SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

Equallogic Inc – IPO: ‘S-1/A’ on 9/28/07

On:  Friday, 9/28/07, at 5:31pm ET   ·   As of:  10/1/07   ·   Accession #:  1047469-7-7332   ·   File #:  333-145297

Previous ‘S-1’:  ‘S-1’ on 8/9/07   ·   Next & Latest:  ‘S-1/A’ on 10/24/07

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

10/01/07  Equallogic Inc                    S-1/A       9/28/07    7:1.5M                                   Merrill Corp/New/FA

Document/Exhibit                   Description                      Pages   Size 

 1: S-1/A       Pre-Effective Amendment to Registration Statement   HTML   1.22M 
                          (General Form)                                         
 2: EX-10.16    Material Contract                                   HTML     46K 
 3: EX-10.18    Material Contract                                   HTML     90K 
 4: EX-10.19    Material Contract                                   HTML     13K 
 5: EX-10.20    Material Contract                                   HTML     81K 
 6: EX-23.1     Consent of Experts or Counsel                       HTML      8K 
 7: EX-23.3     Consent of Experts or Counsel                       HTML      8K 

As filed with the Securities and Exchange Commission on September 28, 2007

Registration No. 333-145297

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 1
to
Form S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

EQUALLOGIC, INC.
(Exact Name of Registrant as Specified in Its Charter)

Donald P. Bulens
President and Chief Executive Officer
110 Spit Brook Road
Building ZKO2
Nashua, NH 03062
(603) 249-7700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

            If any of the securities being registered on this form are offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act") please check the following box.    o

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

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

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

            The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until 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 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated September 28, 2007

                  Shares

Common Stock

          This is an initial public offering of shares of common stock of EqualLogic, Inc.

          EqualLogic is offering             of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional              shares. EqualLogic will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

          Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $          and $         . We have applied to have our common stock listed on the Nasdaq Global Market under the symbol "EQLX."

          See "Risk Factors" beginning on page 7 to read about factors you should consider before buying shares of our common stock.

          Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

          To the extent that the underwriters sell more than                          shares of our common stock, the underwriters have the option to purchase up to an additional                          shares from EqualLogic and the selling stockholders at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on             , 2007.

Prospectus dated                          , 2007.

PROSPECTUS SUMMARY

          This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information appearing in this prospectus, including our consolidated financial statements and related notes, and the risk factors beginning on page 7, before deciding whether to purchase shares of our common stock. Unless the context otherwise requires, we use the terms "EqualLogic," "our company," "we," "us" and "our" in this prospectus to refer to EqualLogic, Inc. and its subsidiaries.

EqualLogic

Overview

          EqualLogic is a leading provider of high-performance storage products that simplify the way enterprises retain, access, manage and protect their data. Our products are designed specifically for mid-sized enterprises that have complex storage needs but cannot justify the high procurement and ongoing management costs of other storage area network, or SAN, alternatives. Our products are offered in an integrated, all-inclusive package that combines resilient disk storage with a comprehensive suite of intelligent storage management software.

          Our product architecture employs innovative, proprietary virtualization software that severs the traditional tie between stored data and disk drive hardware. This virtualization software masks the complexity of the underlying storage configuration and enables our storage arrays to cooperate with one another to automatically share resources and balance workloads. Our products are based on the iSCSI network protocol, which utilizes widely-deployed Internet Protocol, or IP, networks. As a result, our customers can cost-effectively install, expand and modify their data storage resources.

          IDC, a leading technology research firm, estimates that we have the third largest market share in the iSCSI SAN market. According to Gartner, a leading technology research and advisory company, we had the second largest revenue share of the iSCSI SAN market in 2006.

          We sell our products exclusively through our network of channel partners, more than 470 of which sold our products and services during the twelve months ended June 30, 2007. Since our inception, we have sold our products to more than 2,700 customers in 30 countries across a broad range of industries. Our revenue was $10.4 million, $30.0 million and $68.1 million during the years ended December 31, 2004, 2005 and 2006, respectively, with corresponding net losses of $12.1 million, $9.4 million and $0.5 million, respectively. During the six months ended June 30, 2007, we had revenue of $53.2 million and a net loss of $1.5 million.

Industry Background

          Significant business and technological trends are rapidly increasing the demands on enterprise storage systems. These trends include rapid data growth, server virtualization and the critical need for data protection and disaster recovery. Mid-sized enterprises require flexible and secure storage systems capable of optimizing performance and functionality even as their stored data increases. At the same time, enterprises must accomplish these goals with lower capital, operating and management costs.

          Enterprises are increasingly deploying SANs to address their storage challenges. According to IDC, new storage capacity deployed on SANs will increase at a compound annual growth rate of 67.4% between 2006 and 2011. Given the lower cost, wide availability and ease of use of IP networking, SANs are being deployed on IP networks at a more rapid rate than on traditional Fibre Channel networks. According to IDC, from 2006 to 2011, new storage capacity deployed on iSCSI SANs is expected to grow at a compound annual growth rate of 143.2% compared to 44.2% for Fibre Channel SANs.

1

          Our competitors typically offer mid-sized enterprises stripped-down versions of their high-end SAN products, which are complex to deploy and manage. These competitors also have business models that require their customers to purchase additional software and professional services to achieve essential functionality. As a result, a substantial unmet need has developed among mid-sized enterprises for cost-effective storage systems that provide seamless capacity growth, high-performance, high-reliability, advanced data protection and ease-of-management.

The EqualLogic High-Performance Storage Solution

          Our high-performance PS Series SANs are specifically designed to be cost effective and easy for mid-sized enterprises to deploy and manage. Our products are highly reliable through the use of fault tolerance, full redundancy and hot-swappable components. Our PS Series products are sold in one all-inclusive package with all required hardware and software components. Our products can be expanded without downtime and collaborate automatically as additional arrays are added to increase both performance and capacity. This enables our customers to "pay-as-they-grow."

          Our PS Series storage products provide our customers with the following benefits:

•

Robust feature set: Our products include, at no extra cost, our pre-installed data management software with features such as virtualization, automatic load balancing, storage tiering, centralized management, thin provisioning and advanced data protection.



•

Easy to purchase, deploy and manage: Our products are delivered ready to deploy, operate and automatically perform common storage tasks "out-of-the-box." Our products can be managed by IT generalists without the need for professional services or additional software.



•

On-demand scalability: Our products are able to scale automatically without downtime from a single-array SAN to a large multi-array SAN, with performance and capacity increasing as each array is added.



•

High performance: Our products provide exceptional performance for the applications deployed by our customers to run their businesses.



•

Low total cost of ownership: Our self-managing products operate on lower cost IP networks, are expandable in increments and are bundled with all software features at no additional cost. Customers that purchase service agreements receive new software capabilities at no charge on an ongoing basis.

Our Strategy

          Our goal is to be the leading provider of IP SANs that address the current and emerging storage needs of mid-sized enterprises. The key elements of our strategy are to:

•

Maintain our customer-focused approach: We will continue to enhance our product family and customer service capabilities with the goal of making storage management even easier and more cost-effective for our customers.



•

Leverage our installed customer base: We will gain future sales from existing customers as their capacity needs grow and as they deploy additional applications.



•

Extend our technology advantage: We will continue to invest in technology to deliver even more innovative and higher-performance products and to identify challenging storage needs that our products can address.



•

Expand our channel presence and brand to accelerate new customer acquisition: We will expand our 100% channel model across a broad range of industries and geographies to increase our rate of new customer acquisition.

2

•

Enhance the value of our products: We will continue to augment the software capabilities we include in our products under our "pay-one-price" business model to provide even more feature-rich products and increasing value to our customers.

Concentration of Share Ownership

          Upon the closing of this offering, our directors and executive officers and their affiliates will beneficially own, in the aggregate, approximately        % of the outstanding shares of our common stock, assuming no exercise by the underwriters of their option to purchase additional shares of our common stock in this offering. As a result, these stockholders will be able to determine the outcome of all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. For information regarding the ownership of our outstanding stock by our executive officers and directors and their affiliates, see the section titled "Principal and Selling Stockholders."

Corporate Information

          We were incorporated in Delaware in May 2001. Our corporate headquarters are located at 110 Spit Brook Road, Building ZKO2, Nashua, NH 03062, and our telephone number is (603) 249-7700. Our website address is www.equallogic.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our common stock.

          EqualLogic, the EqualLogic logo and other trademarks or service marks of EqualLogic appearing in this prospectus are the property of EqualLogic. This prospectus contains additional trade names, trademarks and service marks of other companies.

          Unless the context otherwise indicates, the term "customers" in this prospectus refers to the end-users who purchase our products from our channel partners and the term "channel partners" refers to our resellers and other distribution partners.

3

The Offering

          The number of shares of our common stock to be outstanding after this offering is based on the number of shares of our common stock outstanding as of June 30, 2007, and excludes:

•

105,841 shares of our common stock issuable upon the exercise of warrants outstanding and exercisable as of June 30, 2007 at a weighted average exercise price of $0.47 per share;



•

31,642,732 shares of our common stock issuable upon the exercise of stock options outstanding as of June 30, 2007 at a weighted average exercise price of $0.65 per share, of which options to purchase 12,570,629 shares of our common stock were exercisable as of June 30, 2007 at a weighted average exercise price of $0.24 per share; and



•

565,914 shares of our common stock available for future issuance under our equity compensation plans as of June 30, 2007.

Except as otherwise noted, all information in this prospectus:

•

gives effect to a             -for-             reverse split of our common stock to be effected prior to the closing of this offering;



•

assumes no exercise by the underwriters of their option to purchase additional shares of our common stock in this offering;



•

gives effect to the automatic conversion of all outstanding shares of our convertible preferred stock into 132,761,959 shares of our common stock upon the closing of this offering; and



•

gives effect to the restatement of our certificate of incorporation and amendment and restatement of our bylaws prior to the closing of this offering.

4

Summary Consolidated Financial Data

          The following tables summarize the consolidated financial data for our business for the periods presented. You should read these summary consolidated financial data together with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes, all included elsewhere in this prospectus. Pro forma basic and diluted net loss per share have been calculated assuming the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock upon the closing of this offering.

(1)

Includes stock-based compensation expense as follows:

(2)

The pro forma weighted average shares outstanding reflects the conversion of all outstanding shares of our convertible preferred stock (using the if-converted method) into shares of our common stock as though the conversion had occurred at the beginning of the period.

5

          The pro forma consolidated balance sheet data give effect to the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock and the elimination of accretion of accrued dividends on shares of our convertible preferred stock upon the closing of this offering. The pro forma as adjusted consolidated balance sheet data also give effect to our sale of             shares of our common stock in this offering at an assumed initial public offering price of $             per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

6

RISK FACTORS

          An investment in shares of our common stock involves a high degree of risk. In deciding whether to invest, you should carefully consider the following risk factors. Any of the following risks could have a material adverse effect on our business, financial condition, results of operations or prospects and cause the value of our common stock to decline, which could cause you to lose all or part of your investment. When determining whether to invest, you should also refer to the other information in this prospectus, including in our consolidated financial statements and related notes.

Risks Related to Our Business and Industry

We have a history of losses and we may not attain or maintain profitability in the future.

          We have incurred net losses during each year since our 2001 inception. We incurred a net loss of $0.5 million for the year ended December 31, 2006 and $1.5 million for the six months ended June 30, 2007. As of June 30, 2007, our accumulated deficit was $56.1 million. We expect to make significant expenditures related to the development of our business, including hiring additional personnel relating to sales and marketing, customer service and support and technology development as well as to implement a new enterprise resource planning system. In addition, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. As a result of these increased expenditures, we will be required to generate and sustain increased revenue to achieve profitability. Our revenue growth trends in prior periods are not likely to be sustainable, and we may not achieve sufficient revenue to achieve or maintain profitability. Accordingly, we may not be able to achieve or maintain profitability and we expect to incur significant losses in the future.

Our operating results may fluctuate significantly from quarter to quarter and may fall below expectations in any particular quarter, which could adversely affect the market price of shares of our common stock.

          Our operating results are difficult to predict and may fluctuate from quarter to quarter due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our revenue and operating results have in the past fallen below our own internal targets as a result of factors including delayed customer purchases related to product release timing. If our revenue or operating results fall below the expectations of investors or any securities analysts that follow our company in any period, the price of shares of our common stock would likely decline.

          Most of our operating expenses do not vary directly with revenue and are difficult to adjust in the short term. As a result, if revenue for a particular quarter is below our expectations, we could not proportionately reduce operating expenses for that quarter, and therefore such a revenue shortfall would have a disproportionate effect on our expected operating results for that quarter.

We have a limited operating history, which makes it difficult to predict our future operating results.

          We were incorporated in May 2001 and shipped our first products in May 2003. We have a limited operating history in the networked storage industry, which is characterized by rapid technological change. We believe our limited operating history and the characteristics of the networked storage industry make it difficult to predict our future operating results. You should consider and evaluate our prospects in light of risks and uncertainties faced by companies such as ours, which include our ability to manage our expanding operations, maintain adequate control over

7

our expenses, maintain our reputation, build trust with our customers and further establish our brand.

The networked storage market is highly competitive, and our current or future competitors may be able to compete more effectively than we do, which could have a material adverse effect on our business, revenue, growth rates and market share.

          The networked storage market is highly competitive and we expect competition to intensify in the future. Other companies have introduced and continue to introduce new products in the same markets we serve or intend to enter, and these companies may engage in aggressive business tactics, such as reducing prices, selling at large discounts or engaging in extensive marketing efforts. This competition could require us to reduce the prices and profit margins for our products and increase our sales and marketing expenses, and could result in our failure to increase, or the loss of, market share.

          Competitive products may have better performance, lower prices and broader acceptance than our products. Many of our current or potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we do, and may be better positioned to acquire and offer complementary products and technologies. Potential customers may prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. Currently, we face competition from a number of established companies, including EMC, Network Appliance, Dell, Hewlett-Packard, Sun Microsystems, Hitachi Data Systems and IBM. We also face competition from a number of private companies, including Compellent Technologies, LeftHand Networks and 3PAR, as well as recent market entrants. We expect increased competition from both established and emerging companies. For example, EMC has announced plans to increase its sales efforts to mid-sized enterprises. Some of our competitors have also entered, or may in the future enter, into relationships with original equipment manufacturers that could provide those competitors with sales, marketing, distribution and other advantages.

          We also expect competition to increase as established and emerging companies attempt to strengthen or maintain their market positions by entering into partnerships or by acquiring competing companies or products. The companies resulting from these possible consolidations may be able to provide more compelling product offerings and offer greater pricing flexibility. This would make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs, technology or product functionality. Such consolidation may adversely affect customers' perceptions of the viability of smaller and mid-sized technology companies, and such customers may be less willing to purchase from such companies. These pressures could harm our business, operating results and financial condition.

We rely on value-added resellers and other distribution partners to sell substantially all of our products. Our failure to develop and manage, or disruptions to, our distribution channels would adversely affect our business.

          Our ability to maintain or increase our revenue will depend in part on our ability to maintain arrangements with our existing channel partners and to establish and expand arrangements with new channel partners. If we fail to do so, our future revenue would be harmed. Additionally, by relying on channel partners, we have less contact with the ultimate users of our products, which may make it difficult for us to establish and increase brand awareness, ensure proper delivery and installation of our products, service ongoing customer requirements and respond to evolving customer needs.

8

          Recruiting and retaining qualified channel partners and training them in our technology and product offerings requires significant time and resources. In order to develop and expand our distribution channel, we must continue to scale and improve the processes and procedures that support our channel, including investment in systems and training. Those processes and procedures may become increasingly complex and difficult to manage as we expand our organization.

          We have no minimum purchase commitments from any of our channel partners, and our contracts with these channel partners do not prohibit them from offering products or services that compete with ours. Our competitors may provide incentives to existing and potential channel partners to favor their products. Our channel partners may choose not to offer our products exclusively or at all. Establishing relationships with channel partners who have a history of selling our competitors' products may also prove to be difficult. Our failure to establish and maintain successful relationships with channel partners would seriously harm our business and operating results.

We receive a substantial portion of our revenue from a limited number of channel partners, and the loss of, or a significant reduction in, orders from one or more of our major channel partners would harm our business.

          Our future success is highly dependent upon establishing and successfully maintaining relationships with a large number of resellers and other distribution partners, which we refer to as channel partners. We market and sell our PS Series products through an all-channel assisted sales model and we derive substantially all of our revenue from these channel partners. We receive a substantial portion of our revenue from a limited number of channel partners. For 2004, 2005 and 2006, our top ten channel partners accounted for approximately 39%, 44% and 35% of our total revenue, respectively, and for the six months ended June 30, 2006 and 2007, our top ten channel partners accounted for 35% and 41% of our total revenue, respectively. In 2004, one channel partner accounted for approximately 10% of our total revenue. No channel partner accounted for more than 10% of our total revenue in 2005, 2006 or the six months ended June 30, 2006; however, during the six months ended June 30, 2007, the purchasing agent of CDW Corporation accounted for approximately 16% of our total revenue. We anticipate that we will continue to be dependent upon a limited number of channel partners for a significant portion of our revenue for the foreseeable future and, in some cases, a portion of our revenue attributable to individual channel partners may increase in the future. The loss of one or more key channel partners or a reduction in sales through any major channel partner would harm our business.

We derive all of our revenue from sales of our PS Series products and related services. A decline in demand for our PS Series products would have a material adverse effect on our business.

          We derive, and expect to continue to derive, all of our revenue from our PS Series product family and related customer support services. Our future sales and operating results will depend, to a significant extent, on the continued market penetration for our PS Series products. As a result, we are vulnerable to fluctuations in demand for this product family, whether as a result of competition, product obsolescence, technological change, customer budgetary constraints or other factors. If the networked storage market does not expand or if our PS Series product family fails to maintain or achieve greater market acceptance, we will not be able to increase our revenue sufficiently to achieve or maintain profitability. Our PS Series products may not achieve and sustain high levels of demand and market acceptance, and they may not meet required performance specifications, which would harm our operating results and competitive position.

9

The networked storage market is characterized by rapid technological changes in networks and evolving standards. If the networks and standards used by our products become obsolete, or if the market for our products using these networks and standards does not grow as we anticipate, our revenue may decline or fail to increase, which would adversely affect our operating results.

          The market for our SAN products is characterized by rapid technological changes, changing customer needs and evolving industry standards. The introduction of new technologies and the emergence of new industry standards could make our existing and future products obsolete and unmarketable. As a result, we may not be able to accurately predict the lifecycle of our products, and they may become obsolete before we receive the amount of revenue that we anticipate from them. If any of the foregoing events were to occur, our ability to retain or increase market share in the data storage market could be harmed.

          To be successful, we need to anticipate, develop and introduce new products and services on a timely and cost-effective basis that keep pace with technological developments and emerging industry standards and that address the increasingly sophisticated needs of our customers. We may fail to develop and market products and services that respond to technological changes or evolving industry standards, experience difficulties that could delay or prevent the successful development, introduction and marketing of these products and services or fail to develop products and services that adequately meet the requirements of the marketplace or achieve market acceptance. Our failure to develop and market such products and services on a timely basis, or at all, could have a material adverse effect on our sales and profitability.

We depend on a continued supply of product components from third-party suppliers, in some cases single source suppliers. If shortages or quality control problems regarding these components arise, we may not be able to secure enough components to build new products to meet customer demand or our own specifications or we may be forced to pay higher prices for these components.

          We may experience shortages or quality control problems in the supply of the components that we use in our products, and we may not be able to predict interruptions in the availability of such components. Some of these components are available only from single or limited sources of supply. For example, we depend on GlobTek, Inc. for the power supply component used in our PS Series products. The process of qualifying alternate sources for components, if available at all, may be time consuming, difficult and costly. In addition, the lead times associated with obtaining some components are lengthy and preclude rapid changes in quantity requirements and delivery schedules. Any expansion of our business is likely to increase the pressures on us and our suppliers to project component demand accurately and to establish optimal component inventory levels. In addition, increased demand by third parties for the components we use in our products may lead to decreased availability and higher prices for those components. We rely on our suppliers to deliver necessary components to our contract manufacturers in a timely manner based on forecasts we provide. We rely on purchase orders rather than long-term contracts with our suppliers. As a result, even if available, we may not be able to secure sufficient components at reasonable prices or of acceptable quality to build products in a timely manner. For example, our launch of the SAS product line was delayed in 2006 due to the failure of a SAS product component, provided by a third party, to meet our performance specifications. Future difficulties in securing sufficient quantities of quality components would seriously harm our ability to deliver products to our customers, and our business, operating results and financial condition would suffer.

10

We rely on a single contract manufacturer for assembly of our SAS products, and we are considering transitioning the assembly of our SATA products to the same contract manufacturer in the future. Our failure to forecast accurately the demand for our products or manage successfully our relationship with this contract manufacturer could harm our ability to sell our products.

          For our SAS product line, we currently rely on a single contract manufacturer, Xyratex Technology Limited, to manufacture, assemble, test, package and ship our products, and to manage our supply chain and negotiate component costs. In addition, although we currently perform these functions for our SATA product line, we are considering transitioning them to Xyratex during the next 12 months. Our reliance on a contract manufacturer reduces our control over the assembly process. This exposes us to risks, including limited control over quality assurance, production costs and product supply. If we fail to manage our relationship with Xyratex effectively, or if Xyratex experiences delays, disruptions, capacity constraints or quality control problems in its operations, our ability to ship products to our channel partners could be impaired and our competitive position and reputation could be harmed. If Xyratex is unable to negotiate with suppliers for reduced component costs, our operating results would be harmed. Additionally, if we are required to change contract manufacturers or assume additional internal manufacturing operations, we may experience increased costs and product shipment delays, which in turn could lead to decreased revenue and harmed customer relationships. The processes required to qualify a new contract manufacturer and begin high volume production are expensive and time-consuming.

          Our agreement with Xyratex does not provide for specific quantities or inventory levels for our finished products. Instead, we provide Xyratex with monthly 12-month rolling forecasts of expected demand and place monthly blanket purchase orders by the fifth day of each month for expected shipments during that month. These purchase orders may exceed the demand that we anticipated in the most recent rolling forecast, so as to provide a buffer against underestimated demand for our products. If we overestimate our manufacturing needs, we may incur liabilities for excess or obsolete inventory of components unique to our products. Conversely, because lead times for required materials and components vary significantly and depend on factors such as the specific supplier, contract terms and demand for the particular component at any given time, if we underestimate our requirements, Xyratex may not have adequate materials and components to assemble our products. In that event, the manufacture of our products could be interrupted, shipments could be delayed and revenue could be deferred or lost. Xyratex generally carries very little inventory of components for our products, and we rely on its suppliers to deliver necessary components in a timely manner based on forecasts provided to the suppliers by Xyratex.

          We intend to introduce new products and product enhancements, which would require us to achieve high volume production rapidly through contract manufacturers and suppliers. We may need to increase our component purchases, contract manufacturing capacity and internal test and quality functions if we experience increased demand. If Xyratex or other contract manufacturers are unable to provide us with adequate supplies of high-quality products, or if they are unable to obtain adequate quantities of components, we could experience order fulfillment delays and our business, operating results and financial condition would be adversely affected. Additionally, if we do not transition our SATA product manufacture to Xyratex, we may not realize the benefits of its increased purchasing power, and we may need to maintain product inventory levels that would not otherwise be necessary.

          Our agreement with Xyratex continues for successive one-year terms. Xyratex can terminate our agreement for any reason, however, upon at least six months notice prior to the end of the then-current term and immediately in the case of specified breaches. If we are required to change contract manufacturers or assume internal manufacturing operations due to any termination of the agreement with Xyratex, we may lose revenue, experience manufacturing delays, incur increased

11

costs or otherwise damage our customer relationships. We cannot assure you that we will be able to establish an alternative on acceptable terms or at all.

Our products incorporate commodity components. Our gross margins and our ability to respond in a timely manner to customer demands are sensitive to volatility in the market prices and availability for these components.

          A significant portion of our costs of goods sold is directly related to the pricing of commodity components required for the manufacture of our products, such as memory chips and disk drives. We do not enter into long-term supply contracts for these components. For our SAS products, Xyratex, our contract manufacturer, purchases these components on our behalf. For our SATA products, we purchase these components. We and Xyratex generally purchase these components on the basis of competitive-bid purchase orders with suppliers. As a result, our expenses are affected by price volatility for these components, particularly for disk drives and memory. This volatility makes it difficult to predict future expenses and operating results and may cause them to fluctuate significantly. Furthermore, if we are successful in expanding our business, we may be required to enter into contracts with component suppliers to obtain these components. This could increase our costs and decrease our gross margins.

Our ability to sell our products and retain customers is dependent on the quality of our support and services offerings. Our failure to offer high quality support and services could have a material adverse effect on our sales and results of operations.

          Once our products are deployed within our customers' networks, our customers depend on our support organization to resolve difficulties relating to our products. In some geographic locations, we contract with our channel partners to provide support for our customers, and we subcontract with third parties to enhance our internal support capabilities. Specifically, we have engaged third parties to provide call logging, contract validation, problem definition and spare parts logistics, as well as worldwide on-site service with four-hour response for those customers who select our highest customer support option. We, our channel partners and these third-party support providers must be able to deliver a high level of customer support and services. If we or they do not help our customers quickly resolve post-deployment issues and provide effective ongoing support, our ability to sell our products to existing customers would suffer and our reputation with potential customers would be harmed. As we expand our sales, we will be required to hire and train additional support personnel in the United States and internationally, and our third-party support providers may need to do so as well. As we expand our operations internationally, our support organization will face additional challenges including those associated with delivering support, training and documentation in languages other than English. If we fail to maintain high quality customer support or expand our support organization to match any future sales growth, our business will suffer.

We may not be able to sustain our percentage growth rate.

          We have experienced significant growth in a short period of time. Our revenue increased from $10.4 million in 2004 to $68.1 million in 2006. We do not expect to achieve similar percentage growth rates in future periods. You should not rely on our operating results for any prior quarterly or annual periods as an indication of our future operating performance. If we are unable to maintain adequate revenue growth in dollars, our financial results could suffer and our stock price could decline.

          Our future operating results depend to a large extent on our ability to successfully manage our anticipated expansion and growth. We intend to increase our investment in research and development, sales and marketing, and general and administrative and other functions to grow our business. We are likely to recognize the costs associated with these increased investments earlier than some of the anticipated benefits and the return on these investments may be lower, or may develop more slowly, than we expect, which could harm our business.

12

If we fail to manage future growth effectively, including upgrades to our internal information technology and enterprise resource planning software systems, our business would be harmed.

          We have expanded our operations significantly since inception and anticipate expanding further. This future growth, if it occurs, will place significant demands on our management, infrastructure and other resources. To manage any future growth, we will need to hire, integrate and retain highly skilled and motivated employees. We will also need to continue to improve our financial and management controls, reporting systems and procedures. We intend to implement a new enterprise resource planning software system that will replace a substantial majority of our critical finance and supply chain management systems. If we experience delays or difficulties in implementing the new enterprise resource planning system, or if we otherwise do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or maintain product quality.

Our sales cycle is short and unpredictable. As a result, we may not be able to reliably predict future sales and manufacturing needs, which may cause our operating results to fluctuate significantly or fall below expectations.

          Our sales cycle is often less than sixty days and a substantial portion of our quarterly sales typically occurs during the last month of the quarter, which we believe largely reflects customer buying patterns of products similar to ours and other products in the technology industry generally. As a result of this short sales cycle, we cannot at the beginning of a quarter identify with specificity a significant portion of the sales opportunities necessary to attain our sales forecast for that quarter, and must rely on other quantitative and qualitative measures to predict our sales. Similarly, we have limited ability to predict at the start of any quarter which existing customers, if any, will make additional purchases and when any such additional purchases may occur, if at all. In addition, the orders we have received but not yet filled, if any, at the beginning of a given quarter are not indicative of how we will perform in that quarter, and our quarterly operating results are difficult to predict even in the near term.

Our product architecture is complex and future products may take longer to develop than anticipated. As a result, we may not recognize revenue from new products or product enhancements until after we have incurred significant development costs, if at all.

          Our product architecture is highly technical and complex. We continually seek to develop new features and enhancements to our products. These product enhancements often take substantial time to develop because of their complexity. We often do not recognize revenue from our new products or product enhancements until we have incurred significant development costs. Additionally, the development of new features and enhancements to our products is dependent on factors which may be outside our control. For example, our development of a unified "SATA over SAS" product that meets our quality requirements has taken longer than we originally forecast because certain required components supplied by third parties do not meet our specifications, and we have been required to develop alternatives to using such components. Additionally, our launch of the SAS product line was delayed in 2006 due to the failure of a SAS product component provided by a third party to meet our performance specifications. Our operating results will suffer if our new products or product enhancements fail to meet our or our customers' expectations.

13

If we do not successfully anticipate market needs and develop products and product enhancements that meet those needs, or if our products do not gain market acceptance, our business and financial results will be adversely affected.

          The networked storage market is characterized by rapid technological change, frequent new product introductions and evolving industry standards. Our future growth depends on the successful development and introduction of new products and enhancements to existing products that achieve acceptance in the market. We may not be able to anticipate future market needs or be able to develop new products or product enhancements to meet such needs. In addition, any new products or product enhancements that we introduce may not achieve any significant degree of market acceptance or be accepted into our sales channel by our channel partners. If we are unable, for technological or other reasons, to develop, introduce or enhance our products in a timely manner in response to changing market conditions or evolving customer requirements, or if our new products and product enhancements do not achieve market acceptance due to competitive or other factors, our business, operating results and financial condition may suffer.

          If we introduce new products or product enhancements in the future, demand for our existing products may decrease. As we introduce new products and product enhancements, we will be required to manage the transition from older products to minimize disruption in customers' ordering patterns, avoid excessive levels of older product inventories and ensure that sufficient supplies of new products can be delivered in a timely manner to meet customer demand.

If our products do not interoperate with our customers' networks, servers or software applications, deployments may be delayed or cancelled, which would harm our business.

          Our products must interoperate with our customers' networks, which often have different specifications, use multiple protocol standards and products from multiple vendors, and contain multiple generations of products that have been added over time. If we find errors in the existing software or defects in the hardware used in our customers' networks or problematic network configurations or settings, we may have to modify our software or hardware so that our products will interoperate with our customers' networks. This could cause longer installation times for our products, delays of future purchases of our products or the purchase of competitive products, any of which would adversely affect our business, operating results and financial condition.

Our products may contain undetected software or hardware defects, which could cause privacy breaches or data unavailability, loss or corruption that might, in turn, result in costly litigation and harm to our reputation and adversely affect our business.

          When deployed, our products store and manage data that are critical to our customers' operations. Our products have contained and may contain undetected errors, defects or security vulnerabilities. Some errors in our products may only be discovered after a product has been installed and used by a customer. Errors, defects or security vulnerabilities discovered in our products after commercial release could result in any of the following, which could adversely affect our business, operating results and financial condition:

•

loss of revenue or delay in revenue recognition;



•

loss of customers;



•

increased service and warranty cost;



•

product returns;



•

claims for product liability or breach of warranty; and



•

negative publicity and damage to our reputation.

14

          Our contracts with channel partners generally contain provisions relating to warranty disclaimers and liability limitations, which may be ineffective. Defending a lawsuit, regardless of its merit, is costly and may divert management's attention away from the business and adversely affect the market's perception of us and our products. In addition, if our business liability insurance coverage is inadequate or future coverage is unavailable on acceptable terms or at all, our operating results and financial condition could be adversely affected.

If we lose key personnel or if we are unable to attract, hire, integrate and retain key personnel on a cost-effective basis, our business would be harmed.

          Our future success depends, in part, on our ability to attract, hire, integrate and retain key personnel, including the continued contributions of our executive officers and other key personnel, some of whom joined us in the last 12 months, and each of whom may be difficult to replace. The loss of services of any of these or other executive officers or key personnel or the inability to continue to attract qualified personnel could have a material adverse effect on our business. Our executive officers are not parties to employment agreements with us and, therefore, may terminate their employment with us at any time, with no advance notice. The replacement of any of these executive officers would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.

Our international sales and operations subject us to additional risks that may adversely affect our operating results.

          During the year ended December 31, 2006 and the six months ended June 30, 2007, we derived approximately 17% and 16% of our total revenue, respectively, from sales outside of North America, and we continue to expand our international operations. Any continued expansion into international markets will require significant resources and management attention and will subject us to new regulatory, economic and political challenges, including:

•

difficulties in managing and staffing international offices and the increased travel, infrastructure and legal compliance costs associated with multiple international locations;



•

difficulties in enforcing contracts and collecting accounts receivable, and longer payment cycles, especially in emerging markets;



•

our ability to comply with differing technical standards and certification requirements outside the United States;



•

difficulties in repatriating overseas earnings;



•

reduced protection for intellectual property rights in some countries;



•

increased exposure to foreign currency exchange rate risk; and



•

tariffs and trade barriers, import/export controls, and other regulatory or contractual limitations on our ability to sell or develop our products in certain foreign markets.

          As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. We cannot be sure that further international expansion will be successful. Our failure to respond to any of these challenges successfully could harm our international operations and reduce our international sales, which could in turn adversely affect our business, operating results and financial condition.

15

We may need additional capital in the future, which may not be available to us on favorable terms, or at all. Failure to secure such capital could have a material adverse effect on our business, operating results and financial condition.

          We have historically relied on outside financing and cash from operations to fund our operations, capital expenditures and expansion. We may require additional capital from equity or debt financing in the future to:

•

develop additional channel partners or sales capabilities;



•

take advantage of strategic opportunities including more rapid expansion of our business or the acquisition of complementary products, technologies or businesses; and



•

develop new products or enhancements to existing products.

          We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financing may place limits on our financial and operating flexibility. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new securities we issue could have rights, preferences and privileges senior to those of holders of shares of our common stock, including shares of our common stock sold in this offering. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited.

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in international markets.

          Our products incorporate encryption technology, and, as a result, are subject to U.S. export controls and may be exported outside the United States only with the required level of export license or through an export license exception. In addition, various countries regulate the import of certain encryption technology and have enacted laws that could limit our ability to distribute our products or could limit our customers' ability to implement our products in those countries. Changes in our products or changes in export and import regulations may create delays in the introduction of our products in international markets, prevent our customers with international operations from deploying our products throughout their networks or, in some cases, prevent the export or import of our products to certain countries altogether. Any change in export or import laws and regulations, shifts in approach to the enforcement or scope of existing laws and regulations, or change in the countries, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell our products would likely adversely affect our business, operating results and financial condition.

We may engage in future acquisitions that could disrupt our business, cause dilution to our stockholders and harm our business, operating results or financial condition.

          Although we currently have no business acquisitions pending or planned, we have, from time to time, evaluated acquisition opportunities and may pursue acquisition opportunities in the future. We have very little experience consummating acquisitions, and therefore our ability as an organization to make acquisitions is unproven. We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms, if at all. If we do complete acquisitions, we may not ultimately strengthen our competitive position or achieve our goals, or such acquisitions may be viewed negatively by customers, financial markets or investors.

16

In addition, any acquisitions that we make could lead to difficulties in integrating personnel and operations from the acquired businesses and in retaining and motivating key personnel from these businesses. Acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses or adversely affect our business, operating results and financial condition. Future acquisitions may reduce our cash available for operations and other uses and could result in an increase in amortization expense related to identifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt, which could harm our business, operating results and financial condition.

Our business is subject to increasingly complex environmental legislation that has increased both our costs and the risk of noncompliance and may continue to do so in the future.

          We face increasing complexity in the design and manufacture of our products as we adjust to new and upcoming requirements relating to our products' materials composition. For example, the European Union, or EU, has adopted certain directives to facilitate the recycling of electrical and electronic equipment sold in the EU, including the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, or RoHS, directive. The RoHS directive restricts the use of lead, mercury and certain other substances in electrical and electronic products placed on the market in the EU after July 1, 2006. A companion EU directive, the Waste Electrical and Electronic Equipment Directive, imposes responsibility for the collection, recycling and recovery for certain electrical and electronic products on the manufacturers of such equipment. We have incurred costs to comply with these regulations in the past and could incur additional costs in the future. In addition, compliance with these regulations could disrupt our operations and logistics. We will need to ensure that we can design and manufacture compliant products and that we can be assured a supply of compliant components from suppliers. Similar laws and regulations have been proposed or may be enacted in other regions. These and other environmental regulations may require us to reengineer our products to incorporate new components that are compatible with these regulations, which may result increase our expenses.

If we fail to maintain proper and effective disclosure controls and procedures and internal controls over financial reporting, our ability to produce accurate financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business and investors' and customers' views of us.

          The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, for the year ending December 31, 2008, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting as of December 31, 2008, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 will require that we incur substantial expense and expend significant management time on compliance-related issues. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the Nasdaq Stock Market, the Securities and Exchange Commission, which we refer to as the SEC, or other regulatory authorities, which would require additional financial and management resources.

17

Risks Related to Intellectual Property

We have limited protection of our intellectual property and the enforcement of our intellectual property rights may result in costly litigation.

          Our success and ability to compete depends in part upon our ability to obtain protection in the United States and other countries for our technology and products by establishing and maintaining intellectual property rights relating to or incorporated into our technology and products. We own one patent, and have filed several additional patent applications in the United States and foreign jurisdictions. However, we have not obtained patent protection in each market in which we plan to compete. Many U.S.-based companies have encountered substantial intellectual property infringement in foreign countries, including countries where we sell or intend to sell products. Even if our foreign patent applications are granted, effective enforcement of those foreign patents may not be possible or practical. To date, our patent portfolio has not prevented other companies from competing against us, and we do not know how successful we would be if we sought to enforce our patent rights against suspected infringers.

          The patent position of a company like ours is generally uncertain and subject to the resolution of complex legal and factual questions by parties unrelated to us. Our ability to develop and maintain our intellectual property rights for protecting our technology will depend in part on our success in obtaining effective patent claims and enforcing those claims once they are granted. We do not know whether any of our patent applications or any patent applications that we license will issue as patents. Our issued patent, those patents that may issue in the future or those patents licensed to us, may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from making, using or selling similar products or limit the term of patent protection that we may have for our products.

          In addition, the rights granted under any issued patents may not provide us with competitive advantages against companies with similar technology. Competitors may independently develop similar technologies or duplicate any technology developed by us. Because of the time required to develop and test potential product, it is possible that, before any of our products under development can be commercialized, any related patent we may have may expire or remain in force for only a short period following commercialization, thereby reducing any competitive advantage offered by the patent. Furthermore, changes in patent law or in interpretation of patent law in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection. Any circumstance or change that results in patent protection becoming unavailable for our products could adversely affect our business, financial condition and results of operations.

          Monitoring unauthorized use of our intellectual property is difficult and costly. In order to enforce our intellectual property rights, we may become a party to patent litigation and other proceedings, including interference proceedings declared by the U.S. Patent and Trademark Office and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our products and technology. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also require significant commitments of time by our technical staff and management.

          We also rely, in some circumstances, on trade secrets to protect our technology. Trade secrets, however, may lose their value if they are not properly protected. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our

18

employees, consultants and other contractors. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights and ownership in related or resulting know-how and inventions.

Claims by others that we infringe their intellectual property could force us to incur significant costs or revise the way we conduct our business.

          Third parties have asserted, and may assert in the future, claims that our products infringe patents, patent applications, or other intellectual property rights under which we do not hold licenses or other rights. Third parties may own or control these patents, patent applications, or other intellectual property rights in the United States and abroad. These third parties have brought, and could in the future bring, claims against us that would cause us to incur substantial expenses and, if successfully asserted against us, could cause us to pay substantial damages, invalidate our proprietary rights, and compel us to do one or more of the following:

•

stop or delay manufacturing or sales of the product that is the subject of the suit before or after the suit is decided on the merits;



•

forego the opportunity to license our technology to others or to collect royalty payments from others for the licensing of our intellectual property;



•

incur significant legal expenses;



•

redesign a product that uses any allegedly infringing technology; or



•

attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all.

          Our channel partners and customers could also be subject to litigation relating to the patents and other intellectual property rights of third parties. This could trigger technical support and indemnification obligations in our licenses or customer service agreements.

          The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial and require significant commitments of time by our technical staff and management. In addition, such litigation could harm our relationships with our channel partners or customers and cause the sale of our products to decrease.

We rely on the availability of licenses for intellectual property from third parties, and if these licenses are not available to us on commercially reasonable terms, product sales and development may be delayed.

          We incorporate certain third-party technologies, including software programs, into our products and we may need to utilize additional third-party technologies in the future. For example, we rely on a license from Wind River Systems for management tools that we integrate into our products, and on the open source NetBSD operating system for our products' functionality. Licenses to these and other third-party technologies and intellectual property, such as patents, may not continue to be available to us on commercially reasonable terms, or at all. Therefore, we could face delays in product releases until alternative technology can be identified, licensed or developed, and integrated into our current products. These delays, if they occur, could materially adversely affect our business, operating results and financial condition.

19

Our use of third-party and open source software could impose limitations on our ability to commercialize our products.

          We incorporate open source software into our products. Although we monitor our use of open source, the terms of many open source licenses have not been interpreted by U.S. courts, and such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to sell and market our products. Although we make efforts to comply with our obligations under the various applicable licenses for the open source software we use to avoid subjecting our proprietary products to unanticipated conditions or restrictions, in the event that a copyright owner were to successfully establish in court that we had not complied with the terms of a license for a particular work, we could be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products, and to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis, any of which could harm our business, operating results and financial condition.

Risks Related to this Offering and Ownership of Shares of Our Common Stock

The trading price of shares of our common stock is likely to be volatile, and you may not be able to sell your shares at or above the initial public offering price.

          Shares of our common stock have no prior trading history, and an active public market for these shares may not develop or be sustained after this offering. The initial public offering price for shares of our common stock was determined through negotiations with the representatives of the underwriters. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. In addition, the trading price of shares of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors. In addition to risks discussed elsewhere in these risk factors, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of shares of our common stock could decline for reasons unrelated to our business, financial condition or results of operations.

          Some companies that have had volatile market prices for their securities have had securities class actions filed against them. If a suit were filed against us, regardless of its merits or outcome, it would likely result in substantial costs and divert management's attention and resources. This could have a material adverse effect on our business, operating results and financial condition.

Our securities have no prior market and our stock price may decline after the offering.

          Prior to this offering, there has been no public market for shares of our common stock. Although we have applied to have our common stock listed on the Nasdaq Global Market, an active public trading market for shares of our common stock may not develop or, if it develops, may not be maintained after this offering. For example, the Nasdaq Global Market imposes certain securities trading requirements, including minimum bid price, minimum number of stockholders, minimum number of trading market makers and minimum market value of publicly-traded shares. Our company and the representatives of the underwriters negotiated to determine the initial public offering price. The initial public offering price may be higher than the trading price of shares of our common stock following this offering. As a result, you could lose all or part of your investment.

Future sales of shares by existing stockholders could cause our stock price to decline.

          If our existing stockholders sell, or indicate an intention to sell, substantial amounts of shares of our common stock in the public market after the contractual lock-up agreements described below and other restrictions on resale lapse, the trading price of shares of our common stock could decline below the initial public offering price. Based on shares outstanding as of June 30, 2007, upon the closing of this offering, we will have outstanding                    shares of our common stock,

20

assuming no exercise by the underwriters of their option to purchase additional shares of our common stock in this offering. Of these shares,                     shares of our common stock will be subject to a 180-day contractual lock-up with the underwriters. Goldman, Sachs & Co. and Credit Suisse Securities (USA) LLC, acting as representatives of the underwriters, may permit our officers, directors, employees and current stockholders who are subject to the contractual lock-up to sell shares prior to the expiration of the lock-up agreements.

          Some of our existing stockholders have demand and incidental registration rights to require us to register with the SEC up to 135,483,144 shares of our common stock. If we register these shares of our common stock, the stockholders would be able to sell those shares freely in the public market.

          See "Shares Eligible for Future Sale" for further details regarding the number of shares eligible for sale in the public market after this offering.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

          The trading market for shares of our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the trading price for our stock would be adversely affected. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

Insiders will continue to have substantial control over us after this offering and will be able to determine corporate matters requiring stockholder approval.

          Upon the closing of this offering, our directors and executive officers and their affiliates will beneficially own, in the aggregate, approximately     % of the outstanding shares of our common stock, assuming no exercise by the underwriters of their option to purchase additional shares of our common stock in this offering. All of our current directors were elected pursuant to a stockholders agreement that will terminate upon the closing of this offering. Upon the closing of this offering, our existing stockholders will not have any agreements or understandings to act together in any matters submitted for stockholder approval. However, these stockholders will be able to determine the outcome of all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us. For information regarding the ownership of our outstanding stock by our executive officers and directors and their affiliates, see "Principal and Selling Stockholders."

You will experience substantial dilution as a result of this offering and future equity issuances.

          The initial public offering price per share is substantially higher than the pro forma net tangible book value per share of our common stock outstanding prior to this offering. As a result, investors purchasing shares of our common stock in this offering will experience immediate substantial dilution of $         per share. In addition, we have issued options to acquire shares of our common stock at prices significantly below the initial public offering price. To the extent outstanding options are ultimately exercised, there will be further dilution to investors in this offering. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our common stock. In addition, if the underwriters

21

exercise their option to purchase additional shares of our common stock this offering, if outstanding warrants to purchase shares of our common stock are exercised or if we issue additional equity securities, you will experience additional dilution.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may affect the trading price of shares of our common stock.

          We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our restated certificate of incorporation and amended and restated bylaws, which will be in effect prior to the closing of this offering:

•

authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to thwart a takeover attempt;



•

provide that directors may be removed from office only upon a 75% stockholder vote;



•

provide that vacancies on the board of directors, including newly-created directorships, may be filled only by a majority vote of directors then in office;



•

limit who may call special meetings of stockholders;



•

prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders; and



•

require supermajority stockholder voting to effect certain amendments to our restated certificate of incorporation and amended and restated bylaws.

          For more information regarding these and other provisions, see the section titled "Description of Capital Stock — Anti-Takeover Effects of Our Charter and Bylaws and Delaware Law."

Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

          Our management will have broad discretion to use the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply the net proceeds of this offering in ways that increase the value of your investment. We expect to use the net proceeds from this offering for working capital and other general corporate purposes, including the development of new products, sales and marketing activities and capital expenditures. You will not have the opportunity to influence our decisions on how to use the net proceeds from this offering.

We have never paid cash dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.

          We have never paid cash dividends on shares of our common stock, and we do not expect to pay cash dividends on shares of our common stock, including the shares of our common stock issued in this offering. Our bank credit agreement with Silicon Valley Bank prohibits the payment of cash dividends without its consent. Subject to that requirement, any future dividend payments are within the absolute discretion of our board of directors and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial condition, contractual restrictions, business opportunities, anticipated cash needs, provisions of applicable law and other factors that our board of directors may deem relevant. We may not generate sufficient cash from operations in the future to pay dividends on our common stock. See "Dividend Policy."

22

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this prospectus regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

•

our ability to attract and retain customers;



•

our financial performance;



•

our research and development activities;



•

the advantages of our products as compared to those of others;



•

our ability to establish and maintain intellectual property rights;



•

our ability to retain and hire necessary employees and appropriately staff our operations; and



•

our capital requirements and potential needs for additional financing.

          We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the "Risk Factors" section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

          You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

23

USE OF PROCEEDS

          We estimate that we will receive net proceeds from this offering of approximately $         million, based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. At an assumed public offering price of $         per share, which is the midpoint of the price range set forth on the cover of this prospectus, the selling stockholders will receive $         million from their sale of our common stock in this offering, after deducting the estimated underwriting discounts and commissions. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

          A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the net proceeds to us from this offering by $         million and increase (decrease) the net proceeds to the selling stockholders from this offering by $             million, assuming the number of shares offered by us and the selling stockholders, as set forth on the cover of this prospectus, remains the same.

          We intend to use the net proceeds to us from this offering for working capital and other general corporate purposes, including the development of new products, and funding capital expenditures, acquisitions and investments. In addition, the other principal purposes for this offering are to:

•

create a public market for our common stock;



•

facilitate our future access to the public capital markets;



•

provide liquidity for our existing stockholders;



•

increase our visibility in our markets;



•

improve the effectiveness of our equity compensation plans in attracting and retaining key employees; and



•

enhance our ability to acquire or invest in complementary companies, technologies, products or assets.

          We have not yet determined with any certainty the manner in which we will allocate these net proceeds. Management will retain broad discretion in the allocation and use of the net proceeds to us from this offering. The amounts and timing of these expenditures will vary depending on a number of factors, including the amount of cash generated by our operations, competitive and technological developments, and the rate of growth, if any, of our business. For example, if we were to expand our operations more rapidly than anticipated by our current plans, a greater portion of our net proceeds would likely be used for the construction and expansion of facilities, working capital and other capital expenditures. Alternatively, if we were to engage in an acquisition that contained a significant cash component, some or all of our net proceeds might be used for that purpose.

          Although we may use a portion of our net proceeds for the acquisition of, or investment in, companies, technologies, products or assets that complement our business, we have no present understandings, commitments or agreements to enter into any acquisitions or make any investments. We cannot assure you that we will make any acquisitions or investments in the future.

          Pending specific utilization of the net proceeds as described above, we intend to invest the net proceeds to us from this offering in short-term investment grade and U.S. government securities.

24

DIVIDEND POLICY

          We have never paid or declared any cash dividends on our common stock. We currently intend to retain earnings, if any, to finance the growth and development of our business, and we do not expect to pay any cash dividends on shares of our common stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of the board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in current or future financing arrangements, and other factors the board deems relevant. Our bank credit agreement with Silicon Valley Bank prohibits the payment of cash dividends.

25

CAPITALIZATION

          The following table sets forth our capitalization as of June 30, 2007:

•

on an actual basis;



•

on a pro forma basis to give effect to the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock and the elimination of accretion of accrued dividends on shares of our convertible preferred stock upon the closing of this offering and the         -for-             reverse split of shares of our common stock to be effected prior to the closing of this offering; and



•

on a pro forma as adjusted basis to give effect to (1) the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock and the elimination of accretion of accrued dividends on shares of our convertible preferred stock upon the closing of this offering, (2) the              -for-             reverse split of shares of our common stock to be effected prior to the closing of this offering, (3) the filing of our restated certificate of incorporation prior to the closing of this offering, and (4) our issuance and sale of             shares of our common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

          You should read this table together with our consolidated financial statements and related notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other financial information included elsewhere in this prospectus.

26

          A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) each of additional paid-in capital and total stockholders' equity in the pro forma as adjusted column by $         million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

          The table above excludes:

•

105,841 shares of our common stock issuable upon the exercise of warrants outstanding and exercisable as of June 30, 2007 at a weighted average exercise price of $0.47 per share;



•

31,642,732 shares of our common stock issuable upon the exercise of stock options outstanding as of June 30, 2007 at a weighted average exercise price of $0.65 per share, of which options to purchase 12,570,629 shares of our common stock were exercisable as of June 30, 2007 at a weighted average exercise price of $0.24 per share; and



•

565,914 shares of our common stock available for future issuance under our equity compensation plans as of June 30, 2007.

27

DILUTION

          If you invest in shares of our common stock in this offering, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Our pro forma net tangible book value as of June 30, 2007 was $9.2 million, or $0.06 per share of common stock. Our pro forma net tangible book value per share set forth below represents our total tangible assets less our total liabilities, divided by the number of shares of our common stock outstanding on June 30, 2007, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock upon the closing of this offering and the       -for-             reverse split of shares of our common stock to be effected prior to the closing of this offering.

          After giving effect to our issuance and sale of             shares of our common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2007 would have been $                     million, or $         per share of our common stock. This represents an immediate increase in our net tangible book value to our existing stockholders of $         per share. The initial public offering price per share of our common stock will significantly exceed the pro forma as adjusted net tangible book value per share. Accordingly, new investors who purchase shares of our common stock in this offering will suffer an immediate dilution of their investment of $                                 per share. The following table illustrates this per share dilution to new investors purchasing shares of our common stock in this offering without giving effect to the underwriters' exercise of their option to purchase additional shares of our common stock in this offering:

          A $1.00 increase (decrease) in the assumed initial public offering price of $       per share would increase (decrease) the pro forma as adjusted net tangible book value by $              million, the pro forma as adjusted net tangible book value per share after this offering by $       per share and the dilution in pro forma as adjusted net tangible book value per share to investors in this offering by $       per share, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

          If the underwriters exercise in full their option to purchase additional shares of our common stock in this offering, the pro forma as adjusted net tangible book value will increase to $       per share, representing an immediate increase to existing stockholders of $       per share and an immediate dilution of $       per share to new investors. If any shares are issued upon exercise of outstanding options or warrants, you will experience further dilution.

          The following table summarizes, on a pro forma basis as of June 30, 2007, giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock, the differences between the number of shares of our common stock purchased from us, the total consideration paid to us, and the average price per share paid by existing

28

stockholders and by new investors purchasing shares of our common stock in this offering. The calculations below are based on an assumed initial public offering price of $       per share, which is the midpoint of the price range set forth on the cover of this prospectus, before the deduction of the estimated underwriting discounts and commissions and estimated offering expenses payable by us:

          The number of shares purchased from us by existing stockholders is based on 156,373,029 shares of our common stock outstanding as of June 30, 2007 after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into shares of our common stock upon the closing of this offering and the         -for-              reverse split of shares of our common stock to be effected prior to the closing of this offering. This number excludes:

•

105,841 shares of our common stock issuable upon the exercise of warrants outstanding and exercisable as of June 30, 2007 at a weighted average exercise price of $0.47 per share;



•

31,642,732 shares of our common stock issuable upon the exercise of stock options outstanding as of June 30, 2007 at a weighted average exercise price of $0.65 per share, of which options to purchase 12,570,629 shares of our common stock were exercisable as of June 30, 2007 at a weighted average exercise price of $0.24 per share; and



•

565,914 shares of our common stock available for future issuance under our equity compensation plans as of June 30, 2007.

          If the underwriters exercise in full their option to purchase additional shares of our common stock in this offering, the number of shares held by new investors will increase to                     , or    % of the total number of shares of our common stock outstanding after this offering.

          The sale of             shares of our common stock to be sold by the selling stockholders in this offering will reduce the number of shares of our common stock held by existing stockholders to             , or    % of the total shares outstanding, and will increase the number of shares of our common stock held by new investors to             , or     % of the total shares of our common stock outstanding. If the underwriters exercise in full their option to purchase additional shares of our common stock in this offering, the shares of our common stock held by existing stockholders will further decrease to             , or    % of the total shares of our common stock outstanding, and the number of shares of our common stock held by new investors will further increase to             , or    % of the total shares of our common stock outstanding.

29

SELECTED CONSOLIDATED FINANCIAL DATA

          We have derived the consolidated statement of operations data for the years ended December 31, 2004, 2005, and 2006 and the consolidated balance sheet data as of December 31, 2005 and 2006 from our audited consolidated financial statements, which are included in this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 2002 and 2003 and the consolidated balance sheet data as of December 31, 2002, 2003 and 2004 from our audited consolidated financial statements, which are not included in this prospectus. We have derived the consolidated financial data for the six months ended June 30, 2006 and 2007 and as of June 30, 2007 from our unaudited consolidated financial statements, which are included in this prospectus. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as our audited financial statements and include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair statement of the financial information set forth in those statements. Our historical results for any prior period are not necessarily indicative of results to be expected for any future period.

          You should read these selected consolidated financial data together with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.

30

(1)

Includes stock-based compensation expense as follows:

(2)

The pro forma weighted average shares outstanding reflects the automatic conversion of shares of all outstanding shares of our convertible preferred stock (using the if-converted method) into shares of our common stock as though the conversion had occurred at the beginning of the period.

31

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

          You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and the other financial information included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the "Risk Factors" section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this prospectus.

Overview

          We were incorporated in May 2001 with a vision of simplifying the way enterprises retain, access, manage and protect their data. We shipped our first products in May 2003, and since then we have sold our products to over 2,700 customers in more than 30 countries across a broad range of industries. We sell our products exclusively through a growing network of channel partners, enabling us to cost effectively increase our market penetration. As of June 30, 2007, more than 470 of these channel partners are active channel partners, or channel partners that sold our products and services during the prior twelve months.

          Our products are designed specifically for mid-sized enterprises that have complex storage needs but cannot justify the high procurement and management costs of other SAN alternatives. They combine high-performance and high-availability disk storage with a comprehensive suite of intelligent storage management software. Our complete set of software features is included in the product purchase price, with unspecified software upgrades included in customer service agreements that most customers purchase.

          We maintain our corporate headquarters in Nashua, New Hampshire. We use these facilities for research and development, customer support and sales and marketing, as well as for the assembly, quality control, packaging and shipping of our SATA products. Our sales employees are also located in various other locations throughout the United States, as well as in Canada, the United Kingdom, Germany, France, the Netherlands, Belgium, Denmark and Japan. We added 108 employees during the six months ended June 30, 2007 and had 325 employees as of June 30, 2007.

Key Business Metrics

          In evaluating our business performance, our management monitors numerous qualitative and quantitative factors. The primary financial metrics we monitor are revenue, gross margin, operating expense and cash flow. The principal non-financial metrics we monitor are:

•

the number of new customers added,



•

the number of channel partners selling our products,



•

the percentage of our customers that have owned an EqualLogic array for at least one year and purchase an additional array during a specified period, which we refer to as our long-term repeat order rate, and



•

the rate at which our customers enter into service agreements with us, which we refer to as our attachment rate, which affects the total number of storage arrays covered by services agreements.

32

          We believe our continued revenue growth depends largely on our ability to attract new customers, and consider continued expansion in the number of channel partners selling our products to be an important factor in expanding our customer base and, as a result, our product revenue. The number of our active channel partners selling our products has increased from approximately 55 as of December 31, 2004 to over 470 as of June 30, 2007. As a result, the number of customers using our products has increased from approximately 640 as of December 31, 2004 to more than 2,700 as of June 30, 2007. During the year ended December 31, 2004, one channel partner accounted for approximately 10% of our total revenue. During the six months ended June 30, 2007, one of our channel partners, the purchasing agent of CDW Corporation, accounted for approximately 16% of our total revenue. During the years ended December 31, 2005 and 2006 and the six months ended June 30, 2007, no individual customer accounted for greater than 10% of our total revenue. Additional sales to existing customers as they deploy additional applications and as their capacity needs increase is also an important driver of revenue growth. For the six months ended June 30, 2007, our long-term repeat order rate was approximately 35%.

          As we expand our sales capabilities and channel partner base in the European and Asia Pacific markets, we expect overseas revenue to increase in absolute dollars and as a percentage of our total revenue. Revenue outside of North America accounted for approximately 17% and 16% of our total revenue during the year ended December 31, 2006 and the six months ended June 30, 2007, respectively.

          We believe our product revenue growth also depends on our ability to introduce, and the market's acceptance of, new, typically higher priced, products with higher capacity and performance as well as features designed to address the evolving storage needs of mid-sized enterprises. We have and will continue to periodically introduce such products. The price for any particular storage array typically declines over time as the costs of the underlying hardware components, particularly disk drives, decrease. Our revenue growth also depends on our ability to sustain our current high level of customer satisfaction generated, in part, by our customer service operations. We survey our customers on a quarterly basis to determine their level of satisfaction with our products and services and to identify opportunities for improvement.

          Growth of our services revenue depends on increasing the number of systems under customer service agreements, which in turn relies upon selling service agreements with product purchases and on continued renewal of existing customer service agreements. We expect our services revenue to continue to increase as our installed product base increases.

          Our ability to achieve and sustain profitability will be affected by our ability to maintain our gross margin and the rate at which we incur additional expenses to attract new customers, develop new products, support the highly transactional nature of our revenue stream, provide effective customer service and expand our general and administrative capabilities. As we expand internationally, we may incur additional costs to conform our products to comply with local laws or local product specifications and to ship our products to our international customers.

Revenue

          We derive our revenue from the sale of products and related customer service agreements. Product sales include embedded software and are typically accompanied by customer service agreements that provide parts replacement, unspecified software upgrades, telephone support and, often, on-site repair service.

          We maintain standard price lists for our products and customer service agreements and have a company policy that governs the levels of pricing incentives our sales organization may offer our channel partners based on factors such as partner status, transaction size and gross profit. Our

33

product revenue and gross profit are directly affected by our ability to manage our pricing policy. Competition in the storage area network market is intense, and in the future we may be forced to reduce our prices to remain competitive.

          The following table presents information with respect to our revenues based on customers' geographical locations:

Cost of Revenue and Gross Margin

          Cost of product revenue consists primarily of amounts paid to suppliers of components used in our SATA products, which we assemble, test, package and ship, and amounts paid to Xyratex, which performs these functions for our SAS products on an outsourced basis. Other costs of product revenue include provisions for warranty obligations, provisions for excess and obsolete inventory, if any, allocated facility and IT overhead costs, shipping charges and personnel-related expenses. Cost of services revenue consists primarily of personnel-related expenses for our customer service organization along with amounts paid to third parties to provide call logging, contract validation, problem definition and on-site repair and parts replacement. Personnel-related expenses include salaries, fringe benefits, recruiting and stock-based compensation.

          Our gross margin has been, and will continue to be, affected by a variety of factors, including our relative mix of product versus services revenue and changes in the average selling price of our products and services. Our average product selling price can be affected by competitive pressures, the relative mix of product models purchased and the level of pricing incentives that we offer to our channel partners. Other factors that affect product gross margins include the timing of new product introductions and enhancements, fluctuations in market prices for the components that we incorporate in our systems, for which we have no long-term supply contracts, and overhead and profit rates paid to Xyratex. The gross margin for any particular storage array has tended to be relatively stable over time, despite the fact that its price may decline, because the costs of the underlying hardware components tend to decrease as well. In addition, if our customer base continues to grow, we will be required to invest further in our customer service organization and infrastructure. The timing and amount of these expenditures could affect our cost of services revenue and cause our services margins to vary over time.

Operating Expenses

          Operating expenses consist primarily of research and development, sales and marketing and general and administrative expenses. Personnel-related expenses, which include salaries, fringe benefits, recruiting and stock-based compensation, comprise the most significant component of each of these functional categories. We expect to continue to hire significant numbers of new employees in order to support our anticipated growth. In any particular period, the timing of additional hires could materially affect our operating expenses, both in absolute dollars and as a percentage of revenue.

34

Research and Development

          Research and development expenses consist primarily of personnel-related expenses, costs of prototype equipment, costs of using contractors, allocated facility and IT overhead expenses and depreciation of equipment used in research and development activities. We expense research and development costs as incurred. We intend to continue to invest significantly in our research and development efforts, which we believe are essential to maintaining our competitive position. As a result, we expect research and development expenses to increase in absolute dollars, although we expect these expenses to decrease as a percentage of revenue.

Sales and Marketing

          Sales and marketing expenses represent the largest component of our operating expenses and consist primarily of personnel-related expenses, employee sales commissions, marketing programs and allocated facility and IT overhead expenses. We intend to continue to invest heavily in sales and marketing by increasing the number of sales and channel support personnel worldwide and by increasing lead generation and brand awareness activities. Sales and channel support personnel provide technical and sales assistance to our channel partners, which we believe increases the product expertise that can be conveyed to potential customers. We expect sales and marketing expenses to increase in absolute dollars, although we expect these expenses to decrease as a percentage of revenue. New sales personnel are generally not immediately productive and, as a result, the rate of new hires may reduce short-term operating margins until the additional sales personnel become fully productive. The timing of sales personnel hiring and the rate at which they become productive will, therefore, affect our future performance.

General and Administrative

          General and administrative expenses consist primarily of personnel-related expenses related to our executive, finance, human resource and legal organizations, fees for professional services and allocated facility and IT overhead expenses. Professional services consist principally of external legal, tax and audit services. We expect general and administrative expenses to increase as we incur additional costs related to operating as a publicly-traded company, including increased audit and legal fees, costs of compliance with securities and other regulations, investor relations expenses and higher insurance premiums, particularly those related to director and officer insurance. In addition, we expect to incur additional costs as we hire personnel and enhance our infrastructure to support the anticipated growth of our business, including IT expenses associated with the design and implementation of a new enterprise resource planning software system. As a result of these additional costs, we expect general and administrative expenses to increase in absolute dollars and as a percentage of revenue during 2008.

Other income (expense), net

          Other income (expense), net consists primarily of interest income on cash balances, interest expense on capital leases and expenses associated with the revaluation of warrants. We have historically invested our cash in money market funds.

Provision for Income Taxes

          We have incurred net losses since inception and have not recorded provisions for U.S. federal income taxes since the tax benefits of our net losses have been offset by valuation allowances.

35

Application of Critical Accounting Policies and Use of Estimates

          Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated financial statements, the disclosure of contingencies as of the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the periods presented. Although we believe that our estimates and judgments are reasonable under the circumstances, actual results may differ from those estimates.

          We believe that of our significant accounting policies, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, we believe that the following accounting policies are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

          Our software is fully integrated with our hardware and is essential to the functionality of our products. We provide unspecified software upgrades and enhancements related to our products through customer service agreements. Accordingly, we recognize revenue in accordance with the guidance provided under American Institute of Certified Public Accountants, or AICPA, Statement of Position 97-2, Software Revenue Recognition, or SOP 97-2, and Statement of Position 98-9, Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions, or SOP 98-9, for all transactions involving the sale of software. Product revenue is recognized when all of the following have occurred:

•

we have entered into a legally-binding sales arrangement with the purchaser;



•

payment is deemed fixed or determinable, meaning that final terms of sale including the description, quantity and price of each product purchased are settled and payment is free of contingencies and significant uncertainties;



•

delivery has occurred, which is when the product title has transferred to the purchaser; and



•

collection is probable based on our assessment of our ability to collect, which we derive from a number of factors, including the creditworthiness of, and our past transaction history with, the purchaser. If a purchaser does not meet our credit standards, all revenue from an arrangement with that purchaser is deferred until payment is received and all other revenue recognition criteria have been met.

          We recognize revenue for our storage arrays, which include multiple elements, using the residual method as allowed by SOP 98-9. Under this method, we allocate and defer revenue for the undelivered elements, which are generally service and support, based on the fair value of the undelivered elements. We recognize the difference between the total arrangement fee and the amount deferred for the undelivered elements as product revenue. The determination of fair value of the undelivered elements is based on the price charged when those elements are sold separately, which is referred to as vendor specific objective evidence of fair value, or VSOE.

          We have established VSOE for maintenance contracts for all periods included in our consolidated statements of operations. We have not established VSOE for installation and training services.

          We have established VSOE for the fair value of our customer service agreements based on the renewal prices offered to and paid for these services. As a result, product revenue is generally recognized upon shipment, assuming all other criteria for recognition discussed above have been

36

met. The fair value of the customer service is recognized as services revenue on a straight-line basis over the term of the related support period, which is typically one to three years. Where installation or training services are sold together with product and maintenance services, all revenue is deferred until the installation or training services are complete, at which time revenue is recorded under the residual method.

Stock-Based Compensation

          Through December 31, 2005, we accounted for our stock-based employee compensation arrangements in accordance with the intrinsic value provisions of Accounting Principles Board, or APB, Opinion 25, and related interpretations. Under the intrinsic value method, stock-based compensation expense is measured on the date of any stock-based grant as the difference between the fair value of our common stock and the exercise or purchase price of the stock-based award multiplied by the number of option or restricted stock-based awards granted.

          We account for stock-based compensation issued to non-employees in accordance with Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with, Selling Goods or Services. We record the expense for such services based on the estimated fair value of the stock-based instruments granted using the Black-Scholes option pricing model. The value of the stock-based instrument is charged to earnings over the term of the service agreement.

          In December 2004, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, 123(R), which requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. We adopted SFAS 123(R) effective January 1, 2006. SFAS 123(R) requires non-public companies that used the minimum value method under SFAS No. 123, Stock-Based Compensation for either recognition or pro forma disclosures to apply SFAS 123(R) using the prospective-transition method. Accordingly, we will continue to apply APB Opinion 25 in future periods to stock-based awards outstanding at the date of adoption of SFAS 123(R) that were measured using the minimum value method. In accordance with SFAS 123(R), we will recognize the compensation cost of employee stock-based awards granted or modified subsequent to December 31, 2005 in our statement of operations using the straight line method over the vesting period of the award. Effective with the adoption of SFAS 123(R), we have elected to use the Black-Scholes option pricing model to determine the fair value of stock options granted.

          As there has been no public market for our common stock, and therefore a lack of company-specific historical and implied volatility data, we determined the share price volatility for stock options granted during the year ended December 31, 2006 based on an analysis of reported data for a peer group of companies that granted stock options with substantially similar terms. The expected volatility of stock options granted was determined using an average of the historical volatility measures of this peer group of companies for a period that approximated the expected life of the stock option. The expected volatility for stock options granted during the year ended December 31, 2006 was 36% to 45%, and during the six months ended June 30, 2007 was 45%. We intend to continue to consistently apply this process using the same or similar peer groups until a sufficient amount of historical information regarding the volatility of our share price becomes available, or until circumstances change such that the identified companies in our peer group are no longer similar to us. In this latter case, more suitable, similar companies whose share prices are publicly-available would be utilized in the calculation.

          The expected life of stock options was determined utilizing the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin No. 107, Share-Based Payment. The expected life of stock options granted during the year ended December 31, 2006 and the six months ended

37

June 30, 2007 was 6.25 years. The risk-free interest rates used ranged from 4.55% to 5.08% during the year ended December 31, 2006 and the six months ended June 30, 2007. The risk-free interest rate is based on the daily treasury yield curve rate whose term is consistent with the expected life of the stock options granted. We have not paid and do not anticipate paying cash dividends on shares of our common stock, and accordingly, we have assumed the expected dividend yield to be zero.

          SFAS 123(R) requires that we recognize compensation expense only for the portions of stock options granted that are expected to vest. As a result, forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Our historical policy, as permitted under SFAS 123, was to record forfeitures based on actual forfeitures. Our estimated forfeiture rates as of December 31, 2006 and June 30, 2007 were 4.6% and 4.9%, respectively.

          We have historically granted stock options at exercise prices that are not less than the fair market value of shares of our common stock on the date of grant as determined by our board of directors, with input from management. As a result, our stock options historically have had no intrinsic value on the date of grant. Our board of directors exercised judgment in determining the fair market value of shares of our common stock on the dates of grant based on a number of objective and subjective factors. Factors considered by our board of directors included:

•

the agreed-upon consideration paid in arms-length transactions for shares of our convertible preferred stock;



•

the superior rights and preferences of securities senior to our common stock at the time of the grant;



•

historical and anticipated fluctuations in our net sales and results of operations;



•

the risk of owning our common stock, its illiquid nature and the prospects for a liquidity event; and



•

the market prices of publicly-traded companies engaged in the same or similar lines of business, as well as newly-public technology companies with similar financial profiles.

          Information regarding our stock option grants during the year ended December 31, 2006 and the six months ended June 30, 2007 is summarized in the table below.

          In addition, on August 10, 2007, we granted options to purchase 1,353,250 shares of our common stock, each with an exercise price per share of $4.44, which was the fair value of shares of our common stock on the grant date as determined by our board of directors.

          Based on the midpoint of the price range set forth on the cover of this prospectus, the aggregate intrinsic value of our vested outstanding stock options as of June 30, 2007 was

38

$                    , and the aggregate intrinsic value of our unvested outstanding stock options as of June 30, 2007 was $                    .

          The exercise prices of the stock options set forth in the table above were determined by our board of directors utilizing a valuation model that takes into account the factors listed above. This model employed the weighted average values developed using the market multiple of historical revenue approach based on comparable public companies, as well as the discounted cash flow method based on internal financial projections. The resulting enterprise value from that analysis was then utilized in the option pricing method outlined in the American Institute of Certified Public Accountants, or AICPA, Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. These analyses were done on a contemporaneous basis with each fair market value determination made by our board of directors.

          For option grants made during 2006, our board of directors determined that the fair value of our common stock increased from $0.81 per share during the first half of the year to $0.88 per share in December. These determinations were based primarily on the affect that our improving financial performance had on our valuation model. The valuation model assumed that a liquidity event, specifically an initial public offering, was not probable in the next twelve months and as a result applied a liquidity discount of 15%. The probability of a future public offering was affected by our lack of a permanent chief financial officer and our determination that an investment in sales and marketing would be required to support our planned revenue growth.

          In February 2007, our board of directors determined that the fair value of our common stock had increased to $0.98 per share based primarily on our increased revenue, which, when applied to the valuation model, resulted in a higher value under the market multiple approach. The valuation model assumed that a liquidity event, specifically an initial public offering, remained unlikely in the next twelve months. The probability of a future public offering was affected by the fact that our chief financial officer had only recently joined our company, so there was no plan in place to assess our readiness or support for an initial public offering. In addition, the fact that our senior sales executive position was vacant was delaying planned investments in the sales organization necessary to support our planned revenue growth. The valuation model applied a liquidity discount of 15% and a discount rate of 24% for forecasted cash flows. The discount rate was applied to convert our forecasted cash flows to their present value equivalent. These assumptions were consistent with those used in 2006.

          On March 5, 2007, our board of directors determined that the fair value of our common stock had increased to $1.29 per share. This increase was due in part to higher trading multiples applied under the market multiple approach as a result of adding two newly-public technology companies with similar financial profiles to our group of comparable public companies. The valuation model assumed an increased probability of an initial public offering in the next twelve months. The increased probability of a public offering was affected by the development of an initial public offering plan, which was presented to our board of directors on March 5, 2007, the hiring of our executive vice president of worldwide field operations and an improved outlook for comparable publicly-traded companies. This increased probability was reflected in a reduction in the liquidity discount to 10% and a reduction in our discount rate to 22%.

          At its meeting on May 15, 2007, our board of directors determined that the fair value of our common stock had increased to $2.31 per share. The increase resulted primarily from continued increases in our revenue, which, when applied to the valuation model, resulted in a higher value under the market multiple approach. In addition, the trading multiples increased due to the inclusion of two additional newly-public technology companies to our group of comparable public companies and the removal of one company from the group due to poor financial performance that was inconsistent with our performance and the performance of other members of the group. The

39

valuation model assumed a higher probability of a public offering because we had begun our initial public offering process, including discussions with potential lead underwriters. As a result, the liquidity discount was eliminated and our discount rate was reduced to 17%.

          On August 10, 2007, our board of directors determined that the fair value of our common stock had increased to $4.44 per share. In addition to the existing valuation model, the board of directors employed a probability weighted expected return methodology. In reaching this fair value determination, the board considered the increased probability of an initial public offering as evidenced by the filing of our registration statement with the SEC on August 9, 2007. Other factors contributing to the increase included improvements in the market for comparable public companies, the strength of our second quarter 2007 financial performance, and resulting improvements in our financial projections.

          We recorded stock-based compensation expense of $0.7 million during the year ended December 31, 2006 and $1.0 million during the six months ended June 30, 2007. We recognized no stock-based compensation expense for options granted to employees under our 2001 stock plan during the years ended December 31, 2005 and 2004. In future periods, stock-based compensation expense may increase as we issue additional stock-based awards to continue to attract and retain employees and non-employee directors.

          As of December 31, 2006 and June 30, 2007, total compensation expense related to stock-based awards granted but not yet recognized was approximately $2.2 million and $7.5 million, respectively, net of estimated forfeitures of $0.1 million and $0.4 million, respectively. This expense will be amortized on a straight-line basis over weighted average periods of approximately 3.5 years at December 31, 2006 and 3.7 years at June 30, 2007.

Inventory Valuation

          Inventories consist of finished products and related component parts, including spare parts, and are stated at the lower of cost (on a first-in, first-out basis) or market value. We assess the valuation of our inventory on a quarterly basis and write down the value for estimated excess and obsolete inventory based upon estimates of future demand for our inventory, including warranty requirements. Inventory valuation reserves were $0.0 million, $0.3 million and $0.2 million as of December 31, 2005 and 2006 and June 30, 2007, respectively. If actual market conditions are less favorable than our projections, we may be required to write down additional inventory.

Warranty Reserve

          We warrant that our products will perform in all material respects in accordance with their standard published specifications. The term of our standard hardware warranty is 24 months. We accrue for estimated future warranty costs on our product sales at the time of sale based upon warranties provided to us by our suppliers and our historical experience. Warranty reserves were $0.1 million, $0.3 million and $0.5 million as of December 31, 2005 and 2006 and June 30, 2007, respectively. If actual warranty experience is less favorable than our projections, we may be required to record additional reserves.

Allowance for Doubtful Accounts

          We sell our products to channel partners for resale to our customers. We may sell customer service agreements directly to customers, or they may be sold through our channel partners. We perform ongoing evaluations of our channel partners and customers and continuously monitor collections and payments. We record an allowance for doubtful accounts based on a combination of the aging of the underlying receivables, historical experience and identification of any specific collection issues. We monitor and analyze the accuracy of our allowance for doubtful accounts by

40

reviewing collection history and adjust it accordingly for future expectations. To date, our actual experience has not been significantly different than the amounts reserved. We believe appropriate reserves have been established, but these reserves may not be indicative of future credit losses that we may experience. Our allowance for doubtful accounts was $0.2 million, $0.5 million and $0.4 million as of December 31, 2005 and 2006 and June 30, 2007, respectively. If the financial conditions of our channel partners or customers deteriorate, their abilities to make payments to us of amounts owed may be compromised, and we may be required to record additional allowances.

Accounting for Income Taxes

          We use the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured under enacted tax laws. A valuation allowance is required to offset any net deferred tax assets if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

          Since we have incurred net losses since inception, we have not recorded provisions for U.S. federal or state income taxes. As of December 31, 2006, we had federal and state net operating loss carry-forwards of $14.8 million and $13.9 million, respectively, which will begin to expire in 2021 and 2008, respectively. We also had federal research and development credit carry-forwards of $1.8 million which will begin to expire in 2021. In addition, approximately $1.1 million of the federal net operating loss is attributable to stock option deductions, which will be charged to additional paid-in capital when used to reduce taxes payable. We determine deferred tax assets and liabilities based on the differences between the financial statement basis and tax basis of assets and liabilities, using enacted tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance against net deferred tax assets is required if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Due to the uncertainties surrounding the realization of these favorable tax attributes in future tax returns, the net deferred tax assets have been fully offset by a valuation allowance.

          In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertain Tax Positions, or FIN 48, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006 and upon adoption on January 1, 2007, we recognized no material adjustment in our liability for unrecognized income tax benefit.

          We are liable for income taxes on profits earned by our foreign sales and marketing subsidiaries based on a cost plus arrangement between the foreign subsidiary and the U.S. parent company. We expect our foreign income taxes to increase as we expand our overseas sales and marketing infrastructure.