AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 2000

REGISTRATION NO. 333-31990

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CHAPARRAL NETWORK STORAGE, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 3577 84-1451038
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)

GARY L. ALLISON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1951 SOUTH FORDHAM STREET
LONGMONT, COLORADO 80503
(303) 684-3200
(Name, address and telephone number of
principal executive offices and agent for service)
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Copies to:

RONALD R. LEVINE, II, ESQ. STEPHEN J. SCHRADER, ESQ.
LAURA B. GILL, ESQ. JUSTIN L. BASTIAN, ESQ.
DEBORAH J. FRIEDMAN, ESQ. MELISSA L. MONG, ESQ.
DAVIS, GRAHAM & STUBBS LLP MORRISON & FOERSTER LLP
370 SEVENTEENTH STREET 755 PAGE MILL ROAD
SUITE 4700 PALO ALTO, CALIFORNIA 94304
DENVER, COLORADO 80202 (650) 813-5600
(303) 892-9400

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE

- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------

Common Stock, par value $.001 per share..................... $60,000,000 $15,840
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION, DATED APRIL 27, 2000

[CHAPARRAL NETWORK STORAGE LOGO]

CHAPARRAL NETWORK STORAGE, INC.
Common Stock
------------------

Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $ and
$ per share. We have applied to list our common stock on The Nasdaq Stock
Market's National Market under the symbol "CHAP."

The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
.

UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS CHAPARRAL
----------------- ----------------- -----------------

Per Share............................................ $ $ $
Total................................................ $ $ $

Delivery of the shares of common stock will be made on or about
, 2000.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
NEEDHAM & COMPANY, INC.
The date of this prospectus is , 2000.
3

[Picture of Storage Area Network]

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TABLE OF CONTENTS

PAGE
----

PROSPECTUS SUMMARY.................... 5
RISK FACTORS.......................... 8
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 18
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 19
CAPITALIZATION........................ 20
DILUTION.............................. 21
SELECTED FINANCIAL DATA............... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 23

PAGE
----

BUSINESS.............................. 30
MANAGEMENT............................ 49
RELATED PARTY TRANSACTIONS............ 62
PRINCIPAL STOCKHOLDERS................ 70
DESCRIPTION OF CAPITAL STOCK.......... 72
SHARES ELIGIBLE FOR FUTURE SALE....... 75
UNDERWRITING.......................... 77
NOTICE TO CANADIAN RESIDENTS.......... 79
LEGAL MATTERS......................... 80
EXPERTS............................... 80
WHERE YOU CAN FIND ADDITIONAL
INFORMATION ABOUT CHAPARRAL......... 80
INDEX TO FINANCIAL STATEMENTS......... F-1

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES.

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DEALER PROSPECTUS DELIVERY OBLIGATION

UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
5

THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY

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6

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the section entitled
"Risk Factors," our financial statements and the related notes included
elsewhere in this prospectus, before making an investment decision.

CHAPARRAL NETWORK STORAGE, INC.
------------------

We develop and market high performance products that facilitate the
movement of data between networked storage devices. We are focused primarily on
developing products for use in the emerging market for Storage Area Networks, or
SANs. SANs are high-speed data networks that interconnect storage systems and
servers using a widely accepted protocol known as Fibre Channel.

Our products include storage routers and external Redundant Array of
Independent Disks, or RAID, controllers for open systems network storage
solutions. Storage routers connect servers and storage systems in a SAN to
enable communication among devices that use different protocols for the
input/output, or I/O, of data. RAID controllers distribute blocks of data across
multiple disks to improve performance and ensure availability of data.

In the last decade, there has been a dramatic increase in the volume of
data created, processed and accessed throughout the business enterprise. This
growth has placed a significant strain on storage systems used in the backup,
sharing and management of this data. In addition, organizations have recognized
the importance and value of enterprise data as mission-critical to their
employees, customers and suppliers and are demanding rapid and reliable access
to data 24 hours a day, seven days a week. The congestion caused by users trying
to access large amounts of data across local area networks, or LANs, has created
a bottleneck between the server and the storage devices. The limitations of
today's most commonly used server-attached storage architecture, where storage
devices are typically connected to only one server using an I/O protocol called
the Small Computer System Interface, or SCSI, have exacerbated this bottleneck.
As a result, enterprises are demanding a faster, more efficient and manageable
means to interconnect new and existing servers, storage devices and LANs.

Our Intelligent Storage Routers facilitate the interconnection of SANs with
existing SCSI-based servers and storage systems. Our external RAID controllers
dynamically distribute data across multiple hard disk drives to increase data
transfer speeds and deliver fault tolerance. Our products are designed to
provide a high level of performance, availability and functionality. They
incorporate a common high-performance hardware platform and foundation software
layer that enable a wide range of SAN applications.

Key benefits of our solutions include the following:

- Increased Performance. We believe our products provide industry-leading
performance based on throughput, as measured by both megabytes per second
and I/O transfers per second.

- High Availability and Reliability. Our products increase the
accessibility and protection of enterprise data by providing redundant
I/O paths to storage devices.

- Improved SAN Performance with New Applications. Our products are designed
using a highly flexible and modular embedded software architecture,
enabling us to quickly and cost-effectively implement new SAN
applications.

- Differentiation and Manageability. We have developed a robust,
well-defined user interface called a Common Application Programming
Interface, or CAPI, that enables our customers to incorporate their
proprietary functionalities into our products to differentiate their
solutions in the market. In addition, our customers can design their own
graphical user interface, or GUI, to manage our equipment in conjunction
with their solutions.

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7

We sell our products to original equipment manufacturers, or OEMs,
including Eurologic Systems, MicroNet Technology, Inc., Qualstar Corporation,
Quantum Corporation/ATL Products, Inc., Trimm Technologies, Inc. and Xyratex
International Ltd., as well as to distribution partners, including Arrow
Electronics, Inc., Bell Microproducts, Inc., CONSAN Inc. and Hammer, PLC.
Through March 31, 2000, we sold approximately 6,000 units of our Intelligent
Storage Routers and external RAID controllers.

We intend to capitalize on our Fibre Channel technological expertise to
address the growing SAN market. In addition, we will continue to focus on
expanding and developing distribution relationships with leading computer and
storage systems OEMs, as well as with value added resellers and systems
integrators, to increase our geographic coverage and address new markets. We
intend to continue to work closely with our strategic partners and participate
in industry alliances to facilitate the widespread adoption of SANs and SAN
applications.

We were incorporated in January 1998 as Chaparral Technologies, Inc., a
Delaware corporation. In July 1999, we changed our name to Chaparral Network
Storage, Inc. to reflect our emphasis on providing network storage products. Our
principal executive offices are located at 1951 S. Fordham Street, Longmont,
Colorado 80503, and our telephone number is (303) 684-3200. The address of our
Web site is www.chaparralnet.com. Information contained on our Web site should
not be considered part of this prospectus.

This prospectus contains trademarks and trade names of other companies.

THE OFFERING

Common stock offered................ shares

Common stock outstanding after this
offering............................ shares

Use of proceeds..................... We intend to use the net proceeds from
this offering for working capital and
other general corporate purposes,
including expenditures for research and
development, sales and marketing
efforts and potential acquisitions of
or investments in complementary
businesses, technologies or products.

Proposed Nasdaq National Market
symbol.............................. CHAP

The number of shares of common stock outstanding as of March 31, 2000
excludes:

- 4,322,707 shares subject to outstanding options as of March 31, 2000,
with a weighted average exercise price of $1.89 per share;

- 300,000 shares subject to an outstanding warrant as of March 31, 2000,
with an exercise price of $20.00 per share; and

- 11,683,920 shares available for grant under stock option, stock incentive
and stock purchase plans.

------------------

Our fiscal year ends on March 31; thus, a reference to "fiscal 2000" or
"fiscal year 2000," for example, is to the fiscal year ended March 31, 2000. In
addition, except as otherwise indicated, information in this prospectus is based
on the following assumptions:

- our convertible preferred stock will convert to 15,128,853 shares of
common stock upon completion of this offering;

- the underwriters' over-allotment option will not be exercised; and

- we will file our amended and restated certificate of incorporation.

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SUMMARY FINANCIAL DATA

FISCAL YEAR ENDED
MARCH 31,
---------------------
1999 2000
----------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 237 $ 8,842
Cost of sales............................................... 156 4,590
Gross profit................................................ 81 4,252
Loss from operations........................................ (3,623) (7,942)
Net loss.................................................... $(3,695) $(7,969)
Net loss per share -- basic and diluted..................... $ (1.40) $ (0.68)
Weighted average shares..................................... 2,640 11,701
Pro forma net loss per share -- basic and diluted........... $ (0.31)
Pro forma weighted average shares........................... 25,519

Pro forma basic and diluted net loss per share is computed using the
weighted average shares of common stock outstanding, including the pro forma
effects of the automatic conversion of all outstanding series of preferred stock
into common stock upon completion of this offering as if the conversion occurred
on April 1, 1999, or at the date the preferred stock was actually issued, if
later.

Per share and weighted average share amounts exclude shares of common stock
that may be issued upon exercise of outstanding options and warrants or that may
be issued under our various stock compensation plans. For additional information
regarding these shares, see note 1 to the table in "Capitalization."

The following table is a summary of our balance sheet as of March 31, 2000.
The as adjusted column reflects our receipt of the estimated net proceeds from
the sale of the shares of common stock we are selling in this offering
at an assumed initial public offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses.

AS OF MARCH 31, 2000
--------------------
AS
ACTUAL ADJUSTED
-------- ---------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents................................... $16,707 $
Working capital............................................. 18,949
Total assets................................................ 23,521
Total stockholders' equity.................................. 20,159

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RISK FACTORS

An investment in our common stock is very risky. You should carefully
consider the risks described below, together with all of the other information
in this prospectus, before making a decision to invest in our common stock.

RISKS RELATED TO OUR BUSINESS

WE HAVE INCURRED SIGNIFICANT LOSSES SINCE OUR INCEPTION, WE EXPECT FUTURE LOSSES
AND WE MAY NEVER BECOME PROFITABLE.

We have incurred significant losses since our inception and expect to
continue to incur losses on both a quarterly and annual basis for the
foreseeable future. As of March 31, 2000, our accumulated deficit was
approximately $11.7 million. For the fiscal year ended March 31, 1999, our net
loss was approximately $3.7 million, and for the fiscal year ended March 31,
2000, our net loss was approximately $8.0 million. We expect to incur
significant research and development, sales and marketing and administrative
expenses and, as a result, we will need to realize increased revenue to achieve
profitability. Further, even if we achieve profitability, given the competition
in and the evolving nature of the SAN market, we may not be able to sustain or
increase profitability on a quarterly or annual basis.

OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT AND PROVIDES LIMITED
INFORMATION UPON WHICH TO EVALUATE OUR BUSINESS.

We were incorporated in January 1998 and sold our first product in October
1998. To date, most of our revenue has been derived from the sale of our
external RAID controllers. We expect to sell fewer external RAID controllers due
to the loss of business from nStor, our second largest customer for the fiscal
year ended March 31, 2000. Our business is evolving, and we expect to derive an
increasing portion of our future revenue from the sale of our Intelligent
Storage Routers. The revenue and income potential of our products and businesses
are unproven and the market that we are addressing is rapidly evolving, making
the forecast of our future business difficult. In addition, our operating
expenses are largely based on anticipated revenue trends and a high percentage
of our expenses are, and will continue to be, fixed in the short-term. Our
limited operating history and our evolving business make it very difficult for
us and for investors to evaluate or predict our future revenue or business
prospects. For further financial information relating to our business, see
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

WE HAVE A HISTORY OF FLUCTUATIONS IN OUR REVENUE AND OPERATING RESULTS AND
EXPECT THESE FLUCTUATIONS TO CONTINUE, WHICH MAY RESULT IN VOLATILITY IN OUR
STOCK PRICE.

Our revenue and operating results have varied significantly in the past and
are likely to vary significantly in the future due to a number of factors, many
of which are outside of our control. The primary factors that may cause our
quarterly revenue and operating results to fluctuate include the following:

- fluctuations in demand for our Intelligent Storage Routers and external
RAID controllers;

- the size, timing, terms and fluctuations of customer orders and product
implementations;

- the rate of adoption of SANs as an alternative to existing
server-attached storage architectures;

- the mix of our Intelligent Storage Routers and external RAID controllers
sold;

- the mix of distribution channels through which our products are sold;

- new product introductions by us or our competitors;

- deferrals of customer orders in anticipation of new products, services or
product enhancements introduced by us, our OEMs, our competitors or from
other providers of SAN products;
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- changes in our pricing policies or the pricing policies of our
competitors;

- our ability to develop, introduce, ship and support new products and
product enhancements that meet customer requirements in a timely manner;

- prototype expenses;

- our ability to obtain sufficient supplies of components, including sole
or limited source components;

- increases in the prices of the components we purchase;

- our ability to attain and maintain production volumes and quality levels;

- the ability of our contract manufacturers to produce and distribute our
products in a timely fashion;

- the software enhancements embedded in our hardware platforms;

- the additional software options incorporated in our products;

- costs related to acquisitions of technology or businesses; and

- general economic conditions as well as those specific to the SAN and
related industries.

Accordingly, you should not rely on the results of any past periods as an
indication of our future performance. In future periods our operating results
may be below expectations of public market analysts or investors.

IF WE ARE UNABLE TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH OEM CUSTOMERS, WE
MAY NOT BE ABLE TO INCREASE OUR REVENUES AND GROW OUR BUSINESS.

Our success depends on our ability to initiate, manage and expand our
relationships with new OEM customers. OEMs typically conduct significant
evaluation, testing, implementation and acceptance procedures before they begin
to market and sell new products. Based on our experience, their evaluation
process can be lengthy and can take as long as one year. Additionally, some OEMs
may complete the evaluation of our products but choose to delay implementation.
The qualification process is also complex and may require significant sales,
marketing and management efforts on our part. The complexity of this process
increases if we must qualify our products with multiple customers concurrently.
As a result, we may expend significant resources in developing customer
relationships before recognizing revenue, if any.

THE LOSS OF OR SIGNIFICANT REDUCTION IN SALES TO ANY OF OUR OEM CUSTOMERS, WHICH
HAS HAPPENED IN THE PAST, COULD SIGNIFICANTLY REDUCE OUR REVENUE.

Our revenues are currently derived primarily from a small number of OEM
customers. For the fiscal year ended March 31, 2000, approximately 49% of our
revenue came from three OEM customers, Quantum/ATL, nStor and Eurologics. We
anticipate that our operating results will continue to depend on sales to a
relatively small number of OEM customers. None of our current customers have any
minimum purchase obligations, and they may stop placing orders with us at any
time, regardless of any forecast they may have previously provided. The loss of
any of our OEM customers, or a significant reduction in sales to these
customers, could significantly reduce our revenue.

For example, during the quarter ended December 31, 1999, nStor, our largest
customer in the nine months ended December 31, 1999, returned approximately
$400,000 of our external RAID controllers following an order cancellation by one
of its customers. Although we had shipped these products to nStor in the quarter
ended December 31, 1999, pursuant to a noncancellable purchase order, we chose
not to recognize this revenue. We have not waived any claims arising from
nStor's cancellation of this order. Also, due to this cancellation, we did not
ship additional product pursuant to other nStor noncancellable purchase orders
for approximately $547,000. Primarily as a result of the cancellation of this
order and our decision not to ship additional products to nStor, our revenue for
the quarter ended December 31, 1999

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decreased approximately 28% from the previous quarter. We are not currently
shipping to nStor, have received no new purchase orders from nStor and may not
ship to them in the future.

COMPETITION IN OUR MARKETS MAY ADVERSELY AFFECT OUR REVENUE, GROSS PROFIT AND
MARKET SHARE.

The market for our products is very competitive. In the external RAID
controller market, our current competitors include CMD Technology, Inc.,
Infotrend Corporation and Mylex Corporation (acquired by IBM Corporation). As we
start selling higher performance RAID products targeted at the enterprise
market, we will face competition from larger and more established companies that
offer more integrated solutions, such as Data General (acquired by EMC
Corporation) and Symbios Logic (acquired by LSI Logic Corporation). In addition
to these companies, we expect to see competition from existing internal RAID
suppliers, such as American Megatrends Inc. and Distributed Processing
Technology (recently acquired by Adaptec, Inc.). Our major competitors in the
storage router market are ATTO Technology, Inc., CrossRoads Systems, Inc. and
Pathlight Technology, Inc. In the future, we may also compete against large data
networking companies that may develop SAN products. Furthermore, we may face
competition from Fibre Channel switch and hub manufacturers that incorporate
storage routing capabilities into their products. We also compete with providers
of data storage solutions that employ traditional storage technologies,
including SCSI-based technology, such as Emulex Corporation and QLogic
Corporation.

Increased competition could result in pricing pressures or reduced sales,
margins, profits and market share. Some of our competitors and potential
competitors have longer operating histories, greater name recognition, access to
larger customer bases, more established distribution channels or substantially
greater resources than we have. In addition, some of our current and potential
competitors have already established supplier or joint development relationships
with divisions of our current or potential customers. These competitors may be
able to leverage their existing relationships to discourage these customers from
purchasing additional products from us or persuade them to replace our products
with their products. As a result, they may be able to respond more quickly than
we can to new or changing opportunities, technologies, standards or customer
requirements. Our inability to compete effectively against current or future
competitors may significantly harm our business.

IF WE ARE UNABLE TO DEVELOP RELATIONSHIPS WITH NEW DISTRIBUTORS, WE MAY NOT BE
ABLE TO INCREASE OUR REVENUES AND GROW OUR BUSINESS.

In addition to increasing sales to OEMs, we intend to develop and expand
indirect distribution channels. Our failure to execute this strategy could limit
our ability to grow or sustain revenue. Furthermore, as we expand our sales to
distributors, we will increase our selling costs as these parties generally
require a higher level of customer support than OEMs. Our distributors may not
market our products effectively or devote the resources necessary to provide us
with effective sales, marketing and technical support. Many of our distributors
also sell products that compete with our products. Our failure to successfully
manage our distributor relationships, or their failure to devote adequate
resources to marketing and selling our products, could limit our ability to grow
or sustain our revenue.

WE HAVE LIMITED PRODUCT OFFERINGS, AND OUR SUCCESS DEPENDS ON OUR ABILITY TO
DEVELOP NEW AND ENHANCED PRODUCTS THAT ACHIEVE MARKET ACCEPTANCE.

We derive a substantial portion of our revenue from a limited number of
products, some of which have been introduced and shipped in volume only
recently. Accordingly, market demand and acceptance of these products are
uncertain. Our future success depends upon our ability to address the rapidly
evolving SAN market by developing and introducing high-quality products, product
enhancements and services on a timely basis. In addition, we must successfully
manage the introduction of new or enhanced products to minimize disruption in
our customers' ordering patterns, avoid excessive levels of older product
inventories and ensure that adequate supplies of new products can be delivered
to meet our customers' demands. Our revenue may be reduced if our current
products do not obtain market acceptance or if we fail to develop new products
or product enhancements that are broadly accepted.
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Factors that may affect the market acceptance of our products, some of
which are beyond our control, include the following:

- growth and changing requirements of our markets;

- successful development of products that meet customer requirements;

- availability, price, quality and performance of competing products and
technologies;

- expansion of our relationships with existing and new OEM, distributor,
reseller and systems integrator customers;

- performance, quality, price and total cost of ownership of our products;
and

- our customer service and support capabilities and responsiveness.

PRODUCT DEVELOPMENT DELAYS COULD ADVERSELY AFFECT OUR REVENUES, RESULTS OF
OPERATIONS, FINANCIAL CONDITION OR OUR CUSTOMER RELATIONSHIPS.

We may not be able to develop, manufacture and market new products or
product enhancements in a timely manner. Product development delays may result
from numerous factors, including:

- unanticipated engineering complexities;

- changing market or competitive product requirements;

- changing OEM product specifications;

- difficulties with independent contractors;

- difficulties in hiring and retaining necessary personnel;

- difficulties in overcoming resource limitations; and

- inability to license third party technology.

Any delay or unanticipated difficulty associated with new product introductions
or product enhancements could adversely affect our revenues, results of
operations, financial condition and customer relationships.

WE RELY HEAVILY ON OUR INTELLECTUAL PROPERTY, AND CHALLENGES TO OUR INTELLECTUAL
PROPERTY RIGHTS MAY RESULT IN LITIGATION, INCREASED COSTS AND PRODUCT DELAYS. WE
ARE CURRENTLY INVOLVED IN LITIGATION REGARDING OUR PRODUCTS.

On March 31, 2000, Crossroads Systems, Inc., our major competitor, filed
suit against us in the United States District Court for the Western District of
Texas (Austin Division). The complaint alleges that our products infringe a
patent of Crossroads. We cannot assure you that we will prevail in this
proceeding. In addition, we may be a party to litigation in the future either to
protect our intellectual property or as a result of an alleged infringement of
others' intellectual property. Intellectual property litigation could subject us
to significant liability for damages and could cause our proprietary rights to
be invalidated. Regardless of the merits of the claim or outcome, litigation
would likely be time-consuming and expensive to resolve and would divert
management time and attention.

The Crossroads lawsuit as well as any future intellectual property
litigation could force us to do one or more of the following:

- stop using the challenged intellectual property or selling our products
or services that incorporate it;

- obtain a license to use the challenged intellectual property or to sell
products or services that incorporate it, which license may not be
available on reasonable terms, or at all; and

- redesign those products or services that are based on or incorporate the
challenged intellectual property; and

- customers could require us to replace products purchased with
non-infringing products.

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If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, and our business, financial condition and
results of operations could be substantially harmed.

IF WE ARE UNABLE TO MANAGE OUR GROWTH SUCCESSFULLY, WE MAY EXPERIENCE
FLUCTUATIONS IN OUR OPERATING RESULTS OR DECLINES IN OUR STOCK PRICE OR BOTH.

We have grown to 79 employees as of March 31, 2000, from eight employees as
of March 31, 1998. We plan to continue to expand our operations significantly to
pursue existing and potential market opportunities. This growth will place a
significant demand on our management and operational resources. In order to
manage our growth effectively, we must implement and improve our operational
systems, procedures and controls on a timely basis. If we fail to manage our
growth effectively or make mistakes in operating our business, we may experience
fluctuations in our operating results or declines in our stock price or both.

THE SAN MARKET IN WHICH WE COMPETE IS NEW AND UNPREDICTABLE, AND IF THIS MARKET
DOES NOT DEVELOP AND EXPAND AS WE ANTICIPATE, OUR PRODUCTS MAY NOT ACHIEVE
MARKET ACCEPTANCE AND WE MAY BE UNABLE TO INCREASE REVENUES.

Widespread adoption of SANs is critical to our future success. The market
for SANs has only recently begun to develop and is rapidly evolving. Because the
market for SAN products is relatively new, it is difficult to predict its
potential size and evolution and, as a result, we may not be able to forecast
accurately demand for our products. Furthermore, potential end users may be
reluctant or slow to adopt new storage architectures. Our success in generating
revenue in this emerging market will depend on, among other things, our ability
to:

- educate potential OEM customers, distribution channel partners and end
users about the benefits of SANs, storage routers and external RAID
controllers;

- achieve interoperability between our products and those of other SAN
vendors;

- develop, maintain and build relationships with OEM customers,
distributors, resellers, systems integrators and end-user organizations;
and

- develop products that are compliant with existing and evolving standard
protocols.

In addition, end users often implement SANs in connection with their
deployment of new storage systems and servers. Accordingly, our future success
is also substantially dependent on demand for new storage systems and servers.

THE SAN MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND EVOLVING
STANDARDS, AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR PRODUCTS MAY BECOME
OBSOLETE OR WE MAY BE REQUIRED TO REDESIGN OUR PRODUCTS, BOTH OF WHICH COULD
ADVERSELY AFFECT OUR REVENUE, GROSS PROFIT OR MARKET SHARE.

The SAN market is characterized by rapid technological change, frequent new
product introductions, changes in customer requirements and evolving industry
standards. In developing our products, we have made, and will continue to make,
assumptions regarding which standards will be widely adopted. If the standards
adopted are different from those we have chosen to support, market acceptance of
our products may be significantly reduced or delayed, our competitive position
may be compromised, our existing products may be rendered obsolete and our
business may be seriously harmed. In addition, our research and development
efforts associated with the technologies and standards that do not achieve
widespread adoption would likely have no realizable value. Even if we are
successful in predicting the adopted technologies and standards, any delay in
our development of products based on these technologies and standards would
likely result in lower revenue for our products than we anticipate.

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IF WE CANNOT INCREASE OUR INTERNATIONAL SALES ACTIVITIES AS PLANNED, WE MAY NOT
BE ABLE TO INCREASE REVENUES AND OUR OPERATING RESULTS COULD BE ADVERSELY
AFFECTED.

For the year ended March 31, 2000, approximately 22% of our revenue was
from international sales. We plan to increase our international sales
activities. Our international sales will be limited if we cannot establish
relationships with international distributors, establish additional foreign
operations, expand international sales channel management, hire additional
personnel and develop relationships with international service providers. Even
if we are able to successfully continue international operations, we may not be
able to maintain or increase international market demand for our products. Our
international operations are subject to a number of risks, including:

- increased complexity and costs of managing international operations;

- multiple protectionist, adverse and changing governmental laws and
regulations;

- reduced or limited protection of intellectual property rights;

- potentially adverse tax consequences resulting from changes in tax laws;

- longer sales cycles;

- greater difficulty in accounts receivable collection and longer
collection periods;

- supporting multiple languages;

- difficulty enforcing our legal rights; and

- political and economic instability.

These factors and others could harm future sales of our products to
international customers, which would negatively impact our business and
operating results.

To date, none of our international revenue and costs have been denominated
in foreign currencies. As a result, an increase in the value of the U.S. dollar
relative to foreign currencies could make our products more expensive and thus
less competitive in foreign markets. A portion of our international revenue may
be denominated in foreign currencies in the future, which would subject us to
risks associated with fluctuations in those foreign currencies.

IF WE CANNOT INCREASE OUR SALES VOLUMES, REDUCE OUR COSTS OR INTRODUCE HIGHER
MARGIN PRODUCTS TO OFFSET ANTICIPATED REDUCTIONS IN THE AVERAGE SELLING PRICES
OF OUR PRODUCTS, OUR OPERATING RESULTS MAY SUFFER.

We anticipate that as products in the SAN market become widely available,
the average selling prices of our products may decrease in response to changes
in product mix, competitive pricing pressures, new product introductions by us
or our competitors or other factors. If we are unable to offset the anticipated
decrease in our average selling prices by increasing our sales volumes, our
revenue will decline. In addition, to maintain our gross margin, we must
continue to reduce the manufacturing cost of our products and develop and
introduce new, higher margin products and product enhancements. If we cannot
maintain our gross margin, our business could be seriously harmed.

WE MAY ENGAGE IN ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS' EQUITY AND CAUSE US
TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES.

We expect to review opportunities to buy other businesses or technologies
that would complement our current products, expand our market opportunity or
enhance our technical capabilities. We have no current agreements or
negotiations underway. In the event of any future acquisitions, we could incur
debt, assume liabilities or issue stock. The issuance of stock would dilute our
current stockholders' percentage ownership.

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15

Acquisitions could also involve numerous risks, including:

- problems integrating the purchased operations, technologies or products
with our existing business and products;

- unanticipated costs;

- diversion of management's attention from our core business;

- adverse effects on existing business relationships with our suppliers and
customers;

- incorrect estimates made in the accounting for acquisitions;

- risks associated with entering markets in which we have no or limited
prior experience; and

- potential loss of key employees within our company or any business we
acquire.

We may not be able to integrate successfully any businesses, products,
technologies or personnel that we acquire.

IF WE DO NOT HIRE, RETAIN AND INTEGRATE HIGHLY SKILLED PERSONNEL, OUR ABILITY TO
DEVELOP AND SELL OUR PRODUCTS COULD BE HARMED.

Our success depends to a significant degree on our personnel, many of whom
would be difficult to replace. Currently, we only have employment contracts with
our three most senior executives and do not maintain key person life insurance
on any of our personnel. The loss of any of our key personnel could have a
negative impact on our business.

We believe our future success will also depend in large part upon our
ability to attract and retain highly skilled personnel. Competition for these
people is intense, and we may not be successful in attracting and retaining
these individuals. If we are unable to attract or retain qualified personnel in
the future, or if we experience delays in hiring required personnel,
particularly qualified engineers and sales personnel, our ability to develop,
introduce and sell our products could be harmed. In addition, we may be subject
to claims of unfair hiring practices as we pursue highly skilled personnel. Any
claim of this nature could result in material litigation. We could incur
substantial costs in defending ourselves against these claims, regardless of
their merits.

We also believe that our success depends significantly on the ability of
our personnel to operate effectively, both individually and as a group. Many of
our employees have only recently joined us. If we are unable to integrate new
employees in a timely and cost-effective manner, our operating results may
suffer.

IF WE ARE UNABLE TO FORECAST ACCURATELY OUR COMPONENT AND MATERIAL REQUIREMENTS,
WE MAY INCUR ADDED COSTS OR BE UNABLE TO MEET CUSTOMER DEMANDS.

We use rolling forecasts based on anticipated product orders from our
customers to determine our component requirements. Lead times for materials and
components that we order vary significantly and depend on factors, such as
specific supplier requirements, contract terms and current market demand for
such components. As a result, we may not accurately forecast our component
requirements. If we overestimate our component requirements, we could have
excess inventory, which would increase our costs. If we underestimate our
component requirements, we may have inadequate inventory, which could interrupt
our manufacturing and delay delivery of our products to our customers. Either
occurrence would negatively impact our business and operating results.

OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN UNDETECTED SOFTWARE OR HARDWARE ERRORS,
WHICH COULD LEAD TO AN INCREASE IN OUR COSTS OR A REDUCTION IN OUR REVENUE.

Our products are complex, and we have, from time to time, found errors in
our existing products. We also may in the future find errors in our existing,
new or enhanced products. Because our products are also
14
16

integrated with products from other vendors, it may be difficult to identify the
source of any problem. Hardware and software errors, whether caused by our
products or those of another vendor, could adversely affect sales of our
products, cause us to incur significant warranty and repair costs, divert
engineering resources from product development efforts and cause significant
customer relations problems.

BECAUSE WE DEPEND ON LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS, WE ARE
SUSCEPTIBLE TO SUPPLY SHORTAGES THAT COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.

We depend on JNI and Adaptec for our Fibre Channel, SCSI and memory
controller Application Specific Integrated Circuits, or ASICs. In addition, we
have limited supply sources for several key components, including embedded
microprocessors, optical transceivers and power supplies. We may in the future
experience shortages of, or difficulties in acquiring, these components. If we
are unable to buy these components in sufficient quantities, we will not be able
to manufacture our products on a timely basis. We typically purchase three
months of these components in advance and consign these parts to our outsourced
manufacturers. If we are required to procure and qualify alternative sources of
supply, we may face both cost increases and time to market delays resulting from
the need to redesign our hardware platforms.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY, OUR OPERATING
RESULTS COULD SUFFER.

Because our products rely on proprietary technology and will likely
continue to rely on technological advancements for market acceptance, we believe
that the protection of our intellectual property rights will be critical to the
success of our business. To protect our intellectual property rights, we rely on
a combination of patent, copyright, trademark and trade secret laws and
restrictions on disclosure. We also enter into confidentiality or license
agreements with our employees, consultants and corporate partners and control
access to and distribution of our software, documentation and other proprietary
information.

Despite our efforts to protect our proprietary rights, unauthorized parties
may copy or otherwise obtain and use our products or technology. Monitoring
unauthorized use of our products is difficult. We cannot be certain that the
steps we take to protect our intellectual property will adequately protect our
proprietary rights, that others will not independently develop or otherwise
acquire equivalent or superior technology or that we can maintain any of our
technology as trade secrets. We license the core technology that underlies our
products from Adaptec, and we depend on Adaptec to enforce its patents and
protect our proprietary rights. We cannot be certain that Adaptec will
adequately enforce these patents. In addition, the laws of some of the countries
in which our products are or may be sold may not protect our products and
intellectual property rights to the same extent as the laws of the United States
or at all. For a more complete discussion of the protection of our intellectual
property, see "Business -- Intellectual Property." Our failure to protect our
intellectual property rights could adversely affect our business, results of
operations and financial condition.

IF OUR CONTRACT MANUFACTURERS ARE UNABLE TO MEET OUR MANUFACTURING NEEDS, OUR
REVENUE MAY SUFFER BECAUSE WE MAY NOT BE ABLE TO MEET OUR CUSTOMER DEMAND.

We currently outsource manufacturing of our products to Surface Mount
Technology Centre Inc. (SMTC) and Saturn Electronics & Engineering, Inc.
(Saturn). We share our contract manufacturers' capacity with numerous companies
whose manufacturing needs may conflict with ours. Our contract manufacturers are
not obligated to supply products to us for any specific period, or in any
specific quantity, except as may be provided in a particular purchase order that
has been accepted by them. If either of our contract manufacturers experiences
delays, disruptions, capacity constraints or quality control problems in its
manufacturing operations, then product shipments to our customers could be
delayed, which could negatively impact our revenue, competitive position and
reputation.

Further, our business would be harmed if we fail to manage the
manufacturing of our products effectively. We generally place firm orders with
our contract manufacturers at least three months prior to scheduled delivery of
products to our customers. Accordingly, if we inaccurately forecast demand for
our products, we may be unable to obtain adequate manufacturing capacity or
adequate quantities of components to meet our customers' delivery requirements
or we may accumulate excess inventories.

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17

We may in the future need or choose to select new contract manufacturers
for volume, cost or quality considerations. We may not find a contract
manufacturer that meets our requirements. Additionally, qualifying a new
contract manufacturer and commencing volume production is expensive and time
consuming.

WE EXPECT TO FACE COMPETITION FROM MANUFACTURERS OF STORAGE SYSTEMS THAT
INCORPORATE FIBRE CHANNEL INTERFACES INTO THEIR PRODUCTS.

We currently derive a substantial portion of our revenue from our
Intelligent Storage Routers, which are used to connect SCSI-based storage
systems with SANs. The introduction of storage systems that incorporate Fibre
Channel interfaces would enable storage devices to communicate directly with
SANs, without having to use storage routers. We expect that a number of
manufacturers of storage systems will develop products with embedded Fibre
Channel interfaces in the near future. If this occurs, demand for our
Intelligent Storage Routers could be materially reduced and our revenue may
decline.

TO MANAGE OUR GROWTH AND EXPANSION, WE PLAN TO RELOCATE TO NEW FACILITIES, WHICH
MAY DISRUPT OUR BUSINESS.

We plan to relocate our principal executive offices to a larger facility in
the third calendar quarter of 2000. This relocation could be disruptive,
time-consuming and expensive. If we experience delays or difficulties in
relocating, our ability to effectively manage our operations may be compromised.

WE MAY BECOME INVOLVED IN COSTLY AND TIME-CONSUMING LITIGATION THAT MAY
SUBSTANTIALLY INCREASE OUR COSTS AND HARM OUR BUSINESS.

On March 31, 2000, Crossroads, our major competitor, filed suit against us
in the United States District Court for the Western District of Texas (Austin
Division). The complaint alleges that Chaparral products infringe a patent of
Crossroads. The complaint specifically identified three of our Intelligent
Storage Routers but stated it was not limited to those products. We are
currently investigating the claims alleged by Crossroads and intend to defend
the suit vigorously.

We may from time to time become involved in various lawsuits and legal
proceedings that arise from actions taken in the ordinary course of our
business. Litigation is subject to inherent uncertainties, and an adverse result
in litigation matters that may arise from time-to-time may harm our business.

OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT ARE NOT IN THE INTERESTS OF OUR OTHER STOCKHOLDERS.

We anticipate that our executive officers and directors and the entities
affiliated with them will, in the aggregate, beneficially own approximately
19.6% of our outstanding common stock following the completion of this offering.
These stockholders, or any of our principal stockholders, if acting together,
may be able to influence significantly all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers or
other business combinations, which may not be in the interests of all
stockholders. For a full presentation of the equity ownership of these
stockholders, see "Principal Stockholders."

RISKS RELATED TO THIS OFFERING

OUR MANAGEMENT CAN SPEND THE NET PROCEEDS FROM THIS OFFERING IN WAYS WITH WHICH
OUR STOCKHOLDERS MAY NOT AGREE.

Our management can spend the net proceeds from this offering in ways with
which our stockholders may not agree. We cannot assure you that our investments
and the use of the net proceeds of this offering will yield favorable returns or
results. See "Use of Proceeds."

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YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
SHARES.

The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately $ in the book value per share of our
common stock from the price you pay for our common stock. For additional
information on this calculation, see "Dilution."

PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK.

Provisions of our amended and restated certificate of incorporation or
bylaws may discourage, delay or prevent a merger with, or acquisition of, us
that a stockholder may consider favorable. These provisions include:

- authorizing our board of directors to issue preferred stock without
stockholder approval;

- providing for a classified board of directors with staggered, three-year
terms;

- requiring super-majority voting to effect significant amendments to our
certificate of incorporation and bylaws;

- limiting the ability of stockholders to call special meetings; and

- prohibiting stockholder actions by written consent.

Certain provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us, which may cause the market price of
our common stock to decline. For example, Delaware law prohibits cumulative
voting in the election of directors unless specifically provided for in the
certificate of incorporation.

OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT
OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.

There has been no public market for our common stock prior to this
offering. The initial public offering price for our common stock will be
determined through negotiations between the underwriters and us. This initial
public offering price may vary from the market price of our common stock after
the offering. If you purchase shares of common stock, you may not be able to
resell those shares at or above the initial public offering price. The market
price of our common stock may fluctuate significantly in response to factors,
some of which are beyond our control, including the following:

- actual or anticipated fluctuations in our operating results;

- changes in market valuations of other technology companies, particularly
those that sell products used in SANs;

- changes in financial estimates by securities analysts or our failure to
perform in line with such estimates;

- announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;

- losses of major OEM customers, value added resellers or distributors;

- introduction of technologies or product enhancements that reduce the need
for our Intelligent Storage Routers and external RAID controllers; and

- additions or departures of key personnel.

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In addition, the stock market has experienced extreme volatility that often
has been unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of our performance.

You should read the "Underwriting" section for a more complete discussion
of the factors that were considered in determining the initial public offering
price of our common stock.

SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS
OUR STOCK PRICE.

Our current stockholders hold a substantial number of shares that they will
be able to sell in the public market in the near future after the expiration of
applicable lock-up agreements. Sales of a substantial number of shares of our
common stock after this offering could cause our stock price to fall. In
addition, the sale of these shares could impair our ability to raise capital
through the sale of additional stock. You should read "Shares Eligible for
Future Sale" for a full discussion of shares that may be sold in the public
market in the future.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "intend," "anticipate,"
"believe," "estimate," "continue" and other similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, make projections of our future results of operations or of our
financial condition or state other "forward-looking" information. We believe
that it is important to communicate our future expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or control. The factors listed in the sections captioned "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in the "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections and elsewhere in this prospectus could have a material adverse effect
on our business, operating results and financial condition.

USE OF PROCEEDS

We expect to receive net proceeds of approximately $ from the sale
of the shares of common stock (approximately $ if the
underwriters exercise their over-allotment option in full), at an assumed
initial public offering price of $ per share, after deducting the estimated
underwriting discount and estimated offering expenses.

Our principal purposes for engaging in this offering are to:

- increase our equity capital;

- create a public market for our common stock; and

- facilitate our future access to public equity markets.

We expect to use the net proceeds from this offering primarily for working
capital and other general corporate purposes, including expenditures for
research and development and sales and marketing efforts. In addition, we may
use a portion of the net proceeds to acquire businesses, products or
technologies that are complementary to our current or future business and
product lines. We are not currently negotiating any acquisitions, and we have no
agreements with any third party for any acquisition. Pending use of the net
proceeds of this offering, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.

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DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock, and we
do not intend to pay cash dividends on our common stock in the foreseeable
future. We currently expect to retain any future earnings to fund the operation
and expansion of our business. In addition, the terms of our credit agreement
prohibit the payment of any dividends.

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CAPITALIZATION

The following table sets forth our total capitalization as of March 31,
2000:

- on an actual basis as of March 31, 2000;

- on a pro forma basis to reflect the automatic conversion of all
outstanding shares of preferred stock into 15,128,853 shares of common
stock upon completion of this offering; and

- on a pro forma as adjusted basis to reflect the sale of shares
of common stock offered hereby at an assumed initial public offering
price of $ per share in this offering, after deducting estimated
underwriting discounts and commissions and estimated offering expenses to
be paid by us.

You should read the following table in conjunction with our financial
statements and the notes to those statements, which are included in this
prospectus.

AS OF MARCH 31, 2000
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ------------ --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)

Cash and cash equivalents................................... $ 16,707 $ 16,707 $
======== ======== ========
Long-term obligations....................................... -- --
-------- -------- --------
Stockholders' equity:
Series A preferred stock, par value $.001 per share;
18,600,000 shares authorized; 18,599,372 shares issued
and outstanding; no shares issued and outstanding pro
forma and pro forma as adjusted........................ 3,102 --
Series B preferred stock, par value $.001 per share;
5,540,200 shares authorized, issued and outstanding; no
shares issued and outstanding pro forma and pro forma
as adjusted............................................ 1,000 --
Series C preferred stock, par value $.001 per share;
5,000,000 shares authorized, issued and outstanding; no
shares issued and outstanding pro forma and pro forma
as adjusted............................................ 2,167 --
Common stock, $.001 par value, 52,000,000 shares
authorized; 18,768,087 shares issued and outstanding;
33,896,940 shares issued and outstanding pro forma;
38,896,940 shares issued and outstanding pro forma as
adjusted(1)............................................ 19 34
Additional paid-in capital................................ 26,847 33,101
Unearned stock option compensation........................ (634) (634)
Notes receivable for preferred and common stock........... (643) (643)
Accumulated deficit....................................... (11,699) (11,699)
-------- -------- --------
Total stockholders' equity........................ 20,159 20,159
-------- -------- --------
Total capitalization.............................. $ 20,159 $ 20,159 $
======== ======== ========

- ---------------

(1) Shares outstanding excludes the following:

- 4,302,707 shares of common stock issuable upon exercise of options
outstanding as of March 31, 2000 with a weighted average exercise price
of $1.85 per share; and

- 300,000 shares of common stock issuable upon exercise of a warrant
outstanding as of March 31, 2000 with an exercise price of $20.00 per
share.

- 11,703,920 shares reserved for future issuance under stock option, stock
incentive and stock purchase plans.

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DILUTION

Our pro forma net tangible book value at March 31, 2000 was $27.5 million,
or $0.79 per share of common stock. Pro forma net tangible book value per share
is determined by dividing our net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding as of March 31, 2000, assuming conversion of all outstanding shares
of our preferred stock into 15,128,853 shares of common stock upon the
completion of this offering along with the exercise of all options and warrants
held by officers, directors, promoters and affiliates.

Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to our sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us, our adjusted pro forma net tangible book value at March 31, 2000
would have been $ million, or $ per share. This amount represents an
immediate increase in pro forma net tangible book value to our existing
stockholders of $ per share and an immediate dilution to new investors of
$ per share. The following table illustrates this per share dilution:

Initial public offering price per share..................... $
Pro forma net tangible book value per share at March 31,
2000................................................... $
Increase in pro forma net tangible book value per share
attributable to new investors.......................... $
-----
Adjusted pro forma net tangible book value per share after
this offering............................................. $
-----
Dilution per share to new investors......................... $
=====

If the underwriters exercise their over-allotment option in full, our
adjusted pro forma net tangible book value at March 31, 2000 would have been
$ million, or $ per share, representing an immediate increase in pro
forma net tangible book value to our existing stockholders of $ per share
and an immediate dilution to new investors of $ per share.

The following table summarizes, on a pro forma basis as of March 31, 2000,
the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders along with the exercise of all options and warrants held by
officers, directors, promoters and affiliates and by new investors purchasing
shares of common stock in this offering. The information presented is based upon
an assumed initial public offering price of $ per share, before deducting
estimated underwriting discounts and commissions and estimated offering expenses
and no exercise of the underwriters' over-allotment option.

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- ---------

Existing stockholders, assuming
exercise of all options and warrants
held by officers, directors,
promoters and affiliates............ 35,061,439 % $27,516,898 % $0.79
New investors......................... $
---------- --- ----------- ---
Total....................... % $ %
========== === =========== ===

The discussion and tables above include the assumed conversion of all
outstanding shares of our preferred stock into common stock and exercise of
options and warrants to purchase 1,164,439 shares of common stock held by
officers, directors, promoters and affiliates at March 31, 2000 and exclude
options outstanding at March 31, 2000 excluding options held by officers,
directors, promoters and affiliates to purchase a total of 3,438,208 shares of
common stock with a weighted average exercise price of $1.92 per share; and to
the extent that any of these options are exercised, there will be further
dilution to new investors.

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SELECTED FINANCIAL DATA

The following tables summarize our financial data. For a more detailed
explanation of our financial condition and operating results, you should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our financial statements and the notes to those statements included
in this prospectus. The balance sheet data as of March 31, 1999 and 2000 and the
statement of operations data for the period from January 22, 1998 (inception) to
March 31, 1998 and for the fiscal years ended March 31, 1999 and 2000 have been
derived from audited financial statements included in this prospectus.

PERIOD FROM
INCEPTION FISCAL YEAR ENDED
(JANUARY 22, MARCH 31,
1998) TO MARCH 31, ---------------------
1998 1999 2000
---------------------- ----------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Revenue............................................... $ -- $ 237 $ 8,842
Cost of sales......................................... -- 156 4,590
Gross profit.......................................... -- 81 4,252
Loss from operations.................................. 35 (3,623) (7,942)
Net loss.............................................. $ 35 $(3,695) $(7,969)
Net loss per share -- basic and diluted............... $ -- $ (1.40) $ (0.68)
Weighted average shares............................... -- 2,640 11,701
Pro forma net loss per share -- basic and diluted..... $ (0.31)
Pro forma weighted average shares..................... 25,519

Pro forma basic and diluted net loss per share is computed using the
weighted average shares of 25,518,741 common stock outstanding, including the
pro forma effects of the automatic conversion of all outstanding series of
preferred stock into common stock upon completion of this offering as if the
conversion occurred on April 1, 1999, or at the date the preferred stock was
actually issued, if later.

The following table is a summary of our balance sheet data. The as adjusted
column reflects our receipt of the estimated net proceeds from the sale of the
shares of common stock we are selling in this offering at an assumed
initial public offering price of $ per share, after deducting underwriting
discounts and commissions and estimated offering expenses.

AS OF MARCH 31, 2000
--------------------
MARCH 31, AS
1999 ACTUAL ADJUSTED
--------- -------- ---------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 224 $16,707 $
Working capital (deficit)................................... (1,272) 18,949
Total assets................................................ 933 23,521
Total stockholders' equity (deficit)........................ (894) 20,159

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial
statements and related notes that appear elsewhere in this prospectus. The
following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ significantly from those
anticipated in these forward-looking statements as a result of certain factors,
including those discussed below and elsewhere in this prospectus, particularly
under the heading "Risk Factors."

OVERVIEW

We develop and market Intelligent Storage Routers and external RAID
controllers for open systems network storage solutions. Our Intelligent Storage
Routers facilitate the interconnection of SANs with existing SCSI-based servers
and storage systems. Our external RAID controllers dynamically distribute data
across multiple hard disk drives to increase data transfer speeds and deliver
fault tolerance. Our products are designed to provide a high level of
performance, availability and functionality.

Our company was incorporated in January 1998 as Chaparral Technologies,
Inc., a Delaware corporation. We initially focused our operating activities on
the research and development of our Intelligent Storage Routers and on building
our organization by hiring engineering, sales and administrative staff. In July
1999, we changed our name to Chaparral Network Storage, Inc. to more accurately
reflect our emphasis on providing network storage products.

In November 1998, we entered into a technology license agreement with
Adaptec for its external Fibre Channel RAID controllers in exchange for a 19.9%
equity interest in our company. As part of this technology license, we use
Adaptec's hardware platform in our Intelligent Storage Routers and external RAID
controllers. We began shipping our first external RAID controller products, the
G Series, in November 1998. In March 1999, we completed the design of our next
generation external RAID controllers, which served as the basis for developing
our Intelligent Storage Routers. We began shipping our Intelligent Storage
Routers in April 1999. In November 1999, we announced the next generation of
both the external RAID controllers and Intelligent Storage Routers. Through
March 31, 2000, we have sold approximately 6,000 units of our Intelligent
Storage Routers and external RAID controllers.

Since our inception, we have incurred significant losses, and as of March
31, 2000, we had an accumulated deficit of approximately $11.7 million. For the
fiscal year ended March 31, 2000, our net loss was approximately $8.0 million.
We have not achieved profitability on a quarterly or annual basis and expect to
incur significant losses for the foreseeable future.

For the fiscal year ended March 31, 2000, approximately 71% of our revenue
was from the sale of our external RAID controllers and the remaining 29% of
revenue was from the sale of our Intelligent Storage Routers. We expect to sell
fewer external RAID controllers due to the loss of business from nStor, our
second largest customer for the fiscal year ended March 31, 2000. As we continue
to develop and ship Intelligent Storage Routers, we expect they will constitute
an increasing percentage of our revenue, which in turn may result in a higher
gross margin. Our Intelligent Storage Routers may not gain wide market
acceptance.

We sell our products to OEMs, distributors, resellers and systems
integrators. Our OEM customers include Eurologic, MicroNet, nStor, Qualstar,
Quantum/ATL, Trimm and Xyratex. During the year ended March 31, 2000, our three
largest OEM customers, Quantum/ATL, nStor and Eurologic, accounted for 21%, 17%
and 11% of our revenue, respectively. Although we anticipate the majority of our
revenue will come from new and existing OEM customers, a key element of our
growth strategy is to expand and diversify our distribution channels. To this
end, we have established relationships with industrial distributors, including
Arrow, Bell Microproducts, CONSAN and Hammer, which resell our products to value
added resellers (VARs) and systems integrators. During the year ended March 31,
2000, sales to CONSAN represented approximately 16% of our revenue and sales to
Bell Microproducts represented 13% of our revenue. No other distribution channel
customer accounted for more than 10% of our revenue in this period.

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We are seeking to diversify our customer base and expand our sales channel.
However, we expect a significant portion of our revenue in the short term will
be derived from a relatively small number of OEMs and distribution channel
partners. We may not be successful in diversifying our customer base, and the
loss of one of our significant customers could reduce our total revenue. We do
not have long term contracts with any of our customers.

We recognize product revenue at the time of shipment. Estimated product
returns are accrued in the period of sale. We recognize a warranty reserve based
on a combination of historical experience and specifically identified potential
warranty liabilities, if any. We warrant our products for up to three years, and
we have had no significant warranty issues to date.

We outsource our manufacturing, which allows us to focus on designing,
developing and marketing our products. We believe the use of a high quality
contract manufacturer, which has multiple manufacturing locations, allows us to
deploy our resources and capital more efficiently. A significant portion of our
cost of sales consists of payments for contract manufacturing. A less
significant amount is spent on components, which we consign to our
manufacturers, and for royalties on licensed technology. Our contract
manufacturers build our products using quality assurance programs and standards
that we establish and monitor. Engineering for manufacturability as well as
documentation control are conducted at our facility in Longmont, Colorado.

RESULTS OF OPERATIONS

Because of our limited operating history and the rapidly evolving nature of
our business, we believe that period-to-period comparisons are not meaningful
and should not be relied upon as an indication of future performance. The
following table presents our operating results for our fiscal years ended March
31, 1999 and 2000.

FISCAL YEAR ENDED
MARCH 31,
--------------------------
1999 2000
----------- ------------
(IN THOUSANDS)

STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ 237 $ 8,842
Cost of sales............................................... 156 4,590
------- -------
Gross profit.............................................. 81 4,252
------- -------
Operating expenses:
Research and development, excluding $835,807 of stock
option compensation.................................... 1,724 4,598
Sales and marketing, excluding $72,967 of stock option
compensation........................................... 453 3,133
General and administrative, excluding $755,541 of stock
option compensation.................................... 1,527 2,799
Stock option compensation................................. -- 1,664
------- -------
Total operating expenses.................................. 3,704 12,194
------- -------
Loss from operations........................................ (3,623) (7,942)
Interest expense, net....................................... 72 27
------- -------
Net loss.................................................. $(3,695) $(7,969)
======= =======

FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999

Revenue

Revenue was $8.8 million for the fiscal year ended March 31, 2000, compared
to $237,000 for the fiscal year ended March 31, 1999. We commenced product sales
in the quarter ended December 31, 1998. For the fiscal year ended March 31,
2000, sales of our Intelligent Storage Routers constituted $2.6 million, or 29%,
of our revenue, while for the comparable period in 1999, sales of our external
RAID controllers constituted all of our revenue. For the fiscal year ended March
31, 2000, 86 customers accounted for all of our revenue, compared to five
customers in the fiscal year ended 1999.

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Cost of Sales and Gross Profit

Cost of sales includes the cost of our contract manufacturing, materials
costs, warranty costs, manufacturing overhead, royalties and a reserve for
inventory obsolescence.

Gross profit increased to $4.3 million for the fiscal year ended March 31,
2000, from $81,000 for the fiscal year ended March 31, 1999. Gross profit as a
percentage of revenue was 48% for the fiscal year ended March 31, 2000. Included
in cost of sales in the fiscal year ended March 31, 2000 was $333,000 of expense
related to the issuance of a warrant as part of an integrated circuit agreement
with Adaptec.

Research and Development

Research and development expense consists primarily of salaries and related
personnel costs, fees paid to consultants and outside service providers,
non-recurring engineering charges and prototype costs related to the design,
development, testing and enhancement of our products and software and systems
development. We expense our research and development costs as they are incurred.

Research and development expense was $4.6 million for the fiscal year ended
March 31, 2000, an increase of $2.9 million over the fiscal year ended March 31,
1999. This increase was due primarily to costs associated with the addition of
research and development personnel and increased prototype expenses, which
included equipment, supplies and outside consultants. Research and development
personnel increased to 35 at March 31, 2000, from 21 at March 31, 1999. We
believe that strategic product development and other research and development
initiatives are required to remain competitive. As a result, we expect our
research and development expense to increase in absolute dollars in the future.

Sales and Marketing

Sales and marketing expense consists primarily of salaries, commissions and
related expenses for personnel engaged in marketing, sales and customer
engineering support functions, as well as costs associated with promotional and
other marketing expenses.

Sales and marketing expense was $3.1 million for the fiscal year ended
March 31, 2000, an increase of $2.7 million over the comparable period in 1999.
The increase was primarily due to the costs associated with the addition of
sales and marketing personnel as well as trade show and advertising expenses.
Sales and marketing personnel increased to 24 at March 31, 2000, from five at
March 31, 1999. We expect sales and marketing expense will increase
substantially in absolute dollars over the next year, as we hire additional
sales and marketing personnel, expand our customer service and support
organization, initiate additional marketing programs and establish sales offices
in new domestic and international locations.

General and Administrative

General and administrative expense consists primarily of salaries and
related expenses for executive, finance and accounting, facilities and human
resources personnel, recruiting expenses, professional fees, reserves for
doubtful accounts and other corporate expenses.

General and administrative expense increased by $1.3 million to $2.8
million for the fiscal year ended March 31, 2000, from $1.5 million for the
fiscal year ended March 31, 1999. This increase was due primarily to costs
associated with the addition of general and administrative personnel, increased
professional and consulting activities and a provision for doubtful accounts.
General and administrative personnel increased to 13 at March 31, 2000, from six
at March 31, 1999. We expect general and administrative expense to increase in
absolute dollars as we add personnel and incur additional costs related to the
growth of our business and our operation as a public company.

Stock Option Compensation

We recognized stock option compensation expense of $1.7 million in the
fiscal year ended March 31, 2000. Of this amount, $835,807, $72,967 and $755,541
related to research and development, sales and

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marketing and general and administrative expenses, respectively. Unearned stock
option compensation expense of $0.6 million will be recognized over the
remaining vesting periods of the associated stock options.

Interest Expense, Net

We had net interest expense of $27,000 for the fiscal year ended March 31,
2000, as a result of $397,000 of interest paid for financing fees and for debt
outstanding during the period, all of which was repaid as of March 31, 2000.
This amount was offset by interest income of $370,000. We had interest expense
of $72,000 for the fiscal year ended March 31, 1999.

Provision for Income Taxes

There is no provision for income taxes, as we have incurred losses for all
periods to date. As of March 31, 2000, we had approximately $8.5 million of U.S.
federal and state net operating loss carryforwards available to offset future
taxable income. Net operating loss carryforwards will expire through 2020 to the
extent that they are not utilized. We believe the carryforwards may also be
limited by Internal Revenue Code provisions.

FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO THE PERIOD FROM INCEPTION TO
MARCH 31, 1998

We had no revenue during the first three months of operations and incurred
only $35,000 of general and administrative expense during this period. For this
reason, it is not meaningful to compare results between the fiscal year ended
March 31, 1999, and the period from inception to March 31, 1998.

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QUARTERLY RESULTS OF OPERATIONS

The following table presents historical unaudited quarterly information for
our most recent six quarters. All quarters have been prepared on the same basis
as the audited financial statements appearing elsewhere in this prospectus. In
the opinion of management, all necessary adjustments consisting only of normal
recurring adjustments have been included to present fairly the unaudited
quarterly results when read in conjunction with our audited financial statements
and the related notes appearing elsewhere in this prospectus. These operating
results are not necessarily indicative of the results of any future period.

QUARTER ENDED
----------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1999 1999 1999 1999 2000
-------- --------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT AS A PERCENTAGE OF REVENUE)

STATEMENT OF OPERATIONS DATA:
Revenue......................... $ 143 $ 94 $ 960 $3,103 $ 2,233 $ 2,546
Cost of sales................... 52 98 555 1,429 1,015 1,258
Cost associated with warrant
issued to Adaptec for
integrated circuit
agreement..................... -- -- -- -- -- 333
------- --------- ------- ------ ------- -------
Gross profit (loss)............. 91 (4) 405 1,674 1,218 955
------- --------- ------- ------ ------- -------
Operating expenses:
Research and development...... 611 873 778 909 1,172 1,739
Sales and marketing........... 129 228 334 436 803 1,560
General and administrative.... 490 497 416 710 637 1,036
Stock option compensation
related to:
Research and development... -- -- -- -- 818 18
Sales and marketing........ -- -- -- -- 58 15
General and
administrative........... -- -- -- -- 744 11
------- --------- ------- ------ ------- -------
Total operating expenses........ 1,230 1,598 1,528 2,055 4,232 4,379
------- --------- ------- ------ ------- -------
Loss from operations............ (1,139) (1,602) (1,123) (381) (3,014) (3,424)
Interest (expense) income,
net........................... -- (72) (15) (63) (206) 257
------- --------- ------- ------ ------- -------
Net loss........................ $(1,139) $ (1,674) $(1,138) $ (444) $(3,220) $(3,167)
======= ========= ======= ====== ======= =======
AS A PERCENTAGE OF REVENUE:
Revenue......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................... 36.4 104.3 57.8 46.1 45.5 49.4
Cost associated with warrant
issued to Adaptec for
integrated circuit
agreement..................... -- -- -- -- -- 13.1
------- --------- ------- ------ ------- -------
Gross profit (loss)............. 63.6 (4.3) 42.2 53.9 54.5 37.5
------- --------- ------- ------ ------- -------
Operating expenses:
Research and development...... 427.3 928.7 81.0 29.3 52.5 68.3
Sales and marketing........... 90.2 242.6 34.8 14.1 36.0 61.3
General and administrative.... 342.7 528.7 43.3 22.9 28.5 40.7
Stock option compensation
related to:
Research and development... -- -- -- -- 36.6 .7
Sales and marketing........ -- -- -- -- 2.6 .6
General and
administrative........... -- -- -- -- 33.4 .4
------- --------- ------- ------ ------- -------
Total operating expenses........ 860.1 1,700.0 159.2 66.2 189.5 172.0
------- --------- ------- ------ ------- -------
Loss from operations............ (796.5) (1,704.3) (117.0) (12.3) (135.0) (134.5)
Interest (expense) income,
net........................... -- (76.7) (1.6) (2.0) (9.2) 10.1
------- --------- ------- ------ ------- -------
Net loss........................ (796.5)% (1,780.9)% (118.5)% (14.3)% (144.2)% (124.4)%
======= ========= ======= ====== ======= =======

Revenue decreased between the second and third fiscal quarters of 2000 by
$870,000. Revenue decreased primarily because our customer nStor returned
approximately $400,000 of our external RAID controllers following an order
cancellation by one of its customers. Although we had shipped this product

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to nStor in the quarter ended December 31, 1999, pursuant to a noncancellable
purchase order, we chose not to recognize this revenue. We have not waived any
claims arising from nStor's cancellation of this order. Also, due to this
cancellation, we did not ship additional product pursuant to other nStor
noncancellable purchase orders of approximately $547,000. For the quarter ended
September 30, 1999, nStor accounted for $1.2 million of our revenue. Primarily
as a result of the cancellation of this order and our decision not to ship
additional products to nStor, our revenue for the quarter ended December 31,
1999 decreased approximately 28% from the previous quarter. Although we shipped
evaluation units of our new external RAID controllers and Intelligent Storage
Routers to nStor in the quarter ended March 31, 2000 (for which we did not
recognize revenue), we have received no new purchase orders from nStor and may
not ship to nStor in the future.

Gross margin decreased between the third and fourth fiscal quarters of 2000
by 17% due to the effect of a one-time charge for the cost of a warrant granted
to Adaptec as part of an integrated circuit agreement, as well as the write-off
of obsolete raw materials, an increase in the reserve for inventory obsolescence
and the effect of product mix.

Since the introduction of our Intelligent Storage Routers in April 1999,
our gross profit as a percentage of revenue has increased as a result of the
higher margins earned by these products.

Our revenue, gross profit and operating results may vary significantly from
quarter to quarter due to a number of factors, many of which are outside of our
control, including those specifically discussed in the section captioned "Risk
Factors." The primary factors that may cause our quarterly revenue and operating
results to fluctuate include the following:

- fluctuations in demand for our Intelligent Storage Routers and external
RAID controllers;

- the size, timing, terms and fluctuations of customer orders and product
implementations;

- the rate of adoption of SANs as an alternative to existing
server-attached storage architectures;

- the mix of our Intelligent Storage Routers and external RAID controllers
sold;

- the mix of distribution channels through which our products are sold;

- new product introductions by us or our competitors;

- deferrals of customer orders in anticipation of new products, services or
product enhancements introduced by us, our OEMs, our competitors or from
other providers of SAN products;

- changes in our pricing policies or the pricing policies of our
competitors;

- our ability to develop, introduce, ship and support new products and
product enhancements that meet customer requirements in a timely manner;

- prototype expenses;

- our ability to obtain sufficient supplies of components, including sole
or limited source components;

- increases in the prices of the components we purchase;

- our ability to attain and maintain production volumes and quality levels;

- the ability of our contract manufacturers to produce and distribute our
products in a timely fashion;

- the software enhancements embedded in our hardware platforms;

- the additional software options incorporated in our products; and

- general economic conditions as well as those specific to the SAN and
related industries.

Our operating expenses are largely based on anticipated revenue. A high
percentage of our expenses are and will continue to be fixed in the short term.
As a result, a delay in generating or recognizing revenue could cause
significant variations in our operating results from quarter to quarter.

We expect to experience seasonality in our operating results. Our results
of operations may be adversely affected in the third calendar quarter due to a
slowdown of sales in Europe and other foreign

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areas in the summer months. We also expect that, generally in the first calendar
quarter, our results may be adversely affected due to our customers' budgeting
cycles.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through the sale
of common and preferred stock, generating aggregate proceeds of $27.9 million,
net of issuance costs. For the fiscal year ended March 31, 2000, cash flows
provided by financing activities were $25.4 million. In the past, we also have
financed a portion of our operations through loans from a bank and from
individuals. We currently have no debt outstanding.

We used $8.3 million in cash for operations during the fiscal year ended
March 31, 2000, an increase of $5.4 million over the fiscal year ended March 31,
1999. This increase was primarily due to increases in our net loss, increases in
trade receivables and inventory, partially offset by increases in accounts
payable and accrued liabilities.

For the year ended March 31, 2000, cash flows used by investing activities
consisted of $652,000 for capital expenditures. Cash flows used by investing
activities for the fiscal year ended March 31, 1999 totaled $444,000, including
the non-cash acquisition of equipment from Adaptec.

In July 1999, we obtained a $3.0 million line of credit from a bank,
secured by our accounts receivable and other collateral, at a variable rate
equal to the bank's prime rate plus 1.5% per annum. During the nine months ended
December 31, 1999, the maximum outstanding balance on this line was $750,000. As
of December 31, 1999, there was no outstanding balance. This line of credit was
terminated and replaced in January 2000.

In January 2000, we entered into a loan agreement with Norwest Bank
Colorado N.A.-Boulder. Under the loan agreement, we can borrow and reborrow up
to the lesser of $3.0 million or an amount equal to 90% of our U.S. government
debt instruments plus 80% of our investment grade commercial paper, with a
maturity of one year or less and held in a Norwest account and pledged to
Norwest. Borrowings bear interest at Norwest's prime rate. Interest is payable
monthly in arrears on the last day of the month, and borrowings must be repaid
on or before August 31, 2000. Under the loan agreement, we have agreed to
provide Norwest with certain financial information about our business, to
maintain at least $4.0 million in cash plus investment grade marketable
securities, to maintain a minimum net worth and minimum ratio of debt to net
worth as set forth in the agreement and to use Norwest as our principal
depository for demand and savings business accounts. We also have agreed not to
pay dividends on our stock, create liens on our properties or assets included in
the borrowing base (i.e. our commercial paper) or borrow under other credit
arrangements. We have not borrowed under this loan agreement.

At March 31, 2000, cash and cash equivalents totaled $16.7 million. Our
capital requirements depend on numerous factors, including:

- market acceptance of our products;

- the resources we devote to developing, marketing, selling and supporting
our products;

- the timing and extent of establishing international operations; and

- the timing and build-out of our new facility and related interoperability
testing lab.

We expect to devote substantial capital resources to continue our research
and development efforts, to hire and expand our sales, support, marketing and
product development organizations, to expand marketing programs, to establish
additional facilities and for other general corporate activities. We believe the
net proceeds of this offering, together with our cash and cash equivalents, will
be sufficient to fund our operations through at least the next 12 months.
However, there can be no assurance that we will not require additional financing
within this time period or that such additional funding, if needed, will be
available on terms acceptable to us or at all.

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BUSINESS

OVERVIEW

We develop and market high performance products that facilitate the
movement of data between networked storage devices. We are focused primarily on
developing products for use in the emerging market for SANs. Our Intelligent
Storage Routers facilitate the interconnection of SANs with existing SCSI-based
servers and storage systems. Our external RAID controllers dynamically
distribute data across multiple hard disk drives to increase data transfer
speeds and deliver fault tolerance. Our products are designed to provide a high
level of performance, availability and functionality. When used in conjunction
with a SAN, our products enable organizations to take advantage of a wide range
of SAN applications, such as LAN-free backup. Our Intelligent Storage Routers
and external RAID controllers incorporate a common, high-performance hardware
platform and foundation software layer, which enables us to quickly and
cost-effectively introduce new products into the market. We sell our products
through OEMs, including Eurologics, MicroNet, Qualstar and Quantum/ATL, as well
as through distribution partners, including Arrow, Bell Microproducts, CONSAN
and Hammer.

INDUSTRY BACKGROUND

GROWTH AND CHANGING NATURE OF ENTERPRISE DATA

In the last decade, there has been a dramatic increase in the volume of
data created, processed and accessed throughout the business enterprise.
According to International Data Corporation (IDC), an independent industry
research company, shipments of multi-user disk storage capacity grew from
approximately 10,000 terabytes in 1994 to approximately 184,641 terabytes in
1999 and is forecasted to reach approximately 1.9 million terabytes in 2003. The
near annual doubling of growth in the volume of enterprise data storage needs
has been fueled by a number of factors, including:

- the increase of Internet and e-commerce based businesses;

- the rapid growth of Web hosting, digital video and other multimedia
applications;

- the rise of network computing;

- the need for redundant repositories of data; and

- advances in storage technology and the resulting decline in the cost of
storage.

In addition, organizations have recognized the increasing importance and
value of enterprise data as mission-critical and as a strategic and competitive
asset to their employees, customers and suppliers. These organizations are
demanding rapid and reliable access to this data 24 hours a day, seven days a
week. The increased use of open-systems computing environments, which link
multiple applications, files and databases to networked computers, makes this
task increasingly difficult. The continued deployment of mission-critical,
client-server applications, coupled with the growth of enterprise data, has
placed significant strain on current storage architectures.

LIMITATIONS OF EXISTING STORAGE INFRASTRUCTURE

The growth of enterprise data has resulted in a corresponding challenge to
backup, share and manage this data. This growth has traditionally been addressed
by connecting individual high-performance computers, known as servers, to
dedicated storage devices. Typically, storage devices are connected through SCSI
technology to only one server and not to any of the other servers used by an
enterprise which results in a "captive" storage architecture.

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The captive storage architecture can be depicted as follows:

[Graphic depicting the captive storage architecture, including the SCSI
connections between storage devices and servers and the connections between
servers and network end-users through a Local Area Network.]

Traditional captive storage architectures have several significant
limitations, including:

PERFORMANCE CONSTRAINTS

Data storage, retrieval and backup using the traditional captive storage
architecture results in a significant strain on servers and local area networks,
or LANs. Storage-to-server data transmission speeds increased by approximately
ten times in the 1990s when local and wide-area network transmission speeds
increased by more than 100 times. In captive storage architectures, client data
is transferred across the LAN to servers and their dedicated storage devices,
causing an I/O bottleneck. Because LANs were not designed to efficiently
transfer data in large blocks, data backup has been a major contributor to
performance constraints.

LIMITED AVAILABILITY AND ACCESSIBILITY OF DATA

In traditional server-attached architectures, the loss of a server causes
data on its connected storage devices to become inaccessible. In addition, the
critical data backup function in the traditional server-attached storage
architecture is a lengthy process and often requires the network to be powered
down. Because many networks need to be accessible 24 hours a day, seven days a
week, the time available to accomplish data backup has been reduced considerably
or eliminated entirely, while the amount of data requiring backup has increased
dramatically.

LIMITED FAULT AND DISASTER TOLERANCE

Because SCSI-connected devices are limited to a maximum of 25 meters of
transmission distance, redundant storage devices in remote locations are
generally not practical or cost effective. As a result, sustained data
availability in a captive storage architecture following a system failure or
disaster is difficult to achieve.

SCALABILITY CONSTRAINTS

The SCSI protocol can only support a maximum of 15 individual storage
devices on a single bus or channel, which is the dedicated circuit that carries
information to and from data storage devices. Because servers have limited space
for additional SCSI adapter cards, businesses that wish to add storage capacity

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generally must add additional servers, increasing the total cost of storing
data. Additionally, the distance limitation of the SCSI protocol constrains the
amount of storage that can be attached to a single server.

LACK OF MANAGEABILITY

The traditional server-attached storage architecture has made it difficult
to network storage devices and realize the benefits of managing a centralized
data repository. As a result, isolated islands of information are stored
throughout the enterprise, each of which must be administered and managed
locally.

DEVELOPMENT OF STORAGE AREA NETWORKS BASED ON FIBRE CHANNEL TECHNOLOGY

In recent years, demand has increased for a faster, more efficient and
manageable interconnection of servers, storage devices and LANs. SANs are
rapidly gaining acceptance as a means of addressing this demand through the
support of a transmission protocol known as Fibre Channel. Fibre Channel is an
open standard technology designed specifically for high performance, I/O
intensive applications, with the ability to attach storage in shared network
environments. Fibre Channel is capable of supporting up to 15.5 million devices
and transferring data across distances of ten kilometers at speeds of up to 200
megabytes per second. Similar to LANs and wide area networks, or WANs, the SAN
applies the networked approach to computer storage and servers, enabling
businesses to create a pool of shared data storage devices that can be accessed
by multiple servers and network users.

The following graphic depicts a basic SAN architecture.

[Graphic depicting a basic SAN arcitecture, including the major SAN network
elements, such as Switches, Routers and Hubs, the Servers, and the various types
of storage devices, such as disk arrays and tape systems.]

SANs offer the following benefits:

- improved performance by decreasing storage traffic on the LAN and
increasing the speed of a dedicated network for storage;

- higher accessibility and availability of data through any-to-any
connectivity, which creates redundancies and improves fault-tolerance;

- greater scalability by significantly increasing the distance between and
number of devices that can be connected;

- ease of management facilitated by the networked architecture and
centralization of storage; and

- lower cost of ownership from improved efficiencies, reduced management
requirements and shared storage resources.

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While in its early stages of development, the open systems SAN market is
expected to grow rapidly. According to the Gartner Group, an independent
industry research company, more than 70% of shared storage in network
environments is projected to be reorganized into SANs by the year 2002. IDC has
estimated that worldwide SAN storage systems revenues will grow from less than
$3.8 billion in 1999 to over $11.5 billion in 2002, representing a compound
annual growth rate of 45%.

OPEN SYSTEMS SAN EVOLUTION

To date, SANs have been deployed in an evolutionary fashion. Initial SAN
implementations of Fibre Channel devices focused simply on connectivity and
interoperability of devices, including hubs, switches and host bus adapters.
Because most organizations had made significant investments in SCSI storage
devices and servers, companies were unwilling to move to SANs unless they were
able to connect to these devices. Products such as storage routers were
introduced to provide this connectivity between SCSI storage devices and Fibre
Channel SANs. Additionally, because Fibre Channel storage devices are
network-attached in SANs, vendors needed to ensure interoperability among these
devices. As a result, vendors originally focused on providing connectivity
between SCSI and Fibre Channel protocols and ensuring interoperability.

While SANs are being successfully implemented and connectivity and
interoperability issues are being addressed, many of the benefits offered by the
SAN, including enhanced data transfer rates, improved reliability and
accessibility and more robust features, have yet to be fully realized. Because
data will now be shared by and accessible to multiple servers and networked
users, enterprises will require not only high performance but also high
availability of mission-critical data. For widespread adoption of SANs to occur,
these requirements must be addressed.

THE CHAPARRAL SOLUTION

We have developed Fibre Channel-based SAN solutions that provide both high
performance and high availability. We are the only independent provider of both
storage routers and external RAID controllers. Our Intelligent Storage Routers
facilitate the interconnection of SANs with existing SCSI-based servers and
storage systems. Our external RAID controllers dynamically distribute data
across multiple hard disk drives to increase data transfer speeds and deliver
fault tolerance. Our Fibre Channel-to-SCSI routers and external RAID controllers
enable organizations to realize the full benefits of Fibre Channel SANs, such as
increased bandwidth performance, improved scalability and centralized storage
management efficiencies, while preserving their investments in new and existing
SCSI storage devices. This is a key requirement because organizations have
already made, and are expected to continue to make, significant investments in
SCSI-based servers and storage systems. IDC estimates that SCSI is currently the
most popular interconnect for high-performance disk drives, representing more
than 90% of units in 1999, and will still represent approximately two-thirds of
units in 2002.

Key benefits of our solutions include the following:

INCREASED PERFORMANCE

We believe our products provide industry-leading performance based on
throughput, as measured by both megabytes per second and I/O transfers per
second and functionality to facilitate the interconnection of SANs and
SCSI-based storage devices. Both our Intelligent Storage Routers and external
RAID controllers are designed using our architecture, which includes embedded
software and a high speed ASIC. This ASIC has a dual internal data path that is
completely independent of the computer processor. This ASIC also enables our
products to move data at high speeds and with minimal interruption between the
Fibre Channel connections to the servers and the SCSI connections to the storage
devices. As a result, we are able to deliver market-leading I/O performance.

HIGH AVAILABILITY AND RELIABILITY

We believe that our products provide the highest level of availability and
reliability. Our external RAID controllers dynamically distribute data across
multiple hard disk drives with a special error
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correction and detection algorithm designed to ensure the immediate availability
of data, even in the event of a partial or complete disk drive failure. Our
external RAID controllers also utilize sophisticated algorithms to recreate lost
data in any one disk drive. In addition, our newest G7324 and G6322 external
RAID controllers provide an active-active failover capability. This feature
enables two external RAID controllers to be actively working in tandem because
they are connected to the disk drives as well as to each other. In the event one
of these external RAID controllers fails, the other external RAID controller
takes over the entire workload, maintaining accessibility to the stored data.
Because two active external RAID controllers share the workload of distributing
and accessing data on the disk drives, throughput is effectively doubled. This
active-active failover capability permits higher availability of data and
protects the enterprise against both disk drive and controller failure and the
resulting inaccessibility and potential loss of mission-critical data.

We are leveraging our external RAID controller expertise to develop high
availability and fault tolerable functionality for storage routers. For example
our FS2420 Intelligent Storage Router has two fibre channel interfaces. This
provides both a higher level of fault tolerance and data availability because
the storage can be accessed simultaneously through either fibre channel
interface. In addition, we plan to add our proprietary active-active
functionality presently provided by our external RAID controllers to our
Intelligent Storage Routers in the second half of calendar 2000. We are
currently in Beta evaluation with OEM customers for storage routers with this
functionality. We believe our ability to provide this functionality will be a
competitive advantage in the market for storage routers, and a mandatory
requirement for the effective implementation and widespread deployment of SANs
for mission-critical applications. In addition, our Intelligent Storage Routers
incorporate our real-time operating system. This operating system has been
designed to provide both high performance and high availability, which we
believe will be required for the next wave of SAN implementations.

We have incorporated diagnostics and monitoring software into both our
Intelligent Storage Routers and our external RAID controllers to provide early
warning and failure notification, as well as the ability to remotely monitor and
manage these controllers.

IMPROVED SAN PERFORMANCE WITH NEW APPLICATIONS

Because we have designed our products using a highly flexible and modular
embedded software architecture, we can quickly and cost-effectively implement
new software agents that enable SAN applications such as server-free backup.
Server-free backup enables automated data movement between storage systems
directly across the SAN, allowing data backup to be performed while using a very
small percentage of the server's internal data processing capacity. As a result,
organizations no longer need to identify lengthy time periods, or "backup
windows," for disconnecting servers from the network in order to perform backup.

We were the first company to successfully publicly demonstrate server-free
backup. We accomplished this by adding the new SCSI-3 industry standard extended
copy functionality as optional embedded software in our storage routers. This
functionality works with software backup programs such as Legato Celestra
Version 2.0, which is expected to be commercially available in the third quarter
of calendar 2000. Because these backup programs are not commercially available,
our customers do not yet have server-free backup. All of our installed and new
Intelligent Storage Routers have the capability to be upgraded with our optional
Extended Copy embedded software agent. We expect that when other software backup
suppliers such as Veritas and others provide server-free programs, these
programs will also work seamlessly with our Intelligent Storage Router to
provide server-free backup. Although other competitors have developed this
capability, we believe the higher speeds with which our products operate will
provide us with a competitive advantage in the market for server-free backup.
For example, our FS2420 Intelligent Storage Router can operate at a speed of 180
megabytes per second versus competitive offerings that operate at only 90
megabytes per second. In addition, our major competitor is not currently
shipping products with this capability, and their customers must physically
replace installed routers to obtain the benefits of server-free backup.

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DIFFERENTIATION AND MANAGEABILITY

We have developed a robust, well-defined user interface, which we call
CAPI, to enable our customers to incorporate their proprietary functionality
into our products for differentiation in the market. In addition, our customers
can design their own GUI to manage our equipment in conjunction with their
solutions.

We also work closely with leading independent software vendors, such as
Legato Systems, Inc., Veritas Software Corporation and Computer Associates
International, Inc., to help ensure that our Intelligent Storage Routers can be
managed through their network management software applications. Our Intelligent
Storage Routers are also designed with features that enable organizations to
conduct systems diagnostics and management, as well as real-time application
monitoring, from remote locations.

STRATEGY

LEVERAGE COMMON HARDWARE AND SOFTWARE ARCHITECTURE

Our Intelligent Storage Routers and external RAID controllers share a
common hardware and embedded software architecture. We intend to continue to use
this common architecture to quickly and cost-effectively introduce
next-generation products into the market. We utilize a modular hardware
architecture that includes a separate snap-on card, called a daughter card, for
the Fibre Channel interface. We believe this daughter card will allow us to
introduce higher performance, next-generation products without changing the
basic architecture of our hardware platforms. For example, the FS2420
Intelligent Storage Router hardware platform has the performance capability to
support up to 360 megabytes per second when two gigabit Fibre Channel integrated
circuits become commercially available (anticipated to be the second half of
2000), without redesigning the entire hardware platform. We expect our daughter
card architecture will give us a competitive advantage, by reducing our time to
market, decreasing our development costs and allowing us to leverage our
interoperability with existing products.

We plan to leverage our common embedded software architecture to introduce
the server-free backup capability into our external RAID controllers for fast
disk-to-disk copy capability. We also intend to leverage our modular embedded
software architecture to facilitate the development of future SAN applications,
such as data replication, non-stop unattended backup and continuous remote
mirroring.

ACTIVELY PURSUE NEW STRATEGIC ALLIANCES TO ENABLE NEW APPLICATIONS

We plan to partner with leading independent software vendors to integrate
value-added functionality into our products to meet the evolving needs of our
customers. By incorporating embedded software agents into our products, we
expect to rapidly expand the capabilities we are able to offer and, in doing so,
increase the market for our solutions. For example, we were the first to have
the capability to incorporate an Extended Copy embedded software agent into our
Intelligent Storage Routers. By incorporating this software agent, we were able
to extend the functionality of our Intelligent Storage Routers to enable
server-free backup. We publicly demonstrated server-free backup with Legato and
Quantum/ATL at the Networld/Interop trade show in May 1999 and expect to ship
products with this function in connection with software anticipated to be
released by Legato and other companies in the near future. Although other
competitors have developed this capability, we offer the additional benefit of
reduced backup time because our Intelligent Storage Routers operate at over
twice the speed of our competitors' products.

As the SAN market evolves, we intend to work with leading independent
software vendors to jointly define embedded software agents that integrate
management functionality into our products. By establishing strategic
relationships with independent software vendors, we believe we will be able to
significantly increase the value of our product offerings and ensure a product
migration path in line with the needs of our customers.

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DRIVE EMERGING I/O MARKET OPPORTUNITIES

We plan to leverage our significant technological expertise in storage
routing to drive emerging I/O market opportunities. As part of these efforts, we
are currently working on the development of an Intelligent Storage Router that
would extend the capabilities of the SAN over the WAN. Fibre Channel SANs can
currently transfer data over distances of up to ten kilometers. WANs provide
communication access over virtually unlimited distances. New technology such as
Dense Wave Division Multiplexing, or DWDM, offers the future promise of
significantly higher bandwidth at a much lower cost, which will make
applications such as remote mirroring of data centers for disaster planning
economically feasible. We plan to offer new storage router products that bridge
Fibre Channel with WAN protocols, such as asynchronous transfer mode, or ATM. We
are currently staffing a development team to focus on these efforts.

We also are focusing our development efforts on a number of other emerging
I/O technologies including Peripheral Control Interface-X (PCI-X), Transmission
Control Protocol/Internet Protocol (TCP/IP) and gigabit Ethernet, as well as
future I/O technologies, such as the InfiniBand protocol. We will continue to
contribute to the development of these and other I/O interfaces as these
technologies gain market acceptance. We believe that this participation will
help us to define improved ways of building intelligent I/O interconnections,
influence relevant standards, quickly implement and deliver products to OEMs and
other customers.

EXPAND RELATIONSHIPS WITH OEMS

We intend to continue to focus on developing relationships with OEMs. We
believe that working with OEMs enables us to effectively distribute our
products, anticipate the needs of the market, introduce new products to meet
those needs and target new markets. We intend to continue to offer high-value,
easily integrated products that can be quickly brought to market. We believe
that these products will help us expand our OEM customer base. For example, the
small size of our controller board is attractive to OEMs because they can easily
integrate it internally into their tape libraries and subsystem products.
Additionally, we plan to enhance our CAPI functionality to incorporate new SAN
applications that will be attractive to OEMs.

As new disk and tape technologies with significantly higher transfer rates
emerge, we intend to leverage the high performance features of our Intelligent
Storage Routers and external RAID controllers to take advantage of each new OEM
qualification and sourcing cycle. We believe our technology will enable us to
continue to capture OEMs that require high performance and high availability in
their storage solutions.

EXPAND DISTRIBUTION CHANNELS

While sales to our OEM customers have accounted for the majority of our
revenue, we believe that our success depends in part on the successful creation
of an open systems market channel through both subsystem vendors and
distributors. We have established relationships with several distributors,
including Arrow, Bell Microproducts and CONSAN in the United States, and CPI,
Hammer, Infodip, SM Data, Transformation Software Limited and United Digital in
Europe, DCC in South Africa, and Nisho in Japan. We intend to enter into
additional agreements, both domestically and internationally, to increase our
geographic coverage and address new markets. We also intend to develop
relationships with key SAN systems integrators. We expect that sales through
these distribution channels will constitute an increasing portion of our total
sales in the future.

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WORK CLOSELY WITH STRATEGIC PARTNERS AND INDUSTRY ALLIANCES TO FACILITATE
WIDESPREAD ADOPTION OF SANS

We believe that establishing relationships with technology partners is
essential in facilitating the efficient and reliable integration of their
capabilities into our SAN solutions. We are currently working with leading
software and Fibre Channel hardware technology companies to jointly verify
compatibility and interoperability of our products with their products.
Specifically, there are three categories of companies that we are actively
working with:

Storage Management Software Companies:

Computer Associates

Highground

Legato

Tivoli Systems

VERITAS Software

Fibre Channel Chip and Host Bus Adapter

Companies:

Emulex

JNI

Q Logic

Fibre Channel Switch and Hub Companies:

Ancor

Brocade

Gadzoox Networks

McDATA

Vixel

In addition, we have developed relationships with leading technology
suppliers such as CI Designs, JMR, Kingston Technology and Trimm, who have
designed power and packaging capability specifically to incorporate our external
RAID controllers. VARs and system integrators therefore have the flexibility to
combine best-of-class disk and tape storage products with our external RAID
controllers into a wide range of physical subsystems and provide complete
solutions for end-users. We are also active in industry associations and
standards-setting organizations including the Storage Networking Industry
Association, the Fibre Channel Industry Association, the Fibre Alliance, the
Infiniband Trade Association and the RAID Advisory Board. By promoting the role
and capabilities of SANs through work with industry-standard organizations,
partners and OEMs, we believe we can facilitate adoption of SANs and create a
broader and more robust market for our products.

PRODUCTS

We currently offer two product lines: Intelligent Storage Routers and
external RAID controllers. Our products are designed to provide high-performance
data storage and Fibre Channel SAN solutions in an open systems computing
environment. These products share a common hardware and embedded software
architecture. Our embedded software agents are also offered separately as
optional features for each of our products.

INTELLIGENT STORAGE ROUTERS

Our Intelligent Storage Routers enable seamless bi-directional connectivity
between SCSI devices and Fibre Channel networks, allowing companies to take
advantage of the benefits of Fibre Channel technology while protecting their
investment in new and legacy SCSI storage devices. Our Intelligent Storage
Routers utilize our external RAID controller platform but are configured with
different embedded software for SCSI peripherals including tape drives,
automated robotic tape libraries and optical storage devices. Our Intelligent
Storage Routers meet the performance and availability requirements of both
departmental and enterprise server needs as well as advanced applications for
SANs. Our Intelligent Storage Routers also have the ability to offer high-speed
backup over Fibre Channel in connection with software anticipated to be released
by Legato and other companies in the near future. Server-free backup allows
users to perform backup operations directly from disk to tape without first
copying data to the host computer. Server-free
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backup accelerates the backup operation as well as off-loading the operations
from the LAN and host computer.

F Series. Our F Series of Intelligent Storage Routers is an integral
component of our SAN solutions and are critical to enabling organizations to
attain the benefits of these solutions within their existing computer network
infrastructures. We believe these products offer the highest performance
available in the market today. These products are available as an individual
board or in an enclosed 1.7-inch high rack. All of these products also offer the
optional Celestra Extended Copy embedded software agent to provide server-free
backup. In November 1999, we announced our third generation products (FS2420x).
These products incorporate a dual-loop Fibre Channel interface as well as the
industry's first Ultra 3 SCSI with 160 megabyte per second performance per
channel, providing both higher availability and higher performance.

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INTELLIGENT STORAGE ROUTERS

PRODUCT FIRST
NAME SHIPMENT PRODUCT DESCRIPTION PRODUCT BENEFITS
- ------- --------- ------------------- ----------------

FS1310x B: 3/99 - One Fibre Channel port and three - First router for new LVD tape
C: 7/99 80 MB/sec LVD SCSI device ports drives such as AIT2, DLT8000 and
R: 12/99+ Mammoth 2
- 90 MB/sec overall throughput - Offers over twice the throughput
of competitive routers
- Serial port and CAPI - Facilitate easy integration with
existing storage management
software
- Optional Extended Copy embedded - High-performance server-free
software agent backup
- B: 5inches X 7inches size board - Smaller size facilitates
mounting inside tape libraries and
storage subsystems
- C: 5.25inches CD-ROM size - SCSI cable-ready canister
canister product
- R: 1.7inches X 17inches X - 1U form factor and GBIC
9.5inches Rack mount enclosure (1U interface allow for easy mounting
form factor) with GBIC Fibre into existing communications
Channel connection racks and tape libraries

FS2420x B: 6/00* - Two Fibre Channel ports (dual - Dual loop Fibre Channel and
R: 6/00* loop) and four ULTRA 3 SCSI 160 first ULTRA 3 160 SCSI router
MB/sec
- 180 MB/sec overall throughput - Offers over twice the throughput
of competitive routers
- Serial port and CAPI - Facilitate easy integration with
existing storage management
software
- Optional Extended Copy embedded - High-performance server-free
software agent backup
- B: 4.24inches X 9inches size - Smaller size facilitates
board mounting inside tape libraries and
storage subsystems
- 1U form factor and GBIC
- R: 1.7inches X 7inches X interface allow for easy mounting
9.5inches Rackmount enclosure (1U into existing communications
form factor) with GBIC Fibre racks and tape libraries
Channel connection

- ---------------

B = Board
C = Canister
R = Rack

+ We are currently in Beta evaluation with several key OEMs. We began commercial
shipments of this product in March 2000.

* We expect to ship Beta evaluation units to OEMs during the second quarter of
2000.

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EXTERNAL RAID CONTROLLERS

Our external RAID controllers offer many fault-tolerance features for
mission-critical computing, such as high performance, redundancy, security and
protection. These products target the external storage business in the open
systems server market as well as the SAN marketplace.

G Series. Our G Series of products consists of external RAID controller
boards that are typically sold to OEMs for integration into their external
storage subsystems. The first generation of these products targeted
department-level users and feature performance that is rated at either 55
megabytes per second for image-intensive applications or 5,000 I/Os per second
for transaction processing and database applications. In November 1999, we
announced our third generation of external RAID controllers, which feature two
Fibre Channel ports and four Ultra 3 SCSI 160 megabyte per second storage device
channels.

The third generation products feature performance that is rated at either
180 megabytes per second or 18,000 I/Os per second. These RAID controllers offer
the active-active failover feature for maximum availability.

K Series. Our K Series of products uses our second generation external RAID
controller board and features a higher level of integration, including battery,
control panel and SCSI cable-ready connectors. Our second generation external
RAID controllers feature performance that is rated at either 90 megabytes per
second or 8,500 I/Os per second. Unlike our G Series, which is designed at the
board level, our K Series is designed into a canister the size of a typical
CD-ROM and fits into a standard 5.25-inch device bay. We sell our K Series
primarily through our distributors to VARs, who desire an integrated product
that can be readily incorporated into a subsystem solution.

In addition, both series of our RAID controllers include an on-line
expansion capability that allows capacity to be added without taking the
external RAID controller off-line for reconfiguration. Our external RAID
controllers are operating system independent and can be deployed without having
to purchase additional software drivers.

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EXTERNAL RAID CONTROLLERS

PRODUCT FIRST
NAME SHIPMENT PRODUCT DESCRIPTION PRODUCT BENEFITS
- ------- -------- ------------------- ----------------

G7313 10/98 - Our first generation products
G5312 10/98 - G7313: One Fibre Channel host port and - G7313: Up to 45 SCSI devices can be
three ULTRA 2 SCSI 80 MB/sec attached to a Fibre Channel
device ports host
G5312: One Ultra 2 SCSI host port and G5312: Up to 30 SCSI devices can be
two ULTRA 2 SCSI 80 MB/sec device attached to a SCSI host
ports
- 55 MB/sec bandwidth throughput - High bandwidth performance for image-
intensive applications
- 5,000+ I/Os per second - High performance for database and
transaction processing
- Online capacity expansion - Can dynamically add disk capacity
without having to power down
- Serial port and CAPI - Facilitate easy integration with
existing storage management software

K7413 4/99 - Our second generation products
K5412 4/99 - K7413: One Fibre Channel port host and - K7413: Up to 45 SCSI devices can be
three ULTRA 2 SCSI 80 MB/sec attached to a Fibre Channel
device ports host
K5412: One Fibre Channel port host and K5412: Up to 30 SCSI devices can be
two ULTRA 2 SCSI 80 MB/sec device attached to a SCSI host
ports
- 90 MB/sec bandwidth throughput - Maximum performance with a single
Fibre Channel port
- 8,500+ I/Os per second - Higher performance for database and
transaction processing
- Online capacity expansion - Can dynamically add disk capacity
without having to power down
- Serial port and CAPI - Facilitate easy integration with
existing storage management software

G7324 5/00 - Our third generation products
G6322 5/00 - G7324: Two Fibre Channel host ports - G7324: Ability to support dual loop
and four ULTRA 3 SCSI 160 Fibre Channel networks as well as new
MB/sec device ports ULTRA 3 disk storage devices
G6322: Two ULTRA 3 SCSI host ports and G6322: Ability to support new ULTRA 3
two ULTRA 3 SCSI 160 MB/sec SCSI devices
device ports
- Active-active failover - Provides high availability for mission
critical applications
- 180 MB/sec bandwidth throughput - Maximum sustained performance for
image-intensive applications
- 18,000+ I/Os per second - Approximately three times the
performance of first generation and
double the performance of second
generation products
- Online capacity expansion - Can dynamically add disk capacity
without having to power down
- Serial port and CAPI - Facilitate easy integration with
existing storage management software

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EMBEDDED SOFTWARE

In the second half of calendar 2000, we expect to ship our embedded
software products as separately-priced, value-added features for both our
Intelligent Storage Routers and external RAID controllers. These products can be
provided electronically so that installed Intelligent Storage Routers and
external RAID controllers can be remotely upgraded at the customer's site. Our
embedded software agent is anticipated to provide server-free backup capability
in connection with Legato's Celestra Networker backup software. We plan to
implement this as an optional feature for our external RAID controllers in the
second half of 2000.

In addition, we have developed embedded software that permits our customers
to prevent access to selected storage devices on a server-by-server basis. This
feature provides greater data security by restricting access to shared data on
the SAN only to authorized users. We expect to offer this as an optional feature
for our Intelligent Storage Routers in the first half of 2000.

CUSTOMERS

We sell our products to OEMs and distribution channel partners.

OEM CUSTOMERS

Our OEM customers accounted for 65% of our revenue for the fiscal year
ended March 31, 2000 and included Eurologics, MicroNet, nStor, Qualstar,
Quantum/ATL, Trimm, and Xyratex.

For the fiscal year ended March 31, 2000, our three largest OEM customers
were Quantum/ATL Products, nStor and Eurologics, which accounted for 21%, 17%
and 11% of revenue, respectively. We believe we can expand our current base of
OEM customers by offering high-performance, easily integrated products that can
be quickly brought to market.

DISTRIBUTION CHANNEL PARTNERS

Our distribution channel partners accounted for the remaining 35% of our
revenue during the fiscal year ended March 31, 2000. These partners are
comprised of distributors and resellers. Our current distribution channel
partners include Arrow, Bell Microproducts, CONSAN, CPI, Hammer, Infodip and
United Digital.

During the fiscal year ended March 31, 2000, CONSAN represented 16% of our
revenue and Bell Microproducts represented 13% of our revenue. No other
distribution channel partner represented more than 10% of our revenue. We are
currently directing significant marketing and development efforts towards
educating and expanding our network of distribution channel partners.

SALES AND MARKETING

Our sales and marketing strategy focuses on an indirect sales model
executed through OEMs, distributors, resellers and systems integrators. We have
focused primarily on developing OEM relationships with storage subsystem
suppliers, tape library manufacturers and computer system manufacturers. We
believe the strong market position of these customers will shorten our sales
cycle and further increase sales productivity. Our experienced OEM sales
professionals are supported by application engineers who work in conjunction
with the OEM's engineering team during the qualification process.

We have established relationships with three industrial distributors in the
United States: Arrow, Bell Microproducts and CONSAN. We have also established
relationships with industrial distributors in Europe, including CPI, Hammer
Distributing, Infodip and United Digital. Industrial distributors resell our
products with other complementary products, such as Fibre Channel switches or
hubs to VARs. This channel is serviced by our regional distribution sales
representatives and inside sales representatives, who provide training and sales
support to distributors. We have recently added Tech Data, a commercial
distributor with a focus on the SAN market. We plan to add additional
distributors, including commercial distributors, that will bundle our products
with their storage and server solutions.

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We are in the process of expanding our international sales channels. We
have established relationships with distributors in England, France, Germany,
Spain, Asia and South Africa. In the future, we intend to expand our sales
efforts to Australia and South America.

Our marketing efforts focus on product marketing, marketing communications,
business development and partnership marketing. We have dedicated significant
marketing efforts towards:

- establishing relationships with OEMs, distributors, resellers and systems
integrators;

- participating in trade shows to promote and launch our products; and

- identifying new business opportunities.

Our initial partnership marketing efforts have focused on cooperative
marketing with complementary vendors in the markets for tape backup software and
Fibre Channel switches and hubs. In order to support and develop opportunities
for our indirect distribution channels, we plan to expand our field sales and
support staff significantly. Since January 1, 2000, we have hired 16 additional
field sales and support staff.

We have developed the Chaparral Partners Program to ensure that our
solutions are interoperable with products from multiple vendors. We are working
to provide certified SAN solutions for key systems integrators to offer to their
customers. We believe this program is important both for reference purposes and
to accelerate the acceptance of SANs. We have established a relationship with
Legato to introduce the server-free backup Celestra application worldwide. To
further support our marketing efforts, we intend to establish relationships with
key partners to provide vertical market applications. For example, we have begun
discussions with independent software vendors to provide data replication.

CUSTOMER SERVICE AND SUPPORT

We believe that a broad range of support services is essential to the
successful installation and ongoing support of our Intelligent Storage Routers
and external RAID controllers. Our support engineers have a broad range of
storage and networking experience. Our support engineers have expertise with
both UNIX and Windows NT operating systems, as well as experience with Fibre
Channel interoperability with switches, hubs and peripheral equipment. Our
customer service and support organization provides comprehensive training
programs and telephone, e-mail and Web-based direct post sales support to our
OEM and distributor customers. We believe these programs allow us to minimize
the need for a large end-user support organization by enabling our OEM and
distributor customers to provide installation, service and primary technical
support to their customers, while we focus on high-level secondary support. In
the future, we intend to significantly expand our pre-sales and post-sales
service and support efforts as well as pursue opportunities to partner with
third party support organizations. For example, in March 2000 we launched our
STRATegic Integration of SANs, or STRATIS, Value Added Reseller program that
offers comprehensive sales and technical training and support to STRATIS
partners.

TECHNOLOGY

We develop and market Intelligent Storage Routers and external RAID
controllers. These products combine a number of hardware and software
technologies. Our primary areas of expertise include embedded software and
platform architecture.

Embedded software. Our Intelligent Storage Routers and external RAID
controllers contain a significant amount of common software. Our embedded
software is designed to enable the high speed capabilities of the ASICs we
license from Adaptec. We utilize the C++ programming language, a highly modular
software architecture, which allows us to use and reuse many of our software
elements in both our Intelligent Storage Routers and external RAID controllers.
Our embedded software provides the following:

- a real-time operating system, or RTOS, specifically designed for high
performance;

- data caching and buffering functionality, I/O drivers, configuration
utilities and system monitoring;

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- an embedded multiplex user interface, or MUI, which provides a
feature-rich management tool that is accessible either in-band over the
SCSI/Fibre Channel ports or out-of-band via a serial port or ethernet
port;

- a CAPI, which enables our customers to implement GUI applications for
management, configuration and monitoring purposes; and

- the ability to add new features such as active-active failover.

Platform Architecture. Our products are small form-factor, high performance
"single-board computers" that perform specialized functions such as data routing
or RAID operations. We have developed a proprietary architecture that addresses
important customer requirements, such as:

- high performance, both in terms of sustained throughput and I/Os per
second;

- multiple I/O channels;

- high reliability;

- small physical size;

- configuration flexibility;

- low power dissipation;

- manageability; and

- cost effectiveness.

Our designs incorporate custom ASICs and dual internal data buses, greatly
increasing data processing speed and throughput capability. Our platform
architecture includes a separate snap-on card, called a daughter card, for the
Fibre Channel interface. This daughter card architecture provides us with a cost
effective means to quickly implement next generation Fibre Channel integrated
circuits as well as configuration and manufacturing flexibility.

Our hardware platforms use x86-based microprocessors, such as the Pentium
and Pentium II, and associated integrated circuits and memory modules, all of
which are widely used in the PC industry. As a result, we are able to develop
multiple generations of products that leverage the scalability, performance and
cost advantages of the high volume PC industry with minimal change to our
architecture.

RESEARCH AND DEVELOPMENT

Our research and development expenses were approximately $1.7 million for
the fiscal year ended March 31, 1999, and $4.6 million for the fiscal year ended
March 31, 2000, excluding stock option compensation expense. We believe our
research and development efforts are essential to our ability to deliver
innovative products that address the needs of the market and influence the
evolving capabilities of the SAN. As of March 31, 2000, our staff included 35
people in our engineering, product development department and testing and
technical support departments. Our core hardware and software engineering teams
have worked together for approximately four years, including two years at
Adaptec prior to joining Chaparral.

We possess a high level of multi-disciplinary technological expertise,
which we use in designing our products. This expertise includes the following
core competencies:

- computer systems architecture and design;

- embedded software design using advanced methodologies;

- storage systems;

- high-speed, high-density circuit design;

- Fibre Channel and SCSI interface technologies; and

- ASIC architecture and design.

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We believe that our expertise in these technologies provides us with
competitive advantages in time-to-market, price/performance, interoperability
and product capabilities. We focus our research and development efforts on
developing products that meet the evolving network storage needs of our
customers. For example, we are leveraging our expertise and technology from our
external RAID controllers to incorporate high-availability features, such as
active-active failover, into our future Intelligent Storage Routers to meet the
need for fault tolerance.

In addition to the development of our core technologies, we plan to
continue to partner with other leading providers of network storage products and
services to jointly develop high-performance network storage solutions.

Both our Intelligent Storage Routers and external RAID controllers have
been designed using a common modular architecture. This common architecture
facilitates a relatively short product design and development cycle and reduces
the time to market for our new products and features. We intend to continue to
leverage our common architecture to develop and introduce additional products
and embedded software enhancements in the future.

INTELLECTUAL PROPERTY

Our success depends on our proprietary technology. We rely on a combination
of patents, trademarks and trade secrets, as well as confidentiality agreements
and other contractual restrictions with employees and third parties, to
establish and protect our proprietary rights. In November 1998, Adaptec granted
us a perpetual, worldwide license to the core technology that underlies our
products. The Adaptec license is exclusive to us except for the rights retained
by Adaptec to use this technology in non-competing products as described in the
license. Adaptec currently holds two United States patents with respect to this
core technology. Adaptec also has pending patent applications in the United
States with respect to certain aspects of the core technology and is seeking
patent protection for certain aspects of the technology in selected
international locations. However, it is possible that patents may not be issued
for these applications. Despite these precautions, third parties could copy or
otherwise obtain and use our products or technology without authorization, or
develop similar technology independently. The measures we undertake may not be
adequate to protect our proprietary technology, and these measures may not
preclude competitors from independently developing products with functionality
or features similar to our products. There can be no assurance that we can
prevent misappropriation or infringement of our technology.

We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information, including trade secrets such as our planned active-active failover
implementation for our Intelligent Storage Routers.

On March 31, 2000, Crossroads Systems, Inc. filed suit against us in the
United States District Court for the Western District of Texas (Austin
Division). The complaint alleges that our products infringe a patent of
Crossroads. We cannot assure you that we will prevail in this proceeding. In
addition, we may be a party to litigation in the future either to protect our
intellectual property or as a result of an alleged infringement of others'
intellectual property. Intellectual property litigation could subject us to
significant liability for damages and could cause our proprietary rights to be
invalidated. Regardless of the merits of the claim or outcome, litigation would
likely be time-consuming and expensive to resolve and would divert management
time and attention. Any intellectual property litigation could also force us to
do one or more of the following:

- stop using the challenged intellectual property or selling our products
or services that incorporate it;

- obtain a license to use the challenged intellectual property or to sell
products or services that incorporate it, which license may not be
available on reasonable terms, or at all;

- redesign those products or services that are based on or incorporate the
challenged intellectual property; and

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- customers could require us to replace products purchased with
non-infringing products.

If we are forced to take any of the foregoing actions, we may be unable to
manufacture and sell our products, and our business, financial condition or
results of operations could be substantially harmed.

COMPETITION

The markets for our products are becoming increasingly competitive and are
characterized by evolving standards and rapid technological change. We are
currently the only independent provider of both storage routers and external
RAID controllers. Our principal competitors in the storage router market are
ATTO, CrossRoads and Pathlight. We compete in the external RAID controller
market primarily with CMD, Infotrend and Mylex (acquired by IBM).

We believe the primary competitive factors in the storage router and
external RAID controller markets are the following:

- product performance, features and form factor;

- product reliability and interoperability;

- customer service and technical support;

- price;

- ability to meet delivery schedules;

- OEM endorsement; and

- strength of distribution channel.

As the market for our products continues to grow, we may face competition
from traditional networking companies and other manufacturers of networking
equipment. These networking companies may enter the market by introducing their
own products or by acquiring or entering into an alliance with an existing
storage router or RAID controller provider. Our OEM customers could also develop
and introduce products that are competitive with our product offerings.

Some of our current and potential competitors have longer operating
histories, significantly greater resources and name recognition and a larger
installed base of customers. As a result, these competitors may have greater
credibility with our existing and potential customers. They also may be able to
adopt more aggressive pricing policies and devote greater resources to the
development, promotion and sale of their products than we can to ours, which
would allow them to respond more quickly to new or emerging technologies and
changes in customer requirements. In addition, some of our current and potential
competitors have already established supplier or joint development relationships
with our current or potential customers. These competitors may be able to
leverage their existing relationships to discourage these customers from
purchasing additional products from us or persuade them to replace our products
with their products. Increased competition could result in pricing pressures,
reduced sales, reduced margins, reduced profits, reduced market share or the
failure of our products to achieve or maintain market acceptance.

We may not have the financial resources, technical expertise or marketing,
manufacturing, distribution and support capabilities to compete successfully in
the future. Additionally, we may not be able to compete successfully against
current or future competitors and competitive pressures may significantly harm
our business.

MANUFACTURING

We outsource our manufacturing, which reduces our need to make costly
investments in capital equipment and manufacturing facilities. SMTC and Saturn
currently manufacture our products and are responsible for nearly all material
procurement, assembly and testing, including in-circuit testing and
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functional testing. We develop the architecture and drawings for our products
and design functional tests. Once our product passes all initial testing, it is
shipped to our facility, where we load all necessary microcode, perform final
testing, package and ship the product. As our product volume grows, we plan to
outsource all aspects of the manufacturing and shipping process.

SMTC manufactures approximately 80% of our product volume in both its San
Jose, California, and Thornton, Colorado, facilities. Saturn manufactures our
products in Fremont, California. In addition, SMTC offers European distribution
capabilities. We place purchase orders with SMTC and Saturn based on periodic
forecasts. In the future, we may need to add new manufacturing partners to
achieve higher production volumes or lower costs or to secure second source
product availability.

While our contract manufacturers are responsible for most facets of the
manufacturing process, we are directly involved in qualifying vendors and the
key components used in our products. While most of the materials used in our
products are standard and can be obtained from multiple qualified manufacturers,
some of our key components are proprietary or sole sourced and require extended
lead times. For example, we depend upon single sources for our Fibre Channel,
SCSI and memory controller ASICs. If we were required to find new vendors for
these sole-sourced components, we would have to qualify replacement components
and possibly reconfigure our hardware. This qualification or reconfiguration
process could result in product shipment delays. Our supply management team
works closely with strategically important suppliers who offer proprietary or
sole-sourced products. In addition, our operations team is focused on developing
production test equipment, designing for manufacturability, transferring
products effectively from development to production and monitoring supplier
performance and quality.

BACKLOG

As of March 31, 2000, the backlog for our products was approximately
$690,000, all of which is scheduled for shipment to customers during the quarter
ended June 30, 2000. We had no significant backlog at March 31, 1999. All orders
are subject to cancellation or delay by customers with limited or no penalty.
Therefore, our backlog is not necessarily indicative of actual sales for any
succeeding period.

Typically, our OEM customers forecast expected purchases on a three to
six-month rolling basis, as compared to distributor customers that order as
required with minimal order fulfillment time. OEM forecasts are not binding and
are subject to change.

EMPLOYEES

As of March 31, 2000, we had 79 employees, all but one of whom is full time
and all but 12 of whom were located at our principal offices in Longmont,
Colorado. Of the total number of employees, 35 employees were engaged in
research and development, 24 were in sales and marketing, seven were in
manufacturing and 13 were in finance, administration and information services.
None of our employees are represented by a labor union. We have not experienced
any work stoppages and consider our relations with our employees to be good.

Our future performance depends in significant part upon the continued
service of our key technical, sales and senior management personnel. We only
have employment agreements requiring service for any defined period of time with
three of our executive officers. The loss of services of one or more of our key
employees could significantly harm our business, financial condition and results
of operations. Our future success also depends on our continuing ability to
attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense, and we may not be able to
retain our key personnel in the future.

LITIGATION

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Storage Routers but stated it was not limited to those products. We are
currently investigating the claims alleged by Crossroads and intend to defend
the suit vigorously. Based on our investigation of the patent to date, we do not
believe that Crossroad's allegations will be sustained.

We also may become involved from time to time in various lawsuits and legal
proceedings that arise from actions taken in the ordinary course of our
business.

FACILITIES

Our principal executive offices consist of approximately 20,000 square feet
located in Longmont, Colorado. We have a license, granted by Adaptec to occupy
our corporate headquarters facility on a month-to-month basis pursuant to a
license agreement that may be terminated by either Adaptec or us upon 30 days'
written notice. The monthly license fee is $25,439. We also have a license
granted by Adaptec to occupy approximately 1,325 square feet in Foothill Ranch,
California, pursuant to a license agreement that expires in May 2004. The
license is a 60 month license, with a monthly license fee of $2,700 for the
first 30 months and $2,850 for the second 30 months.

In response to our need for additional space to accommodate our growth
plans, we have signed an agreement to lease 60,000 square feet in Longmont,
Colorado from BTC Development, LLC. This lease will commence as soon as the
building is ready for occupancy and will carry a seven-year term commencing on
the date of occupancy, with options to renew. We have issued 42,000 shares of
our common stock to BTC Development, LLC in lieu of payment for approximately
five months rent, or $126,000. We plan to relocate our principal executive
offices to this facility in the second calendar quarter of 2000. We believe this
facility will be adequate to meet our needs for the foreseeable future.

We have the exclusive use of two furnished private offices located in
Irvine, California pursuant to an office services agreement dated October 22,
1999 with VANTAS, Inc. The monthly charge for the use of these two offices is
$1,800. After the initial term expires on April 30, 2000, the office services
agreement will renew automatically every six months with a 5% increase in the
monthly charge upon each renewal.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning our directors
and executive officers:

NAME AGE POSITION
- ---- --- --------

Gary L. Allison............................ 59 Chairman of the Board and Chief Executive
Officer
Michael J. Gluck........................... 53 President and Chief Operating Officer,
Director
Jerry L. Walker............................ 57 Executive Vice President for Engineering
and Operations, Director
Douglas J. Lehrmann........................ 54 Vice President, Finance and Chief Financial
Officer
F. Grant Saviers(1)........................ 55 Director
Harris Ravine(1)(2)........................ 57 Director

- ---------------

(1) Member of the compensation committee

(2) Member of the audit committee.

Set forth below is certain additional information with respect to the
directors and executive officers.

Gary L. Allison is a co-founder of Chaparral and serves as our Chairman of
the board of directors and Chief Executive Officer. He has served in both of
these capacities for Chaparral since its inception in 1998. Mr. Allison was also
the founder and served as Chairman of the board of directors and Chief Executive
Officer of Breece Hill Technologies, Inc. from 1993 to 1997. From 1965 to 1989,
Mr. Allison was employed in various capacities by IBM Corporation, Xytex
Corporation, Wheelabrator Technologies, Jacobs Engineering, Seagate Technology
and other companies. Mr. Allison received his B.S. in mechanical engineering
from the University of California, Los Angeles, and an M.S. in mechanical
engineering from the University of Southern California. Mr. Allison has over 30
years of experience in the computer industry.

Michael J. Gluck is a co-founder of Chaparral and serves as a Director and
our President and Chief Operating Officer. He has served in both of these
capacities for Chaparral since its inception in 1998. Mr. Gluck was also the
Chairman of the Board, Chief Executive Officer and President of Vangard
Technology, Inc. from 1996 to 1997. Mr. Gluck served as an Executive Vice
President and Director of Fujitsu America, Inc. from 1984 to 1995. From 1968 to
1983, he was with Control Data Corporation. Mr. Gluck received his B.S. in
metallurgical engineering from the University of Wisconsin and his M.B.A. from
the University of Chicago. Mr. Gluck has over 30 years of experience in the
computer industry.

Jerry L. Walker is a co-founder of Chaparral and serves as a Director and
our Executive Vice President for Engineering and Operations. He has served in
this capacity since its inception in 1998. Mr. Walker was also Vice President,
Engineering for Colorado Micro Display from 1996 to 1997. Mr. Walker served as
Vice President, Engineering for Exabyte Corporation from 1990 to 1996. From 1985
to 1990, Mr. Walker served as Vice President, Engineering for Cipher Data
Products, Inc. Mr. Walker was employed in various capacities by Storage
Technology Corporation from 1978 to 1984 and IBM from 1971 to 1978. Mr. Walker
received his B.S. and M.S. in electrical engineering from the University of
Houston. Mr. Walker has 29 years of experience in the computer industry.

Douglas J. Lehrmann is our Vice President, Finance and Chief Financial
Officer. Mr. Lehrmann has served in this capacity since September 1998. Prior to
joining Chaparral, Mr. Lehrmann served as Vice President, Finance and
Administration for Sitera Inc. from 1997 to 1998. Mr. Lehrmann served as
President of Rainbow Display Devices from 1995 to 1997. Mr. Lehrmann served as
Vice President, Finance and Administration for Microelectronics and Computer
Technology Corporation (MCC) from 1993 to 1995. From 1972 to 1993, Mr. Lehrmann
served in similar capacities for other companies,

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including Microchip, Advantage Production Technology, Benzing Technologies and
Computer Devices International. Mr. Lehrmann received a B.A. in history from St.
Mary's College of California and an M.B.A. -- Finance from the University of
California, Berkeley, and he is a certified public accountant. Mr. Lehrmann has
25 years of experience in the computer industry.

F. Grant Saviers is a Director. He has served as a Director for Chaparral
since October 1998. From 1992 until he retired in August 1998, Mr. Saviers
served as a member of the board of directors of Adaptec and in various executive
officer positions at Adaptec, including Chairman of the Board and Chief
Executive Officer from August 1997 through August 1998, Chief Executive Officer
from July 1995 through August 1997 and President and Chief Operating Officer
from August 1992 through July 1995. Prior to joining Adaptec, Mr. Saviers was
employed in various positions by Digital Equipment Corporation from 1968 to
1992. Mr. Saviers presently serves on the board of directors of Analog Devices,
Inc. and NetSilicon. Mr. Saviers received a B.S. in engineering from Case
Institute of Technology and an M.S. in engineering from Case Western Reserve
University. Mr. Saviers has over 32 years of experience in the computer
industry.

Harris Ravine joined the Board of Directors in March 2000. Since January
2000, Mr. Ravine has performed consulting services for several companies in the
data storage industry. From April 1997 through December 1999, Mr. Ravine served
as Chairman and Chief Executive Officer of Andataco, Inc., a data storage
company. He served as Managing Director of B1 Capital, a private venture capital
fund, from April 1994 through March 1997. From June 1985 to January 1994, Mr.
Ravine was Executive Vice President of Storage Technology Corporation. Mr.
Ravine had various responsibilities during that period including service as
Chief Financial Officer, Group Officer for Mid-Range Markets, Executive Vice
President for International Operations and Chief Accounting Officer. Mr. Ravine
received B.A.s in history and economics and his J.D. from the University of
Minnesota. Mr. Ravine has more than 25 years of experience in the technology and
computer industries.

OTHER KEY EMPLOYEES

The following individuals are among the key employees of Chaparral who are
not executive officers, but hold important positions and have an important role
in Chaparral's success.

NAME AGE POSITION
- ---- --- --------

Brian J. Allison........................... 34 Vice President for Sales
Michael V. Hardy........................... 41 Vice President for Business Development
Robert N. Morris........................... 41 Vice President for Marketing
M. Katherine Sills......................... 53 Vice President for Administration

Brian J. Allison is our Vice President for Sales. Brian Allison has served
in this capacity since April 1998. Prior to joining Chaparral, he served as Vice
President, Sales of Breece Hill from 1997 to 1998, and as Sales Manager and
Director of North American Sales for Breece Hill from 1995 to 1997. Brian
Allison served as an Electronic Commerce Analyst and Systems Engineer for
Electronic Data Systems from 1989 to 1993. Brian Allison received his B.A. in
economics from the University of San Diego and his M.B.A. from the Cox School of
Business, Southern Methodist University. Brian Allison has nine years of
experience in the computer industry. Gary Allison and Brian Allison are father
and son.

Michael V. Hardy is our Vice President for Business Development. He has
served in this capacity since October 1999. Prior to joining Chaparral, Mr.
Hardy served as Senior Product Marketing Manager for TeraStor Corporation from
1997 to 1999. Mr. Hardy served as Market Development Manager for Silicon
Graphics Corporation from 1996 to 1997. From 1995 to 1996, Mr. Hardy served as a
product manager for Vangard Technology. Prior to 1995, Mr. Hardy was employed as
Product Manager for ATL. Mr. Hardy received his B.A. in computer science from
the University of California, San Diego. Mr. Hardy has 13 years of experience in
the computer industry.

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Robert N. Morris is our Vice President for Marketing. He has served in this
capacity for Chaparral since October 1999. Prior to joining Chaparral, Mr.
Morris served as President and Chief Operating Officer of Gambit, Inc. from 1998
to 1999. Mr. Morris served as Vice President of Marketing for Vangard Technology
from 1996 to 1998. Mr. Morris has also served as Vice President of Marketing for
ATG Cygnet, Inc., from 1995 to 1996, and Conner Peripherals, from 1994 to 1995.
Mr. Morris served as a General Manager for Fujitsu Computer Products, Inc. from
1985 to 1994. Mr. Morris has attended Cal Poly Pomona, New Hampshire College,
Pasadena City College and Phoenix University. Mr. Morris has over 20 years of
experience in the computer industry.

M. Katherine Sills is our Vice President for Administration. She has served
in this capacity since its inception in 1998. Prior to joining Chaparral, Ms.
Sills served as Corporate Administration Manager for Breece Hill from 1991 to
1997. Ms. Sills also served as Office Manager for Ferrotec, Inc. from 1986 to
1991. From 1971 to 1986, Ms. Sills was employed in various capacities by Xytex
Corporation, Storage Tech and N.S. Machining and Engineering. Ms. Sills received
her B.S. from the University of Colorado. Ms. Sills has over 25 years of
experience in the computer industry.

STRATEGIC TECHNICAL ADVISORY COUNCIL

The Strategic Technical Advisory Council, or STAC, was formed to provide
independent insight into the strategic product opportunities available to us.
The STAC assists our management in determining appropriate corporate strategies
and current and future product and application initiatives. The STAC meets
quarterly. For the fiscal year ended March 31, 2000, each member of our STAC
received options to purchase 10,000 shares of our common stock, except that Mr.
Trimmer received options for an aggregate 9,167 shares because he served less
than a full year. For fiscal 2001, each member of our STAC will receive an
option to purchase 4,000 shares of our common stock at an exercise price per
share equal to the fair market value of a share of our common stock on the date
of grant (the date of the first STAC meeting in fiscal 2001), which option will
vest in equal quarterly installments commencing the date of grant. The STAC
currently consists of three members: Michael Peterson, F. Grant Saviers (see
above) and Don Trimmer.

Michael Peterson has served on our STAC since January 1999. He has served
as President and Senior Analyst for Strategic Research Corporation since 1988.
Mr. Peterson was employed by Applied Magnetics from 1980 to 1988, by Sloan
Technology from 1978 to 1980 and by Information Magnetics from 1972 to 1978. Mr.
Peterson received his B.S. in mechanical engineering from the University of
California at Santa Barbara. Mr. Peterson is the founder of the Storage
Networking Industry Association. Mr. Peterson has over 28 years of experience in
the computer industry.

Don Trimmer has served on our STAC since February 1999. He has served as
Senior Technical Strategist for Legato Systems since 1999. From 1987 to 1999 he
served in various executive capacities for Intelliguard Software and Delta
Microsystems including President and Co-Chairman. Prior to his experience with
Delta Microsystems, Mr. Trimmer was employed by Lawrence Livermore National
Laboratory from 1974 to 1987 in the areas of systems management, software
development for data acquisition and systems programming. Mr. Trimmer received
his B.S. in nuclear chemistry from San Jose State University. Mr. Trimmer has
over 16 years of experience in the computer industry.

CLASSIFIED BOARD OF DIRECTORS

Following this initial public offering, our board of directors will be
divided into three classes of directors, as nearly equal in size as is
practicable, to serve staggered three-year terms:

- Class I, whose term will expire at the annual meeting of stockholders to
be held in fiscal 2001;

- Class II, whose term will expire at the annual meeting of stockholders to
be held in fiscal 2002; and

- Class III, whose term will expire at the annual meeting of stockholders
to be held in fiscal 2003.

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Each director's term will end on the election and qualification of his or
her successor, or his or her earlier death, resignation or removal.

COMMITTEES OF THE BOARD OF DIRECTORS

Our board of directors has established an audit committee and a
compensation committee.

The Audit Committee makes recommendations to our board of directors
regarding the selection of our independent auditors, reviews the results and
scope of our annual audits, reviews the fees to be paid to the auditors and
their performance, evaluates the compliance with our accounting and financial
policies and monitors management's procedures and policies relating to the
adequacy of our internal accounting controls. The members of the audit committee
are Harris Ravine, and .

The Compensation Committee reviews and makes recommendations to our board
of directors regarding our compensation policies and all forms of compensation
to be provided to our directors, executive officers and certain other employees.
In addition, the compensation committee reviews bonus and stock compensation
arrangements for all of our other employees. The compensation committee also
administers our stock option and employee stock purchase plan. The members of
the compensation committee are Mr. Saviers and Mr. Ravine.

DIRECTORS COMPENSATION

Directors currently do not receive any fees from us for their services as
directors, although by resolution of the board, they may receive a fixed sum and
reimbursement for expenses in connection with their attendance at board and
committee meetings. In the past, we have granted our outside director, Mr.
Saviers, options in lieu of cash compensation for his services as a director.
During the fiscal year ended March 31, 1999, we granted Mr. Saviers 50,000
shares of common stock and an option to purchase 125,000 shares of our common
stock at an exercise price of $0.10 per share. During the fiscal year ended
March 31, 2000, we granted Mr. Saviers an option to purchase 50,000 shares of
our common stock at a price of $3.19 per share, which option vests 25% after 12
months and 1/48th per month thereafter.

Effective following this offering, each outside director will receive an
initial option to purchase 45,000 shares of our common stock upon being elected
to our board of directors under the 2000 stock incentive plan. In addition, each
outside director will receive an option to purchase 15,000 shares of our common
stock on the date of each annual meeting of stockholders, provided that he or
she has served as a director for at least six months. The shares subject to each
initial 45,000-share automatic option grant will vest in a series of three
successive annual installments upon the optionee's completion of each year of
board service over the three-year period measured from the grant date. The
shares subject to each annual 15,000-share automatic grant will vest upon the
optionee's completion of one year of service measured from the grant date. The
shares will immediately vest in full upon certain changes in control or
ownership or upon the optionee's death or disability while serving as a board
member.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Our compensation committee is comprised of Mr. Saviers and Mr. Ravine. No
member of our compensation committee currently serves, or has ever served, as an
officer or employee of Chaparral, and no executive officer or director of
Chaparral has ever served as a member of the compensation committee or board of
directors of an entity that had an executive officer who was also a member of
our compensation committee.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Our amended and restated certificate of incorporation limits the personal
liability of directors for breach of fiduciary duty to the maximum extent
permitted by Delaware law. Delaware law provides that

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directors of a corporation will not be personally liable to us or our
stockholders for monetary damages for breach of their fiduciary duties as
directors, except for:

- any breach of the director's duty of loyalty to us or our stockholders;

- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;

- unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or

- any transaction from which the director derived an improper personal
benefit.

Our bylaws require that we indemnify our directors and officers to the
extent permitted by Delaware law. We may, in our discretion, indemnify other
employees and agents to the extent permitted by Delaware law. We believe that
indemnification under our amended and restated certificate of incorporation and
bylaws cover at least negligence and gross negligence on the part of indemnified
parties. Our amended and restated certificate of incorporation also permits us
to secure insurance on behalf of any of our officers, directors, employees or
other agents for any liability incurred in that capacity or arising out of that
status, regardless of whether indemnification is permitted under Delaware law.

We have also entered into agreements to indemnify our directors and
officers. These agreements indemnify our directors and officers for some
expenses, including attorneys' fees, judgments, fines and settlement amounts
incurred by them in any action or proceeding, including any action by or in the
right of our company, arising out of their services as one of our directors or
officers, any of our subsidiaries or any other company or enterprise to which
the person provides services at our request. In addition, we have obtained
directors' and officers' insurance providing indemnification for some of our
directors, officers and employees for certain liabilities. We believe that these
provisions, agreements and insurance are necessary to attract and retain
qualified directors and officers.

The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative action, if successful, might otherwise benefit us and our
stockholders. Moreover, a stockholder's investment in us may be adversely
affected to the extent we pay the costs of settlement or damage awards against
our directors and officers under these indemnification provisions.

At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.

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EXECUTIVE COMPENSATION

The following table provides the total compensation paid to our chief
executive officer and our other executive officers whose compensation (salary
and bonus) exceeded $100,000 in fiscal 2000. In addition to salary, Messrs.
Allison, Gluck, Walker and Lehrmann did not receive personal benefits in excess
of the lesser of $50,000 or 10% of their respective annual salaries. Messrs.
Gluck and Walker did not receive salaries until May 1998. Mr. Lehrmann joined
our company in September 1998. For fiscal year 2000, the board of directors has
established the salaries for Messrs. Allison, Gluck and Walker at $180,000. The
amounts listed under "All Other Compensation" represent employer contributions
to our 401(k) plan.

SUMMARY COMPENSATION TABLE

ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS(1) COMPENSATION ($)
- --------------------------- ------ ------------ ------------ ----------------

Gary L. Allison............................. 2000 180,000 200,000 1,875
Chief Executive Officer 1999 158,248 -- 4,675
1998 42,500(2) 1,000,000 --
Michael J. Gluck............................ 2000 174,815 181,833 1,875
President and Chief Operating Officer 1999 140,148 1,000,000 3,535
1998 -- -- --
Jerry L. Walker............................. 2000 180,000 181,833 1,875
Executive Vice President for Engineering
and 1999 140,327 1,000,000 3,535
Operations 1998 -- -- --
Douglas J. Lehrmann......................... 2000 143,585 180,833 1,875
Vice President, Finance and Chief
Financial 1999 73,637 350,000 1,754
Officer

- ---------------

(1) Refer to "Option Grants in Last Fiscal Year" table for more information.

(2) Amount includes $22,500 paid to Chaparral Systems, Inc., a corporation of
which Gary Allison is the sole stockholder, for consulting fees. These fees
were paid by the issuance to Chaparral Systems of 225,000 shares of Series A
preferred stock, which were subsequently assigned to Mr. Allison.

EMPLOYMENT AGREEMENTS

We entered into a two-year employment agreement with Gary Allison, which
expired on February 28, 2000. Under the employment agreement, Mr. Allison agreed
to serve as our Chairman and Chief Executive Officer. Mr. Allison received as
compensation an option to purchase 1,000,000 shares at an exercise price of
$0.10 per share. Although the employment agreement provided for an annual salary
of $120,000 and quarterly bonus payments of $4,500, Mr. Allison was paid a
reduced salary for a portion of the year and a higher salary for the last half
of the year.

We entered into two-year executive employment and noncompetition agreements
effective April 1, 2000 with Messrs. Allison, Gluck and Walker. Under these
agreements, Mr. Allison agrees to serve as Chairman of the Board and Chief
Executive Officer, Mr. Gluck agrees to serve as President and Chief Operating
Officer and Mr. Walker agrees to serve as Executive Vice President for
Engineering and Operations. The executive employment agreements are
automatically renewed for successive one-year periods unless terminated by
either party. The executive employment agreements provide for a minimum base
salary of $180,000 per year, a discretionary quarterly cash bonus of up to 25%
of base salary for the period and/or additional stock options and a
discretionary annual bonus of up to 100% of base salary for the period, payable
in cash or stock at the executive's election. Under the executive employment
agreements, the executive is entitled to participate in company benefit plans.
The agreements also state that Mr. Allison is entitled to six weeks of vacation
and to accrue up to 16 weeks of vacation, Mr. Gluck

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56

is entitled to four weeks of vacation and to accrue up to 10 weeks of vacation
and Mr. Walker is entitled to four weeks of vacation and to accrue up to 10
weeks of vacation. In addition, the executive employment agreements provide that
upon completion of our initial public offering, Messrs. Allison, Gluck and
Walker will be granted incentive stock options to purchase 200,000, 150,000 and
150,000 shares of common stock, respectively, that will (i) have an exercise
price equal to the offering price per share in the initial public offering and
(ii) vest in three equal annual installments on the first, second and third
anniversary date of the date of grant.

Our executive employment agreements provide for payments in the event of
termination of the executive's employment due to incapacity, death, cause and
other than for cause. In the event of termination due to incapacity or death,
the executive or his heirs will receive amounts equal to the executive's base
salary and bonus (at the rates in effect at the time of the termination) for one
year, which are reduced, in the case of incapacity, by amounts paid to him under
our long-term disability plans. Termination other than for cause also includes
termination by the executive for "good reason" in the event we:

- assign them to duties that are inconsistent with or substantially
diminished from their current responsibilities;

- materially reduce their compensation and benefits;

- relocate our offices to a location outside a 50-mile radius of Longmont,
Colorado; or

- breach the employment agreements in any material respect.

In the event of termination other than for cause, Messrs. Allison, Gluck and
Walker would be entitled to receive base salary and bonus and to continue to
participate in our employee benefit plans for one year. In addition, all stock
options held by them would immediately vest and remain exercisable for one year,
and restrictions imposed by us on any restricted stock would immediately lapse.

Our executive employment agreements also provide benefits to Messrs.
Allison, Gluck and Walker in the event their employment is terminated within 180
days after a change in control of Chaparral, or if they choose to terminate
their own employment for good reason within that period. A change in control of
Chaparral is defined in the agreement to occur if:

- any person or group were to become the beneficial owner of more than 50%
of the then outstanding stock of Chaparral;

- at any time during three consecutive years individuals who at the
beginning of that period constitute the board of directors and others
they elect ceased for any reason to constitute a majority of the board of
directors; or

- our stockholders approved a merger or consolidation of Chaparral with any
other company in which our stockholders would have less than 80% of the
combined voting power in the surviving entity or an agreement for the
sale of substantially all of our assets.

For 180 days following a change in control, our executives may terminate their
employment with us for good reason if we or our successor company take any of
the actions described in the preceding paragraph as termination other than for
cause, or if the surviving company fails to assume their executive employment
agreements. In the event Messrs. Allison, Gluck or Walker is terminated after a
change of control or terminates his employment for good reason, he will be
entitled to receive a lump sum payment from us equal to two years base salary
and bonus and to continue to participate in our benefit plans for two years.
Each stock option not vested at the time of a change in control will be
accelerated by 12 months. An executive's options will be 100% vested if he is
terminated following a change in control or if the successor company does not
adopt our stock option plan in its entirety or convert to a plan of equivalent
value.

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57

Under our executive employment agreements, Messrs. Allison, Gluck and
Walker have agreed that during their employment and for a period of two years
following termination of their employment, they will not disclose our
confidential information and materials. Each of them also has agreed that he
will not solicit our customers or suppliers, attempt to hire away any of our
employees or knowingly engage in any activity that would harm our company or our
business relationships for a period of one year following termination of his
employment.

We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. In addition, the agreements generally provide that upon
termination, the employee will not solicit our employees for a period of 12
months. At the time of commencement of employment, our employees also generally
sign offer letters specifying certain basic terms and conditions of employment.
Other than as described above, our employees are not subject to written
employment agreements.

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides information concerning individual grants of
stock options made during fiscal 2000 to our chief executive officer and our
three other most highly compensated executive officers. We have never granted
any stock appreciation rights.

The exercise prices represent our board's estimate of the fair market value
of the common stock on the grant date. In establishing these prices, our board
considered many factors, including our financial condition and operating
results, recent transactions and the market for comparable stocks.

The amounts shown as potential realizable value represent hypothetical
gains that could be achieved for the respective options if exercised at the end
of the option term. These amounts represent certain assumed rates of
appreciation in the value of our common stock. The 5% and 10% assumed annual
rates of compounded stock price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent our estimate or
projection of the future price of our common stock. The potential realizable
value is calculated based on the ten-year term of the option at its time of
grant. It is calculated based on the fair market value of our common stock on
the date of grant and assumes that the value appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. Actual gains, if any, on stock option exercises depend on the future
performance of our common stock. Some of the options shown in the table have
been exercised, and the potential realizable values reflected in the table were
not achieved.

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We granted these options under our 1998 stock option plan. Some of these
options were exercised in November 1999. We have the right to repurchase, at the
exercise price as adjusted, any shares as to which the repurchase right has not
lapsed at the time the optionee terminates employment with us. At the date of
exercise, we had the right to repurchase two-thirds of the shares acquired on
exercise, and the repurchase right lapses with respect to 1/24th of the
remaining shares each month thereafter. Our repurchase right terminates upon
completion of our initial public offering. The percentage of total options
granted to our employees in the last fiscal year is based on options to purchase
an aggregate of 4,733,577 shares of common stock granted during fiscal 2000.

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
--------------------------- OF ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM($)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL 2000(%) SHARE($) DATE 5% 10%
- ---- ---------- -------------- --------- ---------- ------------ ------------

Gary L. Allison........... 200,000 4.2 3.19 11/11/09 1,039,235 1,654,808
Michael J. Gluck.......... 166,666 3.5 0.12 11/13/99 21,525 23,100
166,833 3.5 1.12 11/13/09 304,364 484,648
Jerry L. Walker........... 166,666 3.5 0.12 11/13/09 21,525 23,100
166,833 3.5 1.12 11/13/09 304,364 484,648
Douglas J. Lehrmann....... 166,666 3.5 .12 11/13/99 21,525 23,100
155,833 3.2 1.12 11/13/09 284,296 452,694

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table provides information about stock options exercised
during fiscal year 2000 and held as of March 31, 2000 by our Chief Executive
Officer and our three other most highly compensated executive officers. The
value realized is based on a value of $1.12 per share, the fair market value of
our common stock on the date of exercise, minus the per share exercise price,
multiplied by the number of shares underlying the option. The table also
provides information about the number of securities underlying unexercised
options and the value of unexercised in-the-money options at March 31, 2000.
There was no public trading market for our common stock as of March 31, 2000.
Accordingly, we have based the value of unexercised in-the-money options at
March 31, 2000 on our initial public offering price of $ per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying the options. Actual gains on exercise, if any, will depend on the
value of our common stock on the date on which the shares are sold.

OPTION EXERCISES IN LAST FISCAL YEAR

VALUE OF
NUMBER OF SECURITIES UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT MARCH 31, 2000 OPTIONS AT MARCH 31, 2000
NAME ON EXERCISE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ----------- ----------- ------------------------- -------------------------

Gary L. Allison...... -- -- --/200,000
Michael J. Gluck..... 15,000 15,000 166,833/--
Jerry L. Walker...... 15,000 15,000 166,833/--
Douglas J. Lehrmann.. 25,000 25,000 155,833/--

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1998 STOCK OPTION PLAN

On November 20, 1998, our board of directors and our stockholders approved
the 1998 stock option plan. Our board of directors and stockholders approved
amendments to our 1998 stock option plan, effective June 1999 and September
1999, to increase the number of shares of our common stock authorized for
issuance under the plan. The purpose of the 1998 stock option plan is to
strengthen our company by providing an incentive to our employees, officers,
consultants and directors through the granting or awarding of incentive and
nonqualified stock options, thereby encouraging them to devote their abilities
and energies to our success.

The 1998 stock option plan is administered by our board of directors. Under
the 1998 stock option plan, our board of directors has the authority to delegate
administration of the 1998 stock option plan to a committee acting under the
authority of our board of directors. Our board of directors, or a committee
delegated administration of the 1998 stock option plan, has authority to, among
other things, grant options, select persons to whom awards will be granted,
determine the type, size and the terms and conditions of awards.

Under the 1998 stock option plan, 14,000,000 shares of common stock are
authorized and reserved for the grant of awards to eligible individuals. Awards
granted under the 1998 stock option plan are exercisable over a ten-year period.
As of March 31, 2000, options to purchase 11,321,080 shares of common stock have
been granted (net of forfeited options), of which options to purchase 6,998,373
shares of common stock have been exercised. The 1998 stock option plan will
terminate on November 19, 2008. Our board of directors may at any time and from
time to time amend or terminate the 1998 stock option plan; provided, however,
that no amendment will be effective without the approval of a majority of the
stockholders if the amendment will increase the number of shares which may be
granted or expand the class of persons who can receive incentive stock options.

2000 STOCK INCENTIVE PLAN

The 2000 stock incentive plan will become effective upon completion of our
initial public offering. The 2000 stock incentive plan was approved by our board
of directors on February 21, 2000 and by our stockholders on , 2000.

Share reserve. We have authorized 3,000,000 shares of our common stock for
issuance under the 2000 stock incentive plan. The 1998 stock option plan will be
merged into our 2000 stock incentive plan effective on the initial public
offering. After our initial public offering, we will have approximately
10,000,000 shares of our common stock authorized for issuance under the
incentive plan, which amount includes approximately 7,000,000 shares of common
stock currently authorized but unissued under our 1998 stock option plan. The
share reserve under the incentive plan will automatically increase on the first
trading day in January of each calendar year, beginning with calendar year 2001,
by an amount equal to 4.5% of the total number of shares of our common stock
outstanding on the last trading day of December in the prior calendar year, but
in no event will this annual increase exceed 4,000,000 shares.

Programs. The incentive plan has five separate programs:

- the discretionary option grant program, under which eligible employees
may be granted options to purchase shares of our common stock at an
exercise price not less than the fair market value of those shares on the
grant date;

- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones, the completion of a specified period of service
or as a bonus for past services;

- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of stock option grants with an exercise price equal to 100%
of the fair market value of a share of common stock;

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- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and

- the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of any director
fee otherwise payable to them in cash each year to the acquisition of
option grants.

Eligibility. The individuals eligible to participate in the incentive plan
include our officers and other employees, our non-employee board members and any
consultants we hire.

Administration. The discretionary option grant program, the salary
investment option grant program and the stock issuance program will be
administered by our board of directors with respect to participants other than
officers, directors and highly compensated employees and by a primary committee
with respect to participants who are officers, directors and highly compensated
employees. The board or the primary committee will determine:

- the eligible individuals who are to receive option grants or stock
issuances under those programs;

- the time or times when the grants or issuances are to be made;

- the number of shares subject to each grant or issuance;

- the status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws;

- the vesting schedule to be in effect for the option grant or stock
issuance; and

- the maximum term for which any granted option is to remain outstanding.

The board of directors or the primary committee will also have the authority to
select the executive officers and other highly compensated employees who may
participate in the salary investment option grant program in the event that
program is put into effect for one or more calendar years.

Change in control. The incentive plan includes the following change in
control provisions, which may result in the accelerated vesting of outstanding
option grants and stock issuances. A change in control of Chaparral is defined
in the incentive plan to occur if:

- any person or group were to become the beneficial owner of more than 50%
of the then outstanding voting stock of Chaparral;

Discretionary option grant program. Under this program, eligible persons
(employees, non-employee members of our board of directors and consultants) may
receive options to purchase shares of common stock at the discretion of our
board of directors. The exercise price per share is fixed by the plan
administrator and may be less than, equal to or greater than fair market value.
No option granted under this program shall have an exercise term greater than
ten years. The vesting schedule of each option will be fixed by the plan
administrator and will be accelerated by 24 months upon the death of an optionee
and by 12 months upon the permanent disability of the optionee. Incentive stock
options may be granted to employees under the program at an exercise price not
less than the fair market value per share. Chaparral may repurchase, at the
exercise price paid per share, any shares purchased under the option which are
not vested at the time of the optionee's cessation of employment.

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Stock issuance program. In the event our board of directors decides to put
this program into effect, our employees, non-employee members of our board of
directors and consultants may receive shares of common stock or share right
awards at the discretion of our board. The purchase price per share is fixed by
the plan administrator and may be less than, equal to or greater than the fair
market value per share. The plan administrator may issue shares of common stock
that fully and immediately vest or that vest in one or more installments over
the participant's employment period or upon attainment of specific performance
objectives.

Salary investment option grant program. In the event our board of directors
decides to put this program into effect for one or more calendar years, each of
our executive officers and other highly compensated employees may elect to
reduce his or her base salary for the calendar year by an amount not less than
$5,000 nor more than $50,000. Each selected individual who makes such an
election will automatically be granted, on the first trading day in January of
the calendar year for which his or her salary reduction is to be in effect, an
option to purchase that number of shares of common stock determined pursuant to
a formula contained in the plan. Each option will have an exercise price per
share equal to 100% of the fair market value of the option shares on the grant
date. As a result, the option will be structured so that the fair market value
of the option shares on the grant date less the exercise price payable for those
shares will be equal to the amount of the salary reduction. The option will
become exercisable in a series of 12 equal monthly installments over the
calendar year for which the salary reduction is to be in effect.

Automatic option grant program. Each individual who first becomes a
non-employee board member at any time after the effective date of this offering
will receive a non-qualified option grant to purchase 45,000 shares of common
stock on the date such individual joins the board. In addition, on the date of
each annual stockholders meeting held after the effective date of this offering,
each non-employee board member who is to continue to serve as a non-employee
board member, including each of our current non-employee board members, will
automatically be granted an option to purchase 15,000 shares of common stock;
provided such individual has served on the board for at least six months.

Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of ten years, subject to earlier termination upon the optionee's
cessation of board service. The shares subject to each initial 45,000-share
automatic option grant will vest in a series of three successive annual
installments upon the optionee's completion of each year of board service over
the three-year period measured from the grant date. The shares subject to each
annual 15,000-share automatic grant will vest upon the optionee's completion of
one year of service measured from the grant date. However, the shares will
immediately vest in full upon certain changes in control or ownership or upon
the optionee's death or disability while then serving as a board member.

Director fee option grant program. If this program is put into effect in
the future, then each non-employee board member may elect to apply all or a
portion of any cash retainer fee for the year to the acquisition of a
below-market option grant. The option grant will automatically be made on the
first trading day in January of the calendar year for which the non-employee
board member would otherwise be paid the cash retainer fee in the absence of his
or her election. The option will have an exercise price per share ranging from
85% to 100% of the fair market value of the option shares on the grant date, and
the number of shares subject to the option will be determined pursuant to a
certain formula contained in the incentive plan. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the portion of
the retainer fee applied to that option. The option will become exercisable in a
series of 12 equal monthly installments over the calendar year for which the
election is in effect. However, the option will become immediately exercisable
for all the option shares upon the death or disability of the optionee while
then serving as a board member.

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2000 EMPLOYEE STOCK PURCHASE PLAN

Introduction. Our employee stock purchase plan was adopted by our board of
directors on February 21, 2000 and was approved by our stockholders on
, 2000. The purchase plan is designed to allow our eligible
employees and the eligible employees of our participating subsidiaries, if any,
to purchase shares of common stock at semi-annual intervals with their
accumulated payroll deductions. The purchase plan will become effective on
completion of our initial public offering.

Share reserve. We have initially reserved 6,000,000 shares of our common
stock for issuance under the purchase plan. The reserve will automatically
increase on the first trading day of January in each calendar year, beginning in
calendar year 2001, by an amount equal to 2% of the total number of outstanding
shares of our common stock on that date or a lesser amount determined by our
board of directors. In no event will any such annual increase exceed 1,000,000
shares.

Offering periods. The purchase plan has a series of successive offering
periods, each continuing until terminated by our board of directors. The initial
offering period will begin when the Securities and Exchange Commission declares
our registration statement effective and will end on the last trading day on or
before July 31, 2000. The next offering period will start on the first business
day in August 2001, and subsequent offering periods will be set by our board of
directors.

Eligible employees. Individuals scheduled to work more than 20 hours per
week for more than five calendar months per year may join an offering period
after they have been with us for six months. Individuals who become eligible
employees after the start date of an offering period may join the plan on any
subsequent semi-annual entry date within that offering period.

Payroll deductions. A participant may contribute up to 10% of his or her
base salary through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of May and November each
year.

Change in control. In the event of a change in control, which is defined in
the purchase plan in the same way it is defined in the incentive plan, all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the change in control. The purchase price will be equal to
85% of the market value per share on the participant's entry date into the
offering period in which an acquisition occurs or, if lower, 85% of the fair
market value per share immediately prior to the acquisition.

Termination and amendment of purchase plan. The purchase plan will
terminate no later than February 21, 2010. The board may at any time amend,
suspend or discontinue the purchase plan. Some amendments, however, may require
stockholder approval.

401(k) PLAN

Our 401(k) plan allows employees to defer up to 15% of their compensation,
up to a maximum of $10,500 in the year 2000. We will match these funds with a
percentage to be determined by our board of directors on a quarterly basis. We
may contribute an additional amount at the end of the fiscal year at the
discretion of our board of directors. Mr. Lehrmann serves as trustee of the
profit sharing plan. Our 401(k) plan was adopted in November 1998.

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RELATED PARTY TRANSACTIONS

Since our inception in January 1998, there has not been nor is there
currently proposed any transaction or series of similar transactions to which we
were or are to be a party in which the amount involved exceeds $60,000 and in
which any director, executive officer, holder of more than 5% of our common
stock, or any member of the immediate family of any of them, had or will have a
direct or indirect material interest other than (1) compensation agreements and
other arrangements, which are described above under the caption "Management,"
and (2) the transactions described below.

TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND 5% STOCKHOLDERS

Common Stock. On June 16, 1998, we issued the following shares of common
stock at a price of $0.002 per share to our founders, all of which were
purchased with cash.

SHARES OF
PURCHASER COMMON STOCK
- --------- ------------

Gary Allison.................................... 500,000
Michael Gluck................................... 500,000
Jerry Walker.................................... 500,000
Brian Allison................................... 100,000

On November 25, 1998, each of the founders named above agreed to rescind
their shares in exchange for a promissory note from Chaparral in an amount equal
to the purchase price of the founder shares. The promissory note was then
contributed by each founder to Chaparral in exchange for the issuance of the
same number of shares to the founders pursuant to a Contribution Agreement,
dated November 25, 1998.

Woodcarvers Limited, LLC, a greater than 5% stockholder, purchased shares
of our common stock as follows:

SHARES OF PRICE PER
PURCHASER COMMON STOCK DATE SHARE($)
- --------- ------------ ---------- ---------

Woodcarvers....................................... 300,000 08/09/1999 1.00
Woodcarvers....................................... 153,846 08/12/1999 1.30
Woodcarvers....................................... 266,667 11/05/1999 3.00
Woodcarvers....................................... 64,286 11/22/1999 3.50

We issued 27,857 shares of common stock valued at $3.50 per share to
Sentinel Consulting, LLC, a greater than 5% stockholder, in November 1999 in
payment for $97,500 in commissions for its assistance in raising approximately
$1.5 million from another investor.

Pursuant to the exercise of pre-emptive rights associated with shares of
preferred stock, the following shares of common stock were purchased:

SHARES OF PRICE PER
PURCHASER COMMON STOCK DATE SHARE($)
- --------- ------------ ---------- ---------

Gary Allison...................................... 20,252 12/16/1999 1.00
Gary Allison...................................... 10,385 12/16/1999 1.30
Gary Allison...................................... 840 01/10/2000 1.00
Gary Allison...................................... 448 01/10/2000 1.30
Grant Saviers..................................... 51,550 12/17/1999 1.00
Grant Saviers..................................... 26,436 12/17/1999 1.30
Grant Saviers..................................... 2,139 02/04/2000 1.00
Grant Saviers..................................... 1,140 02/04/2000 1.30
Adaptec .......................................... 101,998 12/21/1999 1.00
Adaptec .......................................... 52,307 12/21/1999 1.30
Adaptec .......................................... 4,233 01/05/2000 1.00
Adaptec .......................................... 2,256 01/05/2000 1.30

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SHARES OF PRICE PER
PURCHASER COMMON STOCK DATE SHARE($)
- --------- ------------ ---------- ---------

William Childs.................................... 110,463 12/11/1999 1.00
William Childs.................................... 56,648 12/11/1999 1.30
William Childs.................................... 4,587 01/08/2000 1.00
William Childs.................................... 2,444 01/08/2000 1.30
Harvest Storage Technology........................ 17,740 12/06/1999 3.00
Harvest Storage Technology........................ 33,629 12/06/1999 3.50
Harvest Storage Technology........................ 13,975 12/06/1999 3.74
Harvest Storage Technology........................ 34,875 12/06/1999 4.00
Harvest Storage Technology........................ 34,648 12/12/1999 3.00
Harvest Storage Technology........................ 86,769 12/12/1999 3.50
Harvest Storage Technology........................ 12,274 12/17/1999 1.00
Harvest Storage Technology........................ 6,294 12/17/1999 1.30
Harvest Storage Technology........................ 510 02/11/2000 1.00
Harvest Storage Technology........................ 272 02/11/2000 1.30
Woodcarvers....................................... 194,494 12/06/1999 3.00
Woodcarvers....................................... 368,705 12/06/1999 3.50
Woodcarvers....................................... 153,217 12/06/1999 3.74
Woodcarvers....................................... 382,361 12/06/1999 4.00
Woodcarvers....................................... 379,871 12/12/1999 3.00
Woodcarvers....................................... 951,313 12/12/1999 3.50
Woodcarvers....................................... 134,176 12/17/1999 1.00
Woodcarvers....................................... 68,808 12/17/1999 1.30
Woodcarvers....................................... 5,570 02/11/2000 1.00
Woodcarvers....................................... 2,968 02/11/2000 1.30

Series A Preferred Stock. We issued shares of our Series A preferred stock
at various times from November 1998 through June 1999. The purchasers of the
Series A preferred stock included, among others, the following officer, director
and greater than 5% stockholders:

SHARES OF
SERIES A PRICE PER
PURCHASER PREFERRED STOCK DATE SHARE($)
- --------- --------------- -------- ---------

Gary Allison....................................... 1,100,000 11/24/98 0.10
Grant Saviers...................................... 2,500,000 11/27/98 0.10
Grant Saviers...................................... 300,000 2/10/99 0.25
Haim Brill......................................... 2,000,000 11/25/98 0.10
William Childs..................................... 6,000,000 11/25/98 0.10
Harvest Storage Technology......................... 666,667 12/15/98 0.18
Woodcarvers........................................ 800,000 01/13/99 0.25
Woodcarvers........................................ 400,000 02/02/99 0.25
Woodcarvers........................................ 300,000 02/27/99 0.25
Woodcarvers........................................ 555,556 03/31/99 0.36
Woodcarvers........................................ 526,316 04/15/99 0.38
Woodcarvers........................................ 375,000 05/18/99 0.40
Woodcarvers........................................ 62,500 05/24/99 0.40
Woodcarvers........................................ 62,500 05/28/99 0.40
Woodcarvers........................................ 325,000 06/11/99 0.40
Woodcarvers........................................ 200,000 06/15/99 0.40
Woodcarvers........................................ 17,500 06/16/99 0.40

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By letter agreement dated November 1998, Mr. Saviers, a director, agreed to
purchase up to 2,500,000 shares of Series A preferred stock at a price of $0.10
per share. Mr. Saviers conditioned his purchase on the following:

- the sale by Adaptec of certain assets;

- the rights, preferences, privileges and restrictions of the Series A
preferred stock being as stated in the amended and restated certificate
of incorporation;

- the issuance of the Series A preferred stock being on terms and
conditions not inferior to the terms and conditions of the Series B
preferred stock issued to Adaptec; and

- his continued service as a member of the board of directors.

Mr. Saviers purchased 2,500,000 shares on Series A preferred stock on November
27, 1998.

Mr. Childs, a greater than 5% stockholder, purchased 400,000 shares at
$0.50 per share, on July 10, 1998. In addition, we issued 500,000 shares of
Series A preferred stock to Mr. Childs pursuant to a $250,000 convertible
debenture dated August 5, 1998. The convertible debenture was due February 5,
1999, accrued interest at 8% per year and was unsecured. All 900,000 shares were
subsequently repriced on October 19, 1998, at $0.10 per share for a total
purchase of 4,500,000 shares. We also issued 1,500,000 shares of Series A
preferred stock to Mr. Childs at $0.10 per share in October 1998.

Series B Preferred Stock. On November 25, 1998, we issued 5,540,200 shares
of our Series B preferred stock to Adaptec in connection with our purchase of
certain assets from Adaptec. See "-- Agreements with Adaptec."

Series C Preferred Stock. Effective October 15, 1999, we issued Woodcarvers
1,763,637 shares of our Series C preferred stock at $0.44 per share and
1,900,000 shares at $0.50 per share.

Warrants. Pursuant to a financial consulting agreement, we issued warrants
to purchase shares of our common stock to Sentinel Consulting Corporation, a
greater than 5% stockholder, as payment of financing fees in connection with the
private placement of shares of our common stock and preferred stock. We also
issued warrants to Harvest Storage Technology Group, LLC, an affiliate of
Sentinel, as payment for financing fees. The warrants granted to Sentinel and
Harvest were granted and exercised as follows:

SHARES PRICE
DATE OF ISSUED ON DATE OF PER
WARRANT HOLDER ISSUE EXERCISE EXERCISE SHARE($)
-------------- -------- --------- -------- --------

Sentinel Consulting......................... 02/08/99 75,000 01/13/00 0.50
Sentinel Consulting......................... 03/31/99 27,778 01/13/00 0.72
Sentinel Consulting......................... 04/28/99 26,316 01/13/00 0.76
Sentinel Consulting......................... 05/28/99 52,125 01/13/00 0.80
Sentinel Consulting......................... 07/07/99 88,182 01/13/00 0.88
Sentinel Consulting......................... 07/20/99 95,000 01/13/00 1.00
Sentinel Consulting......................... 08/09/99 30,000 01/13/00 1.00
Sentinel Consulting......................... 08/12/99 15,384 01/13/00 1.30
Sentinel Consulting......................... 11/04/99 26,667 01/13/00 3.00
Harvest Storage Technology.................. 12/15/98 55,555 12/15/99 0.002

We also issued warrants to purchase an aggregate of 117,500 shares of our
common stock to Mr. Childs as payment of financing fees for loans Mr. Childs
made to us. These loans are discussed below under the caption "-- Loans." Mr.
Childs exercised his warrants in full on January 25, 2000.

On August 19, 1999, we granted each of Messrs. Allison and Gluck a warrant
to purchase up to 10,000 shares of common stock at an exercise price of $0.25
per share. These warrants were granted in lieu of cash payment for fees due on
loans from Messrs. Allison and Gluck to us. These warrants were exercised in
full in March 2000.

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Pursuant to the warrant agreements by which we granted most of the warrants
discussed above, we also granted certain registration rights with respect to
524,507 shares of common stock issued upon exercise of the warrants. See
"Description of Capital Stock -- Summary of Registration Rights" for details of
these registration rights.

When we signed a three-year Integrated Circuit Agreement with Adaptec on
March 1, 2000, we issued a warrant to Adaptec to purchase 300,000 shares of our
common stock at an exercise price of $20 per share. This warrant is not
exercisable until December 1, 2000 and terminates to the extent unexercised on
June 1, 2001.

Loans.

During January and February 1998, Chaparral Systems, Inc., an entity whose
sole stockholder is Mr. Allison, loaned us the following amounts:

INTEREST
DATE AMOUNT($) RATE(%)
- ---- --------- --------

01/20/98.............................................. 6,000 10.5
02/10/98.............................................. 7,000 10.5
02/17/98.............................................. 6,000 10.5
02/24/98.............................................. 10,000 10.5

These loans were evidenced by promissory notes that were payable on demand. The
$29,000 in principal and $350 of interest due on these notes was paid in cash on
March 24, 1998.

In April and June 1998, Chaparral Systems loaned us additional amounts, as
follows:

INTEREST SHARES OF SERIES A
DATE AMOUNT($) RATE(%) ISSUED AS PAYMENT
- ---- --------- -------- -------------------

04/03/98............................... 30,000 10.5 300,000
04/15/98............................... 20,000 10.5 200,000
04/20/98............................... 15,000 10.5 150,000
06/23/98............................... 22,500 10.5 225,000

These loans were evidenced by promissory notes that were payable on demand. The
principal amounts on these notes were repaid as of November 24, 1998 by our
issuing to Mr. Allison 875,000 shares of Series A preferred stock.

On February 3, 1999, Messrs. Allison and Gluck each loaned us $25,000. Each
note is unsecured and accrues interest at the rate of 8% per year. The note also
stated a fee of 10% payable in cash or in the form of a warrant to purchase
10,000 shares of common stock at $0.25 per share. These notes were repaid by us
on August 19, 1999, and each of Messrs. Allison and Gluck took his fee in the
form of warrants.

On February 3, 1999, Mr. Saviers loaned us $75,000, evidenced by a
promissory note. The note is unsecured and accrued interest at the rate of 8%
per year, compounded. The note also stated a fee of 10% ($7,500) payable in cash
or in the form of a warrant to purchase shares of common stock at a price per
share equal to 50% of the price per share paid by investors in our subsequent
private placement. This note was originally due on March 31, 1999, but was
subsequently extended to June 30, 1999. The note was repaid by our issuance to
him of 300,000 shares of Series A preferred stock at $0.25 per share, effective
as of February 3, 1999. No payment was made for interest or the 10% financing
fee.

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During 1999, Mr. Childs loaned us the following amounts, evidenced by
promissory notes payable on demand:

FEE IN WARRANTS
TO PURCHASE
COMMON STOCK
------------------
NUMBER
INTEREST DUE OF EXERCISE
DATE AMOUNT($) RATE(%) DATE SHARES PRICE($)
---- --------- -------- -------- ------ --------

01/27/99.................... 50,000(1) 8.00 04/27/99 5,000 1.00
03/01/99.................... 400,000(1) 11.75(2) 06/01/99 40,000 1.00
03/18/99.................... 200,000(1) 11.75(2) 06/18/99 20,000 1.00
04/01/99.................... 200,000(1) 11.75(2) 07/01/99 20,000 1.00
04/14/99.................... 200,000(1) 11.75(2) 07/15/99 20,000 1.00
06/04/99.................... 250,000(3) 11.75 09/03/99 12,500 1.00

- ---------------

(1) The aggregate principal amount of $1,050,000 and interest of $10,882 were
paid on December 13, 1999.

(2) Interest was paid directly to Silicon Valley Bank, from whom Mr. Childs had
borrowed the funds that he lent to us, in an amount equal to the prime rate
plus 1% and additional interest of 1% or $7,375 was paid to Mr. Childs.

(3) Principal of $250,000 and interest of $4,741 were paid on August 13, 1999.

On November 25, 1998, we made loans to each of our executive officers and
to Brian Allison, our Vice President of Sales and Mr. Allison's son, in
connection with the purchase by each of them of shares of our common stock upon
early exercise of options. Each loan is evidenced by a promissory note, which is
unsecured and accrues interest at the rate of 6% per year, compounded annually.
Each note is repayable upon the earliest of the resale of the shares of our
common stock, a change in control of Chaparral, within 90 days following the
individual's termination of employment or November 25, 2008. These loans are
summarized below:

SHARES OF EXERCISE
DATE OF COMMON PRICE PER
NAME AMOUNT($) EXERCISE STOCK SHARE($)
- ---- --------- -------- --------- ---------

Gary Allison........................... 98,000 11/25/98 1,000,000 0.10
Michael Gluck.......................... 98,000 11/25/98 1,000,000 0.10
Jerry Walker........................... 98,000 11/25/98 1,000,000 0.10
Douglas Lehrmann....................... 29,500 12/04/98 250,000 0.12
Douglas Lehrmann....................... 11,800 03/25/99 100,000 0.12
Brian Allison.......................... 24,500 11/25/98 250,000 0.12

From January 1999 through August 1999, Woodcarvers issued 21 promissory
notes payable to us in the aggregate amount of $2,743,000 as payment of the
purchase for shares of our Series A preferred stock, Series C preferred stock
and common stock. The notes bore interest at the rate of 8%, were payable on
demand and had stated maturities of two months or less. The last promissory note
was paid on October 18, 1999.

On July 5, 1999, we entered into a Support Agreement with each of Messrs.
Allison and Lehrmann for the benefit of Wells Fargo Business Credit, Inc. as
part of the Credit and Security Agreement entered into on the same day between
us and Wells Fargo. Pursuant to each Support Agreement, we and the executive
officer agreed that if Wells Fargo came into possession of any of the collateral
securing the Credit and Security Agreement because of an event of default on the
Credit Agreement, then we and the executive officer would incur certain
obligations. If the executive officer were still employed by us, we would cause
him to exert his best efforts to obtain sales of the collateral at the best
commercially obtainable prices and collect the accounts. If the executive
officer ceased to be employed by us, he was required to assist Wells Fargo as
its independent contractor, for a period not to exceed 150 days, for the

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purpose of disposing of the collateral and collecting the accounts. In the
latter circumstance, Wells Fargo was required to pay the executive officer a
weekly salary at 115% of the average salary paid to him by us in the 12 months
preceding the commencement of such services. If the executive officer failed to
fulfill his obligations, he was required to pay Wells Fargo $50,000 in
liquidated damages, as well as costs and expenses incurred in enforcing the
liquidated damages provision. If the executive officer died, became mentally or
physically incapacitated or ceased to be employed by us, we were required to
replace him and use our best efforts to cause his replacement to execute a
support agreement. Both Support Agreements terminated when we terminated the
Credit and Security Agreement in January 2000.

Also on July 5, 1999, Mr. Childs entered into a Subordination Agreement for
the benefit of Wells Fargo. Pursuant to the Subordination Agreement, Mr. Childs
agreed to subordinate promissory notes for an aggregate principal amount of
$1,050,000, payable by us to Mr. Childs, to each debt, liability and obligation
that we would owe to Wells Fargo under the credit agreement. This Subordination
Agreement was terminated when we terminated our Credit Agreement with Wells
Fargo in January 2000.

Options

We granted options to purchase shares of our common stock to each of our
executive officers, directors and Brian Allison as follows:

NUMBER OF DATE OF EXERCISE EXPIRATION
NAME SHARES GRANT PRICE DATE
---- --------- -------- -------- ----------

Gary L. Allison............................ 1,000,000 03/01/98 $0.10 03/01/08
200,000 11/11/99 3.19 11/11/09
Michael J. Gluck........................... 1,000,000 05/01/98 $0.10 05/01/08
166,666 05/17/99 0.12 11/13/99
166,833 11/13/99 1.12 11/13/09
Jerry L. Walker............................ 1,000,000 05/01/98 $0.10 05/01/08
166,666 05/17/99 0.12 11/13/99
166,833 11/13/99 1.12 11/13/09
Douglas J. Lehrmann........................ 25,000 09/28/98 $0.12 09/28/08
100,000 03/25/99 0.12 03/25/09
166,666 05/17/99 0.12 11/13/99
155,833 11/13/99 1.12 11/13/09
F. Grant Saviers........................... 125,000 11/25/98 $0.12 11/25/08
50,000 11/11/99 3.19 11/11/09
Brian Allison.............................. 250,000 05/01/98 $0.10 05/01/03
41,666 05/17/99 0.12 11/13/99
40,000 08/10/99 0.12 08/10/09
29,333 11/13/99 1.12 11/13/09

Agreements with Adaptec

Initial Agreements. We entered into a Memorandum of Understanding with
Adaptec in December 1997. The agreement was amended in March 1999, under which
Chaparral was granted a license to modify the Adaptec External Fibre Channel
RAID controller and adapt it to the storage router market. Adaptec agreed to
provide up to $200,000 of funding in exchange for a 19.9% equity interest in
Chaparral in the form of a one year convertible debenture at 5% interest. In
July 1998 Adaptec decided to divest its Fibre Channel technology, and in
September 1998 we entered into a Memorandum of Understanding to license and to
purchase certain Fibre Channel RAID controller technology and assets. In
conjunction with this Memorandum of Understanding, Adaptec provided an
additional $550,000 loan advance on similar terms to the original loans. The
$550,000 loan was repaid by Chaparral on

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November 25, 1998 in connection with the Adaptec Asset Transfer Agreement and
Contribution Agreement discussed below.

Asset Transfer Agreement. On November 25, 1998, we entered into an Asset
Transfer Agreement with Adaptec. Pursuant to the Asset Transfer Agreement, we
received certain tangible assets and inventory, copies of Adaptec's marketing
and sales information and a license to use certain assets of Adaptec. In return,
we issued to Adaptec 5,540,200 shares of our Series B preferred stock. As a
result of this transaction, Adaptec owns 100% of the outstanding Series B
preferred stock. In connection with the Asset Transfer Agreement and on the same
date, we entered into an Investors' Rights Agreement, a Contribution Agreement,
a Technology Cross-License Agreement, a Board Manufacturing and Transition
Agreement and an Occupancy License Agreement, all of which are summarized below.

Fourth Amended Investors' Rights Agreement. Under the Fourth Amended
Investors' Rights Agreement entered into as of March 1, 2000, Adaptec and
holders of our Series A preferred stock, Series B preferred stock and Series C
preferred stock received information rights, the registration rights described
in "Description of Capital Stock -- Registration Rights" and a right of first
refusal to purchase, in some specified circumstances, a pro-rata share of
certain securities that we may issue from time to time (pre-emptive rights). In
addition, Adaptec was permitted to have one representative attend all meetings
of our board of directors in a non-voting, observer capacity.

Pre-emptive rights are not applicable to certain stock issuances,
including, among others:

- up to 8,000,000 shares of our common stock issued to employees, officers,
directors or consultants pursuant to incentive agreements or plans;

- securities offered to the public pursuant to a registration statement;

- securities issued in a merger or acquisition; and

- up to 3,000,000 shares of our common stock (and/or options or warrants
therefor) issued or issuable in connection with strategic alliances or
partnering arrangements approved by our board of directors.

Preemptive rights terminate immediately before the closing of our initial public
offering.

Contribution Agreement. Under the Contribution Agreement with Adaptec and
certain of our stockholders, we issued 5,540,200 shares of our Series B
preferred stock to Adaptec in exchange for the transfer by Adaptec of the assets
set forth in the Asset Transfer Agreement and in exchange for the cancellation
of debt owed by us to Adaptec. In addition, we issued an aggregate of 1,875,000
shares of our common stock and an aggregate of 1,150,000 shares of our Series A
preferred stock to certain of our stockholders, including 250,000 shares of
Series A preferred stock and 1,000,000 shares of common stock to Mr. Allison,
and 900,000 shares of Series A preferred stock to Mr. Childs, in exchange for
their agreement to cancel debt owed by us to each of them. The debt owed to
Adaptec and to each stockholder was evidenced by various promissory notes, all
of which were delivered to us and canceled. All parties to the Contribution
Agreement that received our stock agreed that upon our request or the request of
the underwriters managing any public offering of our securities under the
Securities Act, they will not sell or otherwise dispose of the shares acquired
for a period of 180 days without our consent or the managing underwriters'
consent.

Technology Cross-License Agreement. Under the Technology Cross-License
Agreement, Adaptec granted us an irrevocable and perpetual worldwide license to
use certain technology related to Adaptec's business. In addition, we granted
Adaptec an irrevocable, worldwide and nonexclusive license to use, copy and
modify certain software. Each party agreed to indemnify the other for any claims
arising from the infringement on any third party's intellectual property rights
licensed under the agreement.

Board Manufacturing and Transition Agreement. Under the Manufacturing
Agreement, Adaptec agreed to purchase, assemble and manufacture certain of the
products the technology for which was

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transferred to us under the Asset Purchase Agreement during a transition period
not to extend beyond April 30, 1999. Adaptec, however, continued manufacturing
our products until August 31, 1999.

Occupancy License Agreements. On March 15, 1998, we entered into an
Occupancy License Agreement with Adaptec, under which Adaptec granted us a
nonassignable, non-transferable right and revocable license for the use of
approximately 7,573 square feet of space in Longmont, Colorado, on a
month-to-month basis at a monthly license fee of $7,573. On October 1, 1998, we
entered into a new Occupancy License Agreement with Adaptec pursuant to which we
licensed additional space at the same location for a total of approximately
20,000 square feet. This license was for a period of nine months at a monthly
license fee of $25,440. The original term of the license was nine months, but
the parties amended the agreement on July 15, 1999 to extend the term on a
month-to-month basis. We also entered into a similar agreement with Adaptec on
May 10, 1999 to occupy 1,325 square feet of space located in Foothill Ranch,
California. The license for the California property is for a period of 60
months, with a monthly license fee of $2,700 for the first 30 months, and $2,850
for months 31-60. Upon commencement of our occupancy under this license, an
Occupancy License Agreement with Adaptec that we entered into on October 1, 1998
to occupy approximately 1,000 square feet of space in Irvine, California at a
monthly license fee of $3,000 was terminated.

Integrated Circuit Agreement. On March 1, 2000, we signed an Integrated
Circuit Agreement with Adaptec. Pursuant to this agreement, Adaptec agreed to
sell and we agreed to buy ASICs for a term of three years. The agreement also
provides that in certain circumstances, including the bankruptcy of Adaptec or
breach by Adaptec of the agreement, we have certain backup rights to the
technology for the ASIC. These backup rights enable us to purchase ASICs
directly from Adaptec's manufacturer or to select our own manufacturer to
produce the ASIC for us using the technology from Adaptec. As part of the
Integrated Circuit Agreement, we issued to Adaptec a warrant to purchase 300,000
shares of our common stock at a purchase price of $20 per share. This warrant is
not exercisable until December 1, 2000 and terminates to the extent unexercised
on June 1, 2001.

INDEMNIFICATION

We have entered into indemnification agreements with each of our directors
and officers. Such indemnification agreements require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law. See
"-- Limitation of Liability and Indemnification."

CONFLICT OF INTEREST POLICY

We believe that all transactions with affiliates described above were made
on terms no less favorable to us than could have been obtained from unaffiliated
third parties. Our policy is to require that a majority of the independent and
disinterested outside directors on our board of directors approve all future
transactions between us and our officers, directors, principal stockholders and
their affiliates. Such transactions will continue to be on terms no less
favorable to us than we could obtain from unaffiliated third parties.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2000 and after giving effect to
this offering, but without giving effect to the exercise of the underwriters'
over-allotment option, by:

- each person known by us to beneficially own more than 5% of our common
stock;

- each executive officer named in the Summary Compensation Table on page
51;

- each of our directors; and

- all of our executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to the securities. Except as indicated by footnote, the persons named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. The number of shares of common
stock used to calculate the percentage ownership of each listed person includes
the shares of common stock underlying options or warrants held by such persons
that are exercisable within 60 days of this offering. The percentage of
ownership is based on 33,896,940 shares, consisting of 18,768,087 shares of
common stock outstanding as of March 31, 2000 and 15,128,853 shares issuable
upon the conversion of preferred stock, and assumes no exercise of underwriters'
over-allotment option.

PERCENTAGE OF
SHARES
NUMBER OF OUTSTANDING(%)
SHARES -------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ------------------------ ------------ -------- --------

Directors and Executive Officers:
Gary L. Allison(1)........................................ 2,114,782 6.2
Michael J. Gluck(2)....................................... 1,691,833 5.0
Jerry L. Walker(3)........................................ 1,681,833 5.0
Douglas J. Lehrmann(4).................................... 530,833 1.6
F. Grant Saviers(5)....................................... 1,642,572 4.8
Harris Ravine(6).......................................... -- *
All directors and executive officers as a group (6
persons)............................................... 7,661,853 22.6
Other 5% Stockholders:
Adaptec, Inc.(7).......................................... 3,089,335 9.1
691 South Milpitas Blvd.
Milpitas, California 95035
William R. Childs(8)...................................... 3,416,319 10.1
390 Union Boulevard, Suite 260
Lakewood, Colorado 80228
Robert T. Harvey(9)....................................... 8,264,132 24.4
7700 Irvine Center Drive, Suite 245
Irvine, California 92618
Harvest Storage Technology Group, LLC(10)................. 7,799,823 23.0
7700 Irvine Center Drive, Suite 245
Irvine, California 92618
Sentinel Consulting Corporation, LLC...................... 464,309 1.4
7700 Irvine Center Drive, Suite 245
Irvine, California 92618

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Woodcarvers Limited, LLC(11).............................. 7,156,096 21.1
7700 Irvine Center Drive, Suite 245
Irvine, California 92618

- ---------------

* Indicates beneficial ownership of less than 1% of the total outstanding
common stock.

(1) Gary L. Allison. These shares include 572,857 shares issuable upon the
conversion of our Series A preferred stock and 1,541,925 shares of our
common stock.

(2) Michael J. Gluck. These shares include 166,833 shares subject to stock
options exercisable within 60 days and 1,525,000 shares of our common
stock.

(3) Jerry L. Walker. These shares include 166,833 shares subject to stock
options exercisable within 60 days, and 1,515,000 shares of our common
stock.

(4) Douglas J. Lehrmann. These shares include 155,833 shares subject to stock
options exercisable within 60 days and 375,000 shares of our common stock.

(5) F. Grant Saviers. These shares include 1,458,182 shares issuable upon the
conversion of our Series A preferred stock, 41,667 shares subject to stock
options exercisable within 60 days and 131,265 shares of our common stock.

(6) Harris Ravine. These shares are subject to options exercisable within 60
days.

(7) Adaptec, Inc. These shares include 2,928,361 shares issuable upon
conversion of our Series B preferred stock and 160,794 shares of our common
stock.

(8) William F. Childs. These shares include 3,124,677 shares issuable upon
conversion of our Series A preferred stock and 291,642 shares of our common
stock.

(9) Robert T. Harvey. These shares include:

- 1,887,499 shares issuable upon conversion of our Series A preferred
stock, 1,842,315 shares issuable upon conversion of our Series C
preferred stock and 3,426,282 shares of our common stock held by
Woodcarvers Limited, LLC, which is 99% owned by Harvest Storage
Technology Partners LLC and 1% owned by Robert Harvey;

- 347,186 shares issuable upon conversion of our Series A preferred stock
and 296,541 shares of our common stock held by Harvest Storage
Technology Partners, LLC, which is 10% owned by Mr. Harvey; and

- 464,309 shares of our common stock held by Sentinel Consulting
Corporation, LLC, which is 100% owned by Mr. Harvey.

Mr. Harvey is the Operating Manager of each of Woodcarvers Limited, LLC,
Harvest Storage Technology Group, LLC and Sentinel Consulting Corporation,
LLC.

(10) Harvest Storage Technology Partners LLC. These shares include:

- 347,186 shares issuable upon conversion of our Series A preferred stock
and 296,541 shares of our common stock held by Harvest Storage
Technology Partners, LLC.

(11) Woodcarvers Limited, LLC. These shares include 1,887,499 shares issuable
upon conversion of our Series A preferred stock, 1,842,315 shares issuable
upon conversion of our Series C preferred stock and 3,426,282 shares of our
common stock.

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DESCRIPTION OF CAPITAL STOCK

Currently, our authorized capital stock consists of 52,000,000 shares of
common stock, par value $0.001 per share, and 29,140,200 shares of preferred
stock, par value $0.001 per share. Upon completion of this offering, our
authorized capital stock will consist of 120,000,000 shares of common stock, par
value $0.001 per share, and 40,000,000 shares of preferred stock, par value
$0.001 per share. The following summary is qualified by reference to our
certificate of incorporation and our bylaws, forms of which have been filed as
exhibits to the registration statement of which this prospectus is a part.

COMMON STOCK

As of March 31, 2000, there were 18,768,087 shares of common stock
outstanding that were held of record by 61 stockholders. Holders of our common
stock are entitled to one vote for each share held on all matters to be voted
upon by stockholders, including the election of directors. Our certificate of
incorporation does not provide for cumulative voting for the election of
directors, and as a result, minority stockholders will not be able to elect
directors on the basis of their votes alone.

Subject to limitations under Delaware law and preferences that may apply to
any outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably dividends or other distributions, if any, that may be
declared by our board of directors out of legally available funds. In the event
of our liquidation, dissolution or winding up, holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to the liquidation preference of any outstanding preferred stock. Our
common stock has no preemptive, conversion or other rights to subscribe for
additional securities of Chaparral. All outstanding shares of common stock are,
and all shares of common stock to be outstanding upon completion of the offering
will be, validly issued, fully paid and nonassessable. The rights, preferences
and privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.

PREFERRED STOCK

As of March 31, 2000, there were 18,599,372 shares of Series A preferred
stock outstanding, 5,540,200 shares of Series B preferred stock outstanding and
5,000,000 shares of Series C preferred stock outstanding. Upon the closing of
this offering, all outstanding shares of Series A, Series B and Series C
preferred stock will automatically convert into 15,128,853 shares of common
stock.

Our board of directors will have the authority, without further approval of
the stockholders, to issue up to 10,859,800 shares of preferred stock in one or
more series, to fix the rights, preferences, privileges and restrictions of the
authorized preferred stock and to issue shares of each such series. The issuance
of preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of restricting
dividends on the common stock, diluting the voting power for the common stock,
impairing the liquidation rights of the common stock, delaying or preventing a
change in control of our company, discouraging bids for our common stock at a
premium or otherwise adversely affecting the market price of our common stock.

WARRANTS

Other than the warrants granted to directors, executive officers and
greater than 5% stockholders described in "Certain Transactions -- Warrants,"
there were outstanding as of March 31, 2000 warrants to purchase up to an
aggregate of 300,000 shares of our common stock held by Adaptec. This warrant
may be exercised at a price of $20.00 per share. This warrant is not exercisable
until December 1, 2000 and terminates to the extent unexercised on May 31, 2001.

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REGISTRATION RIGHTS

Holders of all shares of our preferred stock and certain shares of our
common stock have registration rights.

Fourth Amended Investors' Rights Agreement

Pursuant to the Fourth Amended Investors' Rights Agreement, dated March 1,
2000, certain of our investors have registration rights. These rights include
demand registration rights, piggyback registration rights and Form S-3
registration rights.

Demand Registration Rights. If we receive a written request from the
holders of at least two-thirds of the registrable securities (as defined in the
agreement) after six months of our initial public offering that we file a
registration covering the registrable securities, then we will give notice to
all holders of registrable securities of the request within 20 days, and file a
registration statement as soon as practicable covering the shares of all holders
who request such registration. Our obligation is contingent on at least 25% of
all registrable securities then outstanding requesting to have their shares
included in the registration statement.

Piggyback Registration Rights. If we file a registration statement we must
notify all holders of registrable securities 30 days prior to the filing of such
registration statement. Each holder then has an opportunity to include his or
her shares in the registration provided that he or she notifies us within 20
business days of receiving notice from us.

Form S-3 Registration Rights. If we receive a written request from holders
of at least 25% of the then outstanding registrable securities to file a Form
S-3 with respect to the registrable securities, then we will promptly give
notice to each holder, effect such registration as soon as practicable and pay
all registration expenses. We are not obligated to effect such registration,
however, if:

- the aggregate offering price of all shares included in the proposed
registration is less than $1.0 million;

- we determine in good faith that such registration would be seriously
detrimental to us and our stockholders (in which case we can defer such
registration for 120 days); or

- we have already effected two registrations on Form S-3 in the last 12
months.

Warrant Agreements

Pursuant to the terms of various warrant agreements, Harvest Storage
Technology, Mr. Gluck, Mr. Allison, Mr. Childs and Sentinel Consulting each have
demand registration rights and piggyback registration rights with respect to
524,508 shares of our common stock.

Demand Registration Rights. If we receive a written request from Harvest
Storage Technology, Mr. Gluck, Mr. Allison, Mr. Childs or Sentinel Consulting
within six months of an initial public offering that we file a registration
statement covering registrable securities (defined as shares of common stock
issued upon exercise of the warrants) having a value of at least $1.0 million,
we are required to use our best efforts to file promptly a registration
statement covering all of the shares requested to be included. Each warrant
agreement grants each of Harvest Storage Technology, Mr. Gluck, Mr. Allison, Mr.
Childs and Sentinel Consulting one such demand registration, and such demand may
not be made during the period starting 60 days prior to the estimated date of
filing our initial registration statement and ending on the date six months
following our initial public offering.

Piggyback Registration Rights. If we file a registration statement, other
than on Form S-8 or other similar form or in connection with a Rule 145
transaction, we must promptly notify Harvest Storage Technology, Mr. Gluck, Mr.
Allison, Mr. Childs and Sentinel Consulting prior to the filing of such
registration statement. Harvest Storage Technology, Sentinel Consulting and
Messrs. Gluck, Allison and Childs then each have an opportunity to include their
shares in the registration statement; provided that

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each notifies us within 20 business days of receiving our notice. Each warrant
agreement grants each of Harvest Storage Technology, Sentinel Consulting, Mr.
Gluck, Mr. Allison and Mr. Childs three such piggyback registration rights.

PROVISIONS IN OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
AND IN DELAWARE LAW THAT MAY HAVE ANTI-TAKEOVER EFFECTS

Our certificate of incorporation and bylaws will be amended and restated as
of the date of completion of this offering. Our amended and restated certificate
of incorporation and bylaws will contain certain provisions that may have the
effect of delaying, deferring or preventing a third party from acquiring us,
even if the acquisition would benefit our stockholders.

Our amended and restated certificate of incorporation and bylaws provide
that our board of directors shall consist of three classes of directors, each
serving for a three-year term ending in successive years. This provision may
make it more difficult to effect a takeover because it would generally take more
than one annual meeting of our stockholders for an acquiring party to elect a
majority of the board of directors. As a result, a classified board of directors
may discourage proxy contests for the election of directors or purchases of a
substantial block of our stock because it could operate to prevent a potential
acquiror from obtaining control of our board of directors in a relatively short
period of time.

In addition, our amended and restated certificate of incorporation and
bylaws will provide that stockholders may take action only at a duly called and
held meeting and may not take action by written consent. This provision may make
it more difficult to effect a takeover through various types of transactions,
such as a merger or sale of assets, by requiring a potential acquiror to hold a
stockholders' meeting before such a transaction could be consummated.

Our amended and restated certificate of incorporation and bylaws also will
provide that the "staggered board" provision and the provisions concerning
voting rights of stockholders may be amended only by a vote of two-thirds of the
outstanding shares of our capital stock entitled to vote generally in the
election of directors, voting as a single class.

Finally, we are subject to Section 203 of the Delaware General Corporation
Law, which imposes restrictions on certain business combinations with interested
persons. That section defines an "interested person" as any person who acquires
15% or more of our outstanding voting stock. In general, we are prohibited from
engaging in business combinations with an interested person for a period of
three years from the date that person becomes an interested person, subject to
certain exceptions. By restricting our ability to engage in business
combinations with an interested person, the application of Section 203 may
provide a barrier to takeovers not approved in advance by our board of
directors.

DIVIDENDS

We have not paid any cash dividends on our common stock or preferred stock
and intend to retain future earnings to finance our business. We are subject to
restrictions on paying dividends under state law and our revolving credit
agreement.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company, and its address is 12039 W. Alameda Parkway, Suite
Z-2, Lakewood, Colorado 80228.

NASDAQ NATIONAL MARKET LISTING

We have applied to have our common stock approved for quotation on the
Nasdaq Stock Market's National Market, subject to official notice of issuance,
under the trading symbol "CHAP."

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76

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock, including shares issued upon exercise of
outstanding options and warrants, in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair our ability to raise capital through the sale of our equity securities.
Sales of substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.

Upon completion of this offering and based on shares outstanding at March
31, 2000, we will have outstanding shares of common stock assuming no
exercise of the underwriters' over-allotment option and no exercise of any
outstanding options or warrants. All the shares sold in this offering, plus any
shares issued upon exercise of the underwriters' over-allotment option, will be
freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates" as that term is defined in Rule 144 under the Securities
Act.

The remaining shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which are summarized below.

Our directors, officers and stockholders have entered into lock-up
agreements with the underwriters of this offering generally providing that they
will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of our shares of common stock or any securities exercisable
for or convertible into our common stock owned by them prior to this offering
for a period of 180 days after the effective date of the registration statement
filed pursuant to this offering without the prior written consent of Credit
Suisse First Boston Corporation. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, shares subject to lock-up agreements may not be sold
until such agreements expire or are waived by Credit Suisse First Boston
Corporation. Taking into account the lock-up agreements, and assuming Credit
Suisse First Boston Corporation does not release stockholders from these
agreements prior to the expiration of the 180 day lock-up period, the following
shares will be eligible for sale in the public market at the following times:

- beginning on the effective date of the registration statement, the
shares sold in this offering, and additional shares,
will be immediately available for sale in the public market;

- beginning 180 days following the date of this prospectus,
additional shares will become eligible for sale under Rule 144 subject to
volume restrictions as described below; and

- the remainder of the restricted securities will be eligible for sale from
time to time thereafter, subject in some cases to compliance with Rule
144.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including the holding period of any prior owner
except an affiliate, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:

- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or

- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.

Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Chaparral. Under Rule 144(k), a person who is

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not deemed to have been our "affiliate," as defined in the Securities Act, at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, including the
holding period of any prior owner except an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.

Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any of our employees, officers,
directors or consultants who purchased shares under a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
such shares. However, Rule 701 shares are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up agreements or no sooner than 90 days after the
offering upon obtaining the prior written consent of Credit Suisse First Boston
Corporation.

Following the effectiveness of this offering, we intend to file a
registration statement on Form S-8 registering shares of common stock,
the shares of common stock reserved for issuance under our 1998 stock option
plan, the 2000 equity incentive plan and the 2000 employee stock purchase plan.
Upon the filing of the registration statement on Form S-8, common stock issued
upon exercise of outstanding vested options or issued under our purchase plan,
other than common stock issued to our affiliates, will be available for
immediate resale in the open market.

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UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000 we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Salomon Smith
Barney Inc., Bear, Stearns & Co. Inc. and Needham & Company, Inc. are acting as
representatives, the following respective numbers of shares of common stock:

Number
Underwriter of Shares
----------- ---------

Credit Suisse First Boston Corporation......................
Salomon Smith Barney Inc. ..................................
Bear, Stearns & Co. Inc. ...................................
Needham & Company, Inc. ....................................

--------
Total ............................................
========

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The underwriters
and selling group members may allow a discount of $ per share on sales to
other broker/dealers. After the initial public offering, the public offering
price and concession and discount to broker/dealers may be changed by the
representatives.

The following table summarizes the compensation and estimated expenses we
will pay.

Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------

Underwriting Discounts and Commissions paid
by us.................................... $ $ $ $
Expenses payable by us..................... $ $ $ $

The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.

We have agreed that we will not offer, sell, contract to sell, announce our
intention to sell, pledge or otherwise dispose of, directly or indirectly, or
file with the Securities and Exchange Commission a registration statement under
the Securities Act relating to, any shares of common stock or securities
convertible into or exchangeable or exercisable for any common stock, or
publicly disclose the intention to make an offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.

Our officers and directors and all of our security holders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities convertible
into or exchangeable or exercisable for any shares of our common stock, enter
into a transaction which would have the same effect, or enter into any swap,
hedge or other arrangement that
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transfers, in whole or in part, any of the economic consequences of ownership of
our common stock, whether any such aforementioned transaction is to be settled
by delivery of our common stock or such other securities, in cash or otherwise,
or publicly disclose the intention to make any such offer, sale, pledge or
disposition, or to enter into any such transaction, swap, hedge or other
arrangement, without, in each case, the prior written consent of Credit Suisse
First Boston Corporation for a period of 180 days after the date of this
prospectus.

The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and certain
other persons associated with us who have expressed an interest in purchasing
common stock in this offering. The number of shares available for sale to the
general public in this offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make in that respect.

We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market subject to official notice of issuance, under the
symbol "CHAP."

Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offering price include:

- the information in this prospectus and otherwise available to the
underwriters;

- the history and the prospects for the industry in which we compete;

- the ability of our management;

- the prospects for our future earnings;

- the present state of our development and our current financial condition;

- the general condition of the securities markets at the time of this
offering; and

- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.

The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended.

- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.

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NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws, which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.

REPRESENTATIONS OF PURCHASERS

Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws; (ii) where required
by law, that such purchaser is purchasing as principal and not as agent; and
(iii) such purchaser has reviewed the text above under "Resale Restrictions."

RIGHTS OF ACTION (ONTARIO PURCHASERS)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

ENFORCEMENT OF LEGAL RIGHTS

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against the issuer or
persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one such report must be
filed in respect of common stock acquired on the same date and under the same
prospectus exemption.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

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LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Davis, Graham & Stubbs LLP, Denver, Colorado. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Morrison & Foerster LLP, Palo Alto, California.

EXPERTS

The financial statements of Chaparral Network Storage, Inc. (formerly
Chaparral Technologies, Inc.) as of March 31, 1999 and 2000 and for the period
from inception (January 22, 1998) to March 31, 1998 and the years ended March
31, 1999 and 2000 have been included in this prospectus and the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT CHAPARRAL

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the shares of common stock to be sold in this offering. This
prospectus does not contain all the information included in the registration
statement and the exhibits thereto. For further information about us and the
shares of our common stock to be sold in this offering, please refer to this
registration statement. Complete exhibits have been filed with our registration
statement on Form S-1.

You may read and copy any contract, agreement or other document referred to
in this prospectus and any portion of our registration statement or any other
information from our filings at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1800SEC0330 for further information about the public
reference rooms. Our filings with the Securities and Exchange Commission,
including our registration statement, are also available to you without charge
at the Securities and Exchange Commission's Web site, http://www.sec.gov.

Upon the completion of this offering, we will be subject to the information
and reporting requirements of the Exchange Act and will file and furnish to our
stockholders annual reports containing financial statements audited by our
independent auditors, make available to our stockholders quarterly reports
containing unaudited financial data for the first three quarters of each fiscal
year, proxy statements and other information with the Securities and Exchange
Commission.

You may read and copy any reports, statements or other information on file
at the public reference rooms or at the Securities and Exchange Commission's web
site referred to above. You can also request copies of these documents, for a
copying fee, by writing to the Commission.

Our web site is www.chaparralnet.com. The information contained on our web
site is not incorporated by reference into this prospectus.

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CHAPARRAL NETWORK STORAGE, INC.

INDEX TO FINANCIAL STATEMENTS

PAGE
----

Independent Auditors' Report................................ F-2
Balance Sheets as of March 31, 1999 and 2000................ F-3
Statements of Operations for the period from inception
(January 22, 1998) to March 31, 1998 and the years ended
March 31, 1999 and 2000................................... F-4
Statements of Stockholders' Equity (Deficit) for the period
from inception (January 22, 1998) to March 31, 1998 and
the years ended March 31, 1999 and 2000................... F-5
Statements of Cash Flows for the period from inception
(January 22, 1998) to March 31, 1998 and the years ended
March 31, 1999 and 2000................................... F-6
Notes to Financial Statements............................... F-7

F-1
83

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Chaparral Network Storage, Inc.:

We have audited the accompanying balance sheets of Chaparral Network
Storage, Inc. (formerly Chaparral Technologies, Inc.) (Company) as of March 31,
1999 and 2000, and the related statements of operations, stockholders' equity
(deficit) and cash flows for the period from inception (January 22, 1998) to
March 31, 1998 and for the years ended March 31, 1999 and 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chaparral Network Storage,
Inc. as of March 31, 1999 and 2000, and the results of its operations and its
cash flows for the period from inception (January 22, 1998) to March 31, 1998
and for the years ended March 31, 1999 and 2000, in conformity with accounting
principles generally accepted in the United States of America.

/s/ KPMG LLP

Boulder, Colorado

April 21, 2000

F-2
84

CHAPARRAL NETWORK STORAGE, INC.

BALANCE SHEETS

ASSETS

MARCH 31, MARCH 31,
1999 2000
----------- ------------

Current assets:
Cash and cash equivalents................................. $ 224,097 $ 16,707,368
Trade receivables, net of allowance of $75,000 at March
31, 2000............................................... 103,624 1,720,014
Inventory................................................. 183,022 3,749,399
Prepaid expenses.......................................... 45,000 134,550
----------- ------------
Total current assets.............................. 555,743 22,311,331
Deferred public offering costs.............................. -- 413,000
Furniture, fixtures and equipment, net...................... 377,618 797,087
----------- ------------
Total assets...................................... $ 933,361 $ 23,521,418
=========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Notes payable............................................. $ 900,000 $ --
Accounts payable.......................................... 367,436 1,715,876
Accrued liabilities....................................... 315,976 1,292,261
Accrued compensation...................................... 193,890 354,622
Deferred revenue.......................................... 50,000 --
----------- ------------
Total current liabilities......................... 1,827,302 3,362,759
----------- ------------
Stockholders' equity (deficit):
Series A preferred stock, par value $.001 per share;
18,600,000 shares authorized; 15,655,556 and 18,599,372
shares issued and outstanding, respectively;
liquidation preference of $1,565,556 and $1,859,937,
respectively........................................... 2,085,617 3,102,167
Series B preferred stock, par value $.001 per share;
5,540,200 shares authorized, issued and outstanding at
March 31, 2000; liquidation preference of $1,000,000... 1,000,000 1,000,000
Series C preferred stock, par value $.001 per share;
5,000,000 shares authorized, issued and outstanding;
liquidation preference of $2,200,000................... -- 2,166,770
Common stock, par value $.001 per share; 52,000,000 shares
authorized; 7,995,000 and 18,768,087 shares issued and
outstanding, respectively.............................. 7,995 18,768
Additional paid-in capital................................ 652,718 26,846,870
Unearned stock option compensation........................ -- (633,667)
Notes receivable for preferred and common stock........... (909,860) (642,860)
Accumulated deficit....................................... (3,730,411) (11,699,389)
----------- ------------
Total stockholders' equity (deficit).............. (893,941) 20,158,659
----------- ------------
Commitments and contingencies
Total liabilities and stockholders' equity
(deficit)....................................... $ 933,361 $ 23,521,418
=========== ============

See accompanying notes to financial statements.

F-3
85

CHAPARRAL NETWORK STORAGE, INC.

STATEMENTS OF OPERATIONS

PERIOD FROM
INCEPTION
(JANUARY 22,
1998) TO YEAR ENDED MARCH 31,
MARCH 31, -------------------------
1998 1999 2000
------------ ----------- -----------

Revenue................................................ $ -- $ 236,855 $ 8,842,000
Cost of sales, excluding fair value of warrants........ -- 155,872 4,257,366
Cost associated with warrants issued for supply
agreement............................................ -- -- 333,000
-------- ----------- -----------
Gross profit................................. -- 80,983 4,251,634
Operating expenses:
Research and development, excluding $835,807 of stock
option compensation for the year ended March 31,
2000.............................................. -- 1,723,904 4,597,581
Sales and marketing, excluding $72,967 of stock
option compensation for the year ended March 31,
2000.............................................. -- 453,291 3,132,534
General and administrative, excluding $755,541 of
stock option compensation for the year ended March
31, 2000.......................................... 35,107 1,526,856 2,799,271
Stock option compensation............................ -- -- 1,664,315
-------- ----------- -----------
Loss from operations......................... (35,107) (3,623,068) (7,942,067)
Interest expense....................................... -- (72,236) (397,020)
Interest income........................................ -- -- 370,109
-------- ----------- -----------
Net loss..................................... $(35,107) $(3,695,304) $(7,968,978)
======== =========== ===========
Net loss per share -- basic and diluted................ $ -- $ (1.40) $ (0.68)
======== =========== ===========
Weighted average number of common shares outstanding --
basic and diluted.................................... -- 2,640,123 11,700,581
======== =========== ===========

See accompanying notes to financial statements.

F-4
86

CHAPARRAL NETWORK STORAGE, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
----------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---------- --------- ---------- --------- ----------

Balances at inception (January 22,
1998)............................. -- $ -- -- $ -- -- $ --
Net loss............................ -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balances at March 31, 1998.......... -- -- -- -- -- --
Issuance of common stock for cash
and notes receivable.............. -- -- -- -- -- --
Issuance of common stock warrants
for services...................... -- -- -- -- -- --
Issuance of common stock for
services.......................... -- -- -- -- -- --
Issuance of Series A preferred stock
for cash, repayment of debt, and
notes receivable, net of issuance
costs of $34,500.................. 15,655,556 2,095,500 -- -- -- --
Issuance of common stock warrants
for issuance costs of preferred
stock............................. -- (9,883) -- -- -- --
Issuance of Series B preferred stock
for assets and repayment of note
payable........................... -- -- 5,540,200 1,000,000 -- --
Net loss............................ -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balances at March 31, 1999.......... 15,655,556 2,085,617 5,540,200 1,000,000 -- --
Issuance of common stock for cash,
and notes receivable less issuance
costs consisting of $507,240 cash,
warrants for 90,158 common shares
and 1,527,857 shares of common
stock............................. -- -- -- -- -- --
Issuance of common stock options and
warrants for services............. -- -- -- -- -- --
Issuance of Series A preferred stock
for cash, less issuance costs of
$42,020........................... 2,943,816 1,119,700 -- -- -- --
Issuance of common stock warrants
for issuance costs of preferred
stock............................. -- (99,584) -- -- -- (35,133)
Issuance of common stock for
services.......................... -- -- -- -- -- --
Issuance of common stock warrants
for interest expense.............. -- -- -- -- -- --
Issuance of common stock warrants
for supply agreement.............. -- -- -- -- -- --
Issuance of Series C preferred stock
for cash, less issuance costs of
$103,559.......................... -- -- -- -- 5,000,000 2,216,441
Collection of notes receivable...... -- -- -- -- -- --
Issuance of common stock for
issuance costs of preferred
stock............................. -- (3,566) -- -- -- (14,538)
Issuance of common stock options at
less than fair value.............. -- -- -- -- -- --
Amortization of unearned stock
option compensation............... -- -- -- -- -- --
Net loss............................ -- -- -- -- -- --
---------- ---------- --------- ---------- --------- ----------
Balances at March 31, 2000.......... 18,599,372 $3,102,167 5,540,200 $1,000,000 5,000,000 $2,166,770
========== ========== ========= ========== ========= ==========

NOTES
RECEIVABLE
COMMON STOCK ADDITIONAL UNEARNED FOR PREFERRED
-------------------- PAID-IN STOCK OPTION AND COMMON ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION STOCK DEFICIT TOTAL
---------- ------- ----------- ------------ ------------- ------------ -----------

Balances at inception (January 22,
1998)............................. -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss............................ -- -- -- -- -- (35,107) (35,107)
---------- ------- ----------- ----------- --------- ------------ -----------
Balances at March 31, 1998.......... -- -- -- -- -- (35,107) (35,107)
Issuance of common stock for cash
and notes receivable.............. 7,945,000 7,945 622,805 -- (614,860) -- 15,890
Issuance of common stock warrants
for services...................... -- -- 14,080 -- -- -- 14,080
Issuance of common stock for
services.......................... 50,000 50 5,950 -- -- -- 6,000
Issuance of Series A preferred stock
for cash, repayment of debt, and
notes receivable, net of issuance
costs of $34,500.................. -- -- -- -- (295,000) -- 1,800,500
Issuance of common stock warrants
for issuance costs of preferred
stock............................. -- -- 9,883 -- -- -- --
Issuance of Series B preferred stock
for assets and repayment of note
payable........................... -- -- -- -- -- -- 1,000,000
Net loss............................ -- -- -- -- -- (3,695,304) (3,695,304
)
---------- ------- ----------- ----------- --------- ------------ -----------
Balances at March 31, 1999.......... 7,995,000 7,995 652,718 -- (909,860) (3,730,411) (893,941)
Issuance of common stock for cash,
and notes receivable less issuance
costs consisting of $507,240 cash,
warrants for 90,158 common shares
and 1,527,857 shares of common
stock............................. 10,435,011 10,435 22,721,993 -- (28,000) -- 22,704,428
Issuance of common stock options and
warrants for services............. -- -- 140,170 -- -- -- 140,170
Issuance of Series A preferred stock
for cash, less issuance costs of
$42,020........................... -- -- -- -- -- -- 1,119,700
Issuance of common stock warrants
for issuance costs of preferred
stock............................. -- -- 134,717 -- -- -- --
Issuance of common stock for
services.......................... 187,208 187 290,532 -- -- -- 290,719
Issuance of common stock warrants
for interest expense.............. -- -- 257,805 -- -- -- 257,805
Issuance of common stock warrants
for supply agreement.............. -- -- 333,000 -- -- -- 333,000
Issuance of Series C preferred stock
for cash, less issuance costs of
$103,559.......................... -- -- -- -- -- -- 2,216,441
Collection of notes receivable...... -- -- -- -- 295,000 -- 295,000
Issuance of common stock for
issuance costs of preferred
stock............................. 150,868 151 17,953 -- -- -- --
Issuance of common stock options at
less than fair value.............. -- -- 2,297,982 (2,297,982) -- -- --
Amortization of unearned stock
option compensation............... -- -- -- 1,664,315 -- -- 1,664,315
Net loss............................ -- -- -- -- -- (7,968,978) (7,968,978)
---------- ------- ----------- ----------- --------- ------------ -----------
Balances at March 31, 2000.......... 18,768,087 $18,768 $26,846,870 $ (633,667) $(642,860) $(11,699,389) $20,158,659
========== ======= =========== =========== ========= ============ ===========

See accompanying notes to financial statements.

F-5
87

CHAPARRAL NETWORK STORAGE, INC.

STATEMENTS OF CASH FLOWS

PERIOD FROM
INCEPTION
(JANUARY 22, YEAR ENDED
1998) TO MARCH 31,
MARCH 31, -------------------------
1998 1999 2000
------------ ----------- -----------

Cash flows from operating activities:
Net loss............................................. $(35,107) $(3,695,304) $(7,968,978)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization..................... 100 69,421 232,272
Common stock and common stock options and warrants
issued for services, interest expense and supply
agreement....................................... -- 20,080 1,021,694
Amortization of unearned stock option
compensation.................................... -- -- 1,664,315
Changes in operating assets and liabilities:
Trade receivables, net............................ -- (103,624) (1,616,390)
Inventory......................................... -- (87,199) (3,566,377)
Prepaid expenses and deferred public offering
costs........................................... -- (45,000) (502,550)
Accounts payable.................................. -- 367,436 1,348,440
Accrued liabilities and compensation.............. -- 509,866 1,137,017
Deferred revenue.................................. -- 50,000 (50,000)
-------- ----------- -----------
Net cash used by operating activities........ (35,007) (2,914,324) (8,300,557)
-------- ----------- -----------
Cash flows from investing activities -- expenditures
for furniture, fixtures and equipment................ (3,588) (89,374) (651,741)
-------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of preferred stock, net of
offering costs.................................... -- 1,565,500 3,336,141
Proceeds from sale of common stock, net of offering
costs............................................. -- 15,890 22,704,428
Collection of notes receivable for preferred stock... -- -- 295,000
Proceeds from notes payable.......................... 60,000 1,685,000 798,508
Repayments of notes payable.......................... -- (60,000) (1,698,508)
-------- ----------- -----------
Net cash provided by financing activities.... 60,000 3,206,390 25,435,569
-------- ----------- -----------
Net increase in cash and cash equivalents.... 21,405 202,692 16,483,271
Cash and cash equivalents at beginning of period....... -- 21,405 224,097
-------- ----------- -----------
Cash and cash equivalents at end of period............. $ 21,405 $ 224,097 $16,707,368
======== =========== ===========
Supplemental disclosures of cash flows
information -- cash paid for interest................ $ -- $ 8,445 $ 123,922
======== =========== ===========
Supplemental disclosures of non-cash investing and
financing activities:
Notes payable converted to preferred stock........... $ -- $ 785,000 $ --
======== =========== ===========
Assets acquired in exchange for preferred stock:
Inventory......................................... $ -- $ 95,823 $ --
Furniture, fixtures and equipment................. $ -- $ 354,177 $ --
======== =========== ===========

See accompanying notes to financial statements.

F-6
88

CHAPARRAL NETWORK STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 1999 AND 2000

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION

Chaparral Network Storage, Inc. (formerly Chaparral Technologies, Inc.)
(Chaparral or the Company) was incorporated on January 22, 1998. The Company
operates in one industry segment, developing and marketing storage networking
solutions for data intensive enterprise applications.

(b) USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ significantly from those estimates.

The Company considers all highly liquid investments with maturities of
three months or less at the date of purchase to be cash equivalents.

Included in cash and cash equivalents at March 31, 2000 are $8,900,000 and
$7,500,000 in commercial paper in two companies with contractual maturities on
or prior to April 25, 2000.

(d) INVENTORY

Inventory is recorded at the lower of standard cost (which approximates
average cost) or market.

(e) FURNITURE, FIXTURES AND EQUIPMENT

Furniture, fixtures and equipment are recorded at cost. Depreciation and
amortization are calculated using the straight-line method over the estimated
useful lives of the assets, which are generally three years.

(f) IMPAIRMENT OF LONG-LIVED ASSETS

The Company accounts for long-lived assets under the provisions of
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS No. 121). SFAS No. 121 requires impairment losses to be recognized on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted future cash flows estimated to be generated by those assets
are less than the assets' carrying amounts. If such assets are considered
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the estimated fair value. Assets to be
disposed of are reported at the lower of the carrying value or fair value, less
costs to sell. No impairment has been recognized.

(g) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of certain of the Company's financial instruments,
including accounts receivable, accrued liabilities and notes receivable for
stock approximate fair value because of their short maturities.

(h) REVENUE RECOGNITION

Revenue from product sales is recognized upon shipment of the product to
customers. Revenue is not recognized for products shipped for customer
evaluation. Costs of products shipped for customer evaluation are expensed at
shipment. Revenue is reduced for estimated customer returns and allowances.
Provision for estimated warranty costs, including estimated costs of support for
embedded software, is recorded at the time of sale based upon expected failure
rates and costs of repair. This provision is periodically adjusted to reflect
actual experience.

F-7
89
CHAPARRAL NETWORK STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(i) RESEARCH AND DEVELOPMENT

Expenditures related to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The Company capitalizes certain software development costs
subsequent to the establishment of technological feasibility. To date, costs
incurred following technological feasibility, but prior to general release, have
been insignificant.

(j) INCOME TAXES

Income taxes are accounted for under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No.
109). Under SFAS No. 109, deferred income taxes are recognized for the future
tax consequences of differences between the tax bases of assets and liabilities
and their financial statement carrying amounts based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. A valuation allowance is recorded to the extent
deferred tax assets may not be realizable.

(k) STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation using the
intrinsic value based method prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations
(APB No. 25). The Company provides pro forma disclosure of net loss as if the
fair value based method of accounting for the plan, as prescribed by Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), had been applied. Pro forma disclosures include the
effects of employee stock options granted. Equity instruments granted to
non-employees are accounted for in accordance with SFAS No. 123.

(l) ADVERTISING COSTS

Advertising costs are expensed as incurred. Advertising costs totaled
approximately $80,000 and $692,000 for the years ended March 31, 1999 and 2000,
respectively.

In addition to its own advertising activities, the Company accrues a
percentage of sales over certain contractual minimums to reimburse distributors
for a portion of their advertising costs. Any unused allowance expires if not
used during the six months following the date of sale. Cooperative advertising
expense for the year ended March 31, 2000 totaled approximately $32,000 and is
included in sales and marketing expense.

(m) LOSS PER SHARE

Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128).
Under SFAS No. 128, basic earnings (loss) per share (EPS) excludes dilution for
potential common stock and is computed by dividing income or loss available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Basic and diluted EPS are the same for all periods presented,
as all potential common stock instruments are antidilutive.

(n) RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform with the
current year presentation.

F-8
90
CHAPARRAL NETWORK STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(2) INVENTORY

The Company generally contracts for the manufacture of inventory. Certain
components are purchased by the Company and supplied to the contract
manufacturers. Inventory consists of the following:

MARCH 31,
---------------------
1999 2000
-------- ----------

Finished goods.............................................. $136,263 $1,356,982
Raw materials............................................... 46,759 2,392,417
-------- ----------
Total............................................. $183,022 $3,749,399
======== ==========

(3) FURNITURE, FIXTURES AND EQUIPMENT

Furniture, fixtures and equipment consist of the following:

MARCH 31,
---------------------
1999 2000
-------- ----------

Equipment................................................... $443,755 $ 809,792
Purchased software.......................................... -- 285,704
Furniture and fixtures...................................... 3,384 3,384
-------- ----------
447,139 1,098,880
Less accumulated depreciation and amortization.............. (69,521) (301,793)
-------- ----------
$377,618 $ 797,087
======== ==========

(4) NOTES PAYABLE

In January 2000, the Company entered into a loan agreement with a bank.
Under the loan agreement, the Company can borrow and reborrow up to the lesser
of $3.0 million or an amount equal to 90% of the Company's U.S. government debt
securities plus 80% of the Company's investment grade commercial paper, with a
maturity of one year or less and held on deposit at the bank. Borrowings bear
interest at the prime rate. Interest is payable monthly, and borrowings must be
repaid on or before August 31, 2000. Under the loan agreement, the Company
agreed to provide certain financial information, maintain at least $4.0 million
in cash plus investment grade marketable securities, maintain a minimum net
worth and minimum ratio of debt to net worth. The Company has also agreed not to
pay dividends on its stock, create liens on its property or assets included in
our borrowing base (i.e. commercial paper) or borrow under other credit
arrangements. The Company has not borrowed under this loan agreement.

(5) STOCKHOLDERS' EQUITY (DEFICIT)

(a) REVERSE STOCK SPLIT

In October 1999, the Company's board of directors authorized a one-for-two
reverse stock split. All share and per share amounts disclosed herein reflect
the effect of this reverse split.

(b) SERIES A PREFERRED STOCK

Series A preferred shares are convertible into 9,686,168 shares of common
stock as of March 31, 2000, subject to adjustment for dilution that may occur
from future equity transactions, and have voting rights on an as-converted
basis. The Series A preferred shares are entitled to receive dividends equal to
$.008 per share on an annual basis when and if declared by the Board of
Directors. In the event of liquidation of the Company, holders of the Series A
preferred shares are entitled to receive an amount equal to $.10 per share, plus
any declared and unpaid dividends. The Series A preferred shares are

F-9
91
CHAPARRAL NETWORK STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

convertible at any time, at the option of the holder, and convert automatically
upon consummation of a public offering of common stock resulting in proceeds to
the Company of not less than $15.0 million and at an offering price per share
equal to at least $2.20.

Series B preferred shares are convertible into 2,928,361 shares of common
stock as of March 31, 2000, subject to adjustment for dilution that may occur
from future equity transactions, and have voting rights on an as-converted
basis. The Series B preferred shares are entitled to receive dividends equal to
$.009 per share on an annual basis when and if declared by the Board of
Directors. In the event of liquidation of the Company, the holder of the Series
B preferred shares is entitled to receive an amount equal to $.18 per share,
plus any declared and unpaid dividends. The Series B preferred shares are
convertible at any time, at the option of the holder, and convert automatically
upon consummation of a public offering of common stock resulting in proceeds to
the Company of not less than $15.0 million and at an offering price per share
equal to at least $2.20.

(d) SERIES C PREFERRED STOCK

Series C preferred shares are convertible into 2,514,324 shares of common
stock as of March 31, 2000, subject to adjustment for dilution that may occur
from future equity transactions, and have voting rights on an as-converted
basis. The Series C preferred shares are entitled to receive dividends equal to
$.0352 per share on an annual basis when and if declared by the Board of
Directors. In the event of liquidation of the Company, holders of the Series C
preferred shares are entitled to receive an amount equal to $.44 per share, plus
any declared and unpaid dividends. The Series C preferred shares are convertible
at any time, at the option of the holder and are subject to mandatory conversion
upon consummation of a public offering of common stock resulting in proceeds to
the Company of not less than $15.0 million and at an offering price per share
equal to at least $2.20.

(e) NOTES RECEIVABLE FOR PREFERRED AND COMMON STOCK

Notes receivable due from stockholders from the sale of Series A preferred
and common stock bear interest at 8% and are due at various dates through 2003.
The notes are shown as a reduction of stockholders' equity.

(f) STOCK OPTIONS

The Company has a stock option plan pursuant to which the Company's Board
of Directors may grant stock options to officers, employees and consultants of
the Company. The stock option plan authorizes grants to purchase up to
14,000,000 shares of authorized but unissued common stock. At March 31, 2000,
2,703,920 shares were available for grant under the stock option plan. Options
vest over periods of up to four years and generally expire ten years from the
date of grant. The weighted average remaining contractual term of outstanding
options was approximately 8.7 years at March 31, 2000.

F-10
92
CHAPARRAL NETWORK STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes activity for options issued to employees and
directors from inception (January 22, 1998) to March 31, 2000:

WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
---------- --------------

Options outstanding at inception (January 22, 1998)......... -- $ --
Granted................................................... 1,400,000 .10
----------
Options outstanding at March 31, 1998....................... 1,400,000 .10
Granted................................................... 5,851,000 .11
Exercised................................................. (5,970,000) .10
Forfeited................................................. (35,000) .12
----------
Options outstanding at March 31, 1999....................... 1,246,000 .11
Granted................................................... 4,783,577 1.76
Exercised................................................. (918,373) .19
Forfeited................................................. (842,664) .26
----------
Options outstanding at March 31, 2000....................... 4,268,540 $1.91
==========

The Company generally grants stock options with exercise prices equal to
fair value at the date of grant, and accordingly, generally does not recognize
compensation expense relating to employee option grants. In November 1999, a
total of 1,222,331 stock options were granted with exercise prices less than
fair value, resulting in total compensation expense to be recognized over the
vesting period of $2,297,982, of which $1,664,315 was recognized during the year
ended March 31, 2000.

During the period from inception (January 22, 1998) to March 31, 1998, and
the years ended March 31, 1999 and 2000, the per share weighted-average fair
value of stock options granted with exercise prices equal to the fair value at
the grant date was $0.05, $0.06 and $0.94, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: no dividends; 75% volatility; risk-free interest rate of 6.5%; and
expected life of four years. If the Company had recorded the options at the
grant date under SFAS No. 123, net loss would have been approximately $37,168,
$3,789,541 and $8,454,063 and the net loss per share would have been
approximately $0, $1.44 and $0.72 for the period from inception (January 22,
1998) to March 31, 1998, and the years ended March 31, 1999 and 2000,
respectively.

The following table summarizes information about stock options issued to
employees and directors that are outstanding at March 31, 2000:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------ ------------------------------
WEIGHTED AVERAGE
EXERCISE NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------- ----------- ---------------- ---------------- ----------- ----------------

$ .10 275,000 8.1 $ .10 141,667 $ .10
.12 1,267,209 8.9 .12 257,136 .12
1.12 1,943,581 9.6 1.12 846,081 1.12
3.19 272,500 9.6 3.19 -- 3.19
5.25 35,000 9.7 5.25 -- 5.25
10.00 475,250 9.9 10.00 -- 10.00
--------- ---------
4,268,540 8.7 1,244,884 0.80
========= =========

F-11
93
CHAPARRAL NETWORK STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Included in options exercisable at March 31, 2000 are 887,500 options which
were exercisable at the date of grant; however, the shares issued upon exercise
will be restricted and subject to repurchase at the exercise price if employees
terminate prior to the vesting of their shares, which is generally over four
years from the grant date of the options. At March 31, 2000, restricted shares
issued for options exercised which are subject to repurchase totaled 1,821,892
shares, with a weighted average repurchase price of $.10. All of the restricted
shares become fully vested upon an initial public offering.

In addition to options issued to employees and directors, the Company
issued 106,667 and 57,500 common stock options to consultants for services
during the years ended March 31, 1999 and 2000, respectively. These options have
exercise prices ranging from $.10 to $1.12 per share, are exercisable at the
date of grant and expire at various dates from November 2008 to November 2009.
The fair value of these options was determined to be $8,180 and $35,330 for the
years ended March 31, 1999 and 2000, respectively, and was recognized as general
and administrative expense. The fair value was calculated using the Black
Scholes option-pricing model with the following assumptions: risk-free interest
rate of 6.5%; contractual lives of ten years; no dividend yield; and 75%
volatility. As of March 31, 2000, 110,000 of these options have been exercised.

(g) WARRANTS

In return for services performed during the year ended March 31, 2000, the
Company granted warrants to purchase 20,000 common shares at $.01 per share.
These warrants are exercisable at any time and expire in December 2003. The fair
value of these warrants was determined to be $104,840 and was recognized as
general and administrative expense. The fair value was calculated using the
Black Scholes option-pricing model with the following assumptions: risk-free
interest rate of 6.5%; contractual life of four years; no dividend yield; and
75% volatility. As of March 31, 2000, all of these warrants have been exercised.

In connection with issuances of Series A preferred stock and Series C
preferred stock, during the years ended March 31, 1999 and 2000, the Company
granted warrants to purchase 158,333 and 433,257 shares of common stock,
respectively, at prices ranging from $.01 to $1.30 per share. These warrants are
exercisable at any time and expire at various dates from December 2002 to
September 2003. The fair value of these warrants was determined to be $9,883 and
$134,717 for the years ended March 31, 1999 and 2000, respectively, and was
separately recorded as warrants for the purchase of common stock and as a
reduction to the Series A and Series C preferred stock. The fair value was
calculated using the Black Scholes option-pricing model with the following
assumptions: risk-free interest rate of 6.5%; contractual lives of four years;
no dividend yield; and 75% volatility. As of March 31, 2000, all of these
warrants have been exercised.

In connection with issuances of notes payable, during the year ended March
31, 2000, the Company granted warrants to purchase 137,500 shares of common
stock at prices ranging from $.25 to $1.00 per share, 20,000 of which were
issued to officers of the Company with exercise prices of $0.25. The fair value
of these warrants was determined to be $257,805 and was recognized as interest
expense. These warrants are exercisable at any time and expire at various dates
through August 2003. The fair value was calculated using the Black Scholes
option-pricing model with the following assumptions: risk-free interest rate of
6.5%; contractual lives of four years; no dividend yield; and 75% volatility. As
of March 31, 2000, all of these warrants have been exercised.

In connection with issuances of common stock, during the year ended March
31, 2000, the Company granted warrants to purchase 90,158 shares of common stock
at prices ranging from $.01 to $3.00 per share. These warrants are exercisable
at any time and expire in November 2003. The fair value of these warrants was
determined to be $269,925 and was recorded as additional paid in capital. The
fair value was calculated using the Black Scholes option-pricing model with the
following assumptions: risk-free interest

F-12
94
CHAPARRAL NETWORK STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

rate of 6.5%; contractual lives of four years; no dividend yield; and 75%
volatility. As of March 31, 2000, all of these warrants have been exercised.

In connection with the consummation of an integrated circuit supply
agreement in March 2000, the Company granted a warrant to a significant
stockholder to purchase 300,000 shares of common stock at $20.00 per share. This
warrant is exercisable from December 1, 2000 to May 31, 2001. The fair value of
this warrant was determined to be $333,000 and was included in cost of sales at
the date of grant. The fair value was calculated using the Black Scholes
option-pricing model with the following assumptions: risk-free interest rate of
6.5%; contractual life of 15 months; no dividend yield; and 75% volatility.

(6) INCOME TAXES

Income tax benefit relating to losses for the period from inception
(January 22, 1998) to March 31, 1998, and the years ended March 31, 1999 and
2000 differs from the amounts that would result from applying the federal
statutory rate of 15% in 1998 and 34% thereafter as follows:

PERIOD
FROM INCEPTION
(JANUARY 22, 1998) YEARS ENDED MARCH 31,
TO MARCH 31, --------------------------
1998 1999 2000
------------------ ----------- ------------

Expected tax benefit...................... $(5,266) $(1,256,403) $(2,709,453)
State income taxes, net of federal
benefit................................. (1,492) (115,278) (422,762)
Nondeductible interest expense............ -- -- 87,654
Change in valuation allowance for deferred
tax assets.............................. 6,758 1,350,380 3,037,632
Other, net................................ -- 21,301 6,929
------- ----------- -----------
Actual income tax benefit....... $ -- $ -- $ --
======= =========== ===========

Temporary differences that give rise to deferred tax assets are as follows:

MARCH 31,
-------------------------
1999 2000
----------- -----------

Net operating loss carryforwards........................... $ 1,285,338 3,279,244
Stock option compensation.................................. -- 644,922
Accrued expenses........................................... 71,800 96,229
Other, net................................................. -- 374,375
----------- -----------
Gross deferred tax asset......................... 1,357,138 4,394,770
Valuation allowance........................................ (1,357,138) (4,394,770)
----------- -----------
Net deferred tax asset........................... $ -- --
=========== ===========

The Company has net operating loss carryforwards for federal income tax
purposes of approximately $3.0 million and $8.5 million at March 31, 1999 and
2000, respectively, which is available to offset future federal taxable income,
if any, through 2020. Management believes the utilization of the carryforwards
may be limited by Internal Revenue Code Section 382 relating to changes in
ownership, as defined.

Due to the uncertainty regarding the realization of the deferred tax assets
relating to net operating loss carryforwards and other temporary differences, a
valuation allowance has been recorded for the entire amount of the Company's
deferred tax assets.

F-13
95
CHAPARRAL NETWORK STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(7) COMMITMENTS AND CONTINGENCIES

(a) PURCHASE COMMITMENTS

The Company generally enters into firm purchase commitments with suppliers
and third party manufacturers for its estimated inventory requirements for the
succeeding three months. For certain components which require longer lead times,
the Company may enter into firm purchase commitments for estimated usage of up
to six months.

(b) LEASE COMMITMENTS

The Company leases office space under noncancelable operating leases
expiring through 2007. Future minimum lease payments under noncancelable
operating leases with remaining noncancelable lease terms in excess of one year
are as follows:

YEAR ENDED MARCH 31,
--------------------

2001...................................................... $ 698,000
2002...................................................... 844,000
2003...................................................... 844,000
2004...................................................... 844,000
2005...................................................... 844,000
Thereafter................................................ 1,968,000
----------
$6,042,000
==========

Rent expense totaled $207,000 and $408,000 for the years ended March 31,
1999 and 2000, respectively.

In December 1998, the Company established a 401(k) plan that allows
eligible employees to contribute up to 15% of their compensation up to the
maximum amount set forth in the Internal Revenue Code. The Company matches 25%
of employee contributions. The Company's contributions were $6,914 and $55,317
for the years ended March 31, 1999 and 2000, respectively.

(d) LITIGATION

From time to time, the Company has been subject to litigation and claims in
the ordinary course of business. In March 2000, a suit was filed against the
Company alleging the Company's products infringe on another company's patent.
While it is not possible to determine the financial outcome of these matters,
management does not believe they will result in a materially adverse effect on
the Company's financial position, results of operations or liquidity.

F-14
96
CHAPARRAL NETWORK STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(8) SIGNIFICANT CUSTOMERS AND SUPPLIER INFORMATION

Revenue attributable to significant customers (as a percentage of total
revenue) was as follows:

YEARS ENDED
MARCH 31,
------------
1999 2000
---- -----

Customer A.................................................. 47% 17%
Customer B.................................................. -- 22%
Customer C.................................................. 2% 16%
Customer D.................................................. 20% 11%
Customer E.................................................. 24% 1%
Customer F.................................................. -- 13%

Receivables from these customers amounted to 46% of total receivables at
March 31, 2000.

The Company had foreign export sales, primarily to European customers,
amounting to 44% and 22% of total sales for the years ended March 31, 1999 and
2000, respectively.

The Company obtains key components from two suppliers. A loss of either
source of supply would have a significant impact on the Company's ability to
provide products to customers.

(9) RELATED PARTY TRANSACTIONS

The Company has month to month operating leases and purchases inventory
components from a significant stockholder. Total rent expense recognized under
the operating leases for the years ended March 31, 1999 and 2000 was $197,000
and $378,000, respectively. Total purchases of inventory components for the
years ended March 31, 1999 and 2000 was $180,000 and $3,192,000, respectively.

During the period from inception (January 22, 1998) to March 31, 1998, the
Company made loans to each of the Company's officers, in connection with the
purchase by each of them of shares of the Company's common stock upon early
exercise of options. Each note is evidenced by a promissory note, with recourse
to the officer, and accrues interest at the rate of 6% per year, compounded
annually and is repayable upon the earliest of the resale of the shares of the
common stock, a change in control of the Company, 90 days following the
individual's termination of employment or November 25, 2008. Total loans
outstanding to officers at March 31, 1999 and 2000 was $359,800.

During the period from inception (January 22, 1998) to March 31, 1998, the
Company received loans from an officer of $29,350, including accrued interest.
These loans were unsecured, accrued interest at 10.5% and were paid in full by
March 31, 1998.

During the year ended March 31, 1999, the Company received loans from an
officer of $87,500. These loans were evidenced by promissory notes, were
unsecured, accrued interest at 10.5% and were converted into 875,000 shares of
Series A preferred stock on November 24, 1998. Also during the year ended March
31, 1999, the Company received loans from officers of $50,000. These loans were
unsecured, accrued interest at 8% and had stated fees of 10% payable in cash or
warrants due upon repayment. The loans were repaid during the year ended March
31, 2000 and warrants to purchase 20,000 shares of common stock at $0.25 per
share were granted for interest expense.

F-15
97
CHAPARRAL NETWORK STORAGE, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(10) VALUATION AND QUALIFYING ACCOUNTS

The following presents information related to the Company's valuation and
qualifying accounts:

BALANCES AT ADDITIONS BAD DEBT, BALANCES AT
MARCH 31, CHARGED TO WRITE-OFFS AND MARCH 31,
1999 OPERATIONS(1) RETURNS(1) 2000
----------- ------------- -------------- ------------

Allowance for doubtful accounts.............. $-- $ 75,000 $ -- $ 75,000
Inventory obsolescence reserve............... $-- $100,000 $ -- $100,000
Warranty reserve............................. $-- $107,590 $(32,590) $ 75,000
Sales returns and allowances................. $-- $ 62,530 $(12,530) $ 50,000

- ---------------

(1) Includes provisions for stock rotation rights and other sales returns, and
actual returns which were charged against revenue.

F-16
98

[INSIDE BACK COVER FOR GRAPHICS]
99

[BACK COVER]

[CHAPARRAL NETWORK STORAGE LOGO]
100

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
the common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.

AMOUNT TO BE PAID
-----------------

SEC registration fee........................................ $ 15,840
NASD filing fee............................................. $ 15,000
Nasdaq National Market listing fee.......................... $ 94,000
Legal fees and expenses..................................... $ 400,000
Accounting fees and expenses................................ $ 200,000
Printing and engraving...................................... $ 200,000
Blue sky fees and expenses (including legal fees)........... $ 7,000
Transfer agent fees......................................... $ 3,500
Miscellaneous............................................... $ 164,660
----------
Total............................................. $1,100,000
==========

- ---------------

* To be supplied by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

In accordance with the Delaware General Corporation Law, as amended (the
"DGCL"), the Registrant's certificate of incorporation, as amended, eliminates
in certain circumstances the liability of our directors for monetary damages for
breach of their fiduciary duty as directors. This provision does not eliminate
the liability of a director for: (i) a breach of the director's duty of loyalty
to the Registrant or its shareholders, (ii) acts or omissions by the director
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) a willful or negligent declaration of an unlawful distribution or
(iv) transactions from which the director derived an improper personal benefit.

The Registrant's certificate of incorporation also provides that we shall
indemnify any person and his or her estate and personal representatives against
all liability and expenses incurred by reason of the person being or having been
a director or officer of the Registrant or, while serving as a director or
officer of the Registrant, serving at the request of it or any of its
subsidiaries as a director, an officer, an agent, an associate, an employee, a
fiduciary, a manager, a member, a partner, a promoter, or a trustee of, or to
hold any similar position with, another domestic or foreign corporation or other
entity or of an employee benefit plan, to the full extent permitted under the
DGCL. The DGCL requires a corporation to indemnify its officers and directors
against reasonable expenses incurred in any proceeding to which the officer or
director is a party and was wholly successful, on the merits or otherwise, in
defense of the proceeding. In addition to this mandatory indemnification, the
DGCL provides that a corporation may indemnify its officers and directors
against liability and reasonable expenses if the officer or director acted in
good faith and in a manner reasonably believed to be in the best interests of
the corporation in the case of conduct in an official capacity, in a manner he
or she reasonably believed was at least not opposed to the corporation's best
interests in all other cases, or in a manner he or she had no reasonable cause
to believe was unlawful in the case of criminal proceedings. In actions by or in
the name of the corporation, the DGCL provides the same standard but limits
indemnification to reasonable expenses incurred by the director and prohibits
any indemnification if the director is adjudged liable to the corporation. The
DGCL also prohibits indemnification of a director in connection with actions
charging improper personal benefit to the director if the director is adjudged
liable on that basis.

II-1
101

DIRECTOR AND OFFICER LIABILITY INSURANCE

Our director and officer insurance policy indemnifies us and/or our
directors and officers for judgments and expenses arising in connection with any
claim made during the policy period for director and officer misconduct other
than dishonest or criminal acts, acts made for the director or officers's
personal profit or gain, fraudulent acts, or acts that are in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The policy reimburses us when we are obligated to indemnify our directors
and officers for judgments and expenses arising from covered misconduct. The
policy reimburses the directors and officers for judgments and expenses arising
out of claims for which indemnification from us is either not available or not
permitted by law. The policy excludes coverage for claims brought by one insured
(director, officer, or the company) against another insured.

The limit under our policy is $ and the premium is $ per
month. The deductible varies depending on whether the claim involves an
individual director or officer or the company, and on whether the claim is
related to a violation of the Exchange Act or the Securities Act of 1933, as
amended (the "Securities Act"). If the claim involves indemnifying an individual
director or officer and is not Securities related, then the deductible is $0. If
the claim involves indemnifying the company and is not Securities related, then
the deductible is $ . The deductible for any Securities related claim
is $ .

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The Registrant has issued the following securities since its inception in
January 1998:

Since its inception in January 1998, the Registrant has issued and sold
unregistered securities in the transactions described below. The sale and
issuance of stock, warrants and options were exempt from registration under Rule
506 and Rule 701 under the Securities Act. All such sales made in reliance on
the exemption from registration provided by Rule 506 under the Securities Act
were made to investors who represented that they were accredited investors, that
they intended to acquire the securities for investment only and not with a view
to distribution, and that they had received or had access to adequate
information about the Company. The following share and dollar amounts are
adjusted to reflect the Company's 1-for-2 reverse stock split effective as of
October 15, 1999.

Shares of Common Stock

(1) On June 16, 1998, the Registrant issued 1,875,000 to its founders
pursuant to Rule 506 under the Securities Act at an aggregate purchase price of
$3,750.

(2) On November 25, 1998, each of the founders named above agreed to
rescind their shares in exchange for a promissory note from the Registrant in an
amount equal to the purchase price of the founder shares. The promissory note
was then contributed by each founder to the Registrant in exchange for the
issuance of an aggregate of 1,875,000 shares of common stock to the founders
pursuant to a Contribution Agreement, dated November 25, 1998. The Registrant
issued these shares pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $3,750.

(3) On February 17, 1999, the Registrant issued 50,000 shares as payment
for services valued at $6,000 to a director who is an accredited investor
pursuant to Rule 506 under the Securities Act.

(4) From July through December 1999, the Registrant issued 44,952 shares to
certain consultants pursuant to Rule 701 under the Securities Act in lieu of
consulting fees in the amount of $36,334.

(5) In August 1999, the Registrant issued 453,846 shares to an accredited
investor pursuant to Rule 506 under the Securities Act. The aggregate purchase
price was $500,000.

(6) From October 31 through December 31, 1999, the Registrant issued
170,112 shares to accredited investors pursuant to Rule 506 under the Securities
Act for an aggregate purchase price of $302,185. These shares were issued in
lieu of payment of various consultants' fees, commissions in connection with
II-2
102

the sale of the Registrant's securities and 5 months rent for the Registrant's
new principal executive offices.

(7) In September and December 1999, the Registrant issued 1,650,868 shares
to two accredited investors as commissions in connection with the private
placement of securities pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $1,452,764.

(8) In November 1999, the Registrant issued 1,820,669 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $6,242,002.

(9) From November 30, 1999 through February 14, 2000, the Registrant issued
3,663,519 shares to stockholders pursuant to Rule 506 under the Securities Act
in connection with their exercise of preemptive rights at an aggregate purchase
price of $10,743,887.

(10) In December 1999 and January 2000, the Registrant issued 1,201,500
shares to accredited investors pursuant to Rule 506 under the Securities Act at
an aggregate purchase price of $5,033,125.

(11) In March 2000, the Registrant issued 104,741 shares to accredited
investors pursuant to Rule 506 under the Securities Act in connection with their
exercise of warrants at an aggregate purchase price of $6,835.

(12) Through April 18, 2000, the Registrant has issued and sold 6,998,373
shares to directors, employees and consultants upon the exercise of options
granted under its 1998 stock option plan at exercise prices ranging from $0.10
to $1.12.

Shares of Series A Preferred Stock

(1) On November 24 through November 27, 1998, the Registrant issued
11,600,000 shares to certain accredited investors pursuant to Rule 506 under the
Securities Act at an aggregate purchase price of $1,160,000.

(2) On December 11, 1998, the Registrant issued 833,333 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $150,000.

(3) On December 15, 1998, the Registrant issued 666,667 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $120,000.

(4) On January 13, 1999, the Registrant issued 800,000 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $200,000.

(5) In February 1999, the Registrant issued 1,200,000 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $300,000.

(6) On March 31, 1999, the Registrant issued 555,556 shares to an
accredited investor pursuant to Rule 506 under the Securities Act at an
aggregate purchase price of $200,000.

(7) In April 1999, the Registrant issued 790,316 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $300,320.

(8) In May 1999, the Registrant issued 736,000 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $294,400.

(9) In June 1999, the Registrant issued 1,417,500 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $567,000.

Shares of Series B Preferred Stock

On November 25, 1998, the Registrant issued 5,540,200 shares to an
accredited investor pursuant to Rule 506 under the Securities Act in exchange
for assets and forgiveness of debt valued at $1,000,000.

II-3
103

Shares of Series C Preferred Stock

On October 15, 1999, the Registrant issued 5,000,000 shares to accredited
investors pursuant to Rule 506 under the Securities Act at an aggregate purchase
price of $2,320,000.

Warrants to Purchase Common Stock

(1) On December 15, 1998, the Registrant granted a warrant to purchase
55,555 shares at an exercise price of $0.02 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on December
15, 1999.

(2) On February 8, 1999, the Registrant granted a warrant to purchase
75,000 shares at an exercise price of $0.50 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on January
13, 2000.

(3) On March 31, 1999, the Registrant granted a warrant to purchase 27,778
shares at an exercise price of $0.72 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.

(4) On April 1, 1999, the Registrant granted a warrant to purchase 52,500
shares at an exercise price of $1.00 per share to an accredited investor as fees
in connection with loans made by him to the Registrant. This warrant was
exercised on January 25, 2000.

(5) On April 28, 1999, the Registrant granted a warrant to purchase 26,316
shares at an exercise price of $0.76 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.

(6) On May 28, 1999, the Registrant granted a warrant to purchase 52,125
shares at an exercise price of $0.80 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.

(7) On July 7, 1999, the Registrant granted a warrant to purchase 88,182
shares at an exercise price of $0.88 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.

(8) On July 20, 1999, the Registrant granted a warrant to purchase 95,000
shares at an exercise price of $1.00 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.

(9) On August 9, 1999, the Registrant granted a warrant to purchase 30,000
shares at an exercise price of $1.00 per share pursuant to Rule 506 under the
Securities Act to an accredited investor as payment of commissions in connection
with the sale of securities. This warrant was exercised on January 13, 2000.

(10) On August 12, 1999, the Registrant granted a warrant to purchase
15,384 shares at an exercise price of $1.30 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on January
13, 2000.

(11) On August 13, 1999, the Registrant granted a warrant to purchase
12,500 shares at an exercise price of $1.00 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as fees in connection with loans
made by him to the Registrant. This warrant was exercised on January 25, 2000.

II-4
104

(12) On August 19, 1999, the Registrant granted a warrant to purchase
10,000 shares at an exercise price of $0.25 per share pursuant to Rule 506 under
the Securities Act to each of two executive officers who are accredited
investors as fees in connection with loans made by them to the Registrant.

(13) On September 8, 1999, the Registrant granted a warrant to purchase
1,250 shares at an exercise price of $0.80 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities.

(14) On September 13, 1999, the Registrant granted a warrant to purchase
125,000 shares at an exercise price of $0.02 per share pursuant to Rule 506
under the Securities Act to a consultant as payment of commissions in connection
with the sale of securities. This warrant was exercised on September 21, 1999.

(15) On November 4, 1999, the Registrant granted a warrant to purchase
26,667 shares at an exercise price of $3.00 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities. This warrant was exercised on January
13, 2000.

(16) On November 8, 1999, the Registrant granted a warrant to purchase
63,491 shares at an exercise price of $0.01 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment of commissions in
connection with the sale of securities.

(17) On December 13, 1999, the Registrant granted a warrant to purchase
52,500 shares at an exercise price of $1.00 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as fees in connection with loans
made by him to the Registrant. This warrant was exercised on January 25, 2000.

(18) On December 13, 1999, the Registrant granted a warrant to purchase
20,000 shares at an exercise price of $0.01 per share pursuant to Rule 506 under
the Securities Act to an accredited investor as payment for consulting services.

(19) On March 1, 2000, the Registrant granted a warrant to purchase 300,000
shares at an exercise price of $20.00 pursuant to Rule 506 under the Securities
Act to an accredited investor in connection with an agreement pursuant to which
the Registrant will purchase ASICs from the investor.

Options to Purchase Common Stock

The Registrant from time to time has granted stock options to employees,
consultants and directors. The following table sets forth certain information
regarding such grants:

NUMBER RANGE OF
OF SHARES EXERCISE PRICES($)
--------- ------------------

1998.............................................. 1,400,000 0.10
1999.............................................. 5,957,667 0.10-0.12
2000.............................................. 4,841,077 0.12-10.00

The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering; (ii)
Regulation D promulgated under the Securities Act as limited offers and sales of
securities, or (iii) Rule 701 promulgated under the Securities Act. All
purchasers of the above securities acquired said shares for investment purposes
only and all stock certificates reflect the appropriate legends. No underwriters
were involved in connection with the sales of securities referred to in this
Item 15.

II-5
105

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

NUMBER DESCRIPTION
------ -----------

1.1 -- Form of Underwriting Agreement.*
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 -- Form of Amended and Restated Certificate of Incorporation
to be Filed Immediately Prior to the Offering.
3.3 -- Bylaws of the Registrant.**
3.4 -- Form of Bylaws to be In Effect Immediately Prior to the
Offering.
4.1 -- Specimen Common Stock Certificate.
5.1 -- Opinion of Davis, Graham & Stubbs LLP.**
10.1 -- 1998 Stock Option Plan.
10.2 -- Form of 2000 Stock Incentive Plan to be Adopted
Immediately Prior to the Offering.
10.3 -- Form of 2000 Employee Stock Purchase Plan to be Adopted
Immediately Prior to the Offering.
10.4 -- Form of Executive Employment and Non-Compete Agreement,
between the Registrant and Gary L. Allison, Michael J.
Gluck and Jerry L. Walker.
10.5 -- Form of Indemnification Agreement, between the Registrant
and each of its executive officers and directors.
10.6 -- Investors' Rights Agreement, dated as of November 25,
1998, between the Registrant and holders of its Preferred
Stock.**
10.7 -- First Amended Investors' Rights Agreement, dated as of
March 31, 1999, between the Registrant and holders of its
preferred stock.**
10.8 -- Second Amended Investors' Rights Agreement, dated as of
August 13, 1999, between the Registrant and holders of
its preferred stock.**
10.9 -- Third Amended Investors' Rights Agreement, dated as of
October 16, 1999, between the Registrant and holders of
its preferred stock.**
10.10 -- Fourth Amended Investors' Rights Agreement, dated as of
March 1, 2000, between the Registrant and holders of its
preferred stock.**
10.11 -- Credit and Security Agreement, dated as of July 5, 1999,
between the Registrant and Wells Fargo Business Credit,
Inc.**
10.12 -- Collateral Account Agreement, dated as of July 5, 1999,
between the Registrant and Wells Fargo Business Credit,
Inc. and Norwest Bank Colorado, N.A.**
10.13 -- Support Agreement, dated as of July 5, 1999, between
Douglas J. Lehrmann and the Registrant for the benefit of
Wells Fargo Business Credit, Inc.**
10.14 -- Support Agreement, dated as of July 5, 1999, between Gary
L. Allison and the Registrant for the benefit of Wells
Fargo Business Credit, Inc.**
10.15 -- Subordination Agreement, dated as of July 5, 1999,
between William R. Childs and Wells Fargo Business
Credit, Inc.**
10.16 -- Loan Agreement, dated as of January 14, 2000, between the
Registrant and Norwest Bank Colorado N.A. -- Boulder.**
10.17 -- Occupancy License Agreement, effective as of October 1,
1998, between the Registrant and Adaptec, Inc., as
amended by First Amendment to Occupancy License
Agreement, effective as of July 15, 1999.**

II-6
106

NUMBER DESCRIPTION
------ -----------

10.18 -- Lease, dated as of September 1, 1999, between the
Registrant and BTC Development, LLC, as amended by
Addendum to Lease Agreement dated November 15, 1999, and
Second Addendum to Lease Agreement dated April 11, 2000.
10.19 -- Asset Transfer Agreement, dated as of November 25, 1998,
between the Registrant and Adaptec, Inc.**
10.20 -- Contribution Agreement, dated as of November 25, 1998,
between the Registrant, Adaptec, Inc. and certain listed
individuals.**
10.21 -- Technology Cross License Agreement, dated as of November
25, 1998, between the Registrant and Adaptec, Inc.+
10.22 -- Board Manufacturing and Transition Agreement, dated as of
November 25, 1998, between the Registrant and Adaptec,
Inc.**
10.23 -- Integrated Circuit Agreement, dated March 1, 2000,
between the Registrant and Adaptec, Inc.+
10.24 -- Hardware Agreement, dated June 18, 1999, between the
Registrant and nStor Corporation.+
10.25 -- Distribution Agreement, dated March 10, 1999, between the
Registrant and Gates/Arrow Distributing, Inc.**
10.26 -- Financial Consultant Agreement, dated January 12, 1999,
between the Registrant and Sentinel Consulting, LLC.**
10.27 -- Forms of Founder Stock Purchase Agreement, dated June 16,
1998 and November 25, 1998, between the Registrant and
its founders.**
10.28 -- Forms of Series A Preferred Stock Purchase Agreement,
dated various dates between November 24, 1998 and June
15, 1999, between the Registrant and purchasers of its
Series A preferred stock.**
10.29 -- Forms of Series C Preferred Stock Purchase Agreement,
dated October 15, 1999, between the Registrant and
purchasers of its Series C preferred stock.**
10.30 -- Form of Common Stock Purchase Agreement, dated various
dates from July 15, 1999 through February 14, 2000,
between the Registrant and purchasers of its common
stock.**
10.31 -- Promissory Notes, dated various dates between January
1998 and August 1999, between the Registrant and each of
Grant Saviers, Woodcarvers Limited, LLC, Douglas
Lehrmann, Harvest Storage Technology Group LLC, Gary
Allison, William Childs, Michael Gluck, Brian Allison,
Jerry Walker, and Chaparral Systems, Inc.**
10.32 -- Warrant Agreements, dated various dates between December
1998 and March 2000, between the Registrant and each of
Gary Allison, William Childs, Michael Gluck, Harvest
Storage Technology Group LLC, Adaptec, Inc., and Sentinel
Consulting, LLC.**
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of Davis, Graham & Stubbs, LLP (contained in
Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature page).
27 -- Financial Data Schedule.

- ---------------

* To be filed by amendment.

** Previously filed with the Registration Statement on Form S-1 filed with the
Commission on March 8, 2000 (Registration No. 333-31990).

+ Portions of the agreement have been omitted pursuant to a confidential
treatment request.

II-7
107

ITEM 17. UNDERTAKINGS.

The Registrant hereby undertakes:

The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

- For purposes of determining any liability under the Securities, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

- For the purpose of determining any liability under the Securities, each
post effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.

II-8
108

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to registration statement to be signed
on its behalf by the undersigned, thereunto authorized, in the City of Longmont
and the State of Colorado on the 26th day of April, 2000.

CHAPARRAL NETWORK STORAGE, INC.,
a Delaware corporation

By: /s/ GARY L. ALLISON
----------------------------------
Gary L. Allison
Chairman of the Board and Chief
Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary L. Allison, Michael J. Gluck, Jerry L.
Walker and Douglas J. Lehrmann, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits and
schedules thereto, including any subsequent registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, together
with all schedules and exhibits thereto and other certificates, instruments,
agreements and other documents as may be necessary or appropriate in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ GARY L. ALLISON Chairman of the Board and Chief April 26,
- ----------------------------------------------------- Executive Officer (Principal 2000
Gary L. Allison Executive Officer)

/s/ MICHAEL J. GLUCK President, Chief Operating April 26,
- ----------------------------------------------------- Officer and Director 2000
Michael J. Gluck

/s/ JERRY L. WALKER Executive Vice President for April 26,
- ----------------------------------------------------- Engineering and Operations 2000
Jerry L. Walker and Director

/s/ DOUGLAS J. LEHRMANN Vice President, Finance and April 26,
- ----------------------------------------------------- Chief Financial Officer 2000
Douglas J. Lehrmann (Chief Financial and
Accounting Officer)

/s/ F. GRANT SAVIERS Director April 26,
- ----------------------------------------------------- 2000
F. Grant Saviers

/s/ HARRIS RAVINE Director April 26,
- ----------------------------------------------------- 2000
Harris Ravine

II-9
109

EXHIBIT INDEX

CHAPARRAL NETWORK STORAGE, INC.
FORM S-1 REGISTRATION STATEMENT

NUMBER DESCRIPTION
------ -----------

110

NUMBER DESCRIPTION
------ -----------

- ---------------

* To be filed by amendment.

** Previously filed with the Registration Statement on Form S-1 filed with the
Commission on March 8, 2000 (Registration No. 333-31990).

+ Portions of the agreement have been omitted pursuant to a confidential
treatment request.