the year
ended December 31, 1999. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 7, 2000
