As filed with the Securities and Exchange Commission on January 28, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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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Title of Each Class of Securities Proposed Maximum Proposed Maximum
to Amount to be Offering Price Aggregate Amount of
be Registered Registered(1) Per Share(2) Offering Price(2) Registration Fee
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Common Stock, $0.001 par value.. 2,875,000 shares $47.3125 $136,023,438 $35,911
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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.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 January 28, 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 January 27, 2000, the
last reported sale price of our common stock on the Nasdaq National Market was
$49.00 per share.
Investing in our shares involves risks. "Risk Factors" begin on page 4.
Per Share Total
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Public Offering Price..................................... $ $
Underwriting Discount ....................................
Proceeds to Network Peripherals ..........................
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.
TABLE OF CONTENTS
Page
----
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
Principal Stockholders....... 27
Page
----
Underwriting................... 28
Legal Matters.................. 30
Experts........................ 30
Where You Can Find Additional
Information About Network
Peripherals................... 30
Documents Incorporated By
Reference..................... 31
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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.
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 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.
1
. 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
The Offering
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
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
$49.00 per share after deducting the estimated underwriting discounts and
commissions and estimated offering expenses.
Years Ended December 31,
---------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- ------- --------
(in thousands, except per share data)
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
As of December 31,
1999
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Actual As Adjusted
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(unaudited)
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments.......... $ 9,715 $125,384
Working capital............................................ 12,565 128,234
Total assets............................................... 20,852 136,521
Long term debt............................................. -- --
Total stockholders' equity................................. 17,909 133,578
3
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 revenues.
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 expense 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 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 releases,
4
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
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
6
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 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 revenues 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.
7
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 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 materially adversely affect 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 materially
adversely affect 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
8
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 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 revenues 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 revenues. 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;
9
. difficulties associated with enforcing agreements under foreign legal
systems;
. import or export licensing requirements;
. potential adverse tax consequences; and
. unexpected changes in regulatory requirements.
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, 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
10
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 depends on the
beneficial use of the net proceeds.
If our products contain undetected software or hardware errors, we could incur
significant unexpected expenses and lost 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 materially adversely affect 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 have a material adverse effect on 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 competition 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.
11
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 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 have a material adverse effect on 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 or agreements 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.
12
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 $115.7 million. If the
underwriters fully exercise the over-allotment option, the net proceeds will be
approximately $134.0 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 $49.00 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 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.
13
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.
High Low
------ ------
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 January 27, 2000)...................... $50.13 $41.88
On January 27, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $49.00 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.
14
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
$49.00, after deducting the estimated underwriting discount and estimated
offering expenses:
December 31, 1999
-------------------------------
Actual As Adjusted
------------- ----------------
(unaudited)
(in thousands, except share
and per share data)
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................... 65,955 181,622
Accumulated deficit.......................... (48,059) (48,059)
------------- --------------
Total stockholders' equity................. $ 17,909 $ 133,578
------------- --------------
Total capitalization..................... 17,909 133,578
============= ==============
- --------
(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.
15
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.
16
. 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 10 Mbps, transmission rates
to 100Mbps Fast Ethernet 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.
17
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
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.
18
. 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 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
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
- --------------------------------------------------------------------------------
Per
Per Port Port
Price Price
Current (Fast (All
Product Name Status Configuration Ethernet) Ports)
STANDALONE SWITCHING SOLUTIONS
Keystone24g Shipping 24 Fast Ethernet ports and $196 $254
option slots for 2 Gigabit ports
STACKABLE SWITCHING SOLUTIONS
Keystone24mg Scheduled 24 Fast Ethernet ports and $258 $315
to ship option slots for 2 Gigabit ports
1st
quarter
2000
- -------------------------------------------------------------------------------
Capstone24t Scheduled Stacking slave with 24 Fast $178 n/a
to ship Ethernet ports for 24mg
1st
quarter
2000
- -------------------------------------------------------------------------------
Capstone8f Scheduled Stacking slave with 8 Fast $524 n/a
to ship Ethernet fiber ports for 24mg
1st
quarter
2000
BACKBONE SWITCHING SOLUTIONS
Cornerstone6g Scheduled 12 Gigabit ports (SX/LX and $112 $542
to ship Copper)
1st
quarter
2000
Standalone LAN Switching Solutions
Keystone24g. We began commercial shipments of the Keystone24g in December
1999. It is 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 expect to commence commercial shipments of the
Keystone24mg Stack Master in the first quarter of 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,
20
while a combination of one Keystone24mg and three Capstone24t switches creates
a 96-port stack. The 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 and Taiwan. We have domestic sales offices located in Fremont
and Los Angeles, California, and Boston, Massachusetts.
21
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 staffed by 52 full-time personnel
experienced in advanced manufacturing, test engineering and quality assurance.
Our manufacturing operation is ISO 9002 certified.
22
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
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
MANAGEMENT
The names of our directors and executive officers and their ages as of
December 31, 1999 are as follows:
Name Age Position
------------------------------------ --- ----------------------------------
William F. Rosenberger.............. 50 President, Chief Executive Officer
and Director
Robert J. Zecha..................... 42 Vice President, Research and
Development
James T. Sullivan................... 47 Vice President, Sales
Wilson Cheung....................... 36 Vice President, Finance and Chief
Financial 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
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
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
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.
Number of Shares Percentage of Ownership
Directors and Executive Beneficially Owned --------------------------------------
Officers Prior to Offering(1) Prior to Offering(1) After Offering(1)
------------------------ -------------------- -------------------- -----------------
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(5)........ 28,069 * *
Michael Gardner(5)...... 14,249 * *
Joseph Botta............ -- * *
Jerry McDowell(5)....... 42,800 * *
All directors and
executive officers as a
group (10 persons)(6).. 951,329 7.0% 5.9%
- --------
*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 928,071 shares issuable upon exercise of outstanding stock
options, which were exercisable at December 31, 1999 or within 60 days
thereafter.
27
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:
Number of
Underwriters Shares
------------ ---------
Lehman Brothers Inc. ...........................................
Bear, Stearns & Co. Inc. .......................................
Prudential Securities Incorporated..............................
---------
Total......................................................... 2,500,000
=========
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.
Paid by Network Peripherals Inc. No Exercise Full Exercise
-------------------------------- ----------- -------------
Per share........................................ $ $
Total............................................
We estimate that the total expenses of the offering, excluding the
underwriting discount, will be approximately $400,000.
28
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 makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters makes any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
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.
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.
29
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.
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.
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
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 superceded.
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.
2059 Bayview Drive
Fremont, California 94538
(510) 897-5000
31
2,500,000 Shares
[NPI Logo]
Common Stock
-------------
PROSPECTUS
, 2000
-------------
Lehman Brothers
Bear, Stearns & Co. Inc.
Prudential Volpe Technology
a unit of Prudential Securities
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 Nasdaq Stock Market listing fee.
To be Paid
by the Registrant
-----------------
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
========
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:
Exhibit
No. Description of Exhibit
------- ----------------------
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)
- --------
* To be filed by amendment.
II-1
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
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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Fremont, State of California on January 27, 2000.
NETWORK PERIPHERALS INC.
By:
/s/ William F. Rosenberger
----------------------------------
William F. Rosenberger
President and Chief Executive
Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William F. Rosenberger and Wilson Cheung, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any subsequent
registration statement filed by the registrant pursuant to Rule 462(b) of the
Securities Act of 1933, as amended, which relates to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-facts and agents, or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
Signatures Title Date
---------- ----- ----
/s/ William F. Rosenberger President, Chief Executive January 27, 2000
_____________________________________ Officer and Director (Principal
William F. Rosenberger Executive Officer)
/s/ Glenn Penisten Chairman of the Board January 27, 2000
_____________________________________
Glenn Penisten
/s/ Wilson Cheung Chief Financial Officer January 27, 2000
_____________________________________ (Principal Financial and
Wilson Cheung Accounting Officer)
/s/ Steve Bell Director January 27, 2000
_____________________________________
Steve Bell
/s/ Michael Gardner Director January 27, 2000
_____________________________________
Michael Gardner
/s/ Charles Hart Director January 27, 2000
_____________________________________
Charles Hart
II-3
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
------- ----------------------
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)
- --------
*To be filed by amendment.