<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------------
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NO. 0-11007
EMULEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0300558
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification No.)
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
(Address of principal executive offices) (Zip Code)
(714) 662-5600
(Registrant's telephone number, including area code)
--------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of May 3, 1996, the registrant had 5,956,666 shares of common stock
outstanding.
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EMULEX CORPORATION AND SUBSIDIARIES
INDEX
PAGE
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1996 and July 2, 1995 2
Condensed Consolidated Statements of Operations
Three and nine months ended March 31, 1996
and April 2, 1995 3
Condensed Consolidated Statements of Cash Flows
Nine months ended March 31, 1996 and April 2, 1995 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
March 31, July 2,
1996 1995
-------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................ $ 2,908 $10,308
Accounts and notes receivable, net............................... 10,511 12,896
Inventories, net................................................. 13,485 14,261
Prepaid expenses and other assets................................ 2,176 1,549
------- -------
Total current assets 29,080 39,014
Property, plant and equipment, net.................................... 7,381 8,451
Other assets 468 85
------- -------
$36,929 $47,550
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of capitalized lease obligations............ $ 219 $ 243
Accounts payable................................................. 6,316 8,371
Accrued liabilities.............................................. 5,306 5,356
------- -------
Total current liabilities.................................... 11,841 13,970
Capitalized lease obligations, excluding
current installments............................................. 96 253
Deferred income taxes................................................. 2,649 2,649
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, none issued; 150,000 shares designated as
Series A Junior Participating, $.01 par value; none issued - -
Common stock, $.20 par value; 20,000,000 shares
authorized; 5,945,772 and 5,860,923 issued and
outstanding at March 31, 1996 and July 2, 1995,
respectively................................................. 1,189 1,172
Additional paid-in capital....................................... 6,396 6,014
Retained earnings................................................ 14,758 23,492
------- -------
Total stockholders' equity............................................ 22,343 30,678
------- -------
$36,929 $47,550
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- --------------------
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net revenues ............................. $ 12,702 $ 19,104 $ 35,822 $ 55,892
Cost of sales ............................ 8,445 11,017 24,247 32,516
-------- -------- -------- --------
Gross profit ........................ 4,257 8,087 11,575 23,376
Operating expenses:
Engineering and development ......... 2,781 2,709 8,721 7,781
Selling and marketing ............... 2,944 3,206 8,759 8,963
General and administrative .......... 1,243 1,311 3,719 4,147
Amortization of goodwill ............ -- 84 -- 252
-------- -------- -------- --------
Total operating expenses ........ 6,968 7,310 21,199 21,143
-------- -------- -------- --------
Operating income (loss) ......... (2,711) 777 (9,624) 2,233
Nonoperating income ...................... 374 194 503 921
-------- -------- -------- --------
Income (loss) before income taxes (2,337) 971 (9,121) 3,154
Provision for (benefit from) income taxes -- 97 (387) 315
-------- -------- -------- --------
Net income (loss) ................... $ (2,337) $ 874 $ (8,734) $ 2,839
======== ======== ======== ========
Net income (loss) per common and
common equivalent share ............. $ (0.39) $ 0.14 $ (1.47) $ 0.46
======== ======== ======== ========
Weighted average number of common
and common equivalent shares ........ 5,942 6,251 5,926 6,116
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------
March 31, April 2,
1996 1995
--------- -------
<S> <C> <C>
Continuing Operations
Cash flows from operating activities:
Income (loss) from continuing operations ....................... $(8,734) $ 2,839
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by (used in)
operating activities:
Depreciation and amortization .......................... 1,761 2,351
Loss (gain) on disposal of property, plant and equipment (155) 144
Provision for doubtful accounts ........................ 84 77
Changes in assets and liabilities:
Accounts receivable ................................. 2,301 (1,583)
Inventories ......................................... 776 889
Accounts payable .................................... (2,055) 2,311
Accrued liabilities ................................. 24 (52)
Income tax receivable ............................... (26) 16
Long term deferred tax asset ........................ (387) --
Deferred income taxes ............................... -- 1,924
Deferred income ..................................... -- (1)
Prepaid expenses and other assets ................... (597) (646)
------- -------
Net cash provided by (used in) operating activities .... (7,008) 8,269
------- -------
Cash flows from investing activities:
Net proceeds from sale of property, plant and equipment ........ 1,024 5
Additions to property, plant and equipment ..................... (1,560) (1,900)
------- -------
Net cash used in investing activities .................. (536) (1,895)
------- -------
Cash flows from financing activities:
Principal payments under capital leases ........................ (181) (204)
Proceeds from issuance of common stock ......................... 399 893
------- -------
Net cash provided by financing activities .............. 218 689
------- -------
Net cash provided by (used in) continuing operations ................ (7,326) 7,063
Net cash used in discontinued operations ............................ (74) (340)
------- -------
Net increase (decrease) in cash and cash equivalents ................ (7,400) 6,723
Cash and cash equivalents at beginning of period .................... 10,308 6,772
------- -------
Cash and cash equivalents at end of period .......................... $ 2,908 $13,495
======= =======
Supplemental disclosures:
Cash paid during the period (related to continuing
and discontinued operations) for:
Interest ....................................................... $ 28 $ 23
Income taxes ................................................... 133 6
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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EMULEX CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all adjustments (which are normal recurring
accruals) necessary to present fairly the financial position as of March 31,
1996 and July 2, 1995, and the results of operations for the three and nine
months ended March 31, 1996 and April 2, 1995 and the statements of cash
flows for the nine months then ended. Interim results for the three and nine
months ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending June 30, 1996. References to dollar
amounts are in thousands, unless otherwise specified.
2. Inventories
Inventories, net, are summarized as follows:
<TABLE>
<CAPTION>
March 31, July 2,
1996 1995
-------- -------
<S> <C> <C>
Raw materials $ 7,091 $ 9,223
Work in process 2,711 2,036
Finished goods 3,683 3,002
------- -------
$13,485 $14,261
======= =======
</TABLE>
3. Net Income (Loss) per Share
Net income (loss) per common and common equivalent share was computed based
on the weighted average number of common and common equivalent shares
outstanding during the periods presented. The Company has granted certain
stock options which have been treated as common share equivalents in
computing both primary and fully diluted income per share. Common share
equivalents have been excluded from the calculation of both primary and
fully diluted loss per share for the three and nine months ended March 31,
1996, as the effect would have been antidilutive. The primary and fully
diluted income (loss) per share computations are approximately the same.
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Part I. Item 2.
EMULEX CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(dollars in thousands)
RESULTS OF OPERATIONS
The following table sets forth selected items from the Condensed Consolidated
Statements of Operations. This table should be read in conjunction with the
Condensed Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
Percentage of Net Revenue Percentage of Net Revenue
For the Three Months Ended For the Nine Months Ended
-------------------------- ------------------------------
March 31, April 2, March 31, April 2,
1996 1995 1996 1995
-------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net revenues ............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ............................ 66.5 57.7 67.7 58.2
----- ----- ----- -----
Gross profit ........................ 33.5 42.3 32.3 41.8
Operating expenses:
Engineering and development ......... 21.9 14.2 24.3 13.9
Selling and marketing ............... 23.1 16.8 24.5 16.0
General and administrative .......... 9.8 6.8 10.4 7.4
Amortization of goodwill ............ -- 0.4 -- 0.5
----- ----- ----- -----
Total operating expenses ........ 54.8 38.2 59.2 37.8
----- ----- ----- -----
Operating income (loss) ......... (21.3) 4.1 (26.9) 4.0
Nonoperating income ...................... 2.9 1.0 1.4 1.6
----- ----- ----- -----
Income (loss) before income taxes (18.4) 5.1 (25.5) 5.6
Provision for (benefit from) income taxes -- 0.5 (1.1) 0.5
----- ----- ----- -----
Net income (loss) ................... (18.4) % 4.6% (24.4)% 5.1%
===== ===== ===== =====
</TABLE>
NET REVENUES
Net revenues for the three and nine month periods ended March 31, 1996 were
$12,702 and $35,822, respectively, as compared to $19,104 and $55,892 for the
same periods last fiscal year. These amounts represent a decrease in net
revenues compared to the prior year of $6,402, or 34 percent, for the three
month period and $20,070, or 36 percent, for the nine month period. These
decreases in net revenues are primarily attributable to lower sales to original
equipment manufacturers (OEMs), which declined from the levels recorded in the
comparable periods a year ago by $4,476, or 47 percent, for the three month
period and by $19,141, or 63 percent, for the nine month period. The lower level
of OEM sales resulted primarily from a collective $5,352, or 91 percent,
reduction in third quarter shipments to Xerox, Cisco Systems and Reuters when
compared to the third quarter a year earlier and a $18,701, or 88 percent,
reduction in shipments to these same three customers for the nine month period
when compared to the same period of fiscal 1995. While Xerox took delivery of
their new generation of printer servers during the second quarter of the current
year, volumes were lower than a year earlier for the previous generation of
printer servers. Additionally, one product reached the end of its life cycle
with Cisco Systems in the fourth quarter of last fiscal year and, as
anticipated, shipments of that product have
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stopped. Sales to Reuters declined from the levels recorded in the three and
nine month periods a year earlier due to the completion of certain of Reuters'
modernization projects in Europe. While Emulex believes that it will be asked to
participate in Reuters's future WAN applications in other geographic regions,
there can be no assurance that any such business will, in fact, be awarded to
Emulex.
From a product line perspective, when compared to the prior year, network access
revenues for the three and nine month periods ended March 31, 1996 declined by
$4,442, or 42 percent, and $13,443, or 45 percent, respectively, and printer
server revenues declined by $2,208, or 29 percent, and $8,832, or 37 percent,
respectively. The Company's emerging Fibre Channel product line contributed
revenues of $230 and $571 for the three and nine month periods ended March 31,
1996. There were no shipments of Fibre Channel products in the same periods a
year earlier. For the three and nine month periods ended March 31, 1996 other
product lines increased by $20, or 3 percent, and by $162, or 7 percent,
respectively, when compared to the comparable periods a year earlier.
Additionally, in the first quarter of fiscal 1996, the Company sold $1,472 of
memory devices that had been engineered out of certain products.
GROSS PROFIT
Gross profit for the three and nine month periods ended March 31, 1996 was 33.5
percent and 32.3 percent of net revenues, respectively, compared to 42.3 percent
and 41.8 percent in the same periods in the prior fiscal year. The decreases in
gross profit percentages from the levels recorded a year earlier are primarily
due to a lower absorption of manufacturing overhead in the current fiscal year
which resulted from the lower level of production activity.
OPERATING EXPENSES
During the three month period ended March 31, 1996, total operating expenses
decreased by $342, or 5 percent, when compared to the comparable period in the
prior fiscal year, while for the nine month period total operating expenses
increased by $56, less than 1 percent, compared to the prior year. Engineering
and development expenses for the three and nine month periods ended March 31,
1996 increased in comparison to the prior fiscal year by $72, or 3 percent, and
$940, or 12 percent, respectively. These increases in engineering and
development expenses in the current year reflect the Company's continuing
support for new product development programs despite the decline in net
revenues. Selling and marketing expenses decreased by $262, or 8 percent, in the
three month period ended March 31, 1996 and by $204, or 2 percent, for the nine
month period when compared to the same periods in the prior year. General and
administrative expenses declined in comparison to a year earlier by $68, or 5
percent, for the three month period and by $428, or 10 percent, for the nine
month period. These decreases resulted from reductions in administrative staff
and other cost control measures that were implemented during the current fiscal
year. Amortization of goodwill was $0 in the current fiscal year compared to $84
and $252 in the three and nine periods a year earlier. This decrease in
amortization of goodwill is due to the write off of goodwill and other
intangible assets in the fourth quarter of the prior fiscal year.
NONOPERATING INCOME
Nonoperating income for the three months ended March 31, 1996 increased by $180,
or 93 percent, compared to the same period a year earlier. This increase
resulted from a $312 gain on the sale of a production facility in Puerto Rico in
the third quarter of the current year offset by lower interest income. As a
result of increases in productivity, management determined that the capacity
provided by this facility was excess to its requirements and, therefore, was no
longer needed. For the nine month period ended March 31, 1996 nonoperating
income decreased by $418, or 45 percent, compared to the nine month period a
year earlier. The year to year decrease for the nine month period resulted
primarily from $538 of nonrecurring interest income associated with a tax refund
that was recognized in the second quarter of the prior fiscal year.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by $7,400 during the first
nine months of fiscal 1996 to $2,908. This decrease in available cash balances
since July 2, 1995 resulted primarily from the net loss experienced in the first
nine months of the current year. Operating activities used $7,008 of cash in the
nine month period ended March 31, 1996, compared to providing $8,269 of cash in
the same period a year earlier. Investing activities, which were limited to the
acquisition and disposition of property and equipment, used $536 of cash in the
first three quarters of the current fiscal year compared to using $1,895 in the
comparable period a year ago. Financing activities, which were limited to
payments under capital lease obligations and proceeds from the exercise of
employee stock options, provided $218 of cash during the first nine months of
fiscal 1996 compared to providing $689 of cash for the same period last fiscal
year. Discontinued operations used $74 of cash in the first three quarters of
fiscal 1996 compared to using $340 of cash in the same period a year ago.
In addition to its cash balances, the Company has a line of credit of up to
$5,000 with Silicon Valley Bank. There were no borrowings under the line of
credit during the first nine months of fiscal 1996. Under the terms of the line
of credit, the Company is required to grant Silicon Valley Bank a security
interest in its accounts receivable, inventories, equipment and other property
upon any borrowing. The line of credit with Silicon Valley Bank requires the
Company to satisfy certain financial and other covenants and conditions,
including prescribed levels of tangible net worth, profitability and liquidity.
On April 18, 1996, Silicon Valley Bank and the Company entered into an amendment
to the Loan Agreement, and other related documents, which amended certain of
these financial covenants. In the event the Company fails to comply with any
financial or other covenant in its loan agreement with Silicon Valley Bank, the
line of credit could become unavailable to the Company. In addition, after
borrowings have been made under the line of credit a failure to satisfy such
covenants would constitute an event of default, giving rise to the various
remedies available to a secured lender. There can be no assurance that the line
of credit will continue to be available to meet the Company's liquidity
requirements. The Company anticipates that borrowings under the line of credit
may be required during the next twelve months.
The Company believes that its existing cash balances, facilities and equipment
leases, anticipated cash flows from operating activities and borrowings under
its line of credit will be sufficient to support its working capital needs and
capital expenditure requirements for the next twelve months. However, the
Company has recently experienced reductions in revenue levels and significant
losses from operations. The Company's ability to meet its future liquidity
requirements is dependent upon its ability to operate profitably or, in the
absence thereof, to draw on its line of credit and to arrange additional
financing. If the Company were to continue to experience losses, additional debt
or equity financing would be required within six to nine months. While the
Company expects to return to profitability, there can be no assurances that
revenues will return to the levels experienced in the prior fiscal year or that
the Company would be profitable at such revenue levels. Furthermore, there can
be no assurances that future requirements to fund operations will not require
the Company to draw on its line of credit and seek additional financing, or that
such line of credit or additional financing will be available on terms favorable
to the Company and its stockholders, or at all.
BUSINESS ENVIRONMENT AND RISK FACTORS
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
The markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
products and enhancements. The Company believes that its future success will
depend in large part on its ability to enhance its existing products and to
introduce new products on a timely basis to meet changes in customer
preferences, emerging technologies and evolving industry standards. There can be
no assurance that the Company will be successful in developing, manufacturing
and marketing new products or product enhancements that respond to technological
changes or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products or that its new products will
adequately meet the requirements of the marketplace and achieve market
acceptance. Nor can there be any assurance that
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the Company will be able to develop or license from third parties the underlying
core technologies necessary for new products and enhancements. Additionally,
there can be no assurance that services, products or technologies developed by
others will not render the Company's products or technologies uncompetitive or
obsolete. If the Company is unable, for technological or other reasons, to
develop new products or enhancements of existing products in a timely manner in
response to changing market conditions or customer preferences, the Company's
business, results of operations and financial condition could be materially and
adversely affected.
RELIANCE ON OEMS, DISTRIBUTORS AND KEY CUSTOMERS
The Company's agreements with distributors and OEMs are typically non-exclusive
and in many cases may be terminated by either party without cause, and many of
the Company's distributors and OEMs carry, or have ready access to, competing
product lines. Therefore, there can be no assurance that any distributor or OEM
will continue to purchase the Company's products. The loss of or decline in
sales to important distributors or OEMs has in the past and would in the future
adversely affect the Company's business, results of operations and financial
condition.
EARLY STAGE OF THE FIBRE CHANNEL MARKET
The Company has invested and continues to invest substantially in the
engineering of products to address the Fibre Channel market, which is at an
early stage of development. For the first nine months of fiscal 1996,
approximately 30 percent of the Company's engineering and development
expenditures have been invested in Fibre Channel designs. There can be no
assurance that the Fibre Channel market will continue to expand or that the
Company's investment in Fibre Channel will achieve a profitable return.
COMPETITION
The markets for the Company's products are highly competitive and are
characterized by rapid technological advances, price erosion, frequent new
product introductions and evolving industry standards. The industry consists of
major domestic and international companies, many of which have substantially
greater financial, technical, marketing and distribution resources than the
Company, as well as emerging companies attempting to obtain a share of the
existing market. The Company's competitors continue to introduce products with
improved performance characteristics, and the Company will have to do the same
to remain competitive. The Company operates in a volatile and dynamic market,
and more aggressive market and product positioning by certain competitors could
have a material adverse effect on the Company's business, results of operations
and financial position.
RELIANCE ON THIRD PARTY SUPPLIERS
The Company's manufacturing process requires components supplied by outside
suppliers, some of which the Company obtains from single sources. There can be
no assurance that in the future the Company's suppliers will be able to meet the
Company's demand for such components in a timely and cost effective manner. The
Company's operating results and customer relationships could be adversely
affected by either an increase in prices for, or an interruption or reduction in
the supply of, any key components.
DEPENDENCE OF KEY PERSONNEL
The Company's success depends to a significant degree on the performance and
continued service of its senior management and certain key employees.
Competition for such highly skilled employees with technical, management,
marketing, sales product development and other specialized skills is intense,
and there can be no assurance that the Company will be successful in recruiting
and retaining such personnel. In addition, there can be no assurance that
employees will not leave the Company and, after leaving, compete against the
Company. The loss of key management, technical and sales personnel could have a
material adverse effect on the Company's business, financial condition and
operating results.
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FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Because the Company generally ships products within a short period after receipt
of an order, the Company typically does not have a material backlog of unfilled
orders, and revenues in any quarter are substantially dependent on orders booked
in that quarter. Typically the Company generates a large percentage of its
quarterly revenues in the last month of the quarter. Adding further to the
variability of sales are certain large OEM customers that tend to order
sporadically and in large amounts. A small variation in the timing of orders is
likely to adversely and disproportionately affect the Company's quarterly
results of operations as the Company's expense levels are based, in part, on its
expectations of future sales and only a small portion of the Company's expenses
vary directly with its sales. Therefore, the Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall of demand in relation to the Company's
quarterly expectations or any material delay of customer orders could have an
immediate and adverse impact on the Company's quarterly results of operations
and financial condition.
POSSIBLE VOLATILITY OF STOCK PRICE
As is the case with many technology based companies, the market price of the
Company's common stock has been, and is likely to continue to be, extremely
volatile. Factors such as new product introductions by the Company or its
competitors, fluctuations in the Company's quarterly operating results, the gain
or loss of significant contracts, pricing pressures and general conditions in
the computer market, and general events and circumstances beyond the Company's
control may have a significant impact on the market price of the Company's
common stock. In addition, the stock market recently has experienced significant
price and volume fluctuations which have particularly affected the market price
for many high technology companies like the Company.
This Form 10-Q contains certain forward-looking statements that involve risk and
uncertainties. The Company's actual results may differ materially from the
results discussed in these forward looking statements as a result of the risk
factors discussed above.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.1 Amendment to Loan Agreement dated April 18, 1996 between
Silicon Valley Bank and Emulex Corporation,
InterConnections, Inc., Emulex Europe Limited.
Exhibit 10.2 Amendment to Security Agreement dated April 18, 1996
between Silicon Valley Bank and Emulex Corporation, Emulex
Caribe, Inc., Computer Array Development, Inc., Highspeed
Communications, Inc., Digital House, Ltd., Emulex Foreign
Sales Corporation.
Exhibit 10.3 Schedule to Loan and Security Agreement dated April 18,
1996 between Silicon Valley Bank and Emulex Corporation,
InterConnections, Inc., Emulex Europe Limited.
Exhibit 27.1 Financial Data Schedule
(b) The registrant has not filed any reports on Form 8-K during the period
for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 6, 1996
EMULEX CORPORATION
By: /s/ Paul F. Folino
------------------------------------------------
Paul F. Folino
President and Chief Executive Officer
By: /s/ Walter J. McBride
------------------------------------------------
Walter J. McBride
Sr. Vice President & Chief Financial Officer
(Principal Financial & Chief Accounting Officer)
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[SILICON VALLEY BANK LOGO]
AMENDMENT TO LOAN AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATED: APRIL 18, 1996
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrowers named above (jointly and severally referred
to as the "Borrower").
The Parties hereby agree to amend the Loan and Security Agreement between
them, dated March 31, 1994, as amended by that Amendment to Loan Agreement dated
April 25, 1994, as amended by that Amendment to Loan Agreement dated July 1,
1994, as amended by that Amendment to Loan Agreement dated June 26, 1995, as
amended by that Amendment to Loan Agreement dated July 24, 1995, as amended by
that Amendment to Loan Agreement dated October 5, 1995, and as amended by that
Amendment to Loan Agreement dated January 18, 1996 (as so amended and as
otherwise amended or modified from time to time, the "Loan Agreement"), as
follows, effective as of March 25, 1996.
1. REVISED SCHEDULE. The Schedule to Loan Agreement is hereby deleted and
replaced with the Schedule to Loan Agreement as attached hereto.
2. REVISED SECTION 2.2A. Section 2.2A of the Loan Agreement is hereby
amended in its entirety to read as follows:
"2.2A GRANT OF SECURITY INTEREST IN COLLATERAL. The Borrower grants Silicon
a continuing security interest in all of the Borrower's interest in the
types of property described below, whether now owned or hereafter acquired,
and wherever located (collectively, the "Collateral") as security for all
Obligations: (a) All accounts, contract rights, chattel paper, letters of
credit, documents, securities, money, and instruments, and all other
obligations now or in the future owing to the Borrower; (b)
-1-
<PAGE> 2
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
- --------------------------------------------------------------------------------
All inventory, goods, merchandise, materials, raw materials, work in
process, finished goods, farm products, advertising, packaging and shipping
materials, supplies, and all other tangible personal property which is held
for sale or lease or furnished under contracts of service or consumed in
the Borrower's business, and all warehouse receipts and other documents;
and (c) All equipment, including without limitation all machinery,
fixtures, trade fixtures, vehicles, furnishings, furniture, materials,
tools, machine tools, office equipment, computers and peripheral
devices, appliances, apparatus, parts, dies, and jigs; (d) All general
intangibles including, but not limited to, deposit accounts, goodwill,
names, trade names, trademarks and the goodwill of the business symbolized
thereby, trade secrets, drawings, blueprints, customer lists, patents,
patent applications, copyrights, security deposits, loan commitment fees,
federal, state and local tax refunds and claims, all rights in all
litigation presently or hereafter pending for any cause or claim (whether
in contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, all rights to purchase
or sell real or personal property, all rights as a licensor or licensee of
any kind, all royalties, licenses, processes, telephone numbers,
proprietary information, purchase orders, and all insurance policies and
claims (including without limitation credit, liability, property and other
insurance), and all other rights, privileges and franchises of every kind;
(e) All books and records, whether stored on computers or otherwise
maintained; and (f) All substitutions, additions and accessions to any of
the foregoing, and all products, proceeds and insurance proceeds of the
foregoing, and all guaranties of and security for the foregoing; and all
books and records relating to any of the foregoing. Silicon's security
interest in any present or future technology (including patents, trade
secrets, and other technology) shall be subject to any licenses or rights
now or in the future granted by the Borrower to any third parties in the
ordinary course of Borrower's business; provided that if the Borrower
proposes to sell, license or grant any other rights with respect to any
technology in a transaction that, in substance, conveys a major part of the
economic value of that technology, Silicon shall first be requested to
release its security interest in the same, and Silicon may withhold such
release in its reasonable discretion."
3. ADDITIONAL DOCUMENTATION AND ACTIONS REGARDING GRANT OF SECURITY
INTEREST. In connection with the grant of the security interest as set forth in
Section 2.2A of the Loan Agreement as modified by this Amendment, Borrower
agrees to execute such additional documentation and take such additional actions
as Silicon determines in its discretion are necessary or desirable in connection
therewith. Further, Borrower agrees to cause all guarantors of the Obligations
to take such actions and execute such documentation as Silicon determines in its
discretion are necessary or desirable relating to the guaranties of such
guarantors and any grant of a security interest by such guarantor parties in
favor of Silicon, including, without limitation, with respect to Emulex Caribe,
Inc., the execution and delivery of the Puerto Rico Documentation.
4. REVISED SECTION 4.5. Section 4.5 of the Loan Agreement is hereby amended
in its entirety to read as follows:
"4.5 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At all reasonable times, and
upon one business day notice, Silicon, or its agents, shall have the right
to inspect the Collateral, and the right to audit and copy the Borrower's
accounting books and records and Borrower's books and records relating to
the Collateral. Silicon shall take reasonable steps to keep confidential
all information obtained in any such inspection or audit, but Silicon shall
have the right to disclose any such information to its auditors, regulatory
agencies, and attorneys, and pursuant to any subpoena or other legal
process. The foregoing audits shall be at Silicon's expense, except that
the
-2-
<PAGE> 3
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
- --------------------------------------------------------------------------------
Borrower shall reimburse Silicon for its reasonable out of pocket costs for
semi-annual accounts receivable audits by third parties retained by
Silicon, and Silicon may debit Borrower's deposit accounts with Silicon for
the cost of such semi-annual accounts receivable audits (in which event
Silicon shall send notification thereof to the Borrower)*. Notwithstanding
the foregoing, after the occurrence of an Event of Default all audits shall
be at the Borrower's expense.
* PROVIDED THAT IT IS AGREED THAT THE PER AUDIT CHARGE OF ANY SUCH AUDIT TO
BE CHARGED TO THE BORROWER SHALL NOT EXCEED $2,000, PROVIDED, FURTHER, THAT
SILICON AGREES TO SEND SUCH NOTIFICATION TO THE BORROWER SUBSTANTIALLY
CONCURRENTLY WITH ANY SUCH DEBIT OF BORROWER'S DEPOSIT ACCOUNTS"
5. REPRESENTATION REGARDING DISSOLVED CORPORATIONS. Borrower hereby
represents and warrants to Silicon that each of Emulex S.A.R.L., Emulex Italia
S.r.l., Emulex GmbH, Emulex Canada Inc., and Emulex Australia PTY. Limited,
affiliates of Borrower, have been dissolved in accordance with applicable law.
6. FEE. Borrower shall pay to Silicon a fee in the amount of $2,500 in
connection with this Amendment, which shall be in addition to all interest and
all other amounts payable hereunder and which shall not be refundable.
7. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
BORROWER: SILICON:
EMULEX CORPORATION SILICON VALLEY BANK
BY /s/ Paul F. Folino BY /s/ Michael P. Quain
------------------------------- ---------------------------------
PRESIDENT OR VICE PRESIDENT TITLE VP
BY /s/ Walter J. McBride
-------------------------------
SECRETARY OR ASS'T SECRETARY
BORROWER: BORROWER:
INTERCONNECTIONS, INC. EMULEX EUROPE LIMITED
BY /s/ Paul F. Folino BY /s/ Paul F. Folino
------------------------------- -------------------------------
PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT
BY /s/ Walter J. McBride BY /s/ Walter J. McBride
------------------------------- -------------------------------
SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY
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<PAGE> 4
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
- --------------------------------------------------------------------------------
GUARANTORS' CONSENT
The undersigned, guarantors, acknowledge that their consent to the foregoing
Amendment is not required, but the undersigned nevertheless do hereby consent to
the foregoing Amendment and to the documents and agreements referred to therein
and to all future modifications and amendments thereto, and to any and all other
present and future documents and agreements between or among the foregoing
parties. Nothing herein shall in any way limit any of the terms or provisions of
the Continuing Guaranty executed by the undersigned in favor of Silicon, which
is hereby ratified and affirmed and shall continue in full force and effect.
Guarantor Signature: Emulex Corporation, a Delaware corporation
By /s/ Paul F. Folino
----------------------
Title PRESIDENT
Guarantor Signature: Emulex Caribe, Inc.
By /s/ Paul F. Folino
----------------------
Title PRESIDENT
Guarantor Signature: Computer Array Development, Inc.
By /s/ Paul F. Folino
----------------------
Title PRESIDENT
Guarantor Signature: Highspeed Communications, Inc.
By /s/ Paul F. Folino
----------------------
Title PRESIDENT
Guarantor Signature: Digital House, Ltd.
By /s/ Paul F. Folino
----------------------
Title PRESIDENT
Guarantor Signature: Emulex Foreign Sales Corporation
By /s/ Paul F. Folino
----------------------
Title PRESIDENT
-4-
<PAGE> 1
- --------------------------------------------------------------------------------
[SILICON VALLEY BANK LOGO]
AMENDMENT TO SECURITY AGREEMENT
THIS AMENDMENT TO SECURITY AGREEMENT dated as of April 18, 1996 is entered
into between SILICON VALLEY BANK ("Silicon"), on the one side, and EMULEX
CORPORATION, a Delaware corporation, EMULEX CARIBE, INC., a Delaware
corporation, COMPUTER ARRAY DEVELOPMENT, INC., a California corporation,
HIGHSPEED COMMUNICATIONS, INC., a California corporation, DIGITAL HOUSE, LTD., a
California corporation, EMULEX FOREIGN SALES CORPORATION, a corporation
organized under the laws of the United States Virgin Islands, on the other side
(jointly and severally referred to as the "Obligor").
The Parties hereby agree to amend the Security Agreement between them,
dated March 31, 1994 (as amended or modified from time to time, the "Security
Agreement"), as follows, effective as of March 25, 1996.
1. DISSOLVED PARTIES. Each (a "Dissolved Party") of Emulex S.A.R.L., a
corporation formerly organized under the laws of France, Emulex Italia S.r.l., a
corporation formerly organized under the laws of Italy, Emulex GmbH, a
corporation formerly organized under the laws of Federal Republic of Germany,
Emulex Canada Inc., a corporation formerly organized under the laws of Canada,
and Emulex Australia PTY, Limited, a corporation formerly organized under the
laws of Australia, were Obligor parties to the Security Agreement as originally
executed, and each of such parties has been dissolved in accordance with
applicable law. Therefore, it is acknowledged and agreed that each of the
Dissolved Parties is hereby removed as an Obligor under the Security Agreement.
2. REVISED SECTION 1.2A. Section 1.2A of the Security Agreement is hereby
amended in its entirety to read as follows:
"1.2A GRANT OF SECURITY INTEREST IN COLLATERAL. The Obligor grants
Silicon a continuing security interest in all of the Obligor's interest
in the types of property described below, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral") as
security for all Obligations: (a) All accounts, contract rights, chattel
paper, letters of credit, documents, securities, money, and instruments,
and all other obligations now or in the future owing to the Obligor; (b)
All inventory, goods, merchandise, materials, raw materials, work in
process, finished goods, farm products, advertising, packaging and
shipping materials, supplies, and all other tangible personal property
which is held for sale or lease or furnished under contracts of service
or consumed in the Obligor's business, and all warehouse receipts and
other documents; (c) All equipment, including without limitation all
machinery, fixtures, trade fixtures, vehicles, furnishings, furniture,
materials, tools, machine tools, office equipment, computers and
peripheral
-1-
<PAGE> 2
SILICON VALLEY BANK AMENDMENT TO SECURITY AGREEMENT
- --------------------------------------------------------------------------------
devices, appliances, apparatus, parts, dies, and jigs; (d) All general
intangibles including, but not limited to, deposit accounts, goodwill,
names, trade names, trademarks and the goodwill of the business
symbolized thereby, trade secrets, drawings, blueprints, customer
lists, patents, patent applications, copyrights, security deposits,
loan commitment fees, federal, state and local tax refunds and claims,
all rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all
judgments now or hereafter arising therefrom, all claims of Obligor
against Silicon, all rights to purchase or sell real or personal
property, all rights as a licensor or licensee of any kind, all
royalties, licenses, processes, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims
(including without limitation credit, liability, property and other
insurance), and all other rights, privileges and franchises of every
kind; (e) All books and records, whether stored on computers or
otherwise maintained; and (f) All substitutions, additions and
accessions to any of the foregoing, and all products, proceeds and
insurance proceeds of the foregoing, and all guaranties of and security
for the foregoing; and all books and records relating to any of the
foregoing. Silicon's security interest in any present or future
technology (including patents, trade secrets, and other technology)
shall be subject to any licenses or rights now or in the future granted
by the Obligor to any third parties in the ordinary course of Obligor's
business; provided that if the Obligor proposes to sell, license or
grant any other rights with respect to any technology in a transaction
that, in substance, conveys a major part of the economic value of that
technology, Silicon shall first be requested to release its security
interest in the same, and Silicon may withhold such release in its
reasonable discretion."
3. ADDITIONAL DOCUMENTATION AND ACTIONS REGARDING GRANT OF SECURITY
INTEREST. In connection with the grant of the security interest as set forth in
Section 1.2A of the Security Agreement as modified by this Amendment, Obligor
agrees to execute such additional documentation and take such additional actions
as Silicon determines in its discretion are necessary or desirable in connection
therewith.
4. GENERAL PROVISIONS. This Amendment, the Security Agreement, any
prior written amendments to the Security Agreement signed by Silicon and the
Obligor, and the other written documents and agreements between Silicon and the
Obligor set forth in full all of the representations and agreements of the
parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Security Agreement, and all other documents and
agreements between Silicon and the Obligor shall continue in full force and
effect and the same are hereby ratified and confirmed.
OBLIGOR: SILICON:
EMULEX CORPORATION SILICON VALLEY BANK
BY /s/ Paul F. Folino BY /s/ Michael P. Quain
------------------------------ ------------------------------
PRESIDENT OR VICE PRESIDENT TITLE VP
BY /s/ Walter J. McBride
------------------------------
SECRETARY OR ASS'T SECRETARY
-2-
<PAGE> 3
SILICON VALLEY BANK AMENDMENT TO SECURITY AGREEMENT
- --------------------------------------------------------------------------------
OBLIGOR: OBLIGOR:
EMULEX CARIBE, INC. COMPUTER ARRAY DEVELOPMENT, INC.
BY /s/ Paul F. Folino BY /s/ Paul F. Folino
-------------------------------- ----------------------------
PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT
BY /s/ Walter J. McBride BY /s/ Walter J. McBride
-------------------------------- ----------------------------
SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY
OBLIGOR: OBLIGOR:
HIGHSPEED COMMUNICATIONS, INC. DIGITAL HOUSE, LTD.
BY /s/ Paul F. Folino BY /s/ Paul F. Folino
-------------------------------- ----------------------------
PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT
BY /s/ Walter J. McBride BY /s/ Walter J. McBride
-------------------------------- ----------------------------
SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY
OBLIGOR:
EMULEX FOREIGN SALES CORPORATION
BY /s/ Paul F. Folino
--------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ Walter J. McBride
--------------------------------
SECRETARY OR ASS'T SECRETARY
-3-
<PAGE> 1
- --------------------------------------------------------------------------------
[SILICON VALLEY BANK LOGO]
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATE: APRIL 18, 1996
CREDIT LIMIT
(Section 1.1): An amount not to exceed * the lesser of:
(i) $5,000,000 at any one time outstanding; OR
(ii) 75% of the Net Amount of Borrower's accounts,
which Silicon in its ** discretion deems eligible
for borrowing, provided, however, that the minimum
amount of a Loan shall be $100,000.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR
EMULEX CORPORATION, A CALIFORNIA CORPORATION
("EMULEX"), INTERCONNECTIONS, INC. AND EMULEX
EUROPE LIMITED)
** REASONABLE
"Net Amount" of an account means the gross amount
of the account, minus all applicable sales, use,
excise and other similar taxes and minus all
discounts, credits and allowances of any nature
granted or claimed.
Without limiting the fact that the determination
of which accounts are eligible for borrowing is a
matter of Silicon's discretion, the following will
not be deemed eligible for borrowing: accounts
outstanding for more than 90 days from the invoice
date, accounts subject to any contingencies,
-1-
<PAGE> 2
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
accounts owing from an account debtor outside the
United States (the "Foreign Accounts") (unless
pre-approved by Silicon in its discretion, or
backed by a letter of credit satisfactory to
Silicon, or FCIA insured satisfactory to
Silicon)*, accounts owing from one account debtor
to the extent they exceed 25% of the total
eligible accounts outstanding, accounts owing from
an affiliate of Borrower, and accounts owing from
an account debtor to whom Borrower is or may be
liable for goods purchased from such account
debtor or otherwise. In addition, if more than 50%
of the accounts owing from an account debtor are
outstanding more than 90 days from the invoice
date or are otherwise not eligible accounts, then
all accounts owing from that account debtor will
be deemed ineligible for borrowing.
* (PROVIDED THAT PRIOR TO OCCURRENCE OF THE
SECTION 2.2A CONDITION, FOREIGN ACCOUNTS BILLED IN
THE UNITED STATES SHALL NOT BE DEEMED INELIGIBLE
BY VIRTUE OF THE LOCATION OF THE ACCOUNT DEBTORS
RELATING THERETO OUTSIDE OF THE UNITED STATES
(REFERRED TO AS THE "EXPANDED FOREIGN ACCOUNTS
ELIGIBILITY"), WITH THE UNDERSTANDING AND
AGREEMENT THAT AFTER THE OCCURRENCE OF THE SECTION
2.2A CONDITION, THE EXPANDED FOREIGN ACCOUNTS
ELIGIBILITY SHALL IMMEDIATELY CEASE TO BE
EFFECTIVE)
LETTER OF CREDIT SUBLIMIT Silicon, in its reasonable discretion, will from
time to time during the term of this Agreement
issue letters of credit for the account of the
Borrower ("Letters of Credit"), in an aggregate
amount at any one time outstanding * not to exceed
$1,000,000, upon the request of the Borrower,
provided that, on the date the Letters of Credit
are to be issued, Borrower has available to it
Loans in an amount equal to or greater than the
face amount of the Letters of Credit to be issued.
Prior to the issuance of any Letters of Credit,
Borrower shall execute and deliver to Silicon
Applications for Letters of Credit and such other
documentation as Silicon shall specify (the
"Letter of Credit Documentation"). Fees for the
Letters of Credit shall be as provided in the
Letter of Credit Documentation.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR
EMULEX, INTERCONNECTIONS, INC. AND EMULEX EUROPE
LIMITED)
The Credit Limit set forth above and the Loans
available under this Agreement at any time shall
be reduced by the face amount of Letters of Credit
from time to time outstanding.
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $1,000,000 of the Credit Limit * may be
utilized for spot and future foreign exchange
contracts (the "Exchange Contracts"). The Credit
Limit available at any time shall be reduced by
the following amounts (the "Foreign Exchange
Reserve") on each day (the "Determination Date"):
(i) on all outstanding Exchange Contracts on which
delivery is to be effected or settlement allowed
more than two business days from the Determination
Date, 20% of the gross amount of the Exchange
Contracts; plus (ii) on all outstanding Exchange
Contracts on which delivery is to be effected or
settlement
-2-
<PAGE> 3
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
allowed within two business days after the
Determination Date, 100% of the gross amount of
the Exchange Contracts. In lieu of the Foreign
Exchange Reserve for 100% of the gross amount of
any Exchange Contract, the Borrower may request
that Silicon debit the Borrower's bank account
with Silicon for such amount, provided Borrower
has immediately available funds in such amount in
its bank account.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR
EMULEX, INTERCONNECTIONS, INC. AND EMULEX EUROPE
LIMITED)
Borrower may provide, by written notification to
Silicon, instructions to terminate any of the
Exchange Contracts, except that Borrower may not
terminate an Exchange Contract within two business
days of the date delivery is to be effected or
settlement allowed. Further, Silicon may, in its
discretion, terminate the Exchange Contracts at
any time (a) that an Event of Default occurs or
(b) that there is not sufficient availability
under the Credit Limit and Borrower does not have
available funds in its bank account to satisfy the
Foreign Exchange Reserve. If either Silicon or
Borrower terminates the Exchange Contracts, and
without limitation of the FX Indemnity Provisions
(as referred to below), Borrower agrees to
reimburse Silicon for any and all fees, costs and
expenses relating thereto or arising in connection
therewith.
Borrower shall not permit the total gross amount
of all Exchange Contracts on which delivery is to
be effected and settlement allowed in any two
business day period to be more than $500,000, nor
shall Borrower permit the total gross amount of
all Exchange Contracts to which Borrower is a
party, outstanding at any one time, to exceed
$1,000,000.
The Borrower shall execute all standard form
applications and agreements of Silicon in
connection with the Exchange Contracts, and
without limiting any of the terms of such
applications and agreements, the Borrower will pay
all standard fees and charges of Silicon in
connection with the Exchange Contracts.
Without limiting any of the other terms of this
Loan Agreement or any such standard form
applications and agreements of Silicon, Borrower
agrees to indemnify Silicon and hold it harmless,
from and against any and all claims, debts,
liabilities, demands, obligations, actions, costs
and expenses (including, without limitation,
attorneys' fees of counsel of Silicon's choice),
of every nature and description, which it may
sustain or incur, based upon, arising out of, or
in any way relating to any of the Exchange
Contracts or any transactions relating thereto or
contemplated thereby (collectively referred to as
the "FX Indemnity Provisions").
The Exchange Contracts shall have maturity dates
no later than the Maturity Date.
-3-
<PAGE> 4
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
CORPORATE CREDIT
CARD SUBLIMIT Up to $10,000 of the Credit Limit * may be
utilized for advances under corporate credit cards
to be issued by Silicon for Borrower, provided
that at the time of the issuance of any such
credit cards Borrower has available to it Loans in
an amount equal to or greater than $10,000.
Further, after the issuance of any such credit
cards, the Credit Limit shall be permanently
reduced by $10,000 while any of such credit cards
remain available for use or there remain any
outstanding Obligations thereunder.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR
EMULEX, INTERCONNECTIONS, INC. AND EMULEX EUROPE
LIMITED)"
INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time, plus 2.00% per annum. Interest shall
be calculated on the basis of a 360-day year for
the actual number of days elapsed. "Prime Rate"
means the rate announced from time to time by
Silicon as its "prime rate;" it is a base rate
upon which other rates charged by Silicon are
based, and it is not necessarily the best rate
available at Silicon. The interest rate applicable
to the Obligations shall change on each date there
is a change in the Prime Rate.
LOAN ORIGINATION FEE
(Section 1.3): See Amendment to Loan Agreement of even date
herewith. (Any Commitment Fee previously paid by
the Borrower in connection with this loan shall be
credited against this Fee.)
MATURITY DATE
(Section 5.1): SEPTEMBER 17, 1996.
PRIOR NAMES OF BORROWER
(Section 3.2): NONE
TRADE NAMES OF BORROWER
(Section 3.2): NONE
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): NONE
MATERIAL ADVERSE LITIGATION
(Section 3.10): See Exhibit A to the Schedule to the Loan and
Security Agreement dated March 31, 1994.
NEGATIVE COVENANTS-EXCEPTIONS
(Section 4.6): Without Silicon's prior written consent, Emulex,
InterConnections, Inc. and Emulex Europe Limited,
on a consolidated basis, may do the following,
provided that, after giving effect thereto, no
Event of Default has occurred and no event has
occurred which, with notice or passage of time or
both, would constitute an Event of Default, and
provided that the following are done in compliance
with all applicable laws, rules and regulations:
(i) repurchase shares of Borrower's stock pursuant
to any employee stock purchase or benefit plan,
provided that the total amount paid by Borrower
for such stock does not exceed $1,000,000 in any
fiscal year, (ii) make
-4-
<PAGE> 5
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
employee loans in an aggregate amount outstanding
at any time not to exceed $200,000 and (iii) make
loans to subsidiary corporations of Borrower
and/or any Obligor (as defined in the Security
Agreement of even date herewith) in an aggregate
amount per subsidiary or Obligor not to exceed
$500,000 and in a total aggregate amount not to
exceed $2,000,000.
FINANCIAL COVENANTS
(Section 4.1): Borrower shall cause Parent to comply with all of
the following covenants on a consolidated basis.
Compliance shall be determined as of the end of
each quarter, except as otherwise specifically
provided below:
QUICK ASSET RATIO: Parent shall maintain a ratio of "Quick Assets" to
current liabilities of not less than .80 to 1.
TANGIBLE NET WORTH: Parent shall maintain a tangible net worth of not
less than $18,000,000.
DEBT TO TANGIBLE
NET WORTH RATIO: Parent shall maintain a ratio of total liabilities
to tangible net worth of not more than 1.00 to 1.
PROFITABILITY Parent shall not incur a loss (after taxes) for
the Parent's 1996 fiscal year in excess of
$11,000,000. Thereafter, during the Parent's 1997
fiscal year, the quarterly losses (after taxes)
that the Parent may incur shall not exceed
$2,500,000, in the aggregate, in such fiscal year,
and Parent shall not incur an annual loss (after
taxes) for the 1997 fiscal year.
DEFINITIONS: "Current assets," and "current liabilities" shall
have the meanings ascribed to them in accordance
with generally accepted accounting principles.
"Tangible net worth" means the excess of total
assets over total liabilities, determined in
accordance with generally accepted accounting
principles, excluding however all assets which
would be classified as intangible assets under
generally accepted accounting principles,
including without limitation goodwill, licenses,
patents, trademarks, trade names, copyrights,
capitalized software and organizational costs,
licenses and franchises.
"Quick Assets" means cash on hand or on deposit in
banks, readily marketable securities issued by the
United States, readily marketable commercial paper
rated "A-1" by Standard & Poor's Corporation (or a
similar rating by a similar rating organization),
certificates of deposit and banker's acceptances,
and accounts receivable (net of allowance for
doubtful accounts).
DEFERRED REVENUES: For purposes of the above quick asset ratio
deferred revenues shall not be counted as current
liabilities. For purposes of the above debt to
tangible net worth ratio, deferred revenues shall
not be counted in determining total liabilities
but shall be counted in determining tangible net
worth for purposes of such
-5-
<PAGE> 6
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
ratio. For all other purposes deferred revenues
shall be counted as liabilities in accordance with
generally accepted accounting principles.
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing
covenants do not include indebtedness which is
subordinated to the indebtedness to Silicon under
a subordination agreement in form specified by
Silicon or by language in the instrument
evidencing the indebtedness which is acceptable to
Silicon.
OTHER COVENANTS
(Section 4.1): Borrower shall at all times comply with all of the
following additional covenants:
1. BANKING RELATIONSHIP. Borrower shall at all
times maintain its primary banking relationship
with Silicon.
2. MONTHLY BORROWING BASE CERTIFICATE AND LISTING.
Within 20 days after the end of each month when
any Obligations are outstanding, Borrower shall
provide Silicon with a Borrowing Base Certificate
in such form as Silicon shall specify, and an aged
listing of Borrower's accounts receivable.
Borrower shall also supply such a Borrowing Base
Certificate and an aged listing of Borrower's
accounts receivable five days prior to such time
that Borrower requests a Loan under this Agreement
if no Obligations had been outstanding prior to
the request for any such Loan.
3. INDEBTEDNESS. Without limiting any of the
foregoing terms or provisions of this Agreement,
Borrower shall not in the future incur
indebtedness for borrowed money, except for (i)
indebtedness to Silicon, (ii) indebtedness
incurred in the future for the purchase price of
or lease of equipment in an aggregate amount not
exceeding $2,500,000 annually, on a joint basis
for Emulex, InterConnections, Inc. and Emulex
Europe Limited (the "Joint Borrower"), (iii) the
creation of trade payable obligations in the
ordinary course of business and (iv) the making of
loans by the Joint Borrower to its subsidiaries
and/or any Obligor (as defined in the Security
Agreement of even date herewith) in an amount not
to exceed $500,000 per subsidiary or Obligor at
any time outstanding and not to exceed $2,000,000
in the aggregate at any time outstanding.
4. [INTENTIONALLY LEFT BLANK]
5. SEC FILINGS AND COMMUNICATIONS. Without
limitation of the provisions of Section 3.7
hereof, Borrower agrees to provide to Silicon all
filings made with the Securities and Exchange
Commission (the "SEC") regarding Borrower or
Parent or any affiliate of Borrower or Parent, and
copies of all notices or other communication from
the SEC relating thereto, within 5 days of such
filing or receipt of such notice or other
communication.
6. UCC-1S TO BE FILED; DOCUMENTS REGARDING PUERTO
RICO COLLATERAL. Silicon shall now the UCC-1
Financing Statements that were provided to Silicon
with the execution of the original Loan Agreement,
and Borrower agrees to execute
-6-
<PAGE> 7
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
and deliver to Silicon all such additional UCC
financing statements and other instruments and
documentation relating thereto as Silicon
determines is necessary or desirable . Borrower
agrees to execute and deliver to Silicon, or to
cause the appropriate affiliate of Borrower or
Parent, including, without limitation, Emulex
Caribe, Inc., to execute and deliver to Silicon,
the Puerto Rico Documentation (as referred to
below) in a prompt manner after delivery thereof
to any such party for execution. As used herein
the term "Puerto Rico Documentation" shall mean
any and all documents, agreements and instruments
that Silicon determines are necessary or
desirable, in its discretion, in connection with
the granting and perfecting of the security
interest of Silicon in the Collateral of Borrower,
or in any property of any affiliate of Borrower or
Parent, including, without limitation, Emulex
Caribe, Inc., located in or relating to Puerto
Rico. Without limiting any other term or provision
hereof, Borrower agrees to reimburse Silicon for
all costs and expenses in connection with the
preparation of the Puerto Rico Documentation.
7. COLLATERAL ASSIGNMENT REGARDING INTELLECTUAL
PROPERTY COLLATERAL. Borrower shall execute and
deliver to Silicon three originals of Silicon's
standard form of security agreement relating to
Collateral consisting of intellectual property
items, which form is entitled "Collateral
Assignment, Patent Mortgage and Security
Agreement" (the "Copyright Assignment") for
recording by Silicon as appropriate. In connection
therewith, Borrower agrees to effect registration
with the United States Copyright office of
Collateral consisting of copyrightable subject
matter in accordance with the provisions set forth
in the Copyright Assignment, and, without
limitation of the other obligations of Borrower
herein and therein, to take all other actions in
order to assist Silicon in the perfection of its
security interest in such items of Collateral.
8. NEGATIVE PLEDGE. Except as otherwise permitted
hereunder, Borrower shall not hereafter grant a
security interest in any of its present or future
Collateral, other than for liens on capital
equipment relating to obligations incurred
pursuant to paragraph 3 above.
9. SHAREHOLDER DEBT TO BE SUBORDINATED. All
indebtedness of Borrower owing to any and all of
its shareholders or related
-7-
<PAGE> 8
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
parties shall be subordinated in favor of Silicon
pursuant to written subordination agreements in
Silicon's standard form.
BORROWER:
EMULEX CORPORATION
BY /s/ Paul F. Folino
--------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ Walter J. McBride
--------------------------------
SECRETARY OR ASS'T SECRETARY
BORROWER:
INTERCONNECTIONS, INC.
BY /s/ Paul F. Folino
--------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ Walter J. McBride
--------------------------------
SECRETARY OR ASS'T SECRETARY
BORROWER:
EMULEX EUROPE LIMITED
BY /s/ Paul F. Folino
--------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ Walter J. McBride
--------------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY /s/ Michael P. Quain
--------------------------------
TITLE VP
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EMULEX
CORPORATION AND SUBSIDIARIES' CONDENSED CONSOLIDATED BALANCE SHEET, STATEMENT OF
OPERATIONS AND STATEMENT OF CASH FLOWS FOR THE NINE MONTH PERIOD ENDED MARCH 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,908
<SECURITIES> 0
<RECEIVABLES> 10,511
<ALLOWANCES> 0
<INVENTORY> 13,485
<CURRENT-ASSETS> 29,080
<PP&E> 7,381
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,929
<CURRENT-LIABILITIES> 11,841
<BONDS> 96
0
0
<COMMON> 1,189
<OTHER-SE> 21,154
<TOTAL-LIABILITY-AND-EQUITY> 36,929
<SALES> 35,822
<TOTAL-REVENUES> 35,822
<CGS> 24,247
<TOTAL-COSTS> 24,247
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,121)
<INCOME-TAX> (387)
<INCOME-CONTINUING> (8,734)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,734)
<EPS-PRIMARY> (1.47)
<EPS-DILUTED> (1.47)
</TABLE>
