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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____ to ____
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)
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.20 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(Title of class)
-------------------------
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of September 19, 1997, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $105,011,592.
As of September 19, 1997, the registrant had 6,107,493 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (items 10, 11, 12 and 13) is incorporated
by reference to portions of the registrant's definitive proxy statement for the
1997 Annual Meeting of Stockholders which will be filed with the Securities and
Exchange Commission within 120 days after the close of the 1997 year.
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PART I
Item I. BUSINESS.
All references to years refer to the Company's fiscal years ended June 29, 1997,
June 30, 1996 and July 2, 1995, as applicable, unless the calendar year is
specified. References to dollar amounts are in thousands, except share data,
unless otherwise specified.
INTRODUCTION
Emulex Corporation is a leading designer and manufacturer of high-performance
network connectivity products including fibre channel, printer servers and
network access products. The Company's hardware and software-based networking
solutions improve communication in computer networks and enhance data flow
between computers and peripherals. Many of the Company's networking products are
based upon proprietary semiconductors designed by Emulex to maximize performance
and simultaneously reduce costs. Emulex utilizes its strengths in gigabit
networking, in-house design of application specific integrated circuits
("ASICs"), and development of local area network/wide area network ("LAN/WAN")
multiple protocol and interface communication technologies to secure original
equipment manufacturer ("OEM") design wins and end user installations. The
Company primarily markets through two-tier distribution, where the end user is
typically the operator of a large network, and to large OEMs. In 1997,
approximately 64 percent of Emulex's revenue was derived from OEMs.
Emulex was organized as a California corporation in 1979. In 1987 Emulex changed
its state of incorporation from California to Delaware by the formation of a
Delaware corporation (the "Registrant"), which acquired all of the stock of the
California corporation. The California corporation continues to operate as a
wholly-owned subsidiary of the Delaware corporation. Unless the context
indicates otherwise, the "Company" and "Emulex" each refer to the Registrant and
its subsidiaries.
In 1994, Emulex completed a major transition departing its historic storage
controller business and spinning off its wholly-owned SCSI subsidiary, QLogic
Corporation (see note 2 to the Consolidated Financial Statements). In May 1993,
Paul Folino was elected President and CEO of Emulex and in the ensuing quarters
he assembled a new management team to complement the group already in place,
including a new vice president of research and development and vice president of
sales. The management team has streamlined operations, expanded distribution
channels by adding a new two-tier distribution network and refocused the
Company's product development and marketing efforts toward networking markets
such as fibre channel, printer servers and wide area networking.
INDUSTRY BACKGROUND
The data communications industry encompasses a broad spectrum of technologies
which facilitate the transfer of computer data from one location to another.
These technologies extend from computer to peripheral communications managed by
input/output ("I/O") solutions, to computer communications within a building or
campus environment which typically occur over a local area network ("LAN"), to
computer communications between remote locations, which require wide area
network ("WAN") solutions. While its various technologies and market needs are
diverse, management believes the data communications industry as a whole is
being shaped by three major trends:
The ever-increasing need for higher bandwidth. While microprocessors have made
continual gains in computing capability, I/O channel and LAN speeds have not
kept pace and are increasingly responsible for overall performance constraints.
New technologies such as the American National Standard Institute ("ANSI") Fibre
Channel standard are emerging to relieve this performance bottleneck.
The worldwide growth in remote enterprise access. Enterprise access stems from
the growing interconnection of remote offices and remote users to the central
enterprise. As part of this trend, the dramatic expansion in information
services, financial services, airline reservations and on-line transaction
processing is propelling the need for real-time, mission critical communication
to and from centralized facilities. In addition, the proliferation of laptops,
home PCs and modems, and the drive to enhance the productivity of traveling and
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telecommuting workers has led to the need to connect those remote computers to
the corporate LAN with a user-friendly remote access solution.
Increasing Demand for Flexible Access to Computing Resources. Computing
resources, such as printers, storage devices, and other peripheral devices, are
at various stages of being attached directly to the network itself rather than
to a single computer or server. Direct attachment improves the overall
efficiency of the network by enabling peripherals to be placed anywhere on the
network, thereby increasing availability of shared resources to multiple users,
eliminating bandwidth bottlenecks imposed by port or channel interfaces and
reducing server workload.
PRODUCTS
Emulex designs, manufactures, and markets three primary product families:
high-speed fibre channel products, printer servers and network access servers.
Fibre Channel
The Company's host adapter and hub products for the emerging fibre channel
market provide a scaleable high bandwidth communications connection among
computer systems and data storage systems at transmission speeds of up to one
gigabit per second, servicing both LAN and I/O requirements. By leveraging both
its networking expertise and its historical background in storage interfaces,
Emulex believes it has emerged as a leader in high speed fibre channel
communication products. Through June 29, 1997, Emulex had been awarded 33 fibre
channel design wins with high-end computer server and storage OEMs such as Data
General, Fujitsu PC, Hitachi, NEC and Sequent Computer Systems. The Company was
one of the developers of the ANSI standards applicable to fibre channel and the
Company has also joined the Gigabit Ethernet Alliance associated with the
evolving Gigabit Ethernet standard, a developing high speed LAN standard
partially based on the fibre channel specification. Emulex believes that it has
established a leadership role in fibre channel product development by
introducing, among other products, the first fibre channel host adapter with an
integrated RISC processor, which enables servers to offload the host networking
or I/O workload and increase system performance. Emulex also developed the first
Peripheral Component Interconnect ("PCI") host adapter that supported all three
fibre channel standard classes and topologies, which enables users to
transparently upgrade from a low-end arbitrated loop network to a high-end
switched fibre channel environment encompassing both I/O and LAN applications.
Since the introduction of the Company's first fibre channel products in the
fourth quarter of fiscal 1995, the Company expanded its sales of fibre channel
products to approximately $11,521, or 18 percent of total revenues, in the year
ended June 29, 1997.
Fibre channel is a communication standard developed by ANSI which is backed by
more than 120 companies, including Hewlett-Packard, Seagate Technologies and Sun
Microsystems. It is designed to allow communication at speeds of up to four
gigabits per second and accelerates I/O channel communications between computers
and peripherals while also serving high-speed LAN requirements.
The market for fibre channel host adapters and hubs is projected by two leading
market research firms to grow to approximately $2.5 billion by the year 2000.
The growing trend toward increasingly distributed computing environments, as
well as the increased demand for higher storage capacity, has stimulated demand
for fibre channel products due to fibre channel's high bandwidth characteristics
and its ability to accommodate large numbers of attached computers and storage
systems communicating over long distances. The fibre channel standard is also
designed to address emerging hybrid LAN/IO applications such as clustering, in
which multiple servers and storage systems share an application's workload, and
storage area networks ("SANs"), in which multiple servers are able to access
multiple storage systems on a fibre channel network. Fibre channel products
currently are incorporated primarily in high-end storage applications such as
RAID (redundant array of inexpensive disks). In response to this early market
demand, the Company's initial products have been primarily deployed in high-end
storage applications. However, due to the robust architecture of its ASIC
solution, the Company believes that its product lines can be adapted to a broad
range of performance applications which will enable the Company to take
advantage of other opportunities within the fibre channel market as they emerge.
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Printer Servers
Emulex's family of printer server products improve performance by attaching
printers directly to the LAN, instead of to a file server. Emulex believes it is
the leading independent supplier of internal printer servers to OEMs and is a
leading supplier of printer servers to commercial end users. As a larger
percentage of printers are shipped and installed in network-ready
configurations, the printer server market has begun shifting toward OEM
solutions, and the Company has emphasized this sector. The Company has secured
design wins with 10 OEMs covering over 25 printers in 1996 and 1997. Currently,
the Company provides printer servers to several top printer OEMs including
Canon, IBM and Xerox. According to International Data Corp., printer server unit
shipments are expected to grow at a 23% compounded annual growth rate through
the year 2000, and total market revenues are expected to reach $1.9 billion by
such date. The Company believes that approximately 30% of the total current
printer server market is available to independent third party suppliers such as
the Company.
Network Access
Emulex's network access server products provide connectivity between resources
across both local and wide area networks. The four major product lines within
the network access family are WAN adapters, communications servers, remote
access servers ("RAS") and host software products. Emulex's marketing efforts
are concentrated in the expanding WAN adapter market.
Emulex supplies WAN adapters for a number of OEM programs, and has shipped over
3 million ports worldwide to date. WAN adapters are board-level products that
can be installed in a computer to provide a communications link. Traditionally,
Emulex's WAN adapters have primarily focused on wide area networking
requirements for the PC platform. In 1996, the Company introduced a family of
PCI WAN adapters that addresses the networking requirements of workstations and
UNIX servers, as well as the DCP_link family of server-based routers that
targets the commercial end-user sector of the router market.
The Company's network access products consist primarily of WAN adapters that
off-load remote communications processing from host computers and, to a lesser
extent, communications servers that allow computers and peripherals to access
local networks, and remote access servers that facilitate telecommuting
applications. While the Company continues to offer network access products and
such products continue to generate a significant portion of the Company's
revenues and profits, it has focused its resources on the continued development
and expansion of its fibre channel and printer server product lines. Due to the
maturation of certain of the Company's network access products, the Company
expects that its network access product line will account for a decreasing
portion of its revenues and profits in future years.
PATENTS AND LICENSES
The Company has applied and plans to continue to apply for patents and to
copyright its trademarks both in the United States and in foreign countries when
it seems to be advantageous to do so. However, the Company believes that there
can be no assurances that patents or copyrights will be issued or that any
patent or copyright issued will provide significant protection or could be
successfully defended.
As is the case with many companies in the electronics industry, it may be
desirable in the future for the Company to obtain technology licenses from other
companies. The Company has occasionally received notices of claimed infringement
of intellectual property rights and may receive additional such claims in the
future. The Company evaluates all such claims and, if necessary, will seek to
obtain appropriate licenses. There can be no assurance that any such licenses,
if required, will be available on acceptable terms. Failure to obtain such
patents or licenses in the future could have a material adverse effect on the
Company's business, results of operations, financial condition and/or liquidity.
SELLING AND MARKETING
The Company markets its products worldwide to OEMs, Value Added Resellers
("VARs"), systems integrators, industrial distributors, resellers and end users.
Emulex offers repair services through a third-party organization and also
directly through the Company. At the end of 1997, the domestic sales
organization included 18 sales and support staff, including a vice president,
located in Costa Mesa and 9 satellite offices. At the end of 1997, the
international sales organization included 13 sales and support staff located in
3 international sales offices in Europe.
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The Company's export revenues were 45, 40 and 47 percent of net revenues for
1997, 1996 and 1995, respectively. The majority of export shipments are to the
European marketplace.
Although the Company has broadened its line of product offerings in an attempt
to limit fluctuations in its quarterly results of operations, the Company's
markets are both cyclical and seasonal in nature which may cause the Company's
quarterly results of operations to vary significantly.
Reuters and Sequent Computer Systems accounted for 13 and 10 percent of net
revenues in 1997, respectively. Furthermore, the Company's top five customers
accounted for 44 percent of net revenues in 1997. IBM Corporation accounted for
15 percent of net revenues in 1996. Reuters and Xerox accounted for 16 and 13
percent of net revenues in 1995, respectively. The Company derived approximately
64 percent of its net revenues from sales to OEMs in 1997. Emulex's operating
results could be adversely affected if sales to one or more of such customers
significantly decline or if any one of these customers develop alternative
sources for Emulex's products.
ORDER BACKLOG
At June 29, 1997, the Company had unshipped product orders of approximately
$2,110 compared with approximately $7,839 at June 30, 1996. Approximately $6,900
of the June 30, 1996 backlog related to orders from Xerox, IBM and Reuters. At
year end, all backlog was scheduled for delivery within six months or less with
the exception of orders pending release dates. Orders are subject to
rescheduling and/or cancellation with little or no penalty. Purchase order
release lead times depend upon the scheduling practices of the individual
customer, and the rate of booking new orders fluctuates from month to month.
Therefore, the level of backlog at any one time is not necessarily indicative of
trends in the Company's business.
ENGINEERING AND DEVELOPMENT
At June 29, 1997, the Company employed approximately 74 engineers, other
technicians and support personnel engaged in the development of new products and
the improvement of existing products. Engineering and development expenses were
$10,006, $11,387 and $10,674 for 1997, 1996 and 1995, respectively.
COMPETITION
The Company's high-performance communications server products address both the
UNIX-based and Digital Equipment Corporation based computer market and compete
with a number of companies, including Digital Equipment Corporation. In the
remote access market, competition includes Shiva, 3Com, Ascend Communications
and others. Competition for the Company's WAN adapters is primarily IBM, which
holds the largest market share. The Company's primary competitor for its Hewlett
Packard ("HP") compatible network printing products is HP, which offers its own
network printer server. The Company's printer server products also compete with
a number of other manufacturers in the non-HP printer marketplace including
Intel. Primary competition for the Company's fibre channel products includes HP
and a number of smaller companies. The Company believes it competes successfully
due to its broad product line, which includes low cost, high value products, as
well as high-performance products. The Company operates in a volatile and
dynamic market, and more aggressive market and product positioning by certain of
these significantly larger competitors would have a material adverse effect on
the Company's business, results of operations, financial condition and/or
liquidity.
MANUFACTURING AND SUPPLIES
The Company's products consist primarily of electronic component parts assembled
on internally designed printed circuit boards which are sold as board-level
products. Most component parts can be purchased from two or more sources.
However, certain other component parts, which represent a small percentage of
the overall number of parts used by the Company, can only be obtained from
single sources. In addition, the Company designs its own semiconductors which
are embedded in its printer server and fibre channel products, and these are
manufactured by third party semiconductor foundries. In addition to hardware,
the Company designs software to provide functionality to its hardware products.
The Company also licenses software from third party providers for use with its
fibre channel, PCWAN and remote access products. Most of these providers are the
sole source for this software. An inability or an unwillingness on the part of a
single source supplier to provide the Company with the quantity of parts or
software that it needs in a timely fashion could have an adverse impact on the
Company's
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ability to manufacture and ship products in accordance with customer
requirements. Both the Company's software and the third party software are sold
primarily as embedded programs within the hardware products, but may be
purchased separately as a software-only update for the Company's products.
At June 29, 1997, the Company had 175 manufacturing employees, including 123
permanent and 52 temporary employees, primarily at its manufacturing facility in
Puerto Rico. Assembly operations conducted by the Company are typical of the
electronics industry, and no unusual methods, procedures, or equipment are
required. The Company does, however, utilize automated assembly and handling
equipment, including surface mount technology production capabilities in its
Puerto Rico facility. The sophisticated nature of the products, in most cases,
requires extensive testing by specialized test devices operated by skilled
personnel. The Company has purchased and developed several types of specialized
test equipment to reduce the cost of this process, and maintains internal test
engineering groups for continuing support of test operations.
EMPLOYEES
The Company had 332 employees at June 29, 1997, including 280 with permanent
status and 52 temporaries, compared to 348 at June 30, 1996. This decrease is
primarily attributable to the consolidation discussed below and partially offset
by new hires throughout the year. None of the Company's employees are
represented by a labor union.
During the first quarter of 1997, the Company initiated a consolidation of its
operations to reduce its ongoing expense base and focus its activities in the
fibre channel, printer server and wide area networking markets. Emulex's remote
access and host software businesses, previously headquartered out of a Bellevue,
Washington facility, have been relocated to Emulex headquarters in Costa Mesa,
California. In addition, the Company has downsized its Pacific Rim sales
organization and also made selected reductions at its manufacturing plant in
Dorado, Puerto Rico and at its corporate headquarters. Total headcount worldwide
was reduced by approximately 36 employees as a result of this consolidation, and
the Company recognized a consolidation charge of $1,280.
RISK FACTORS
RECENT HISTORY OF LOSSES; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company incurred net losses of $9,288 in fiscal 1996 and $941 in the first
quarter of fiscal 1997. Results for the first quarter included consolidation
charges of $1,280. While the Company has generated net income for the last three
quarters, and for the year ended June 29, 1997, there can be no assurances that
revenues will remain at current levels or return to the levels experienced in
previous years or that the Company would be profitable at such revenue levels.
The Company's revenues and results of operations have varied on a quarterly
basis in the past and are expected to vary significantly in the future.
Accordingly, the Company believes that period to period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. The Company's revenue and results of
operations are difficult to forecast and could be adversely affected by many
factors, including, among others, the size, timing and terms of individual
transactions; the relatively long sales and deployment cycles for the Company's
products, particularly through its OEM channel; changes in the Company's
operating expenses; the ability of the Company to develop and market new
products; market acceptance of new products, particularly in the fibre channel
market; timing of introduction or enhancement of products by the Company or its
competitors; the level of product and price competition; the ability of the
Company to expand its OEM and distributor relationships; activities of and
acquisitions by competitors; changes in printer server, network access and fibre
channel technology and industry standards; changes in the mix of products sold,
since the Company's network access and fibre channel host adapter products
typically have higher margins than the Company's printer server and fibre
channel hub products; changes in the mix of channels through which products are
sold; levels of international sales; seasonality, since the Company typically
experiences lower demand for its products in Europe in the first fiscal quarter;
personnel changes; changes in customer budgeting cycles; foreign currency
exchange rates; and general economic conditions. As a result of the foregoing or
other factors in some future period the Company's results of operations could
fail to meet the expectations of public market analysts or investors, and the
price of the Company's common stock could be materially adversely affected.
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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 whose purchases can vary significantly from quarter to quarter.
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 shortfall of
demand in relation to the Company's quarterly expectations or any delay of
customer orders would have an immediate and adverse impact on the Company's
quarterly results of operations, financial condition and/or liquidity.
Reliance on OEMs, Distributors and Key Customers
In 1997, the Company derived approximately 31 percent of its revenue from
distributors and 64 percent from OEMs. In fiscal 1996 and 1995, respectively,
the Company derived approximately 50 percent and 40 percent of its revenue from
distributors and 39 percent and 53 percent of its revenues from OEMs. 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 competing product lines. There can be no
assurance that the Company will retain its current OEMs or distributors or that
it will be able to recruit additional or replacement OEMs or distributors. The
loss of important distributors or OEMs would adversely affect the Company's
business, results of operations, financial condition and/or liquidity. The
Company's negotiates individual agreements with the majority of its OEMs and
distributors. Although these agreements are substantially standardized, due to
the individual negotiations variances do occur. However, these agreements
generally provide for discounts based on expected or actual volumes of products
purchased or resold by the reseller in a given period and do not require minimum
purchases. Certain of these agreements provide manufacturing rights and access
to source code upon the occurrence of specified conditions or defaults.
The Company expects that certain of its OEMs will in the future develop
competitive products and, if they do so, they may decide to terminate their
relationship with the Company. Any reduction or delay in sales of the Company's
products by its OEMs or distributors could have a material adverse effect on the
Company's business, results of operations, financial condition and/or liquidity.
Reuters and Sequent Computer Systems accounted for 13 percent and 10 percent,
respectively, of the Company's net revenues in fiscal 1997. The Reuters project
now underway is expected to be completed by the end of calendar 1997. After that
time, revenues from Reuters will be dependent upon the extension of the existing
project or the award of new design wins on future projects. Furthermore, the
Company's top five customers accounted for 44 percent of 1997 net revenues.
The Company's revenues are significantly dependent upon the ability and
willingness of its OEMs to timely develop and promote products that incorporate
the Company's technology. The ability and willingness of these OEMs to do so is
based upon a number of factors such as: the timely development by the Company
and the OEMs of new products with new functionality, increased speed and
enhanced performance at acceptable prices to end users; development costs of the
OEMs; compatibility with both existing and emerging industry standards;
technological advances; patent and other intellectual property issues and
competition generally. No assurance can be given as to the ability or
willingness of the Company's OEMs to continue developing, marketing and selling
products incorporating the Company's technology. Since the Company's business is
dependent on its relationships with its OEMs and distributors, the inability or
unwillingness of any of the Company's significant customers to continue their
relationships with the Company and to develop and promote products incorporating
the Company's technology would have a material adverse effect on the Company's
business, results of operations, financial condition and/or liquidity.
Concentration of OEM Customers
Historically, revenues from the Company's top OEM customers have accounted for a
significant portion of net revenues. In fiscal 1997, the Company's top five OEM
customers accounted for 40 percent of the Company's net revenues. Although the
Company has attempted to expand its base of OEMs, there can be no assurance that
its revenues in the future will not be similarly derived from a limited number
of OEM customers. The Company's
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largest OEM customers vary to some extent from year to year as product cycles
end, contractual relationships expire and new products and customers emerge.
Many of the arrangements with the Company's OEMs are provided on a
project-by-project basis, are terminable with limited or no notice, and, in
certain instances, are not governed by long-term agreements. The Company also is
subject to a credit risk associated with the concentration of its accounts
receivable from these OEMs. No assurance can be given as to the ability or
willingness of any of the Company's OEMs to continue utilizing the Company's
products and technology. Any loss or significant decrease in the Company's
current OEMs or any failure of the Company to replace its existing OEMs, or any
delay in or failure to receive the payments due to the Company from such OEMs
would have a material adverse effect on the Company's business, results of
operations, financial condition and/or liquidity.
Dependence on Emerging Fibre Channel Market and Acceptance of Fibre Channel
Standard
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, is rapidly evolving and is attracting an increasing
number of market entrants. The Company's investment in fibre channel designs was
over 50% of the Company's engineering and development expenditures for the year
ended June 29, 1997. The Company's future success in the fibre channel market
will depend to a significant degree upon broad market acceptance of fibre
channel technology. Competing or alternative technologies, including Gigabit
Ethernet, are being or are likely in the future to be promoted by current and
potential competitors of the Company, some of which have well-established
relationships with current and potential customers of the Company, extensive
knowledge of the markets served by the Company, better name recognition and more
extensive development, sales and marketing resources than the Company. The
Company's success will be dependent in part on the ability of the Company's OEM
customers to develop new products that provide the functionality, performance,
speed and network connectivity demanded by the market at acceptable prices, and
to convince end users to adopt fibre channel. While the Company has secured
numerous design wins for its fibre channel products from its OEM customers,
nearly all of these customers are currently developing systems that incorporate
the Company's products, and only a limited number of OEM customers have shipped
products that incorporate the Company's fibre channel products. To the extent
these customers are unable to or otherwise do not deploy or ship systems that
incorporate the Company's products, or if these systems are not commercially
successful, this would have a material adverse effect on the Company's business,
results of operations, financial condition and/or liquidity. The Company
believes the fibre channel market will continue to expand, and that the
Company's investment in the fibre channel market represents a significant
portion of the Company's opportunities for revenue growth in the future.
However, there can be no assurance that customers will choose the Company's
technology for use, or that fibre channel products will gain market acceptance.
If the fibre channel market fails to develop, develops more slowly than
anticipated or attracts competitors, or if the Company's products do not achieve
market acceptance, the Company's business, results of operations, financial
condition and/or liquidity would be materially adversely affected.
Competition
The Company's products are targeted at the fibre channel, printer server and
network access markets. 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. In
the fibre channel market, the Company primarily competes against Adaptec,
Hewlett-Packard, QLogic Corporation, Symbios Logic, and to a lesser extent
against several smaller companies. In the printer server market, the Company
competes directly against a number of smaller companies and indirectly against
Hewlett-Packard and Lexmark, the two largest printer vendors, who primarily use
their own internally developed printer servers. In the network access market,
the Company competes against the numerous networking companies who offer network
access solutions.. The Company expects that other companies will enter its
markets, particularly the new and evolving fibre channel market. Furthermore,
the Company's OEM customers may in the future develop competitive products and
may then decide to terminate their relationships with the Company. The Company's
current and potential competition 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 price/performance
characteristics, and the Company will have to do the same to remain competitive.
Increased competition could result in significant price competition, reduced
profit margins or loss of market share, any of which would have a material
adverse effect on the Company's
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business, results of operations, financial condition and/or liquidity. There can
be no assurance that the Company will be able to compete successfully against
either current or potential competitors in the future.
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 introduction 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. There can be no assurance that the Company will be able to develop
or license from third parties the underlying core technologies necessary for new
products and enhancements. A key element of the Company's strategy is the
development of multiple ASICs to increase system performance and reduce
manufacturing costs, thereby enhancing the price/performance of the Company's
printer server and fibre channel products. There can be no assurance the Company
will be successful at developing and incorporating ASICs effectively and on
time. 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,
financial condition and/or liquidity would be materially adversely affected.
The Company has in the past engaged and expects that it will continue in the
future to engage in joint development projects with third parties. Joint
development creates several risks for the Company, including loss of control
over the development of aspects of the jointly developed product and over the
timing of product availability. There can be no assurance that joint development
activities will result in products, or that any products developed will be
commercially successful.
Risks Associated with Product Development; Product Delays
The Company in the past has experienced delays in product development, and the
Company may experience similar delays in the future. Prior delays have resulted
from numerous factors such as changing OEM product specifications, difficulties
in hiring and retaining necessary personnel, difficulties in reallocating
engineering resources and other resources limitations, difficulties with
independent contractors, changing market or competitive product requirements and
unanticipated engineering complexity. In addition, the Company's software and
hardware have in the past, and may in the future, contain undetected errors or
failures that become evident upon product introduction or as product production
volume increases. There can be no assurance, despite testing by the Company and
its OEMs, that errors will not be found, that the Company will not experience
development challenges resulting in unanticipated problems or delays in the
acceptance of products by the Company's OEMs or shipment of the OEMs' products,
or that the Company's new products and technology will meet performance
specifications under all conditions or for all anticipated applications. Given
the short product life cycles in the Company's product markets, any delay or
unanticipated difficulty associated with new product introductions or product
enhancements would have a material adverse effect on the Company's business,
results of operations, financial condition and/or liquidity.
Reliance on Third Party Suppliers
The Company relies on third party suppliers who supply the components used in
the Company's products. Most components are readily available from alternate
sources. However, the unavailability of certain components from current
suppliers, especially custom components fabricated for the Company, such as
ASICs, could result in delays in the shipment of the Company's products as well
as additional expense associated with obtaining and qualifying a new supplier or
redesigning the Company's product to accept more readily available components.
In addition, certain key components used in the Company's products are available
only from single sources and the Company does not have long-term contracts
ensuring the supply of such components. Furthermore, the components used for the
Company's fibre channel products are based on an emerging
8
<PAGE> 10
technology and may not be available with the performance characteristics and in
the quantities required by the Company. As the Company typically attempts to
maintain less than 90 days supply of such components, there can be no assurance
that the components will be available to meet the Company's future requirements
at favorable prices, if at all. The Company also relies on third party suppliers
for some of the software incorporated in some of the Company's products. These
software items are not generally readily available from alternate sources. The
Company's future inability to obtain components or software or to redesign its
products to accept alternatives, in a timely manner, could materially and
adversely affect the Company's business and financial condition. In addition,
any significant increase in prices or inability to ship products due to a lack
of components or software could adversely affect the Company's business, results
of operations, financial condition and/or liquidity.
Dependence on 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. The
Company's future success also depends upon its ability to attract, train and
retain highly qualified technical, sales and marketing and managerial personnel.
An increase in technical staff with experience in highspeed networking
applications will be required as the Company further develops its fibre channel
product line. 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 would
have a material adverse effect on the Company's business, results of operations,
financial condition and/or liquidity.
Risks Associated with International Operations and Regulatory Standards
For fiscal 1997, sales in the United States, Europe and in the Pacific Rim
countries accounted for 55 percent, 39 percent and 6 percent of the Company's
net revenues, respectively. For fiscal 1996 and 1995, sales outside of the
United States accounted for 40 percent and 47 percent, respectively, of the
Company's net revenues. The Company expects that sales in the United States and
Europe will continue to account for the substantial majority of the Company's
revenues for the foreseeable future. There can be no assurance that the Company
will achieve significant penetration in other markets.
All of the Company's sales are currently denominated in U.S. dollars. An
increase in the value of the U.S. dollar relative to foreign currencies would
make the Company's products more expensive and therefore potentially less
competitive in those markets. Additional risks inherent in the Company's
international business activities generally include unexpected changes in
regulatory requirements, tariffs and other trade barriers, cost and risks of
localizing products for foreign countries, longer accounts receivable payment
cycles, potentially adverse tax consequences, repatriation of earning and the
burdens of complying with a wide variety of foreign laws. In addition, revenues
of the Company earned in various countries where the Company does business may
be subject to taxation by more than one jurisdiction, thereby adversely
affecting the Company's earnings. There can be no assurance that such factors
will not have an adverse effect on the revenues from the Company's future
international sales and, consequently, the company's business, results of
operations, financial condition and/or liquidity.
Risks Associated With Puerto Rican Manufacturing Facility
The Company's primary manufacturing operation is located in Dorado, Puerto Rico,
an area which is subject to hurricanes at certain times of the year. Damage to
this facility or an interruption in the ability to receive components or ship
products to its customers could have a material adverse impact on the Company's
business, results of operations, financial condition and/or liquidity. In
addition, the economic viability of the Company's Puerto Rican manufacturing
facility depends in great part upon the availability of favorable tax treatment
for such operations under current tax laws. Such laws are subject to change and
may be limited or phased-out by Congress at any time.
The Company's current Puerto Rico tax exemption grants for property and
municipal license tax and for income and tollgate tax expires at the end of
calendar years 1997 and 1999, respectively. The Company is currently negotiating
with the Puerto Rican government to extend these exemption grants through 2007.
The Company
9
<PAGE> 11
believes it will negotiate a renewal of these exemption grants with terms and
conditions which are not materially different from the Company's current
exemption grants. However, if the Company is unable to obtain a renewal of these
exemption grants or if the terms and conditions are materially different, the
Company's business, results of operations, financial condition and/or liquidity
would be materially adversely affected.
Dependence on Proprietary Technology
Although the Company believes that its continued success will depend primarily
on continuing innovation, sales, marketing and technical expertise and the
quality of product support and customer relations, the Company's success is
dependent in part on the proprietary technology contained in its products. The
Company currently relies on a combination of patents, copyrights, trademarks,
trade secret laws and contractual provisions to establish and protect
proprietary rights in its products. There can be no assurance that the steps
taken by the Company in this regard will be adequate to deter misappropriation
or independent third party development of its technology. Although the Company
believes that its products and technology do not infringe proprietary rights of
others, there can be no assurance that third parties will not assert
infringement claims or that the Company will not be required to obtain licenses
of third party technology. Any such claims, with or without merit, could be time
consuming, result in costly litigation, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. No assurance can be
given that any necessary licenses will be available or that if available, such
license can be obtained on commercially reasonable terms. The failure to obtain
such royalty or licensing agreements on a timely basis would have a material
adverse effect on the Company's business, results of operations, financial
condition and/or liquidity.
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, changes in earnings
estimates by analysts, and general conditions in the computer and communications
markets, among other factors, 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.
Item 2. PROPERTIES.
The Company's corporate offices and principal product development facilities are
currently located in an approximately 55,000 square foot leased building in
Costa Mesa, California. The lease expires in calendar year 1999. Under the terms
of this agreement, the Company has the option to renew this lease for a period
of 30 months.
Emulex Caribe, Inc., one of the Company's subsidiaries, has its corporate
offices and production facilities located in two adjacent buildings owned by
that subsidiary in Dorado, Puerto Rico. The two buildings have an aggregate of
approximately 41,000 square feet. The Company believes these facilities are
sufficient to meet its production needs at least through the next year.
The Company leases approximately 12 sales offices throughout the world.
The Company's future facilities requirements will depend upon the Company's
business, but the Company believes additional space, if required, may be
obtained on reasonable terms.
Item 3. LEGAL PROCEEDINGS.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
The Company is not aware of any pending legal proceedings which could have a
material adverse effect on the financial position or operations of the Company.
10
<PAGE> 12
The Company believes that it is in compliance with all city, state, and federal
rules and regulations as pertaining to environmental impact and use.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 1997.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRINCIPAL MARKET AND PRICES
The Company's common stock is traded on the Nasdaq National Market under the
symbol EMLX. The following table sets forth for the indicated periods the high
and low sales prices of the common stock, as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C> <C>
1996 First Quarter................................... 28 1/2 13
Second Quarter.................................. 16 3/4 10 1/8
Third Quarter................................... 14 3/8 6 3/8
Fourth Quarter.................................. 21 3/8 13
1997 First Quarter................................... 16 1/4 12 7/8
Second Quarter.................................. 18 3/8 14 1/2
Third Quarter................................... 20 3/8 15
Fourth Quarter.................................. 21 1/4 14 3/4
</TABLE>
NUMBER OF COMMON STOCKHOLDERS
The approximate number of record holders of common stock of the Company as of
September 19, 1997 was 387.
DIVIDENDS
The Company has never paid cash dividends on its common stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain its earnings for the development of its business.
On January 19, 1989, the Board of Directors declared a dividend distribution of
one preferred stock purchase right for each outstanding share of common stock
(the "Distribution"). The rights were distributed on February 2, 1989 to
stockholders of record on the close of business on that date. See note 11 to the
Consolidated Financial Statements, "Stockholders' Equity", for further
information on preferred stock purchase rights.
At a special meeting of stockholders of the Company held on February 24, 1994,
the stockholders voted on a single, unified proposal which in part provided for
the distribution to stockholders, on a share-for-share basis, of all outstanding
shares of common stock of QLogic Corporation. On February 28, 1994, subsequent
to stockholders approving the aforementioned proposal, the Company declared a
special distribution to the Company's stockholders of all the shares of QLogic
Corporation effective on the record date, February 25, 1994. See note 2 to the
Consolidated Financial Statements, Distribution of QLogic Corporation.
11
<PAGE> 13
Item 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected consolidated financial data.
Certain reclassifications have been made to the 1994 and 1993 data to conform to
the 1997, 1996 and 1995 presentation. The consolidated results of operations
data for the years ended July 3, 1994 and June 27, 1993 have been restated to
present QLogic Corporation as a discontinued operation. The consolidated balance
sheet data presented in the following tables have not been retroactively
restated for the spin off of QLogic Corporation (See note 2 to the Consolidated
Financial Statements).
Selected Statement of Operations Data
- -------------------------------------
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------
June 29, June 30, July 2, July 3, June 27,
1997 1996 1995 1994 1993
-------- -------- ------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues ................................. $ 64,763 $ 51,338 $ 75,475 $ 61,558 $ 55,056
Cost of sales ................................ 39,924 34,538 44,412 38,248 29,948
-------- -------- -------- -------- --------
Gross profit .............................. 24,839 16,800 31,063 23,310 25,108
Operating expenses:
Engineering and development ............... 10,006 11,387 10,674 8,498 8,608
Selling and marketing ..................... 7,918 11,381 12,170 13,361 14,926
General and administrative ................ 4,643 4,940 5,435 5,393 2,504
Amortization of goodwill .................. -- -- 337 467 600
Impairment of goodwill .................... -- -- 785 1,001 --
Consolidation charges ..................... 1,280 -- -- 2,413 1,890
-------- -------- -------- -------- --------
Total operating expenses ..................... 23,847 27,708 29,401 31,133 28,528
-------- -------- -------- -------- --------
Operating income (loss) ...................... 992 (10,908) 1,662 (7,823) (3,420)
Nonoperating income (expense) ................ 71 483 1,120 123 (6)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes ............. 1,063 (10,425) 2,782 (7,700) (3,426)
Income tax benefit ........................... (506) (1,137) (1,156) (23) (34)
-------- -------- -------- -------- --------
Income (loss) from continuing operations ..... 1,569 (9,288) 3,938 (7,677) (3,392)
Discontinued operations:
Income (loss) from discontinued
operations, net of income tax ........... -- -- -- (4,558) 6,498
Gain (loss) on disposal of discontinued
operations, net of income tax ........... -- -- -- (2,994) 408
-------- -------- -------- -------- --------
Net income (loss) ............................ $ 1,569 $ (9,288) $ 3,938 $(15,229) $ 3,514
======== ======== ======== ======== ========
Income (loss) from continuing operations
per common and common equivalent share .... $ 0.25 $ (1.56) $ 0.64 $ (1.39) $ (0.61)
Gain (loss) from discontinued operations and
disposal of discontinued operations, net of
income tax, per common and common
equivalent share .......................... -- -- -- (1.36) 1.25
-------- -------- -------- -------- --------
Net income (loss) per common and common
equivalent share .......................... $ 0.25 $ (1.56) $ 0.64 $ (2.75) $ 0.64
======== ======== ======== ======== ========
Weighted-average number of common and
common equivalent shares .................. 6,295 5,936 6,172 5,537 5,533
======== ======== ======== ======== ========
</TABLE>
12
<PAGE> 14
Selected Balance Sheet Data
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
June 29, June 30, July 2, July 3, June 27,
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Total current assets .................. $29,328 $31,579 $39,014 $26,152 $53,442
Total current liabilities ............. 10,859 15,494 13,970 9,223 20,580
------- ------- ------- ------- -------
Working capital ....................... $18,469 $16,085 $25,044 $16,929 $32,862
Total assets .......................... $37,175 $39,300 $47,550 $37,354 $77,956
Long-term capitalized lease obligations 79 204 253 506 1,805
Retained earnings ..................... 15,773 14,204 23,492 19,554 48,184
Total stockholders' equity ............ 24,276 22,030 30,678 25,559 53,482
</TABLE>
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<PAGE> 15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the discussions in this
Form 10-K in general may contain certain forward-looking statements. In
addition, when used in this Form 10-K, the words "projected", "in the opinion",
"believes", "expects" and similar expressions are intended to identify
forward-looking statements. Actual future results could differ materially from
those described in the forward-looking statements as a result of factors
discussed in "Risk Factors" set forth herein. The Company cautions the reader,
however, that these lists of risk factors may not be exhaustive. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Form 10-K. During the
third quarter of 1994, the Company spun off QLogic Corporation, a wholly owned
subsidiary, as a separate, publicly-traded company. The financial statement
presentation and the discussion of the results of operations reflect the
discontinuance of this business. See note 2 to the Consolidated Financial
Statements for a discussion of discontinued operations. All references to years
refer to the Company's years ended June 29, 1997, June 30, 1996 and July 2,
1995, as applicable, unless the calendar year is specified. References to dollar
amounts are in thousands unless otherwise specified.
<TABLE>
<CAPTION>
Percentage of Net Revenues
--------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenues .................... 100.0% 100.0% 100.0%
Cost of sales ................... 61.6 67.3 58.8
----- ----- -----
Gross profit ................. 38.4 32.7 41.2
Operating expenses:
Engineering and development .. 15.5 22.2 14.2
Selling and marketing ........ 12.2 22.1 16.1
General and administrative ... 7.2 9.6 7.2
Amortization of goodwill ..... -- -- 0.5
Impairment of goodwill ....... -- -- 1.0
Consolidation charges ........ 2.0 -- --
----- ----- -----
Total operating expenses ........ 36.9 53.9 39.0
----- ----- -----
Operating income (loss) ......... 1.5 (21.2) 2.2
Nonoperating income ............. 0.1 0.9 1.5
----- ----- -----
Income (loss) before income taxes 1.6 (20.3) 3.7
Income tax benefit .............. (0.8) (2.2) (1.5)
----- ----- -----
Net income (loss) ............... 2.4% (18.1)% 5.2%
===== ===== =====
</TABLE>
14
<PAGE> 16
EMULEX CORPORATION AND SUBSIDIARIES
NET REVENUES
Fiscal 1997 versus Fiscal 1996
Net revenues for 1997 were $64,763, an increase of $13,425, or 26.2 percent,
from 1996. This increase in net revenues was primarily due to a $21,370, or
106.3 percent, increase in sales to original equipment manufacturers ("OEMs").
The higher level of OEM sales was attributable to significantly improved
shipments to Xerox and Reuters when compared to the depressed results of 1996;
numerous printer server design wins the Company achieved in 1997 and 1996, and
shipments of the Company's fibre channel products which, as expected, have been
primarily to OEMs during the early stages of the fibre channel market
development. The increase in net revenues to OEMs is partially offset by
reductions in net revenues from distribution and end user sales. Net revenues
from distribution decreased by $5,302, or 20.8 percent, and end user net
revenues decreased by $2,643, or 45.8 percent, compared to the prior year.
From a product line perspective, net revenues generated by the Company's
emerging fibre channel products increased by $10,383, or 912.4 percent, to
$11,521 in the current fiscal year as OEMs in this emerging market have begun to
take volume shipments. Printer server net revenues increased by $4,217, or 17.4
percent, to $28,428 in 1997 due to increased sales to OEMs, partially offset by
reductions in distribution sales of printer servers. The Company believes this
decrease in net revenues from distribution sales of printer servers was the
result of a combination of lower average selling price and decreased demand for
after-market solutions, as more OEMs are shipping their printers with the
printer server included. Network access net revenues increased by $1,342, or
6.3%, to $22,479, and net revenues from other miscellaneous product lines
decreased by $1,045, or 30.9%, to $2,335. Net revenues from 1996 also included
$1,472 of memory devices that had been engineered out of certain products.
Although fibre channel represented 17.8 percent of net revenues for 1997, the
market is an emerging technology and there can be no assurance that the
Company's products will adequately meet the requirements of the market, or
achieve market acceptance. Because the Company's fibre channel products are
designed to provide both an input/output (I/O) and a networking connection
between computers and storage devices, the future revenues of the fibre channel
product line depend on the availability of other fibre channel products not
manufactured or sold by the Company. Furthermore, the Company's fibre channel
products are dependent upon components supplied by third parties for this
emerging technology and there can be no assurance that these components will be
available in the quantities desired, at a competitive price and function as
needed.
Export revenues increased by $8,630, or 41.7 percent, to $29,330 in 1997.
Exports accounted for 45.3 percent of net revenues in 1997, up from 40.3 percent
in 1996. Domestic revenues increased by $4,795, or 15.7 percent, to $35,433 in
the current year. During 1997, Reuters and Sequent Computer Systems accounted
for 12.6 and 10.1 percent of net revenues, respectively. The Company's top five
customers accounted for 44.2 percent of net revenues in 1997.
Fiscal 1996 versus Fiscal 1995
Net revenues for 1996 decreased $24,137, or 32.0 percent, from 1995. This
decrease in net revenues resulted primarily from lower sales to OEMs, which were
$20,111 in 1996, down $19,495, or 49.2 percent, from the $39,606 recorded in the
prior year. This lower level of OEM sales was attributable to a combined
$21,568, or 85.7 percent, reduction in shipments to Xerox, Cisco Systems and
Reuters, offset by a $2,073, or 14.3 percent, increase in shipments to other OEM
accounts. While Xerox took delivery of their new generation of printer servers
during the second quarter of 1996, volumes were lower than a year earlier for
the previous generation of printer servers. Additionally, one product as
anticipated reached the end of its life cycle in the fourth quarter of 1995 with
Cisco Systems. Sales to Reuters declined from the levels recorded a year earlier
due to the completion of certain of Reuters' modernization projects in Europe.
However, in the fourth quarter of 1996, Emulex received over $2,500 in orders
from Reuters related to a new program. Approximately half of these new Reuters
orders shipped in the fourth quarter of 1996.
15
<PAGE> 17
Export revenues decreased by $14,500, or 41.2 percent, to $20,700 in 1996.
Exports accounted for 40.3 percent of the Company's net revenues in 1996, down
from 46.6 percent in 1995. Domestic revenues decreased $9,637, or 23.9 percent,
to $30,638 in 1996. During 1996, IBM Corporation accounted for 14.7 percent of
net revenues.
GROSS PROFIT
Fiscal 1997 versus Fiscal 1996
In 1997, gross profit increased by $8,039, or 47.9 percent, to $24,839. Gross
profit was 38.4 percent of net revenues in the current year compared to 32.7
percent in 1996. The improvement in the 1997 gross profit percentage was
primarily due to a product mix which contains a higher percentage of higher
margin products, lower prices for components used in the Company's products and
higher absorption of manufacturing overhead which resulted from the higher level
of production activity in the current year compared to the prior year.
Fiscal 1996 versus Fiscal 1995
Gross profit in 1996 decreased by $14,263 to $16,800, down 45.9 percent from the
previous year. Gross profit for 1996 was 32.7 percent of net revenues, down from
41.2 percent in 1995. Fiscal 1995 gross profit included a $685 charge for the
impairment of capitalized software development costs. Without this charge, 1995
gross margins were 42.1 percent of net revenues. The decrease in 1996 gross
profit percentage from a year earlier was primarily attributable to a lower
absorption of manufacturing overhead which resulted from a lower level of
production activity in 1996.
OPERATING EXPENSES
Fiscal 1997 versus Fiscal 1996
In 1997, operating expenses decreased by $3,861, or 13.9 percent, to $23,847
compared to the prior year. Due to higher revenue levels and lower operating
expenses, operating expenses as a percent of revenue improved to 36.9 percent
compared to 53.9 percent in the prior year. Included in the current year were
consolidation charges (see note 1 to the Consolidated Financial Statements) of
$1,280 recognized during the first quarter of 1997. Excluding these charges,
operating expenses in the current year would have been 34.9 percent of revenues,
or $22,567. This represents a decrease of $5,141, or 18.6 percent, compared to
operating expenses of $27,708 in 1996. Engineering and development expenses
decreased by $1,381, or 12.1 percent, to $10,006 during 1997. Selling and
marketing expenses decreased by $3,463, or 30.4 percent, to $7,918 for the
current year. These reductions were primarily the result of the Company's
reduction of investment in product areas outside of the Company's core focus in
fibre channel, printer server and wide area networking markets. General and
administrative expenses decreased by $297, or 6.0 percent, to $4,643 in 1997
primarily due to reduced staffing levels.
Fiscal 1996 versus Fiscal 1995
During 1996, operating expenses decreased $1,693, or 5.8 percent, from the
levels recorded a year earlier. However, due to lower net revenues in 1996 when
compared to 1995, operating expenses as a percent of net revenues increased to
53.9 percent in 1996 from 39.0 percent in 1995. The results for 1995 include
$785 for the write-off of the remaining goodwill associated with the 1992
acquisition of InterConnections, Inc. Without this write-off, operating expenses
in 1995 were 37.9 percent of net revenues. Engineering and development expenses
increased in 1996 by $713, or 6.7 percent, compared to 1995. Engineering and
development expenses were 22.2 percent of net revenues in 1996 compared to 14.2
percent in 1995. Selling and marketing expenses decreased by $789, or 6.5
percent, mainly due to lower commissions and related expenses. Selling and
marketing expenses were 22.1 percent of net revenues in 1996 compared to 16.1
percent in the prior year. General and administrative expenses in 1996 decreased
by $495, or 9.1 percent, compared to the preceding year, primarily as a result
of reduced staffing levels. General and administrative expenses were 9.6 percent
of net revenues in 1996 compared to 7.2 percent in the prior year. There was no
goodwill amortization in the current year compared to $337 in the prior year.
The decrease in goodwill amortization was due to the 1995 write-off of goodwill
mentioned earlier in this paragraph.
16
<PAGE> 18
NONOPERATING INCOME
Fiscal 1997 versus Fiscal 1996
Nonoperating income, which consists primarily of interest income, interest
expense and foreign exchange translation, decreased by $412 to $71 in 1997,
compared to $483 in 1996. 1997 included $238 of interest income associated with
prior years' tax returns and 1996 included a $312 gain on the sale of a building
at the Company's production facility in Puerto Rico. Excluding these
nonrecurring items, nonoperating income decreased by $338, primarily from
reduced interest income and an increase in interest expense due to the Company's
financing activities during the current year.
Fiscal 1996 versus Fiscal 1995
Nonoperating income was $483 in 1996, decreasing by $637, or 56.9 percent, from
the $1,120 recorded in 1995. Net interest income in 1996 decreased by $832, or
80.2 percent, from the 1995 level of $1,037, primarily due to $538 of 1995
interest income related to a tax refund and lower levels of interest-bearing
deposits during 1996. The $312 gain in 1996 resulted from the sale of a building
at the Company's production facility in Puerto Rico.
INCOME TAXES
The Company recorded a tax benefit of $506 in 1997 compared to a benefit of
$1,137 in 1996. The benefit in the current year included a $612 tax recovery
from a tax sharing agreement with QLogic, the Company's former subsidiary (see
note 2 to the Consolidated Financial Statements), compared to a $750 tax
recovery, also related to the tax sharing agreement with QLogic, in the prior
year. The Company has both local Puerto Rico and federal tax exemption credits,
and had $36,582 and $8,851 of net operating loss carryforwards for federal and
state income tax purposes, respectively, at June 29, 1997, which are available
to offset future federal and state taxable income through 2012 and 2002,
respectively. Additionally, the Company had $2,494 of business credit
carryforwards, available through 2011, and $1,865 of alternative minimum tax
credit carryforwards available over an indefinite period to further reduce
future federal income taxes. The Company also has $1,480 of research and
experimentation credit carryforwards for state purposes available through 2012.
The Company's current Puerto Rico tax exemption grants for property and
municipal license tax and for income and tollgate tax expire at the end of
calendar years 1997 and 1999, respectively. Although there can be no assurance,
the Company is currently negotiating with the Puerto Rican government to extend
these exemption grants through 2007. The Company believes it will negotiate a
renewal of these exemption grants with terms and conditions which are not
materially different from the Company's current exemption grants. However, if
the Company is unable to obtain a renewal of these exemption grants or if the
terms and conditions are materially different, the Company's business, results
of operations, financial condition and/or liquidity would be materially
adversely affected.
The Company is currently undergoing an examination by the California Franchise
Tax Board for the Company's California income tax returns for years 1989, 1990
and 1991. In the opinion of management, this examination will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. ("Statement") 128, "Earnings Per
Share". Statement 128 specifies new standards designed to improve the earnings
per share ("EPS") information provided in financial statements by simplifying
the existing computational guidelines, revising the disclosure requirements and
increasing the comparability of EPS data on an international basis. Some of the
changes made to simplify the EPS computations include: (a) eliminating the
presentation of primary EPS and replacing it with basic EPS, with the principal
difference being that the common stock equivalents are not considered in
computing basic EPS, (b) eliminating the modified treasury stock method and the
three percent materiality provision, and (c) revising the contingent share
provisions and the supplemental EPS data requirements. Statement 128 also makes
a number of changes to existing disclosure requirements. Statement 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The Company has not yet determined the impact
of the implementation of Statement 128.
17
<PAGE> 19
In June 1997, the FASB issued Statement 130, "Reporting Comprehensive Income".
The new statement is effective for both interim and annual periods beginning
after December 15, 1997. The Company has not yet determined the impact of
adopting this new standard on the consolidated financial statements.
In June 1997, the FASB issued Statement 131, "Disclosure about Segments of an
Enterprise and Related Information". The new statement is effective for fiscal
years beginning after December 15, 1997. The Company has not yet determined the
impact of adopting this new standard on the consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by $1,151 during 1997 to $484.
Operating activities, which include changes in working capital balances,
provided $532 of cash and cash equivalents in 1997 compared to using $7,839 of
cash and cash equivalents in the prior year. Investing activities, which were
limited to the acquisition and disposition of property, plant and equipment,
used $2,099 of cash and cash equivalents in the current year compared to using
$1,157 in 1996. Net financing activities, which were limited to payments under
capital lease obligations and proceeds from the exercise of employee stock
options, provided $416 of cash and cash equivalents during 1997 compared to
providing $397 of cash and cash equivalents in the prior year.
Discontinued operations used $74 of cash in 1996.
In addition to its cash balances, the Company had a line of credit of up to
$7,000 with Silicon Valley Bank which has been recently expanded to $10,000. The
Company utilized the line of credit for a substantial portion of 1997. However,
there were no borrowings outstanding under this line at June 29, 1997 or June
30, 1996. Under the terms of the line of credit, the Company has granted Silicon
Valley Bank a security interest in its accounts receivable, inventories,
equipment and other property. 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. 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 continue 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 Company will
continue to satisfy the financial and other covenants and conditions of the line
of credit or 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 will be required periodically during the next twelve months.
The Company's line of credit with Silicon Valley Bank, which is renewed
periodically in the normal course of business, was scheduled to expire in
September 1997. The Company recently completed negotiations with Silicon Valley
Bank to extend its existing line of credit to September 1998 and expand it to
$10,000. A failure to renew this line of credit in the future would adversely
affect the Company's ability to meet its financial obligations and liquidity
requirements.
The Company believes that its existing cash balances, facilities and equipment
leases, anticipated cash flows from operating activities and available
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 experienced reductions in revenue levels, significant
losses from operations during several quarters of the last two years and large
fluctuations in the timing of significant customer orders on a quarterly basis.
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 at the rate experienced in 1996 and the first
quarter of 1997, additional debt or equity financing would be required within
three to nine months. There can be no assurances that revenues will remain at
current levels or return to the levels experienced in prior years or that the
Company would be profitable at such revenue levels. In addition, there can be no
assurances that the Company may not be required to utilize its line of credit
even during profitable periods for various reasons including, but not limited
to, the timing of component purchases and/or customer orders and shipments.
Furthermore, there can be no assurances that future requirements to fund
operations will not require the Company to draw on its line of credit again or
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.
18
<PAGE> 20
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is included herein as part of Item 14(a)
of Part IV of this annual report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
There is incorporated herein by reference the information required by this Item
in the Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended June 29, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive and certain other officers of the Company or its principal
operating subsidiary are as follows:
<TABLE>
<CAPTION>
Name Position Age
- ---- -------- ---
<S> <C> <C>
Paul F. Folino President and Chief Executive Officer and Director 52
Michael A. Peitler (1) Sr. Vice President, Worldwide Sales 55
Charles N. Goff (1) Vice President, Manufacturing 63
Teresa W. Blackledge (1) Vice President, Marketing 42
Sadie A. Herrera (1) Vice President, Human Resources 48
Ronald P. Quagliara (1) Vice President, Research and Development 48
Michael J. Rockenbach Vice President, Finance, Acting Chief Financial Officer 36
and Secretary
</TABLE>
- -----------
(1) These persons serve in the indicated capacities as officers of the
Registrant's principal operating subsidiary; they are not officers of the
Registrant.
- ------------
Mr. Folino joined the Company in May 1993 as president and chief executive
officer and as a director. From January 1991 to May 1993, Mr. Folino was
president and chief operating officer of Thomas-Conrad Corporation, a
manufacturer of local area networking products.
Mr. Peitler joined the Company in September 1993 as vice president, sales, and
was promoted to senior vice president, sales in September 1994. Mr. Peitler had
been senior vice president of sales at Thomas-Conrad Corporation, a local area
networking products manufacturer, since September 1991. From February 1988 to
June 1990, he was president and managing director of Datapoint Canada, Inc., a
manufacturer of networking products.
Ms. Blackledge joined the Company in May 1991 as marketing manager and was
promoted to vice president, marketing in September, 1994. From July 1982 to
April 1991, Ms. Blackledge held a variety of marketing, planning and research
positions with the Digital Communications Division of Rockwell International.
Mr. Goff joined the Company in 1985 as manager, warehouse operations and after
holding several operations management positions was promoted to vice president,
manufacturing in September 1994. Mr. Goff worked for Printronix, a manufacturer
of high speed dot-matrix printers, for over 10 years prior to joining the
Company.
Ms. Herrera joined the Company in 1988 as benefits administrator and was
promoted to vice president, human resources in May 1995. At the time of her
promotion, Ms. Herrera was senior director, human resources. Ms. Herrera had
over 15 years of human resource management experience with the Remex Division of
Ex-Cell- O/Textron Corporation and other companies prior to joining the Company.
19
<PAGE> 21
Mr. Quagliara joined the Company in March 1995 as vice president, research and
development. Prior to joining the Company, Mr. Quagliara spent five years with
Ascom Timeplex, Inc., a manufacturer of router bridges and other networking
equipment. Most recently he was vice president and general manager of Acsom's
LAN Interworking Business Unit.
Mr. Rockenbach joined the Company in 1991 and has served as the Company's vice
president, finance and acting chief financial officer since late 1996. From 1991
to 1996, Mr. Rockenbach served in senior finance and accounting positions with
the Company. From 1987 until joining the Company, Mr. Rockenbach served in
various manufacturing finance and financial planning positions at Western
Digital Corporation. Most recently he was manager of financial planning for the
microcomputer products division.
None of the executive officers of the parent Company or officers of its
principal operating subsidiary has any family relationship with any other
executive officer of the Company, other officer of its principal operating
subsidiary or director of the Company.
Item 11. EXECUTIVE COMPENSATION.
There is incorporated herein by reference the information required by this Item
in the Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended June 29, 1997.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
There is incorporated herein by reference the information required by this Item
in the Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended June 29, 1997.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There is incorporated herein by reference the information required by this Item
in the Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended June 29, 1997.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents Filed with Report
1. Consolidated Financial Statements
The consolidated financial statements listed on the
accompanying Index to Consolidated Financial Statements and
Schedule are filed as part of this report.
2. Financial Statement Schedule
The financial statement schedule listed on the accompanying
Index to Consolidated Financial Statements and Schedule is
filed as part of this report.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this report.
(b) Reports on Form 8-K
The Registrant has not filed any reports on Form 8-K during
the last quarter of the year for which this report is filed.
20
<PAGE> 22
EMULEX CORPORATION AND SUBSIDIARIES
Annual Report -- Form 10-K
Items 8, 14(a)(1) and 14(a)(2)
Indexto Consolidated Financial Statements and
Schedule June 29, 1997, June 30, 1996 and July 2, 1995
(With Independent Auditors' Report Thereon)
<TABLE>
<CAPTION>
Consolidated Financial Statements Page Number
- --------------------------------- -----------
<S> <C>
Independent Auditors' Report.......................................................... 22
Consolidated Balance Sheets-- June 29, 1997 and June 30, 1996......................... 23
Consolidated Statements of Operations--Years ended June 29, 1997,
June 30, 1996 and July 2, 1995...................................................... 24
Consolidated Statements of Stockholders' Equity--Years ended
June 29, 1997, June 30, 1996 and July 2, 1995....................................... 25
Consolidated Statements of Cash Flows--Years ended
June 29, 1997, June 30, 1996 and July 2, 1995....................................... 26
Notes to Consolidated Financial Statements............................................ 27
Schedule
- --------
Schedule II - Valuation and Qualifying Accounts and Reserves......................... 41
</TABLE>
All other schedules are omitted because the required information is not
applicable or the information is presented in the consolidated financial
statements or notes thereto.
21
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Emulex Corporation:
We have audited the consolidated financial statements of Emulex Corporation and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we have also audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Emulex Corporation
and subsidiaries as of June 29, 1997 and June 30, 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 29, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
Orange County, California
August 12, 1997
22
<PAGE> 24
EMULEX CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 29, 1997 and June 30, 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Assets (note 5)
Current assets:
Cash and cash equivalents .............................................. $ 484 $ 1,635
Accounts and notes receivable, less allowance for
doubtful accounts of $496 in 1997 and $482 in 1996 .................. 14,785 12,993
Inventories, net (note 3) ............................................. 12,713 14,671
Prepaid expenses ....................................................... 1,066 1,892
Income taxes receivable (note 4) ....................................... 280 388
------- -------
Total current assets ............................................... 29,328 31,579
Property, plant and equipment, net (notes 3 and 9) .......................... 6,961 7,533
Prepaid expenses and other assets ........................................... 886 188
------- -------
$37,175 $39,300
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of capitalized lease obligations (note 9) ......... $ 125 $ 261
Accounts payable ....................................................... 4,294 8,699
Accrued liabilities (note 3) ........................................... 6,120 5,846
Deferred income taxes (note 4) ......................................... 320 688
------- -------
Total current liabilities .......................................... 10,859 15,494
Capitalized lease obligations, excluding
current installments (note 9) .......................................... 79 204
Deferred revenue ............................................................ 6 --
Deferred income taxes (note 4) ............................................. 1,955 1,572
------- -------
12,899 17,270
------- -------
Commitments and contingencies (note 9)
Stockholders' equity (note 11):
Preferred stock, $.01 par value; 1,000,000 shares authorized (150,000
shares designated as Series A Junior Participating Preferred Stock);
none issued and
outstanding ........................................................ -- --
Common stock, $.20 par value; 20,000,000 shares
authorized; 6,100,546 and 5,993,403 issued and
outstanding in 1997 and 1996, respectively ......................... 1,220 1,199
Additional paid-in capital ............................................. 7,283 6,627
Retained earnings ...................................................... 15,773 14,204
------- -------
Total stockholders' equity .................................................. 24,276 22,030
------- -------
$37,175 $39,300
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 25
EMULEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended June 29, 1997, June 30, 1996 and July 2, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net revenues (note 8) ................... $ 64,763 $ 51,338 $ 75,475
Cost of sales ........................... 39,924 34,538 44,412
-------- -------- --------
Gross profit ........................ 24,839 16,800 31,063
Operating expenses:
Engineering and development ......... 10,006 11,387 10,674
Selling and marketing ............... 7,918 11,381 12,170
General and administrative .......... 4,643 4,940 5,435
Amortization of goodwill ............ -- -- 337
Impairment of goodwill .............. -- -- 785
Consolidation charges (note 1) ...... 1,280 -- --
-------- -------- --------
Total operating expenses ........ 23,847 27,708 29,401
-------- -------- --------
Operating income (loss) ......... 992 (10,908) 1,662
Nonoperating income (note 6) ............ 71 483 1,120
-------- -------- --------
Income (loss) before income taxes 1,063 (10,425) 2,782
Income tax benefit (note 4) ............. (506) (1,137) (1,156)
-------- -------- --------
Net income (loss) ................... $ 1,569 $ (9,288) $ 3,938
======== ======== ========
Net income (loss) per common and
common equivalent share ............. $ 0.25 $ (1.56) $ 0.64
======== ======== ========
Weighted average number of common
and common equivalent shares ........ 6,295 5,936 6,172
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 26
EMULEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders'
Equity Years ended June 29, 1997, June 30, 1996 and July 2, 1995
(in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at July 3, 1994 .............. 5,578,461 $ 1,116 $ 4,889 $ 19,554 $ 25,559
Exercise of stock options (note 11) 282,462 56 1,125 -- 1,181
Net income ........................ -- -- -- 3,938 3,938
--------- --------- --------- --------- ---------
Balance at July 2, 1995 .............. 5,860,923 1,172 6,014 23,492 30,678
Exercise of stock options (note 11) 132,480 27 613 -- 640
Net loss .......................... -- -- -- (9,288) (9,288)
--------- --------- --------- --------- ---------
Balance at June 30, 1996 ............. 5,993,403 1,199 6,627 14,204 22,030
Exercise of stock options (note 11) 107,143 21 656 -- 677
Net income ........................ -- -- -- 1,569 1,569
--------- --------- --------- --------- ---------
Balance at June 29, 1997 .............. 6,100,546 $ 1,220 $ 7,283 $ 15,773 $ 24,276
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 27
EMULEX CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended June 29, 1997, June 30, 1996 and July 2, 1995
(in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,569 $ (9,288) $ 3,938
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation, amortization and goodwill impairment 2,616 2,412 4,619
Loss (gain) on disposal of property, plant and equipment 55 (125) 109
Provision for doubtful accounts 131 125 64
Changes in assets and liabilities:
Accounts receivable (1,923) (222) (3,204)
Inventories 1,958 (410) (5,323)
Income taxes receivable 108 (38) (113)
Accounts payable (4,405) 328 5,356
Accrued liabilities 274 564 (151)
Deferred income taxes 15 (389) 584
Deferred revenue 6 -- (1)
Prepaid expenses 138 (693) (750)
Other assets (10) (103) 283
-------- -------- --------
Net cash provided by (used in) operating activities 532 (7,839) 5,411
-------- -------- --------
Cash flows from investing activities:
Net proceeds from sale of property, plant and equipment 62 1,032 8
Additions to property, plant and equipment (2,161) (2,189) (2,353)
-------- -------- --------
Net cash used in investing activities (2,099) (1,157) (2,345)
-------- -------- --------
Cash flows from financing activities:
Principal payments under capital leases (261) (243) (261)
Proceeds from issuance of common stock 677 640 1,181
-------- -------- --------
Net cash provided by financing activities 416 397 920
-------- -------- --------
Net cash provided by (used in) continuing operations (1,151) (8,599) 3,986
Net cash used in discontinued operations -- (74) (450)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,151) (8,673) 3,536
Cash and cash equivalents at beginning of year 1,635 10,308 6,772
-------- -------- --------
Cash and cash equivalents at end of year $ 484 $ 1,635 $ 10,308
======== ======== ========
Supplemental disclosures:
Cash paid during the year (related to continuing and discontinued operations)
for:
Interest $ 184 $ 33 $ 28
Income taxes 53 141 8
</TABLE>
Capital lease obligations of $212 were incurred in 1996, when the Company
entered into a lease for new equipment. There were no capital lease obligations
in 1997 or 1995.
See accompanying notes to consolidated financial statements.
26
<PAGE> 28
EMULEX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial
Statements June 29, 1997, June 30, 1996 and July 2, 1995
(in thousands, except share data)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Emulex
Corporation, a Delaware corporation, and its wholly-owned subsidiaries
(collectively, the "Company" or "Emulex"). All significant intercompany
balances and transactions have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest June 30. Fiscal
years 1997, 1996 and 1995 each comprised 52 weeks.
Reverse Stock Split
On February 24, 1994, the Board of Directors of the Company declared a
one-for-two reverse split of the Company's common stock to stockholders
of record on February 25, 1994. Par value of the common stock increased
from $0.10 to $0.20 per share. Accordingly, all references to share and
per share data have been retroactively restated to reflect this
one-for-two reverse stock split.
Consolidation Charges
During the first quarter of fiscal 1997, the Company initiated a
consolidation of its operations to reduce its ongoing expense base and
focus its activities in the fibre channel, printer server and wide area
networking markets. Emulex's remote access and host software business,
previously headquarted out of a Bellevue, Washington facility, have
been relocated to Emulex headquarters in Costa Mesa, California. In
addition, the Company has downsized its Pacific Rim sales organization
and also made selected reductions at its manufacturing plant in Dorado,
Puerto Rico and at its corporate headquarters. The Company recognized
consolidation charges of $1,280 in fiscal 1997.
The charges related to this consolidation of operations consisted of
approximately $806 for severance and related charges, $236 for office
rent and related charges, $65 for write-off of fixed assets and $173 of
other charges relating primarily to the transition of product support
to Costa Mesa, California. Total headcount worldwide was reduced by
approximately 36 employees. As of June 29, 1997, the consolidation plan
was substantially complete.
Foreign Currency Translation
The Company has designated the U.S. dollar as its functional currency.
Accordingly, monetary assets and liabilities denominated in foreign
currencies are remeasured into the U.S. dollar at the exchange rates in
effect at the balance sheet date. Non-monetary assets and liabilities
denominated in foreign currencies are remeasured into the U.S. dollar
at the appropriate historical exchange rates. Income and expense
amounts denominated in foreign currencies are remeasured into the U.S.
dollar at the average exchange rates during the period, except for
expense items related to non-monetary accounts, which are remeasured at
the appropriate historical exchange rates. Net foreign exchange gains
and losses are included in other nonoperating income in the period
incurred (see note 6).
27
<PAGE> 29
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Equivalents
At June 29, 1997, no money market fund investments were included in
cash and cash equivalents of $484. At June 30, 1996, $367 of money
market fund investments were included in cash and cash equivalents. All
highly liquid debt instruments with original maturities of three months
or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
net realizable value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, and depreciation and
amortization are provided on the straight-line method over estimated
useful lives of two to thirty years.
Intangible Assets
Intangible assets are stated at the lower of cost or net realizable
value, less accumulated amortization. Amortization is provided on a
straight-line basis over the estimated useful lives of the assets and
totaled $2,588 for the year ended July 2, 1995. Intangible assets
consisted of goodwill (discussed below), capitalized software
development costs (discussed below) and license fees.
Goodwill
Goodwill, which represents the excess of purchase price over fair value
of net assets acquired, is amortized over the periods expected to be
benefited. In 1995, the Company adopted Statement of Financial
Accounting Standards No. ("Statement") 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". Under the provisions of Statement 121, the recoverability
of goodwill is assessed by determining whether the amortization of
goodwill over its remaining life can be recovered through projected
undiscounted future operating cash flows. The amount of goodwill
impairment, if any, is measured based on projected discounted future
operating cash flows. Prior to the adoption of Statement 121, the
Company had used a similar approach for assessing the recoverability of
goodwill based on net income.
In October 1991, the Company recorded goodwill related to the
acquisition of InterConnections, Inc. in the amount of $3,599 assuming
a useful life of six years. During the quarter ended December 26, 1993,
the Company completed a forecast of its operations, including its
InterConnections, Inc. subsidiary. The forecast indicated that the
expected future financial results no longer supported full
recoverability of the unamortized goodwill and that a partial
impairment of the asset had resulted. The amount of the impairment was
determined to be $1,001, and was recognized as a charge to partially
write down the remaining unamortized goodwill balance in the quarter
ended December 26, 1993. Remaining unamortized goodwill related to the
acquisition of InterConnections at July 3, 1994 was $1,122.
In the fourth quarter of 1995, as the result of weak sales and changes
in the marketplace, the Company decided to discontinue the product line
that was the basis for the remaining goodwill at InterConnections, Inc.
With no future product revenues, a review of the expected future cash
flows from the product line, undiscounted and without interest charges,
indicated that the remaining unamortized goodwill was fully impaired. A
charge of $785 to operating expenses was recorded in the fourth quarter
of 1995 to write off the remaining unamortized goodwill from the
InterConnections, Inc.
acquisition.
28
<PAGE> 30
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Capitalized Software Development Costs
Capitalized software development costs consist of costs to purchase
software and to develop software internally. Capitalization of
internally developed software begins upon the establishment of
technological feasibility. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized
software development costs require judgment by management with respect
to certain external factors, including but not limited to, anticipated
future gross revenue, estimated economic life and changes in software
and hardware technologies. No software development costs were
capitalized in 1997, 1996 or 1995.
Further, Statement 86, "Accounting for the Costs of Computer Software
to Be Sold, Leased, or Otherwise Marketed", requires that at each
balance sheet date the unamortized costs of a computer software product
be compared to the net realizable value of that product. The amount by
which the unamortized costs exceed the net realizable value of a
product is to be written off. The Company's capitalized software
development costs were primarily associated with the InterConnections,
Inc. product line discussed above in Goodwill. As a result of the
Company's decision to discontinue this product line, there will be no
future product revenue stream to support the capitalized software
development costs. Accordingly, in the fourth quarter of 1995, the
Company recorded a charge of $685 to cost of sales to write off all
remaining capitalized software development costs.
Software Revenue Recognition
The Company recognizes revenue from licenses of networking software
upon delivery and acceptance of the product. Revenue from sales of
post-contract customer support ("PCS") agreements is recognized at the
time of sale, with a reserve maintained equivalent to the cost of
providing the related services, as the estimated cost of providing PCS
during the initial period of the PCS arrangement is insignificant.
Distributor Revenue Recognition
The Company has agreements with certain of its distributors and Master
Value Added Resellers ("VARs") to provide price protection and stock
rotation privileges with respect to inventories which the distributors
may have on hand when the Company's published list prices are reduced
and/or when items are slow moving. These agreements may be terminated
upon written notice by either party. Pursuant to the Company's
contractual obligations under these agreements, or in the event of
termination, the Company may be obligated to issue credits to provide
price protection and/or to repurchase a certain portion of a
distributor's or VAR's inventory. The Company recognizes revenue at the
time of shipment and records a reserve for price protection and
inventory repurchase.
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 years presented. Primary and fully
diluted net income (loss) per share are approximately the same. The
Company has granted certain stock options (see note 11) which have been
treated as common share equivalents, except in those periods where such
inclusion would be antidilutive.
Fair Value of Financial Instruments
In December 1991, the Financial Accounting Standards Board ("FASB")
issued Statement 107, "Disclosures about Fair Value of Financial
Instruments". Statement 107 requires all entities to disclose the fair
value of financial instruments, both assets and liabilities recognized
and not recognized on the balance sheet, for which it is practicable to
estimate fair value. Statement 107 defines fair value of a financial
instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties. As of June 29, 1997, the
fair value of all financial instruments approximated carrying value.
29
<PAGE> 31
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting for Stock Options
Prior to July 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On July 1, 1996, the
Company adopted Statement 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, Statement 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma net income per share disclosures for employee
stock option grants made in fiscal 1996 and future years as if the
fair-value-based method defined in Statement 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of Statement
123.
Use of Estimates
Management has made a number of estimates and assumptions relating to
the reporting of assets and liabilities in conformity with generally
accepted accounting principles. Actual results could differ from these
estimates.
Income Taxes
The Company accounts for income taxes pursuant to Statement 109,
"Accounting for Income Taxes". Statement 109 uses the asset and
liability method of accounting for income taxes, which recognizes
deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
Recent Accounting Pronouncements
In February 1997, the FASB issued Statement 128, "Earnings Per Share".
Statement 128 specifies new standards designed to improve the earnings
per share ("EPS") information provided in financial statements by
simplifying the existing computational guidelines, revising the
disclosure requirements and increasing the comparability of EPS data on
an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS
and replacing it with basic EPS, with the principal difference being
that the common stock equivalents are not considered in computing basic
EPS, (b) eliminating the modified treasury stock method and the three
percent materiality provision, and (c) revising the contingent share
provisions and the supplemental EPS data requirements. Statement 128
also makes a number of changes to existing disclosure requirements.
Statement 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. The Company
has not yet determined the impact of the implementation of Statement
128.
In June 1997, the FASB issued Statement 130, "Reporting Comprehensive
Income". The new statement is effective for both interim and annual
periods beginning after December 15, 1997. The Company has not yet
determined the impact of adopting this new standard on the consolidated
financial statements.
In June 1997, the FASB issued Statement 131, "Disclosure about Segments
of an Enterprise and Related Information". The new statement is
effective for fiscal years beginning after December 15, 1997. The
Company has not yet determined the impact of adopting this new standard
on the consolidated financial statements.
30
<PAGE> 32
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 DISTRIBUTION OF QLOGIC CORPORATION
At a special meeting of stockholders of the Company held on February
24, 1994, the stockholders voted on a single, unified proposal which in
part provided for the distribution (the "Distribution") to
stockholders, on a share-for-share basis, of all outstanding shares of
common stock of QLogic Corporation, then a wholly-owned subsidiary of
the Company. On February 28, 1994, subsequent to stockholders approving
the aforementioned proposal, the Company declared a special
distribution to the Company's stockholders of all the shares of QLogic
Corporation effective on the record date, February 25, 1994. In
addition, on February 25, 1994, the Securities and Exchange Commission
declared the Registration Statement on Form 10 of QLogic Corporation
effective, and trading commenced under the symbol QLGC on the Nasdaq
National Market.
NOTE 3 BALANCE SHEET DETAIL
Components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Raw materials................................................... $ 7,932 $ 8,074
Work-in-process................................................. 2,012 1,844
Finished goods.................................................. 2,769 4,753
-------- --------
$ 12,713 $ 14,671
======== ========
</TABLE>
Components of property, plant and equipment, net, are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Land............................................................ $ 531 $ 531
Buildings....................................................... 2,123 2,114
Production and test equipment................................... 13,461 13,375
Furniture and fixtures.......................................... 4,079 3,861
Leasehold improvements.......................................... 405 401
Other equipment................................................. 492 492
--------- --------
21,091 20,774
Less accumulated depreciation and amortization.................. (14,130) (13,241)
--------- --------
$ 6,961 $ 7,533
========= =========
Components of accrued liabilities are as follows:
1997 1996
--------- --------
Payroll and related costs....................................... $ 2,082 $ 1,896
Warranty and related reserves................................... 797 883
Royalties....................................................... 312 824
Deferred revenue................................................ 1,155 -
Other........................................................... 1,774 2,243
-------- --------
$ 6,120 $ 5,846
======== =========
</TABLE>
31
<PAGE> 33
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 INCOME TAXES
The components of income tax benefit are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Federal:
Current .............................................. $ (506) $ (753) $(1,174)
Deferred ............................................. -- (387) 105
State:
Current .............................................. -- -- --
Deferred ............................................. -- -- (105)
Foreign and Puerto Rico:
Current .............................................. -- 3 18
Deferred ............................................. -- -- --
------- ------- -------
$ (506) $(1,137) $(1,156)
======= ======= =======
</TABLE>
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
* Domestic .............................................. $ 713 $(10,010) $ 2,388
Foreign ............................................... 350 (415) 394
-------- -------- --------
Total............................................. $ 1,063 $(10,425) $ 2,782
======== ======== ========
</TABLE>
*Domestic income includes the Company's Puerto Rico and Virgin Islands
operations.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented
below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible .......... $ 690 $ 825
Provisions for discontinued operations ..... 48 116
Net operating loss carryforwards ........... 13,398 13,357
Business credit carryforwards .............. 3,240 2,618
Alternative minimum tax credit carryforwards 1,865 1,865
-------- --------
Total gross deferred tax assets ......... 19,241 18,781
Less valuation allowance ................ (17,397) (16,644)
-------- --------
Net deferred tax assets ................. 1,844 2,137
-------- --------
Deferred tax liabilities:
Capitalization of inventory costs .......... 258 258
Various state taxes ........................ 591 524
Accelerated depreciation ................... (214) 117
Taxes provided on Emulex Caribe, Inc. ......
undistributed income ..................... 1,286 1,286
Other ...................................... 2,198 2,212
-------- --------
Total gross deferred tax liabilities .... 4,119 4,397
-------- --------
Net deferred tax liabilities ............ $ 2,275 $ 2,260
======== ========
</TABLE>
32
<PAGE> 34
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Based on the Company's historical pre-tax results of operations,
management believes it is more likely than not that the Company will
realize the benefit of the existing net deferred tax assets as of June
29, 1997. Management believes the existing net deductible temporary
differences will reverse during periods in which the Company generates
net taxable income; however, there can be no assurance that the Company
will generate any earnings or any specific level of continuing earnings
in future years. Certain tax planning or other strategies could be
implemented, if necessary, to supplement earnings from operations to
fully realize recorded tax benefits.
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of June 29, 1997 will be allocated
as follows:
<TABLE>
<CAPTION>
<S> <C>
Income tax benefit that would be reported in the
consolidated statements of operations......................... $15,224
Additional paid-in capital...................................... 2,173
-------
$17,397
=======
</TABLE>
Income tax expense realized from discontinued operations was $29 for
1997, and $0 for 1996 and 1995.
The effective income tax benefit on pretax income (loss) differs from
expected federal income tax for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Expected income tax at 34 percent .................. $ 361 $(3,545) $ 946
State income tax, net of federal tax benefit ....... 38 (285) 135
Net increase (decrease) in tax as a result of Emulex
Caribe, Inc. and foreign income taxed at
a rate different from U.S. statutory rate ....... (175) 1,216 (972)
Puerto Rican tollgate taxes provided for
current year income ............................. -- -- 168
Amortization and impairment of goodwill ............ -- -- 449
Change in beginning-of-the-year balance of the
valuation allowance for deferred tax assets
allocated to income taxes ....................... 267 2,554 (439)
Refund from Internal Revenue Service ............... -- -- (1,581)
Recovery from QLogic Corporation pursuant
to tax sharing agreement ........................ (612) (750) --
Other, net ......................................... (385) (327) 138
------- ------- -------
$ (506) $(1,137) $(1,156)
======= ======= =======
</TABLE>
During the years ended June 29, 1997 and June 30, 1996, the Company
received an income tax benefit in the amount of $612 and $750,
respectively, related to recoveries under a tax sharing agreement with
QLogic Corporation, a former subsidiary of the Company (see note 2).
During the year ended July 2, 1995, the Company received a federal
income tax refund of $1,581 pertaining to prior years.
At June 29, 1997, the Company had net operating loss carryforwards for
federal income tax purposes of $36,582 which are available to offset
future federal taxable income through 2012 and $8,851 for state
purposes available through 2002. The Company has both local Puerto Rico
and Internal Revenue Code Section 936 tax exemption credits and also
has business credit carryforwards for federal purposes of approximately
$2,494 which are available to reduce federal income taxes through 2011.
In addition, the
33
<PAGE> 35
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company has alternative minimum tax credit carryforwards of
approximately $1,865 which are available to reduce future federal
regular income taxes over an indefinite period. Additionally, the
Company has approximately $1,480 of research and experimentation credit
carryforwards for state purposes available through 2012.
The Company's current Puerto Rico tax exemption grants for property and
municipal license tax and for income and tollgate tax expire at the end
of calendar years 1997 and 1999, respectively. The Company is currently
negotiating with the Puerto Rican government to extend these exemption
grants through 2007. The Company believes it will negotiate a renewal
of these exemption grants with terms and conditions which are not
materially different from the Company's current exemption grants.
However, if the Company is unable to obtain a renewal of these
exemption grants or if the terms and conditions are materially
different, the Company's business, results of operations, financial
condition and/or liquidity would be materially and adversely affected.
The Company is currently undergoing an examination by the California
Franchise Tax Board for the Company's California income tax returns for
years 1991, 1990 and 1989. In the opinion of management, this
examination will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
NOTE 5 LINE OF CREDIT
The Company had a $7,000 bank line of credit with Silicon Valley Bank
that was to have expired in September 1997. In September 1997, the
Company expanded this line of credit to $10,000, and extended it one
year to expire in September 1998. The agreement allows the Company to
borrow at the bank's prime rate (8.5 percent at June 29, 1997) plus one
half percent. During 1997, the Company utilized this line of credit.
However, there were no borrowings outstanding under this line at June
29, 1997 or June 30, 1996. The bank line of credit is secured by
substantially all assets and requires the Company to satisfy certain
financial and other covenants and conditions, including prescribed
levels of tangible net worth, profitability and liquidity, and
prohibits, among other things, the payment of cash dividends. At June
29, 1997, the Company was in compliance with all such covenants.
NOTE 6 NONOPERATING INCOME
Nonoperating income, net, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Interest income ............................................................ $ 267 $ 248 $ 1,055
Interest expense ........................................................... (185) (43) (18)
Foreign exchange ........................................................... -- (34) 51
Gain on sale of building ................................................... -- 312 --
Other ...................................................................... (11) -- 32
------- ------- -------
$ 71 $ 483 $ 1,120
======= ======= =======
</TABLE>
NOTE 7 EMPLOYEE RETIREMENT SAVINGS PLAN
The Company has a pretax savings and profit sharing plan under Section
401(k) of the Internal Revenue Code for substantially all domestic
employees. Under the plan, eligible employees are able to contribute up
to 12 percent of their compensation not to exceed the maximum IRS
deferral amount. Company discretionary contributions match up to 3
percent of a participant's compensation. The Company's contributions
under this plan were $271, $287 and $272 in 1997, 1996 and 1995,
respectively.
The Company has a similar plan for all employees in the Company's
Puerto Rico facility under Section 165(e) of the Internal Revenue Code.
Under the plan, eligible employees are able to contribute up to 10
percent of their compensation not to exceed the maximum IRS deferral
amount. Company discretionary
34
<PAGE> 36
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contributions match up to 3 percent of a participant's compensation.
The Company's contributions under this plan were $86, $88 and $88 for
1997, 1996 and 1995, respectively.
NOTE 8 EXPORT REVENUES AND SIGNIFICANT CUSTOMERS
The Company designs, manufactures and markets three major distinct
product families: high-speed fibre channel products, printer servers
and network access servers. The Company markets these products through
distributors, resellers and to OEMs. The Company's export revenues were
approximately $29,330, $20,700 and $35,200 representing 45, 40 and 47
percent of net revenues for 1997, 1996 and 1995, respectively. The
majority of export shipments are to the European marketplace.
In 1997, Reuters and Sequent Computer Systems represented 13 and 10
percent of net revenues, respectively. Furthermore, the Company's top
five customers accounted for 44 percent of net revenues in 1997. In
1996, IBM Corporation represented 15 percent of net revenues. In 1995,
Reuters and Xerox represented 16 and 13 percent of net revenues,
respectively. The Company derived approximately 64, 39 and 53 percent
of its net revenues from sales to OEMs in 1997, 1996 and 1995,
respectively. Emulex's operating results could be adversely affected if
sales to one or more such customers significantly decline, or if any
one of these customers develop alternative sources for the Company's
products.
NOTE 9 COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities and equipment under long-term
noncancelable operating lease agreements which expire at various dates
through 2000. Rent expense for the Company under operating leases,
including month-to-month rentals, totaled $1,200, $1,178 and $1,189 in
1997, 1996 and 1995, respectively.
Future minimum noncancelable lease commitments are as follows:
<TABLE>
<CAPTION>
Capitalized Operating
Leases Leases
----------- ---------
<S> <C> <C>
Fiscal year:
1998 ...................................... $ 140 $ 796
1999 ...................................... 84 580
2000 ...................................... 7 143
------ ------
Total minimum lease payments .............. 231 $1,519
======
Less amounts representing interest ........ 27
------
Present value of future minimum capitalized
lease obligations ...................... 204
Less current installments of capitalized
lease obligations ...................... 125
------
Capitalized lease obligations, excluding
current installments ................... $ 79
======
</TABLE>
In January 1994, in anticipation of the Distribution, the Company
agreed to assign its lease on a 70,000 square foot facility in Costa
Mesa, California to QLogic Corporation. In consideration to the lessor,
the Company has agreed to guaranty satisfaction of all obligations and
responsibilities of QLogic Corporation to the lessor under the terms
and conditions of the lease should QLogic Corporation default on said
terms and conditions during the term of the lease, which terminates on
October 31, 1999. In the event of a default by QLogic Corporation, the
Company reserves the right to seek reimbursement from QLogic
Corporation for any and all expenses the Company incurs due to the
default.
35
<PAGE> 37
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Litigation
The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or liquidity.
NOTE 10 QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Net Net Net
Revenues Gross Profit Income (loss) Income (loss)*
-------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
1997:
Fourth quarter.................. $15,742 $ 6,424 $ 920 $ 0.15
Third quarter................... 17,011 6,999 1,103 0.18
Second quarter.................. 16,058 5,946 487 0.08
First quarter................... 15,952 5,470 (941) (0.16)
------ ------- -----
Total $64,763 $24,839 $1,569
====== ====== =====
1996:
Fourth quarter.................. $15,516 $ 5,225 $ (554) $(0.09)
Third quarter................... 12,702 4,257 (2,337) (0.39)
Second quarter.................. 12,672 4,024 (2,916) (0.49)
First quarter................... 10,448 3,294 (3,481) (0.59)
------ ------- -------
Total........................... $51,338 $16,800 $(9,288)
====== ====== =====
</TABLE>
* Per common and common equivalent share
NOTE 11 STOCKHOLDERS' EQUITY
Stock Option Plans
Under the Company's Employee Stock Option Plan (the "Plan"), the
exercise price of options granted will not be less than the fair market
value at the date of grant. The total number of shares of common stock
available for grant under the Plan is 2,580,000. Unless otherwise
provided by the Board of Directors or a committee of the Board
administering the Plan, each option granted under the Plan becomes
exercisable at the rate of 25 percent one year after the date of grant
with an additional 6.25 percent becoming exercisable each three-month
interval thereafter.
Under the Company's Non-Employee Director Stock Option Plan (the
"Director Plan"), a maximum of 125,000 shares of common stock of the
Company can be issued. The Director Plan provides that an option to
purchase 12,500 shares of common stock of the Company will be granted
to each non-employee director of the Company upon the first date that
such director becomes eligible to participate. Options granted under
the Director Plan are non-qualified stock options. The exercise price
per option granted will not be less than the fair market value at the
date of grant. No option granted under the Director Plan shall be
exercisable after the expiration of the earlier of (i) ten years
following the date the option is granted or (ii) one year following the
date the optionee ceases to be a director of the Company. Although the
Director Plan expired on December 31, 1996, all existing grants will
continue under the terms and conditions of this plan. The Company is
currently preparing a new Non-Employee Director Stock Option Plan for
the shareholder meeting in November 1997. No shares were granted during
1997, 1996 or 1995.
36
<PAGE> 38
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the February 1994 Distribution of shares of common
stock of QLogic Corporation to the Company's stockholders and a
one-for-two reverse stock split, certain adjustments were made to
options outstanding under the Plan and the Director Plan on the date of
the distribution (the "Distribution Date"). Each option which was
outstanding under the Plan on the Distribution Date (a "Converted
Option"), other than options held by the Company's President and Chief
Executive Officer, was converted into two separately exercisable
options: one to purchase the same number of shares of Emulex common
stock which the Converted Option covered as of the Distribution Date,
after adjustment for the reverse stock split (a "New Emulex Option");
and one to purchase that same number of shares of QLogic Corporation
common stock (a "New QLogic Option"). The purchase price per share of
Emulex common stock subject to the New Emulex Option was an amount
which bears the same ratio to the exercise price per share under the
Converted Option (after adjustment for the reverse stock split) that
the fair market value of Emulex common stock after the Distribution
bears to the sum of the fair market value per share of Emulex common
stock after the Distribution plus the fair market value per share of
QLogic common stock after the Distribution. The President and Chief
Executive Officer of the Company held an option to purchase 250,000
shares of Emulex common stock at a price of $6.50 per share under the
Plan. On the Distribution Date, his option was converted into two
separately exercisable options: one to purchase the same number of
shares of Emulex common stock which the Converted Option covered as of
the Distribution Date, after adjustment for the reverse stock split,
and a second option to purchase 25,000 shares of QLogic common stock
after giving effect to the reverse stock split. The purchase price per
share of Emulex common stock and QLogic common stock subject to the
Emulex option and the QLogic option was the fair market value per share
of Emulex common stock and QLogic common stock, respectively, after the
Distribution.
In connection with the Distribution, each option which was outstanding
under the Director Plan on the Distribution Date was converted into a
New Emulex Option and a New QLogic Option in substantially the same
manner that Converted Options held by employees under the Plan were
converted, as described above. Service as a director of either Emulex
or QLogic after the distribution is treated the same as service as a
director of the other for purposes of determining termination and
vesting of exercisability of both new options.
37
<PAGE> 39
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of stock option transactions for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Weighted
Number average exercise
of Shares price per share
--------- ---------------
<S> <C> <C> <C>
Options outstanding at July 3, 1994 844,520 $4.48
Granted.......................................... 233,500 13.70
Exercised........................................ (282,462) 4.18
Canceled......................................... (61,614) 5.24
--------
Options outstanding at July 2, 1995 733,944 7.46
Granted.......................................... 284,800 18.53
Exercised........................................ (132,480) 4.82
Canceled......................................... (85,066) 10.46
----------
Options outstanding at June 30, 1996 801,198 11.51
Granted.......................................... 205,750 15.85
Exercised........................................ (107,143) 6.33
Canceled......................................... (161,329) 13.96
-------
Options outstanding at June 29, 1997 738,476 12.94
=======
</TABLE>
As of June 29, 1997 and June 30, 1996 the number of options exercisable was
351,058 and 262,564, respectively, and the weighted average exercise price of
those options was $9.66 and $6.67, respectively.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ---------------------------
Weighted Weighted Weighted
average average average
Outstanding exercise remaining Exercisable exercise
as of price per contractual as of price per
Range of Exercise Prices June 29, 1997 option life (years) June 29, 1997 option
- ------------------------ ------------- ---------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
$ 3.20 to $ 5.13 177,595 $ 4.15 5.50 170,080 $ 4.15
5.17 to 13.50 191,369 10.30 7.76 88,833 9.28
13.63 to 18.00 187,462 16.02 9.20 14,640 15.01
18.13 to 28.38 182,050 21.10 8.18 77,505 21.20
------- ------- ----- -------- -----
$ 3.20 to $ 28.38 738,476 $ 12.94 7.69 351,058 $ 9.66
======= ======= ===== ======= =======
</TABLE>
38
<PAGE> 40
EMULEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company applies APB Opinon No. 25 and related Interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for its stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under Statement 123, the Company's net income (loss) would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net income (loss) as reported .......... $ 1,569 $ (9,288)
Assumed stock compensation cost ........ 882 778
-------- --------
Pro forma net income (loss) ......... $ 687 $(10,066)
======== ========
Net income (loss) per share as reported $ 0.25 $ (1.56)
Pro forma net income (loss) per share $ 0.11 $ (1.70)
======== ========
</TABLE>
Pro forma net income (loss) reflects only options granted in 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under Statement 123 is not reflected in the pro forma net income (loss) amounts
presented above because compensation cost is reflected over the options' vesting
period of four years and compensation cost for options granted prior to July 3,
1995 is not considered.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions for 1997 and
1996, respectively: risk-free interest rates of 6.3 percent and 5.9 percent;
dividend yield of 0.0 percent for 1997 and 1996; expected lives of 4.9 years for
1997 and 1996; and volatility of 66.1 percent for 1997 and 1996. The
weighted-average fair value per option granted in 1997 and 1996 was $8.19 and
$9.24, respectively. The Black-Scholes model, as well as other currently
accepted option valuation models, was developed to estimate the fair value of
freely-tradable, fully-transferable options without vesting restrictions, which
significantly differ from the Company's stock option plans. These models also
require highly subjective assumptions, including future stock price volatility
and expected time until exercise, which greatly affect the calculated fair value
on the grant date.
Shareholder Rights Plan
The Company has a Shareholder Rights Plan that provides for Preferred Stock
Purchase Rights ("Rights") that attach to and transfer with each share of common
stock. When the Rights become exercisable, each Right entitles the holder to
purchase from the Company one unit consisting of 1/100 of a share of Series A
Junior Participating Preferred Stock for $50 per unit, subject to adjustment.
The Rights become exercisable if (i) a person or group ("Acquiring Person") has
acquired, or obtained the right to acquire, 20 percent or more of the
outstanding shares of common stock, (ii) a person becomes the beneficial owner
of 30 percent or more of the outstanding shares of common stock, (iii) an
Acquiring Person engages in one or more "self-dealing" transactions with the
Company or (iv) an event occurs which results in an Acquiring Person's ownership
interest being increased by more than 1 percent. Upon exercise and payment of
the purchase price for the Rights, the Rights holder (other than an Acquiring
Person) will have the right to receive Company common stock (or, in certain
circumstances, cash, property or other securities of the Company) equal to two
times the purchase price. The Company is entitled to redeem the Rights at any
time prior to the expiration of the Rights in January 1999, or 10 days following
the time that a person has acquired beneficial ownership of 20 percent or more
of the shares of common stock then outstanding. The Company is entitled to
redeem the Rights in whole, but not in part, at a price of $0.01 per Right,
subject to adjustment.
39
<PAGE> 41
CONSOLIDATED FINANCIAL STATEMENT
SCHEDULE OF EMULEX CORPORATION AND SUBSIDIARIES
40
<PAGE> 42
Schedule II
EMULEX CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended June 29, 1997, June 30, 1996 and July 2, 1995
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Amounts Balance
Beginning Costs and Written at End
Classification of Period Expenses Off of Period
-------------- --------- -------- --- ---------
<S> <C> <C> <C> <C>
Year ended June 29, 1997:
Allowance for doubtful accounts $ 482 $ 131 $ 117 $ 496
====== ====== ====== ======
Inventory valuation reserves .. $1,709 $1,249 $1,762 $1,196
====== ====== ====== ======
Year ended June 30, 1996:
Allowance for doubtful accounts $ 492 $ 125 $ 135 $ 482
====== ====== ====== ======
Inventory valuation reserves .. $1,740 $ 840 $ 871 $1,709
====== ====== ====== ======
Year ended July 2, 1995:
Allowance for doubtful accounts $ 538 $ 64 $ 110 $ 492
====== ====== ====== ======
Inventory valuation reserves .. $2,147 $ 276 $ 683 $1,740
====== ====== ====== ======
</TABLE>
41
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
EMULEX CORPORATION
Date: September 25, 1997 By: /s/ Paul F. Folino
--------------------------------------
Paul F. Folino,
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on September 25, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Principal Executive Officer:
/s/ Paul F. Folino President, Chief Executive Officer
- --------------------------------------------
(Paul F. Folino) and Director
Principal Financial and Accounting Officer:
/s/ Michael J. Rockenbach Vice President, Finance, Acting Chief
- --------------------------------------------
(Michael J. Rockenbach) Financial Officer and Secretary
/s/ Fred B. Cox Director and Chairman of the Board
- --------------------------------------------
(Fred B. Cox)
/s/ Robert H. Goon Director
- --------------------------------------------
(Robert H. Goon)
/s/ Don M. Lyle Director
- --------------------------------------------
(Don M. Lyle)
/s/ Michael P. Downey Director
- --------------------------------------------
(Michael P. Downey)
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
PAGE IN SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED COPY
----------- ---------------------- -------------
<S> <C> <C>
3.1 Certificate of Incorporation, as amended.
3.2 By-laws, as amended.
3.3 Certificate of Designations of Series A
Junior Participating Preferred Stock
(incorporated by reference to Exhibit 4 to
the Registrant's Current Report on Form 8-
K filed February 2, 1989).
4.1 Rights Agreement dated as of January 19,
1989 between Emulex Corporation and
First Interstate Bank, Ltd. (incorporated by
reference to Exhibit 4 to the Registrant's
Current Report on Form 8-K filed
February 2, 1989).
10.1 Emulex Corporation Non-Employee
Director Stock Option Plan (incorporated
by reference to Annex E and F to the
Registrant's Proxy Statement dated
January 24, 1994 for the Special Meeting of
Stockholders Held on February 24, 1994).
10.2 Standard Industrial Lease--Net dated
April 6, 1982 between C.J. Segerstrom &
Sons and the Registrant and amendments
thereto (incorporated by reference to
Exhibit 10.15 to Registration Statement on
Form S-1 [File No. 2-79466] filed on
September 23, 1982, Exhibit 10.8 to the
Registrant's 1983 Annual Report on Form
10-K, and Exhibit 10.6 to the Registrant's
1986 Annual Report on Form 10-K).
10.3 Amendment #9 to Standard Industrial
Lease--Net dated April 6, 1982 between
C.J. Segerstrom & Sons and the Registrant
(incorporated by reference to Exhibit 10.9
to the Registrant's 1990 Annual Report on
Form 10-K).
</TABLE>
43
<PAGE> 45
<TABLE>
<CAPTION>
PAGE IN SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED COPY
----------- ---------------------- -------------
<S> <C> <C>
10.4 Second Amendment of Amendment #9 to
Standard Industrial Lease--Net dated
March 29, 1990 between C.J. Segerstrom &
Sons and the Registrant (incorporated by
reference to Exhibit 10.10 to the
Registrant's 1990 Annual Report on Form
10-K).
10.5 1993 Amendment to Standard Industrial
Lease - Net dated April 29, 1993 between
C.J. Segerstrom & Sons and the Registrant
(incorporated by reference to Exhibit 10.9
to the Registrant's 1993 Annual Report of
Form 10-K).
10.6 Distribution Agreement dated as of
January 24, 1994 among Emulex
Corporation, a Delaware corporation,
Emulex Corporation, a California
corporation, and QLogic Corporation
(incorporated by reference to Exhibit 10.10
to the Registrant's 1994 Annual Report of
Form 10-K).
10.7 Form of Tax Sharing Agreement among
Emulex Corporation, a Delaware
corporation, Emulex Corporation, a
California corporation, and QLogic
Corporation (incorporated by reference to
Exhibit 10.11 to the Registrant's 1994
Annual Report of Form 10-K).
10.8 Administrative Services Agreement, dated
as of February 21, 1993, among Emulex
Corporation, a California corporation,
Emulex Corporation, a Delaware
corporation, and QLogic Corporation
(incorporated by reference to Exhibit 10.12
to the Registrant's 1994 Annual Report of
Form 10-K).
10.9 Employee Benefits Allocation Agreement,
dated as of January 24, 1994, among
Emulex Corporation, a Delaware
corporation, Emulex Corporation, a
California corporation, and QLogic
Corporation (incorporated by reference to
Exhibit 10.13 to the Registrant's 1994
Annual Report of Form 10-K).
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
PAGE IN SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED COPY
----------- ---------------------- -------------
<S> <C> <C>
10.10 Form of Assignment, Assumption and
Consent Re: Lease among Emulex
Corporation, a California corporation,
QLogic Corporation and C.J. Segerstrom &
Sons, a general partnership (incorporated
by reference to Exhibit 10.14 to the
Registrant's 1994 Annual Report of Form
10-K).
10.11 Intellectual Property Assignment and
Licensing Agreement, dated as of January
24, 1994, between Emulex Corporation, a
California corporation, and QLogic
Corporation (incorporated by reference to
Exhibit 10.15 to the Registrant's 1994
Annual Report of Form 10-K).
10.12 Form of Supplement to Tax Sharing
Agreement among Emulex Corporation, a
Delaware corporation, Emulex
Corporation, a California corporation, and
QLogic Corporation. (incorporated by
reference to Exhibit 10.12 to the
Registrant's 1995 Annual Report of Form
10-K).
10.13 Emulex Corporation Employee Stock
Option Plan as amended November 21,
1996 (incorporated by reference to
Appendix A to the Registrant's Proxy
Statement dated October 21, 1996 for the
Annual Meeting of Stockholders Held on
November 21, 1996.)
10.14 Amended and Restated Loan and Secruity
Agreement dated as of September 18, 1996
between Silicon Valley Bank and Emulex
Corporation, InterConnections, Inc., and
Emulex Europe Limited.
10.15 Collateral Assignment, Patent Mortgage
and Security Agreement dated as of
September 18, 1996 between Digital
House, Ltd. and Silicon Valley Bank.
10.16 Supplement to Collateral Assignment
dated September 18, 1996 by Emulex
Corporation, InterConnections, Inc. and
Emulex Europe Limited in favor of Silicon
Valley Bank.
</TABLE>
45
<PAGE> 47
<TABLE>
<CAPTION>
PAGE IN SEQUENTIALLY
EXHIBIT NO. DESCRIPTION OF EXHIBIT NUMBERED COPY
----------- ---------------------- -------------
<S> <C> <C>
10.17 Amendment to Loan Agreement dated
September 18, 1997 between Silicon Valley
Bank and Emulex Corporation,
InterConnections, Inc., and Emulex
Europe Limited.
10.18 Supplement to Collateral Assignment
dated as of September 18, 1997 by Emulex
Corporation, InterConnections, Inc. and
Emulex Europe Limited in favor of Silicon
Valley Bank.
21 List of the Registrant's subsidiaries.
23 Independent Auditors' Consent.
27.1 Financial Data Schedule
</TABLE>
46
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
EMULEX CORPORATION
ARTICLE I
Name of Corporation
The name of the corporation is EMULEX CORPORATION
ARTICLE II
Registered Office
The address of the registered office of the corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801, in the City of Wilmington, County of New Castle. The name of its
registered agent at that address is The Corporation Trust Company.
ARTICLE III
Purpose
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
<PAGE> 2
ARTICLE IV
Authorized Capital Stock
The corporation is authorized to issue two classes of capital stock,
designated Common Stock and Preferred Stock. The amount of total authorized
capital stock of the corporation is 41,000,000 shares divided into 40,000,000
shares of Common Stock, par value $.10 per share, and 1,000,000 shares of
Preferred Stock, par value $0.01 per share.
The shares of Preferred Stock may be issued from time to time in one or more
series. The board of directors is hereby authorized to fix by resolution or
resolutions the designations and the powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions of any series of shares of Preferred Stock, including without
limitation the dividend rate, conversion rights, redemption price and
liquidation preference, of any such series, and to fix the number of shares
constituting such series, and to increase or decrease the number of shares of
any such series (but not below the number of shares thereof then outstanding).
In case the number of shares of any such series shall be so decreased, the
shares constituting such decrease shall resume the status which they had prior
to the adoption of the resolution or resolutions originally fixing the number of
shares of such series.
ARTICLE V
Vote of Stockholders
A. No vote at any meeting of stockholders need be by written ballot unless
the board of directors, in its discretion, or the officer of the corporation
presiding at the meeting, in his discretion, specifically directs the use of a
written ballot.
B. At each election of directors, each holder of shares of capital stock
entitled to vote for the election of directors shall be entitled to as many
votes as shall equal the number of votes which (except for this provision) he
would be entitled to cast for the election of directors with respect to his
shares of stock multiplied by the number of directors to be elected by him, and
that he may cast all of such votes for a single director or may distribute them
among the number to be voted for, or for any two or more of them as he may see
fit; provided, however, that no stockholder shall be entitled to vote in
accordance with this paragraph unless the names of the candidates for director
for whom such stockholder desires to vote have been placed in nomination prior
to the voting and the stockholder has given notice at the meeting prior to the
voting of the stockholder's intention to cumulate the stockholder's votes, and
provided further, that if any one stockholder has given such notice, all
stockholders may cumulate their votes for candidates in nomination in accordance
with this paragraph.
C. Directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors.
<PAGE> 3
ARTICLE VI
Board Power Regarding By-laws
In furtherance and not in limitation of the powers conferred by statute, the
board of directors shall have the power to make, adopt, amend, rescind or repeal
the By-laws of the corporation.
ARTICLE VII
Incorporator
The incorporator is Robert H. Goon, whose mailing address is 1880 Century
Park East, Fifth Floor, Los Angeles, California 90067.
ARTICLE VIII
Limitation of Director Liability
To the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended, a director of this
corporation shall not be liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Any repeal or
modification of this Article VIII by the stockholders of the corporation shall
not adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
<PAGE> 4
ARTICLE IX
Corporate Power
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator herein above named, for the purpose
of forming a corporation to do business both within and without the State of
Delaware, and in pursuance of the General Corporation Law of the State of
Delaware, does make, file and record this Certificate.
Dated: October 23, 1996 /s/ Robert H. Goon
-----------------------------
Robert H. Goon, Incorporator
<PAGE> 5
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
EMULEX CORPORATION
Emulex Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of the Corporation, declaring said amendment to be
advisable and calling a special meeting of the stockholders of the Corporation
for consideration thereof. The resolution setting forth the proposed amendment
is as follows:
RESOLVED, that, subject to obtaining the requisite approval of the
stockholders of the Corporation, Article IV of the Corporation's
Certificate of Incorporation be amended, without effect upon any stock
designation heretofore filed, to read as follows:
"ARTICLE IV
Authorized Capital Stock
The corporation is authorized to issue two classes of capital
stock, designated Common Stock and Preferred Stock. The amount of total
authorized capital stock of the corporation is 21,000,000 shares,
divided into 20,000,000 shares of Common Stock, par value $.20 per
share, and 1,000,000 shares of Preferred Stock, par value $.01 per
share. Upon the effectiveness of the Amendment, each two outstanding
shares of Common Stock, par value $.10 per share, shall be reclassified,
converted and changed into one share of Common Stock, par value $.20 per
share. Each holder of Common Stock who would otherwise be entitled to
receive a fractional share shall instead be entitled to receive cash for
such fractional share, the amount of cash to be determined on the basis
of the average closing price of the Common Stock on the NASDAQ National
Market System for the ten trading days immediately preceding the
effective date of this Amendment.
The shares of Preferred Stock may be issued from time to time in
one or more series. The board of directors is hereby authorized to fix
by resolution or resolutions the designations and the powers,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations
<PAGE> 6
or restrictions of any series of shares of Preferred Stock, including
without limitation the dividend rate, conversion rights, redemption
price and liquidation preference, of any such series, and to fix the
number of shares constituting such series, and to increase or decrease
the number of shares of any such series (but not below the number of
shares thereof then outstanding). In case the number of shares of any
such series shall be so decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the
resolution or resolutions originally fixing the number of shares of such
series."
SECOND: That thereafter, pursuant to resolutions of its Board of
Directors, a special meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Paul F. Folino, its President and Chief Executive officer, and Walter
J. McBride, its Senior Vice President, Chief Financial Officer and Secretary,
this 24th day of February, 1994.
By: /s/ PAUL F. FOLINO
-----------------------------
Paul F. Folino,
President and Chief Executive
Officer
Attest:
/s/ WALTER J. McBRIDE
- --------------------------------
Walter J. McBride,
Secretary, Senior Vice President
and Chief Financial Officer
-2-
<PAGE> 1
EXHIBIT 3.2
* * * * *
B Y - L A W S
OF
EMULEX CORPORATION
AS AMENDED
November 21, 1996
* * * * *
ARTICLE I. OFFICES
Section 1. Registered Office. The registered office shall be at 1209 Orange
Street, City of Wilmington, County of New Castle, State of Delaware, and the
name of the registered agent in charge thereof shall be The Corporation Trust
Company.
Section 2. Principal Office. The principal office of the corporation is hereby
fixed at 3545 Harbor Boulevard, Costa Mesa, California 92626. The Board of
Directors (herein called the "Board") is hereby granted full power and authority
to change said principal office from one location to another. Any such change
shall be noted on the by-laws opposite this Section, or this Section may be
amended to state the new location.
Section 3. Other Offices. The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II. STOCKHOLDERS
Section 1. Place of Meetings. Meetings of stockholders shall be held at such
places, within or without the State of Delaware, as may be designated from time
to time by the person or persons calling the respective meeting and specified in
the respective notices or waivers of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders for the purpose of
electing directors and for the transaction of such proper business as may come
before such meetings shall be held on the third Wednesday of November of each
year if not a legal holiday, and if a legal holiday, then on the next secular
day following, at 2:00 p.m., local time, or at such other date and time as shall
be designated from time to time by the Board and stated in the notice of the
meeting.
-1-
<PAGE> 2
Section 3. Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by the Board, the
Chairman Of the Board or the President.
Section 4. Notice of Meeting. Except as otherwise required by law, written
notice of each meeting of the stockholders, whether annual or special, shall be
given to each stockholder entitled to vote at such meeting not less than ten nor
more than sixty days before the date of the meeting. Such notice shall state the
place, date, and hour of the meeting and (a) in the case of a special meeting
the general nature of the business to be transacted, and no other business may
be transacted, or (b) in the case of the annual meeting those matters which the
Board, at the time of the mailing of the notice, intends to present for action
by the stockholders, but subject to the provisions of applicable law, any proper
matter may be presented at the meeting for such actions. The notice of any
meeting at which directors are to be elected shall include the names of nominees
intended at the time of the notice to be presented by management for election.
Notice of a stockholders' meeting shall be given either personally or
by first-class mail, or by other means of written communication, addressed to
the stockholder at the address of such stockholder appearing on the records of
the corporation or given by the stockholder to the corporation for the purpose
of notice. Notice by mail shall be deemed to have been given at the time a
written notice is deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient.
Section 5. Quorum. The holders of a majority of the shares of stock entitled to
vote at any meeting of the stockholders of the corporation, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
thereat or any adjournment thereof, except as otherwise provided by statute or
by the certificate of incorporation. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
-2-
<PAGE> 3
Section 6. Voting.
(a) The stockholders entitled to notice of any meeting or to vote at
any such meeting shall be only persons in whose name shares stand on the stock
records of the corporation on the record date determined in accordance with
Section 7 of this Article.
(b) Shares of its own stock belonging to the corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or indirectly,
by the corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the corporation
the pledgor shall have expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or the proxy of the pledgee, may represent such stock and
vote thereon. Stock having voting power standing of record in the names of two
or more persons, whether fiduciaries, members of a partnership, joint tenants in
common, tenants by entirety or otherwise, or with respect to which two or more
persons have the same fiduciary relationship, shall be voted in accordance with
the provisions of the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by the stockholder's proxy appointed by an
instrument in writing in accordance with Section 10 of this Article. The
attendance at any meeting of a stockholder who may theretofore have given a
proxy shall not have the effect of revoking the same unless the stockholder
shall in writing so notify the Secretary of the meeting prior to the voting of
the proxy.
(d) At any meeting of the stockholders all matters, except as
otherwise provided in the certificate of incorporation, in these by-laws or by
law, shall be decided by the vote of a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat and
thereon, a quorum being present. The vote at any meeting of the stockholders on
any question need not be by ballot, unless so directed by the chairman of the
meeting. On a vote by ballot each ballot shall be signed by the stockholder
voting, or by his proxy, if there be such proxy, and it shall state the number
of shares voted.
Section 7. Record Date. The Board may fix, in advance, a record date for the
determination of the stockholders entitled to notice of any meeting or to vote
or entitled to receive payment of any dividend or other distribution, or any
allotment of rights, or to exercise rights in respect of any other lawful
action. The record date so fixed shall be not more than 60 nor less than 10 days
prior to the date of the meeting nor more than 60 days prior to any other
action. When a record date is so fixed, only stockholders of record on that date
are entitled to notice of and to vote at the meeting or to receive the dividend,
distribution, or allotment of rights, or to exercise of the rights, as the case
may be, notwithstanding any transfer of shares on the books of the corporation
after the record date. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply
-3-
<PAGE> 4
to any adjournment of the meeting unless the Board fixes a new record date for
the adjourned meeting.
If no record date is fixed by the Board, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. The record date for
determining stockholders for any purpose other than set forth in this Section 7
of this Article shall be at the close of business on the day an which the Board
adopts the resolution relating thereto, or the sixtieth day prior to the date of
such other action, whichever is later.
Section 8. Consent of Absentees. The transaction of any meeting of stockholders,
however called and noticed, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote, not present in person or by proxy, signs a written
waiver of notice, or a consent to the holding of the meeting or an approval of
the minutes thereof. All such waivers, consents, or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of and
presence at such meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by the
Delaware General Corporation law to be included in the notice but not so
included, if such objection is expressly made at the meeting. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of stockholders need be specified in any written waiver of notice, except as may
be provided in the Delaware General Corporation Law.
Section 9. Action without Meeting. Any action which may be taken at any annual
or special meeting of stockholders may be taken without a meeting and without
prior notice if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Unless a record date for voting purposes be fixed as provided in Section 7 of
this Article, the record date for determining stockholders entitled to give
consent pursuant to this Section 9, when no prior action by the Board has been
taken, shall be the day on which the first written consent is given.
Section 10. Proxies. Every person entitled to vote shares has the right to do so
either in person or by one or more persons authorized by a written proxy
executed by such stockholder and filed with the Secretary. Any proxy duly
executed is not revoked and continues in full force and effect until revoked by
the person executing it prior to the vote pursuant thereto by a writing
delivered to the corporation stating that the proxy is revoked or by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting, or as to any
-4-
<PAGE> 5
meeting by attendance at such meeting and voting in person by the person
executing the proxy; provided, however, that no proxy shall be valid after the
expiration of 11 months from the date of its execution unless otherwise provided
in the proxy.
Section 11. Inspectors of Election. In advance of any meeting of stockholders,
the Board may appoint any persons, other than nominees for office, as inspectors
of elections to act at such meetings and any adjournment thereof. If inspectors
of elections be not so appointed or if any person so appointed fail to appear or
refuse to act, the chairman of any such meeting may, and on the request of any
stockholder or stockholder's proxy shall make such appointment at the meeting.
The number of inspectors shall be either one or three. If appointed at a meeting
on the request of one or more stockholders or proxies, the majority of shares
present shall determine whether one or three inspectors are to be appointed.
The duties of such inspectors shall be as prescribed by the Board and
shall include determining the number of shares outstanding and the voting power
of each; the shares represented at the meeting, the existence of a quorum; the
authenticity, validity, and effect of proxies; receiving votes, ballots, or
consents; hearing and determining all challenges and questions in any way
arising in connection with the right to vote; counting and tabulating all votes
or consents, determining when the polls shall close; determining the result; and
doing such acts as may be proper to conduct the election or vote with fairness
to all stockholders. If there are three inspectors of election, the decision,
act, or certificate of a majority is effective in all respects as the decision,
act, or certificate of all.
Section 12. Conduct of Meeting. The Chairman of the Board shall preside as
chairman at all meetings of the stockholders. The chairman shall conduct each
such meeting in a businesslike and fair manner, but shall not be obligated to
follow any technical, formal, or parliamentary rules or principles of procedure.
The chairman's rulings on procedural matters shall be conclusive and binding on
all stockholders, unless at the time of a ruling a request for a vote is made to
the stockholders entitled to vote and represented in person or by proxy at the
meeting, in which case the decision of a majority of such shares shall be
conclusive and binding on all stockholders. Without limiting the generality of
the foregoing, the chairman shall have all of the powers usually vested in the
chairman of a meeting of stockholders.
Section 13. Preparation of Stockholder List. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
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Section 14. Stockholder Proposals at Meetings of the Stockholders.
(a) At an annual or special meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a stockholders' annual or special
meeting, business must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board; (ii) otherwise
properly brought before the meeting by or at the direction of the Board; or
(iii) otherwise properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, and subject to any limitations on
business which may be proposed or transacted at such meeting, including the
provisions of Article II, Section 3 of these By-laws, for business to be
properly brought before an annual or special meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely with respect to an annual meeting, a stockholder's
notice must be received at the principal executive office of the corporation not
less than sixty (60) days nor more than ninety (90) days prior to the date of
such annual meeting; provided, however, that in the event that the first public
disclosure (whether by mailing of a notice to stockholders or to the Nasdaq
National Market, by press release or otherwise) of the date of the annual
meeting is made less than seventy (70) days prior to the date of the meeting,
notice by the stockholder will be timely received not later than the close of
business on the tenth (10th) day following the day on which such public
disclosure was first made. To be timely with respect to a special meeting, a
stockholder's notice must be received at the principal executive office of the
corporation not later than the close of business on the tenth (10th) day
following the day on which the first public disclosure (whether by mailing of a
notice to stockholders or the Nasdaq National Market, by press release or
otherwise) of the date of the special meeting is made.
(b) A stockholder's notice to the Secretary shall set forth, as to
each matter the stockholder proposes to bring before the annual or special
meeting: (i) a reasonably detailed description of any proposal to be made at
such meeting; (ii) the name and address, as they appear on the corporation's
stock register, of the stockholder proposing such business; (iii) the class and
number of shares of capital stock of the corporation which are beneficially
owned by the stockholder; (iv) any material interest of the stockholder in such
business; and (v) such other information relating to the stockholder or the
proposal as is required to be disclosed under the rules of the Securities and
Exchange Commission governing the solicitation of proxies whether or not such
proxies are in fact solicited by the stockholder. Notwithstanding anything in
these By-laws to the contrary, no business shall be conducted at an annual or
special stockholders' meeting except in accordance with the procedures set forth
in this Section 14; provided, however, that nothing in this Section 14 shall be
deemed to preclude discussion by any stockholder of any business properly
brought before the annual or special meeting in accordance with said procedures.
The chairman of an annual or special meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 14, and if
he should so determine, any such business not properly brought before the
meeting shall not be transacted.
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ARTICLE III. DIRECTORS
Section 1. Powers. Subject to limitations of the certificate of incorporation or
these by-laws, and the Delaware General Corporation Law relating to action
required to be approved by the stockholders or by the outstanding shares, the
business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board. The Board may
delegate the management of the day-to-day operation of the business of the
corporation to a management company or other person provided that the business
and affairs of the corporation shall be managed and all corporate powers shall
be exercised under the ultimate direction of the Board. Without prejudice to
such general powers, but subject to the same limitations, it is hereby expressly
declared that the Board shall have the following powers in addition to the other
powers enumerated in these by-laws:
(a) To select and remove all the other officers, agents, and
employees of the corporation, prescribe the powers and duties for them as may
not be inconsistent with law, or with the certificate of incorporation or these
by-laws, fix their compensation, and require them security for faithful service.
(b) To conduct, manage, and control the affairs and business of the
corporation and to make such rules and regulations therefor not inconsistent
with law, or with the certificate of incorporation or these by-laws, as they may
deem best.
(c) To adopt, make, and use a corporate seal, and to prescribe the
forms of certificates of stock, and to alter the form of such seal and of such
certificates from time to time as in their judgement they may deem best.
(d) To authorize the issuance of shares of stock of the corporation
from time to time, upon such terms and for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bond, debentures, deeds of trust, mortgages,
pledges, hypothecations, or other evidences of debt and securities therefor.
Section 2. Number of Directors. The number of directors which shall constitute
the whole Board shall be not less than four (4) nor more than seven (7) until
changed by a by-law duly adopted by the stockholders or by the Board. The exact
number of directors shall be fixed, within the limits specified in the by-laws,
by a by-law or amendment thereof duly adopted by the stockholders or by the
Board. The exact number of directors shall be five (5) until changed as provided
in the preceding sentence of this Section 2. Directors need not be stockholders.
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Section 3. Vacancies. Any director may resign effective upon giving written
notice to the Chairman of the Board, the President, Secretary, or the Board,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective. Vacancies and
newly created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, and the directors so chosen
shall hold office until the next annual election and until their successors are
duly elected and shall qualify, unless sooner displaced. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute.
A vacancy or vacancies in the Board shall be deemed to exist in case
of the death, resignation, or removal of any director, or if the authorized
number of directors be increased, or if the stockholders fail, at any annual or
special meeting of stockholders at which any director or directors are elected,
to elect the full authorized number of directors to be voted for at that
meeting.
The stockholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors. Any such election by
written consent other than to fill a vacancy created by removal requires the
consent of a majority of the outstanding shares entitled to vote. If the Board
accepts the resignation of a director tendered to take effect at a future time,
the Board or the stockholders shall have the power to elect a successor to take
office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the
effect of removing any directors prior to the expiration of the director's term
of office.
Section 4. Election and Term of Office. The directors shall be elected at each
annual meeting of stockholders but if any such annual meeting is not held or the
directors are not elected thereat, the directors may be elected at any special
meeting of stockholders held for that purpose. Each director shall hold office
until expiration of the term for which elected and until a successor has been
elected and qualified or until any such director is removed or resigns. The
persons receiving the greatest number of votes, up to the number of directors to
be elected, shall be the directors.
Section 5. Place of Meeting. Regular or special meetings of the Board shall be
held at any place within or without the State of Delaware which has been
designated from time to time by the Board. In the absence of such designation
regular meetings shall be held at the principal office of the corporation.
Section 6. Regular Meetings Immediately following each annual meeting of
stockholders the Board shall hold a regular meeting without call or notice for
the purpose of organization, election of officers, and the transaction of other
business.
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Other regular meetings of the Board shall be held as specified by the
Board.
Section 7. Special Meetings. Special meetings of the Board for any purpose or
purposes may be called at any time by the Chairman of the Board, the President,
or the Secretary or by any two directors.
Special meetings of the Board shall be held upon not less than four
days' written notice or not less than 48 hours' notice given personally or by
telephone, telegraph, telex, or other similar means of communication. Any such
notice shall be addressed or delivered to each director at such director's
address as it is shown upon the records of the corporation or as may have been
given to the corporation by the director for the purposes of notice or, if such
address is not shown on such records or is not readily ascertainable, at the
place in which the meetings of the directors are regularly held.
Notice by mail shall be deemed to have been given at the time a
written notice is deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means, to the recipient. Oral notice shall be deemed to have been
given at the time it is communicated, in person or by telephone or wireless, to
the recipient or to a person at the office of the recipient who the person
giving the notice has reason to believe will promptly communicate it to the
recipient.
Section 8. Quorum. Except as may be otherwise specifically provided in these
by-laws by statute or by the certificate of incorporation, at all meetings of
the Board a majority of the authorized number of directors shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meetings.
Section 9. Action by Consent. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the Board or of any committee thereof may be taken without a
meeting, if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 10. Participation in Meetings by Conference Telephone. Unless otherwise
restricted by the certificate of incorporation or these by-laws, members of the
Board, or any committee designated by the Board, may participate in a meeting,
of the Board, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
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Section 11. Waiver of Notice. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director. All such waivers, consents, and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 12. Adjournment. A majority of the directors present, whether or not a
quorum is present, may adjourn any directors' meeting to another time and place.
If the meeting is adjourned for more than 24 hours, notice of any adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
Section 13. Fees and Compensation. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board; provided that nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 14. Rights of Inspection. Every director shall have the absolute right
at any reasonable time to inspect and copy all books, records, and documents of
every kind and to inspect the physical properties of the corporation and also of
its subsidiary corporations, domestic or foreign. Such inspection by a director
may be made in person or by agent or attorney and includes the right to copy and
obtain extracts.
Section 15. Committees. The Board may appoint one or more committees, each
consisting of two or more directors, and delegate to such committees any of the
authority of the Board except with respect to:
(a) The approval of any action for which the Delaware General
Corporation Law also requires stockholders' approval or approval of the
outstanding shares;
(b) The filling of vacancies on the Board or on any committee;
(c) The fixing of compensation of the directors for serving on the
Board or on any committee;
(d) The amendment or repeal of by-laws or the adoption of new
by-laws;
(e) The amendment or repeal of any resolution of the Board which by
its express terms is not so amendable or repealable;
(f) A distribution to the stockholders of the corporation except at
a rate or in a periodic amount or within a price range determined by the Board.
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(g) The appointment of other committees of the Board or the members
thereof.
Any such committee must be appointed by resolution adopted by a
majority of the authorized number of directors and may be designated an
Executive Committee or by such other name as the Board shall specify. The Board
may designate one or more directors as alternate members of any committee, who
may replace any absent member at any meeting of the committee. The appointment
of members or alternate members of a committee requires the vote of a majority
of the authorized number of directors. The Board shall have the power to
prescribe the manner in which proceedings or any such committee shall be
conducted. In the absence of any such prescription, such committee shall have
the power to prescribe the manner in which its proceedings shall be conducted.
Unless the Board or such committee shall provide, the regular and special
meetings of any such committee shall be governed by the provisions of this
Article applicable to meetings and actions of the Board. Minutes shall be kept
of each meeting of each committee.
Section 16. Removal of Directors. Unless otherwise restricted by the certificate
of incorporation or by law, any director or the entire Board may be removed at
any time, with or without cause, by the affirmative vote of the stockholders
having a majority of the voting power of the corporation.
Section 17. Chairman of the Board. The board shall elect one of the directors as
the chairman of the board who shall preside at all meetings of the Board and all
meetings of stockholders and exercise and perform such other powers and duties
as may be from time to time assigned by the Board.
Section 18. Notice of Stockholder Nominees.
(a) Only persons who are nominated in accordance with the procedures
set forth in this Section 18 shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote for the
election of Directors at the meeting who complies with the notice procedures set
forth in this Section 18. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than sixty (60) days nor more than ninety
(90) days prior to the date of the meeting; provided, however, that in the event
that the first public disclosure (whether by mailing of a notice to stockholders
or to the Nasdaq National Market, by press release or otherwise) of the date of
the meeting is made less than seventy (70) days prior to the date of the
meeting, notice by the stockholder will be timely received not later than the
close of business on the tenth (10th) day following the day on which such public
disclosure was first made.
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(b) A stockholder's notice to the Secretary shall set forth (a) as
to each person whom the stockholder proposes to nominate for election or
re-election as a Director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the corporation which are
beneficially owned by such person and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of Directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
without limitation such persons' written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); and (b) as to
the stockholder giving notice, (i) the name and address, as they appear on the
corporation's books, of such stockholder, and (ii) the class and number of
shares of the corporation which are beneficially owned by such stockholder. At
the request of the Board of Directors any person nominated for election as a
Director shall furnish to the Secretary of the corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee and such other information as may reasonably be required by the
corporation to determine the eligibility for election as a Director of the
corporation. No person shall be eligible for election as a Director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 18. The Chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the By-laws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
ARTICLE IV. OFFICERS
Section 1. Officers. The officers of the corporation shall be a president, a
chief financial officer, and a secretary. The corporation may also have, at the
discretion of the Board, one or more vice presidents, a treasurer, one or more
assistant treasurers, one or more assistant secretaries, and such other officers
as may be elected or appointed in accordance with the provisions of Section 3 of
this Article.
Section 2. Election. The officers of the corporation, except such officers as
may be elected or appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen annually by, and shall serve at the
pleasure of, the Board, and shall hold their respective offices until their
resignation, removal, or other disqualification from service, or until their
respective successors shall be elected.
Section 3. Subordinate Officers. The Board may elect, and may empower the
President to appoint, such other officers and agents as it or he shall deem
necessary who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board.
Section 4. Compensation. The compensation of all officers and agents of the
corporation shall be fixed from time to time by the Board. No officer shall be
prevented from receiving
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such compensation by reason of the fact that the officer is also a director of
the corporation. Nothing contained herein shall preclude any officer from
serving the corporation, or any subsidiary corporation, in any other capacity
and receiving compensation therefor.
Section 5. Election, Removal, Resignation, and Vacancies. The officers of the
corporation shall hold office until their successors are chosen and qualify or
until any such officer is removed or resigns. Any officer may be removed, either
with or without cause, by the Board at any time, or, except in the case of an
officer chosen by the Board, by any officer upon whom such power of removal may
be conferred by the Board. Any such removal shall be without prejudice to the
rights, if any, of the officer under any contract of employment of the officer.
Any officer may resign at any time by giving written notice to the
corporation, but without prejudice to the rights if any, of the corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
A vacancy in any office because of death, resignation, removal,
disqualification, or any other cause shall be filled in the manner prescribed in
these by-laws for regular election or appointment to such office.
Section 6. Chairman of the Board. The Chairman of the Board shall, if present,
preside at all meetings of the Board and exercise and perform such other powers
and duties as may be from time to time assigned by the Board.
Section 7. President. The president is the chief executive officer of the
corporation and has, subject to the control of the Board, general supervision,
director, and control of the operations and officers of the corporation. The
president has the general powers and duties of management usually vested in the
office of the president and chief executive officer of a corporation and such
other powers and duties as may be prescribed by the Board. In the absence of the
chairman of the Board, the president, if present, shall preside at all meetings
of the board and all meetings of stockholders.
Section 8. Vice Presidents. In the absence or disability of the President, the
Vice President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board) shall perform all the duties of
the President, and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the President. The Vice Presidents shall perform
such other duties and have such other powers as the Board, the Chairman of the
Board and/or the President, respectively, may from time to time prescribe.
Section 9. Secretary. The Secretary shall keep or cause to be kept, at the
principal office and such other place as the Board may order, a book of minutes
of all meetings of
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stockholders, the Board, and its committees, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at Board and committee meetings, the number of
shares present or represented at stockholders' meetings, and the proceedings
thereof. The Secretary shall keep, or cause to be kept, a copy of the by-laws of
the corporation at the principal office of the corporation.
The Secretary shall keep, or cause to be kept, at the principal
office or at the office of the corporation's transfer agent or registrar, if one
be appointed, a share register, or a duplicate share register, showing the names
of stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates issued for the same, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders and of the Board and of any committees thereof
required by these by-laws or by law to be given, shall keep the seal of the
corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
Section 10. Chief Financial Officer. The Chief Financial Officer of the
corporation shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and business transactions of the
corporation, and shall send or cause to be sent to the stockholders of the
corporation such financial statements and reports as are by law or these by-laws
required to be sent to them. The books of account shall at all times be open to
inspection by any director.
The Chief Financial officer shall deposit all monies and other
valuables in the name and to the credit of the corporation with such
depositories as may be designated by the Board. The Chief Financial Officer
shall disburse the funds of the corporation as may be ordered by the Board,
shall render to the President and directors, whenever they request it, an
account of all transactions as Chief Financial officer and of the financial
condition of the corporation and shall have such other powers and perform such
other duties as may be prescribed by the Board.
ARTICLE V.
Section 1. Certificates for Stock.
(a) The shares of the corporation shall be represented by
certificates, provided that the Board may provide by resolution or resolutions
that some or all of any or all classes or series of its stock shall be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered to the corporation.
Notwithstanding the adoption of such a resolution by the Board, every holder of
stock represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate, in such form as
the Board shall prescribe, signed by, or in the name of, the corporation by the
Chairman of the Board or the President or Vice President, and
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by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the corporation representing the number of shares registered in
certificate form. Any of or all of the signatures on the certificates may be a
facsimile. In case any officer, transfer agent or registrar who has signed, or
whose facsimile signature has been placed upon, any such certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is used, such certificate may nevertheless be issued by the corporation with the
same effect as though the person who signed such certificate, or whose facsimile
signature shall have been placed thereupon, were such officer, transfer agent or
registrar at the date of issue.
(b) A record shall be kept of the respective names of the persons,
firms or corporations owning the stock represented by such certificates, the
number and class of shares represented by such certificates, respectively, and
the respective dates thereof, and in case of cancellation, the respective dates
of cancellation. Every certificate surrendered to the corporation for exchange
or transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 4.
Section 2. Transfers of Stock. Transfer of shares of stock of the corporation
shall be made only on the books of the corporation by the registered holder
thereof, or by such holder's attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 3 of this Article, and upon
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of stock
stand on the books of the corporation shall be deemed the owner thereof for all
purposes as regards the corporation. Whenever any transfer of shares Shall be
made for collateral security, and not absolutely, such fact shall be so
expressed in the entry of transfer if, when the certificate or certificates
shall be presented to the corporation for transfer, both the transferor and the
transferee request the corporation to do so.
Section 3. Regulations. The Board may make such rules and regulations as it may
seem expedient, not inconsistent with these by-laws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
Section 4. Lost, Stolen, Destroyed, and Mutilated Certificates. In any case of
loss, theft, destruction, or mutilation of any certificate of stock, another may
be issued in its place upon proof of such loss, theft, destruction or mutilation
and upon the giving of a bond of indemnity to the corporation in such form and
in such sum as the Board may direct; provided, however that a new certificate
may be issued without requiring any bond when, in the judgment of the Board, it
is proper so to do.
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ARTICLE VI. OTHER PROVISIONS
Section 1. Endorsement of Documents; Contracts. Subject to the provisions of
applicable law, any note, mortgage, evidence of indebtedness, contract, share
certificate, conveyance, or other instrument in writing and any assignment or
endorsements thereof executed or entered into between this corporation and any
other person, when signed by the President or any Vice President, and the
Secretary, any Assistant Secretary, the Treasurer, or any Assistant Treasurer of
this corporation shall be valid and binding on this corporation in the absence
of actual knowledge on the part of the other person that the signing officer had
not authority to execute the same. Any such instrument may be signed by any
other person or persons and in such manner as from time to time shall be
determined by the Board and, unless so authorized by the Board, no officer,
agent, or employee shall have any power or authority to bind the corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or amount.
Section 2. Representation of Shares of Other Corporations. The President, any
Vice President or any other officer or officers authorized by the Board or the
President are each authorized to vote, represent, and exercise on behalf of the
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of the corporation. The authority herein
granted may be exercised either by any such officer in person or by any other
person authorized so to do by proxy or power of attorney duly executed by said
officer.
Section 3. Stock Purchase Plans. The corporation may adopt and carry out a stock
purchase plan or agreement or stock option plan or agreement providing for the
issue and sale for such consideration as may be fixed of its unissued shares, or
of issued shares acquired or to be acquired, to one or more of the employees or
directors of the corporation or of a subsidiary or to a trustee on their behalf
and for the payment for such shares in installments or at one time, and may
provide for aiding any such person in paying for such shares by compensation for
services rendered, promissory notes, or otherwise.
Any such stock purchase plan or agreement or stock option plan or
agreement may include, among other features, the fixing of eligibility for
participation therein, the class and price of shares to be issued or sold under
the plan or agreement, the number of shares which may be subscribed for, the
method of payment therefor, the effect of the termination of employment and
option or obligation on the part of the corporation to repurchase the shares
upon termination of employment, restrictions upon the transfer of the shares,
the time limits of and termination of the plan, and any other matters, not in
violation of applicable law, as may be included in the plan as approved or
authorized by the Board or any committee of the Board.
Section 4. Accounting Year. The accounting year of the corporation shall be
fixed by resolution of the Board.
Section 5. Amendments. These by-laws, or any of them, may be altered, amended or
repealed and new by-laws may be made, (i) by the Board, by vote of a majority of
the number of directors then in office as directors, acting at any meeting of
the Board, or (ii) by the
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stockholders, at any annual meeting of stockholders, without previous notice, or
at any special meeting of stockholders, provided that notice of such proposed
amendment, modification, repeal or adoption is given in the notice of special
meeting. Any by-laws made or altered by the stockholders may be altered or
repealed by either the Board or the stockholders.
ARTICLE VII. INDEMNIFICATION
Section 1. Scope of Indemnification. The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that such person is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys, fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding to the fullest extent permitted by Delaware law
and the certificate of incorporation.
Section 2. Advance of Expenses. Costs and expenses (including attorneys' fees)
incurred by or on behalf or a director, officer, employee or agent in defending
or investigating any action, suit, proceeding or investigation shall be paid by
the corporation in advance of the final disposition of such matter, if such
director, officer, employee or agent shall undertake in writing to repay any
such advances in the event that it is ultimately determined that he is not
entitled to indemnification. Notwithstanding the foregoing, no advance shall be
made by the corporation if a determination is reasonably and promptly made by
the Board by a majority vote of a quorum of disinterested directors, or (if such
a quorum is not obtainable or, even if obtainable, a quorum of disinterested
directors so directs) by independent legal counsel, that based upon the facts
known to the Board or counsel at the time such determination is made, (a) the
director, officer, employee or agent acted in bad faith or deliberately breached
his duty to the corporation or its stockholders, and (b) as a result of such
actions by the director, officer, employee or agent, it is more likely than not
that it will ultimately be determined that such director, officer, employee or
agent is not entitled to indemnification.
Section 3. Rights and Remedies. The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any by-laws,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office.
Section 4. Continuation of Indemnification and Advancement of Expense. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
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Section 5. Insurance. Upon resolution passed by the Board, the corporation may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of this Article.
ARTICLE VIII. EMERGENCY PROVISIONS
Section 1. General. The provisions of this Article shall be operative only
during a national emergency declared by the President of the United States or
the person performing the President's functions, or in the event of a nuclear,
atomic, or other attack on the United States or a disaster making it impossible
or impracticable for the corporation to conduct its business without recourse to
the provisions of this Article. Said provisions in such event shall override all
other by-laws of this corporation in conflict with any provisions of this
Article, and shall remain operative so long as it remains impossible or
impracticable to continue the business of the corporation otherwise, but
thereafter shall be inoperative; provided that all actions taken in good faith
pursuant to such provisions shall thereafter remain in full force and effect
unless and until revoked by action taken pursuant to the provisions of the
by-laws other than those contained in this Article.
Section 2. Unavailable Directors. All directors of the corporation who are not
available to perform their duties as directors by reason of physical or mental
incapacity or for any other reason or who are unwilling to perform their duties
or whose whereabouts are unknown shall automatically cease to be directors, with
like effect as if such persons had resigned as directors, so long as such
unavailability continues.
Section 3. Authorized Number of Directors. The authorized number of directors
shall be the number of directors remaining after eliminating those who have
ceased to be directors pursuant to Section 2, or the minimum number required by
law, whichever is greater.
Section 4. Quorum. The number of directors necessary to constitute a quorum
shall be one-third of the authorized number of directors as specified in the
foregoing Section or such other minimum number as, pursuant to the law or lawful
decree then in force, it is possible for the by-laws of a corporation to
specify.
Section 5. Creation of Emergency Committee. In the event the number of directors
remaining after eliminating those who have ceased to be directors pursuant to
Section 2 is less than the minimum number of authorized directors required by
law, then until the appointment of additional directors to make up such required
minimum, all the powers and authorities which the Board could by law delegate,
including all powers and authorities which the Board could delegate to a
committee, shall be automatically vested in an emergency committee, and
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the emergency committee shall thereafter manage the affairs of the corporation
pursuant to such powers and authorities and shall have all such other powers and
authorities as may by law or lawful decree be conferred on any person or body of
persons during a period of emergency.
Section 6. Constitution of Emergency Committee. The emergency committee shall
consist of all the directors remaining after eliminating those who have ceased
to be directors pursuant to Section 2, provided that such remaining directors
are not less than three in number. In the event such remaining directors are
less than three in number, the emergency committee shall consist of three
persons, who shall be the remaining director or directors and either one or two
officers or employees of the corporation, as the remaining director or directors
may in writing designate. If there is no remaining director, the emergency
committee shall consist of the three most senior officers of the corporation who
are available to serve, and if and to the extent that officers are not
available, the most senior employees of the corporation. Seniority shall be
determined in accordance with any designation of seniority in the minutes of the
proceedings of the Board, and in the absence of such designation, shall be
determined by rate of remuneration. In the event that there are no remaining
directors and no officers or employees of the corporation available, the
emergency committee shall consist of three persons designated in writing by the
stockholder owning the largest number of shares of record as of the date of the
last record date.
Section 7. Powers of Emergency Committee. The emergency committee, once
appointed, shall govern its own procedures and shall have power to increase the
number of members thereof beyond the original number, and in the event of a
vacancy or vacancies therein, arising at any time, the remaining member or
members of the emergency committee shall have the power to fill such vacancy or
vacancies. In the event at any time after its appointment all members shall die
or resign or become unavailable to act for any reason whatsoever, a new
emergency committee shall be appointed in accordance with the foregoing
provisions of this Article.
Section 8. Directors Becoming Available. Any person who has ceased to be a
director pursuant to the provisions of Section 2 and who thereafter becomes
available to serve as a director shall automatically become a member of the
emergency committee.
Section 9. Election of Board of Directors. The emergency committee shall, as
soon after its appointment as is practicable, take all requisite action to
secure the election of a board of directors, and upon such election all the
powers and authorities of the emergency committee shall cease.
Section 10. Termination of Emergency Committee. In the event, after the
appointment of an emergency committee, a sufficient number of persons who ceased
to be directors pursuant to Section 2 become available to serve as directors, so
that if they had not ceased to be directors as aforesaid, there would be enough
directors to constitute the minimum number of directors required by law, then
all such persons shall automatically be deemed to be reappointed as directors
and the powers and authorities of the emergency committee shall be at an end.
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CERTIFICATE BY SECRETARY OF ADOPTION BY DIRECTORS
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of the
above-named corporation and that the above and foregoing by-laws were adopted as
the by-laws of said corporation on the date set forth below by the persons
elected to act as the directors of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 3 day of
October, 1986
/s/ Fred B. Cox
----------------------------------
Fred B. Cox, Secretary
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<PAGE> 1
EXHIBIT 10.14
[GRAPHIC OMITTED] SILICON VALLEY BANK
AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT
BORROWERS: EMULEX CORPORATION, A CALIFORNIA 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: SEPTEMBER 18, 1996
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into on the
above date between SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman
Drive, Santa Clara, California 95054 and the borrowers named above (jointly and
severally referred to as the "Borrower"), whose chief executive offices are
located at the above address ("Borrower's Address"), and this Agreement amends
and restates in its entirety, effective as of the date hereof, the Loan and
Security Agreement between Silicon and Borrower, 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, as amended by that Amendment to Loan Agreement
dated January 18, 1996, as amended by that Amendment to Loan Agreement dated
April 18, 1996, and as otherwise amended prior to the date hereof.
1. LOANS.
1.1 LOANS. Silicon, in its reasonable discretion, will make loans to the
Borrower (the "Loans") in amounts determined by Silicon in its reasonable
discretion up to the amount (the "Credit Limit") shown on the Schedule to this
Agreement (the "Schedule"), provided no Event of Default and no event which,
with notice or passage of time or both, would constitute an Event of Default has
occurred. The Borrower is responsible for monitoring the total amount of Loans
and other Obligations outstanding from time to time, and Borrower shall not
permit the same, at any time, to exceed the Credit Limit. If at any time the
total of all outstanding Loans and all other Obligations exceeds the Credit
Limit, the Borrower shall immediately pay the amount of the excess to Silicon,
without notice or demand.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest
at the rate shown on the Schedule hereto. Interest shall be payable monthly, on
the due date shown on the monthly billing from Silicon to the Borrower. Silicon
may, in its discretion, charge interest to Borrower's deposit accounts
maintained with Silicon*.
*; SILICON AGREES TO USE ITS STANDARD PROCEDURE TO PROVIDE WRITTEN
CONFIRMATION OF THE CHARGING OF ANY SUCH INTEREST, PROVIDED ANY FAILURE BY
SILICON TO SO
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NOTIFY THE BORROWER SHALL NOT AFFECT THE RIGHT OF SILICON TO CHARGE AND COLLECT
SUCH INTEREST.
1.3 FEES. The Borrower shall pay to Silicon a loan origination fee in the
amount shown on the Schedule hereto concurrently herewith. This fee is in
addition to all interest and other sums payable to Silicon and is not
refundable. *
* BORROWER SHALL ALSO PAY A COMMITMENT/UNUSED LINE FEE AS SET FORTH IN
PARAGRAPH 4 OF THE SECTION OF THE SCHEDULE TO LOAN AGREEMENT ENTITLED "OTHER
COVENANTS (SECTION 4.1)."
2. GRANT OF SECURITY INTEREST.
2.1 OBLIGATIONS. The term "Obligations" as used in this Agreement means the
following: the obligation to pay all Loans and all interest thereon when due,
and to pay and perform when due all other present and future indebtedness,
liabilities, obligations, guarantees, covenants, agreements, warranties and
representations of the Borrower to Silicon, whether joint or several, monetary
or non-monetary, and whether created pursuant to this Agreement or any other
present or future agreement or otherwise. Silicon may, in its discretion,
require that Borrower pay monetary Obligations in cash to Silicon, or charge
them to Borrower's Loan account, in which event they will bear interest at the
same rate applicable to the Loans. Silicon may also, in its discretion, charge
any monetary Obligations to Borrower's deposit accounts maintained with Silicon.
2.2 COLLATERAL. * all of the Borrower's interest in the types of property
described below, whether now owned or hereafter acquired, and wherever located:
(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) 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 **
* THE TERM "COLLATERAL" SHALL MEAN
** TO GRANT ITS CONSENT TO ANY SUCH TRANSACTION, AND SILICON MAY
WITHHOLD SUCH CONSENT IN ITS REASONABLE DISCRETION
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) 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
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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. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
The Borrower represents and warrants to Silicon as follows, and the Borrower
covenants that the following representations will continue to be true, and that
the Borrower will comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. The Borrower, if a corporation, is and
will continue to be, duly authorized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. The Borrower is and
will continue to be qualified and licensed to do business in all jurisdictions
in which any failure to do so would have a material adverse effect on the
Borrower. The execution, delivery and performance by the Borrower of this
Agreement, and all other documents contemplated hereby have been duly and
validly authorized, are enforceable against the Borrower in accordance with
their terms, and do not violate any law or any provision of, and are not grounds
for acceleration under, any agreement or instrument which is binding upon the
Borrower.
3.2 NAME; TRADE NAMES AND STYLES. The name of the Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule hereto are
all prior names of the Borrower and all of Borrower's present and prior trade
names*. The Borrower shall give Silicon 15 days' prior written notice before
changing its name or doing business under any other name. The Borrower has
complied, and will in the future comply, with all laws relating to the conduct
of business under a fictitious business name.
* FOR THE PAST FIVE YEARS
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is the Borrower's chief executive office. In addition,
the Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule to this Agreement. The Borrower will give
Silicon at least 15 days prior written notice before changing its chief
executive office or locating the Collateral at any other location.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. The Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of equipment which are leased by the Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for the following ("Permitted Liens"):
(i) purchase money security interests in specific items of equipment; (ii)
leases of specific items of equipment; (iii) liens for taxes not yet payable;
(iv) additional security interests and liens consented to in writing by Silicon
in its reasonable discretion, which consent shall not be unreasonably withheld;
and (v) security interests being terminated substantially concurrently with this
Agreement. Silicon will have the right to require, as a condition to its consent
under subparagraph (iv) above, that the holder of the additional security
interest or lien sign an intercreditor agreement on Silicon's then standard
form, acknowledge that the security interest is subordinate to the security
interest in favor of Silicon, and agree not to take any action to enforce its
subordinate security interest so long as any Obligations remain outstanding, and
that the Borrower agree that any uncured default in any obligation secured by
the subordinate security interest shall also constitute an Event of Default
under this Agreement. Silicon now has, and will continue to have, a perfected
and enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and the Borrower will at all times defend Silicon and the
Collateral against all claims of others. None of the Collateral now is or will
be affixed to any real property in such a manner, or with such intent, as to
become a fixture.
3.5 MAINTENANCE OF COLLATERAL. The Borrower will maintain the Collateral in
good working condition, and the Borrower will not use the Collateral for any
unlawful purpose. The Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. The Borrower has maintained and will maintain at the
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
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3.7 FINANCIAL CONDITION AND STATEMENTS. ALL FINANCIAL STATEMENTS NOW OR IN THE
FUTURE DELIVERED TO SILICON HAVE BEEN, AND WILL BE, PREPARED IN CONFORMITY WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND NOW AND IN THE FUTURE WILL
COMPLETELY AND ACCURATELY REFLECT THE FINANCIAL CONDITION OF THE BORROWER AND
EMULEX CORPORATION, A DELAWARE CORPORATION (THE "PARENT"), AT THE TIMES AND FOR
THE PERIODS THEREIN STATED. SINCE THE LAST DATE COVERED BY ANY SUCH STATEMENT,
THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN THE FINANCIAL CONDITION OR BUSINESS
OF THE BORROWER OR THE PARENT. THE BORROWER IS NOW AND WILL CONTINUE TO BE
SOLVENT. THE BORROWER WILL PROVIDE SILICON: (I) WITHIN 5 DAYS AFTER THE EARLIER
OF THE DATE THE REPORT 10Q REGARDING THE PARENT IS FILED OR IS REQUIRED TO BE
FILED WITH THE SECURITIES EXCHANGE COMMISSION, SUCH 10-Q REPORT, A QUARTERLY
FINANCIAL STATEMENT PREPARED BY THE BORROWER REGARDING THE PARENT, AND A
COMPLIANCE CERTIFICATE IN SUCH FORM AS SILICON SHALL REASONABLY SPECIFY, SIGNED
BY THE CHIEF FINANCIAL OFFICER OF THE BORROWER AND THE PARENT, CERTIFYING THAT
THROUGHOUT SUCH QUARTER THE BORROWER AND THE PARENT WERE IN FULL COMPLIANCE WITH
ALL OF THE TERMS AND CONDITIONS OF THIS AGREEMENT, AND SETTING FORTH
CALCULATIONS SHOWING COMPLIANCE WITH THE FINANCIAL COVENANTS SET FORTH ON THE
SCHEDULE AND SUCH OTHER INFORMATION AS SILICON SHALL REASONABLY REQUEST (THE
"COMPLIANCE CERTIFICATE"); AND (II) WITHIN 5 DAYS AFTER THE EARLIER OF THE DATE
THE REPORT 10-K REGARDING THE PARENT IS FILED OR IS REQUIRED TO BE FILED WITH
THE SECURITIES EXCHANGE COMMISSION, SUCH 10-K REPORT, COMPLETE ANNUAL FINANCIAL
STATEMENTS, CERTIFIED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ACCEPTABLE TO
SILICON, AND A COMPLIANCE CERTIFICATE FOR THE QUARTER THEN ENDED.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. The Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and the Borrower has timely paid, and will timely
pay, all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by the Borrower. The Borrower may,
however, defer payment of any contested taxes, provided that the Borrower (i) in
good faith contests the Borrower's obligation to pay the taxes by appropriate
proceedings promptly and diligently instituted and conducted, (ii) notifies
Silicon in writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. The Borrower is
unaware of any claims or adjustments proposed for any of the Borrower's prior
tax years which could result in additional taxes becoming due and payable by the
Borrower*. The Borrower has paid, and shall continue to pay all amounts
necessary to fund all present and future pension, profit sharing and deferred
compensation plans in accordance with their terms, and the Borrower has not and
will not withdraw from participation in, permit partial or complete termination
of, or permit the occurrence of any other event with respect to, any such plan
which could result in any liability of the Borrower, including, without
limitation, any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
* OTHER THAN ANY ARISING PURSUANT TO THE TAX SHARING AGREEMENT DATED FEBRUARY
24, 1994 BETWEEN THE PARENT AND QLOGIC CORPORATION
3.9 COMPLIANCE WITH LAW. The Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to the Borrower, including, but not limited to,
those relating to the Borrower's ownership of real or personal property, conduct
and licensing of the Borrower's business, and environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim, suit,
litigation, proceeding or investigation pending or (to best of the Borrower's
knowledge) threatened by or against or affecting the Borrower in any court or
before any governmental agency (or any basis therefor known to the Borrower)
which may result, either separately or in the aggregate, in any material adverse
change in the financial condition or business of the Borrower, or in any
material impairment in the ability of the Borrower to carry on its business in
substantially the same manner as it is now being conducted. The Borrower will
promptly inform Silicon in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against the Borrower
involving amounts in excess of $350,000.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. ADDITIONAL DUTIES OF THE BORROWER.
4.1 FINANCIAL AND OTHER COVENANTS. The Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule to this Agreement.
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<PAGE> 5
4.2 OVERADVANCE; PROCEEDS OF ACCOUNTS. If for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit, without
limiting Silicon's other remedies, and whether or not Silicon declares an Event
of Default, Borrower shall remit to Silicon all checks and other proceeds of
Borrower's accounts and general intangibles, in the same form as received by
Borrower, within one day after Borrower's receipt of the same, to be applied to
the Obligations in such order as Silicon shall determine in its discretion.
4.3 INSURANCE. The Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole and absolute discretion, except that,
provided no Event of Default has occurred, Silicon shall release to the Borrower
insurance proceeds with respect to equipment totaling less than $350,000, which
shall be utilized by the Borrower for the replacement of the equipment with
respect to which the insurance proceeds were paid. Silicon may require
reasonable assurance that the insurance proceeds so released will be so used. If
the Borrower fails to provide or pay for any insurance, Silicon may, but is not
obligated to, obtain the same at the Borrower's expense. The Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
4.4 REPORTS. The Borrower shall provide Silicon with such written reports with
respect to the Borrower (including without limitation budgets, sales
projections, operating plans and other financial documentation), as Silicon
shall from time to time reasonably specify.
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 Borrower shall reimburse Silicon for its reasonable
costs for semi-annual accounts receivable audits, 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
4.6 NEGATIVE COVENANTS. Except as may be permitted in the Schedule hereto, the
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation, except that the
Borrower may merge or consolidate with another corporation if the Borrower is
the surviving corporation in the merger and the aggregate value of the assets
acquired in the merger do not exceed 25% of Borrower's Tangible Net Worth (as
defined in the Schedule) as of the end of the month prior to the effective date
of the merger, and the assets of the corporation acquired in the merger are not
subject to any liens or encumbrances, except Permitted Liens; (ii) acquire any
assets outside the ordinary course of business for an aggregate purchase price
exceeding 25% of Borrower's Tangible Net Worth (as defined in the Schedule) as
of the end of the month prior to the effective date of the acquisition; (iii)
enter into any other transaction outside the ordinary course of business (except
as permitted by the other provisions of this Section); (iv) sell or transfer any
Collateral, except for the sale of finished inventory in the ordinary course of
the Borrower's business, and except for the sale of obsolete or unneeded
equipment * in the ordinary course of business; (v) make any loans of any money
or any other assets; (vi) incur any debts, outside the ordinary course of
business, which would have a material, adverse effect on the Borrower or on the
prospect of repayment of the Obligations; (vii) guarantee or otherwise become
liable with respect to the obligations of another party or entity; (viii) pay or
declare any dividends on the Borrower's stock (except for dividends payable
solely in stock of the Borrower); (ix) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of the Borrower's stock; (x) make any
change in the Borrower's capital structure which has a material adverse effect
on the Borrower or on the prospect of repayment of the Obligations; or (xi)
dissolve or elect to dissolve. Transactions permitted by the foregoing
provisions of this Section are only permitted if no Event of Default and no
event which (with notice or passage of time or both) would constitute an Event
of Default would occur as a result of such transaction.
* OR OBSOLETE INVENTORY
4.7 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to the Borrower, the Borrower shall, without expense to Silicon, make
available the Borrower and its officers, employees and agents and the Borrower's
books and records to the extent that Silicon may deem them reasonably necessary
in order to prosecute or defend any such suit or proceeding.
4.8 VERIFICATION. Silicon may, from time to time, following prior notification
to Borrower, verify directly
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<PAGE> 6
with the respective account debtors the validity, amount and other matters
relating to the Borrower's accounts, by means of mail, telephone or otherwise,
either in the name of the Borrower or Silicon or such other name as Silicon may
reasonably choose, provided that no prior notification to Borrower shall be
required following an Event of Default.
4.9 EXECUTE ADDITIONAL DOCUMENTATION. The Borrower agrees, at its expense, on
request by Silicon, to execute all documents in form satisfactory to Silicon, as
Silicon, may deem reasonably necessary or useful in order to perfect and
maintain Silicon's perfected security interest in the Collateral, and in order
to fully consummate all of the transactions contemplated by this Agreement.
5. TERM.
5.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule hereto (the "Maturity Date").
5.2 EARLY TERMINATION. This Agreement may be terminated, without penalty,
prior to the Maturity Date as follows: (i) by the Borrower, effective three
business days after written notice of termination is given to Silicon; or (ii)
by Silicon at any time after the occurrence of an Event of Default, without
notice, effective immediately.
5.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, the Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding letters of
credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such letters of credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said letters of credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the reasonable
discretion of Silicon, Silicon may, in its sole discretion, refuse to make any
further Loans after termination. No termination shall in any way affect or
impair any right or remedy of Silicon, nor shall any such termination relieve
the Borrower of any Obligation to Silicon, until all of the Obligations have
been paid and performed in full. Upon payment and performance in full of all the
Obligations, Silicon shall promptly deliver to the Borrower termination
statements, requests for reconveyances and such other documents as may be
required to fully terminate any of Silicon's security interests.
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and the Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by the Borrower or
any of the Borrower's officers, employees or agents, now or in the future, shall
be untrue or misleading in any material respect; or (b) the Borrower shall fail
to pay when due any Loan or any interest thereon or any other monetary
Obligation; or (c) the total Loans and other Obligations outstanding at any time
exceed the Credit Limit; or (d) the Borrower shall fail to comply with any of
the financial covenants set forth in the Schedule or shall fail to perform any
other non-monetary Obligation which by its nature cannot be cured; or (e) the
Borrower shall fail to pay or perform any other non-monetary Obligation, which
failure is not cured within 5 business days after the date due; or (f) Any levy,
assessment, attachment, seizure, lien or encumbrance is made on all or any part
of the Collateral which is not cured within 10 * days after the occurrence of
the same; or (g) Dissolution, termination of existence, insolvency or business
failure of the Borrower; or appointment of a receiver, trustee or custodian, for
all or any part of the property of, assignment for the benefit of creditors by,
or the commencement of any proceeding by the Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or (h) the commencement of any proceeding against the Borrower or any guarantor
of any of the Obligations under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 ** days after the date commenced; (i) revocation or
termination of, or limitation or denial of liability upon, any guaranty of the
Obligations or any attempt to do any of the foregoing; or commencement of
proceedings by any guarantor of any of the Obligations under any bankruptcy or
insolvency law; or (j) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing; or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law ***; or (k) the Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations other
than as permitted in the applicable subordination agreement or if any person who
has subordinated such indebtedness or obligations terminates or in any way
limits his subordination agreement; or (l) there shall be a change in the record
or beneficial ownership of an aggregate of more than **** of the outstanding
shares of stock of the
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<PAGE> 7
Borrower, in one or more transactions, compared to the ownership of outstanding
shares of stock of the Borrower in effect on the date hereof, without the prior
written consent of Silicon; or (m) the Borrower shall generally not pay its
debts as they become due; or the Borrower shall conceal, remove or transfer any
part of its property, with intent to hinder, delay or defraud its creditors, or
make or suffer any transfer of any of its property which may be fraudulent under
any bankruptcy, fraudulent conveyance or similar law. Silicon may cease making
any Loans hereunder during any of the above cure periods, and thereafter if an
Event of Default has occurred.
* 20
** 45
*** PROVIDED THAT WITH RESPECT TO THE COMMENCEMENT OF ANY PROCEEDING AGAINST
ANY SUCH THIRD PARTY UNDER ANY REORGANIZATION, BANKRUPTCY, INSOLVENCY,
ARRANGEMENT, READJUSTMENT OF DEBT, DISSOLUTION OR LIQUIDATION LAW OR STATUTE OF
ANY JURISDICTION, NOW OR IN THE FUTURE IN EFFECT, ANY SUCH PROCEEDING SHALL NOT
BE CURED BY THE DISMISSAL THEREOF WITHIN 45 DAYS AFTER THE DATE COMMENCED
**** A CONTROLLING INTEREST
6.2 REMEDIES. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by the Borrower), may do any one or
more of the following: (a) Cease making Loans or otherwise extending credit to
the Borrower under this Agreement or any other document or agreement; (b)
Accelerate and declare all or any part of the Obligations to be immediately due,
payable, and performable, notwithstanding any deferred or installment payments
allowed by any instrument evidencing or relating to any Obligation; (c) Take
possession of any or all of the Collateral wherever it may be found, and for
that purpose the Borrower hereby authorizes Silicon without judicial process to
enter onto any of the Borrower's premises without interference to search for,
take possession of, keep, store, or remove any of the Collateral, and remain on
the premises or cause a custodian to remain on the premises in exclusive control
thereof without charge for so long as Silicon deems it reasonably necessary in
order to complete the enforcement of its rights under this Agreement or any
other agreement; provided, however, that should Silicon seek to take possession
of any or all of the Collateral by Court process, the Borrower hereby
irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) and (iii) any requirement that Silicon retain possession of and
not dispose of any such Collateral until after trial or final judgment; (d)
Require the Borrower to assemble any or all of the Collateral and make it
available to Silicon at places designated by Silicon which are reasonably
convenient to Silicon and the Borrower, and to remove the Collateral to such
locations as Silicon may deem advisable; (e) Require Borrower to deliver to
Silicon, in kind, all checks and other payments received with respect to all
accounts and general intangibles, together with any necessary indorsements,
within one day after the date received by the Borrower; (f) Complete the
processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, Silicon shall have
the right to use the Borrower's premises, vehicles, hoists, lifts, cranes,
equipment and all other property without charge; (g) Sell, lease or otherwise
dispose of any of the Collateral in its condition at the time Silicon obtains
possession of it or after further manufacturing, processing or repair, at any
one or more public and/or private sales, in lots or in bulk, for cash, exchange
or other property, or on credit, and to adjourn any such sale from time to time
without notice other than oral announcement at the time scheduled for sale.
Silicon shall have the right to conduct such disposition on the Borrower's
premises without charge, for such time or times as Silicon deems reasonable, or
on Silicon's premises, or elsewhere and the Collateral need not be located at
the place of disposition. Silicon may directly or through any affiliated company
purchase or lease any Collateral at any such public disposition, and if
permissible under applicable law, at any private disposition. Any sale or other
disposition of Collateral shall not relieve the Borrower of any liability the
Borrower may have if any Collateral is defective as to title or physical
condition or otherwise at the time of sale; (h) Demand payment of, and collect
any accounts and general intangibles comprising Collateral and, in connection
therewith, the Borrower irrevocably authorizes Silicon to endorse or sign the
Borrower's name on all collections, receipts, instruments and other documents,
to take possession of and open mail addressed to the Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Silicon's sole discretion, to grant extensions of time to pay,
compromise claims and settle accounts and the like for less than face value; (i)
Offset against any sums in any of Borrower's general, special or other deposit
accounts with Silicon; and (j) Demand and receive possession of any of the
Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or referring thereto. All reasonable
attorneys' fees, expenses, costs, liabilities and obligations incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations. Without limiting
any of Silicon's rights and remedies, from and after the occurrence of any Event
of Default, the interest rate applicable to the Obligations shall be increased
by an additional four percent per annum.
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<PAGE> 8
6.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. The Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to the
Borrower at least * days prior to the sale, and, in the case of a public sale,
notice of the sale is published at least * days before the sale in a newspaper
of general circulation in the county where the sale is to be conducted; (ii)
Notice of the sale describes the collateral in general, non-specific terms;
(iii) The sale is conducted at a place designated by Silicon, with or without
the Collateral being present; (iv) The sale commences at any time between 8:00
a.m. and 6:00 p.m; (v) Payment of the purchase price in cash or by cashier's
check or wire transfer is required; (vi) With respect to any sale of any of the
Collateral, Silicon may (but is not obligated to) direct any prospective
purchaser to ascertain directly from the Borrower any and all information
concerning the same. Silicon may employ other methods of noticing and selling
the Collateral, in its discretion, if they are commercially reasonable.
* TEN
6.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, the Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to the
Borrower, and at the Borrower's expense, to do any or all of the following, in
the Borrower's name or otherwise: (a) Execute on behalf of the Borrower any
documents that Silicon may, in its sole and absolute discretion, deem advisable
in order to perfect and maintain Silicon's security interest in the Collateral,
or in order to exercise a right of the Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of the Borrower any
document exercising, transferring or assigning any option to purchase, sell or
otherwise dispose of or to lease (as lessor or lessee) any real or personal
property which is part of Silicon's Collateral or in which Silicon has an
interest; (c) Execute on behalf of the Borrower, any invoices relating to any
account, any draft against any account debtor and any notice to any account
debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien; (d) Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
the Borrower upon any instruments, or documents, evidence of payment or
Collateral that may come into Silicon's possession; (e) Endorse all checks and
other forms of remittances received by Silicon; (f) Pay, contest or settle any
lien, charge, encumbrance, security interest and adverse claim in or to any of
the Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay, compromise
claims and settle accounts and general intangibles for less than face value and
execute all releases and other documents in connection therewith; (h) Pay any
sums required on account of the Borrower's taxes or to secure the release of any
liens therefor, or both; (i) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, the Borrower to give Silicon the same
rights of access and other rights with respect thereto as Silicon has under this
Agreement; and (k) Take any action or pay any sum required of the Borrower
pursuant to this Agreement and any other present or future agreements. Silicon
shall exercise the foregoing powers in a commercially reasonable manner. Any and
all reasonable sums paid and any and all reasonable costs, expenses,
liabilities, obligations and attorneys' fees incurred by Silicon with respect to
the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. In no event shall Silicon's
rights under the foregoing power of attorney or any of Silicon's other rights
under this Agreement be deemed to indicate that Silicon is in control of the
business, management or properties of the Borrower.
6.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Silicon in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Silicon shall determine in its sole discretion. Any surplus shall be paid to the
Borrower or other persons legally entitled thereto; the Borrower shall remain
liable to Silicon for any deficiency. If, Silicon, in its sole discretion,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale or other disposition of Collateral,
Silicon shall have the option, exercisable at any time, in its sole discretion,
of either reducing the Obligations by the principal amount of purchase price or
deferring the reduction of the Obligations until the actual receipt by Silicon
of the cash therefor.
6.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Silicon shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and the Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue
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<PAGE> 9
in full force and effect until all of the Obligations have been fully paid and
performed.
7. GENERAL PROVISIONS.
7.1 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by regular first-class mail, or
certified mail return receipt requested, addressed to Silicon or the Borrower at
the addresses shown in the heading to this Agreement, or at any other address
designated in writing by one party to the other party. All notices shall be
deemed to have been given upon delivery in the case of notices personally
delivered to the Borrower or to Silicon, or at the expiration of two business
days following the deposit thereof in the United States mail, with postage
prepaid.
7.2 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
7.3 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between the Borrower and Silicon and supersede all prior
and contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
7.4 WAIVERS. The failure of Silicon at any time or times to require the
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between the Borrower and Silicon shall not
waive or diminish any right of Silicon later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent thereto. None of the provisions of
this Agreement or any other agreement now or in the future executed by the
Borrower and delivered to Silicon shall be deemed to have been waived by any act
or knowledge of Silicon or its agents or employees, but only by a specific
written waiver signed by an officer of Silicon and delivered to the Borrower.
The Borrower waives demand, protest, notice of protest and notice of default or
dishonor, notice of payment and nonpayment, release, compromise, settlement,
extension or renewal of any commercial paper, instrument, account, general
intangible, document or guaranty at any time held by Silicon on which the
Borrower is or may in any way be liable, and notice of any action taken by
Silicon, unless expressly required by this Agreement.
7.5 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by the
Borrower or any other party through the ordinary negligence of Silicon, or any
of its directors, officers, employees, agents, attorneys or any other person
affiliated with or representing Silicon *.
* WITH RESPECT TO THE TRANSACTIONS AND ACTIONS OF SILICON ASSOCIATED WITH THE
LETTERS OF CREDIT AND THE EXCHANGE CONTRACTS (AS SUCH TERMS ARE DEFINED IN THE
SCHEDULE TO LOAN AGREEMENT ATTACHED HERETO).
7.6 AMENDMENT. The terms and provisions of this Agreement may not be waived or
amended, except in a writing executed by the Borrower and a duly authorized
officer of Silicon.
7.7 TIME OF ESSENCE. Time is of the essence in the performance by the Borrower
of each and every obligation under this Agreement.
7.8 ATTORNEYS FEES AND COSTS. The Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, account debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of the Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to the Borrower. In satisfying Borrower's obligation
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas,
but Borrower acknowledges and agrees that Levy, Small & Lallas is representing
only Silicon and not Borrower in connection with this Agreement. If either
Silicon or the Borrower files any lawsuit against the other predicated on a
breach of this Agreement, the prevailing party in such action shall be entitled
to recover its reasonable costs and attorneys' fees, including (but not limited
to) reasonable attorneys' fees and costs incurred in the enforcement of,
execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Silicon may be entitled pursuant to this
Paragraph shall immediately become part of the Borrower's Obligations, shall be
due on demand, and shall bear interest at a rate equal to the highest interest
rate applicable to any of the Obligations.
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<PAGE> 10
7.9 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of the parties hereto; provided, however, that
the Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release the
Borrower from its liability for the Obligations.
7.10 JOINT AND SEVERAL LIABILITY. If the Borrower consists of more than one
person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
7.11 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. The Borrower acknowledges that the headings may
not describe completely the subject matter of the applicable paragraph, and the
headings shall not be used in any manner to construe, limit, define or interpret
any term or provision of this Agreement. This Agreement has been fully reviewed
and negotiated between the parties and no uncertainty or ambiguity in any term
or provision of this Agreement shall be construed strictly against Silicon or
the Borrower under any rule of construction or otherwise.
7.12 MUTUAL WAIVER OF JURY TRIAL. THE BORROWER AND SILICON EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND THE BORROWER, OR ANY CONDUCT, ACTS
OR OMISSIONS OF SILICON OR THE BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR THE
BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
7.13 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and the
Borrower shall be governed by, and in accordance with, the laws of the State of
California. Any undefined term used in this Agreement that is defined in the
California Uniform Commercial Code shall have the meaning assigned to that term
in the California Uniform Commercial Code. As a material part of the
consideration to Silicon to enter into this Agreement, the Borrower (i) agrees
that all actions and proceedings relating directly or indirectly hereto shall,
at Silicon's option, be litigated in courts located within California, and that
the exclusive venue therefor shall be Orange County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights the Borrower may have to object to
the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
BORROWER:
EMULEX CORPORATION, A CALIFORNIA CORPORATION
BY /S/PAUL F. FOLINO
PRESIDENT OR VICE PRESIDENT
BY /S/ WALTER J. MCBRIDE
SECRETARY OR ASS'T SECRETARY
BORROWER:
INTERCONNNECTIONS, INC.
BY /S/ PAUL F. FOLINO
PRESIDENT OR VICE PRESIDENT
BY /S/ WALTER J. MCBRIDE
SECRETARY OR ASS'T SECRETARY
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<PAGE> 11
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: VICE PRESIDENT
GUARANTORS' CONSENT
The undersigned, guarantors, acknowledge that their consent to the foregoing
Amended and Restated Loan and Security Agreement is not required, but the
undersigned nevertheless do hereby consent thereto 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 or Security Agreement
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
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<PAGE> 12
SILICON LOAN DOCUMENTS
- --------------------------------------------------------------------------------
SCHEDULE TO LOAN AND SECURITY AGREEMENT -.S.
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<PAGE> 13
[GRAPHIC OMITTED] SILICON VALLEY BANK
SCHEDULE TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BORROWERS: EMULEX CORPORATION, A CALIFORNIA 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: SEPTEMBER 18, 1996
CREDIT LIMIT
(Section 1.1): An amount not to exceed * the lesser of:
(i) $7,000,000 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, 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
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<PAGE> 14
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 FOREIGN ACCOUNTS OF EMULEX
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)
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 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)
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<PAGE> 15
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.
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.
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<PAGE> 16
* (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): $52,500. (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, 1997.
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): None
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 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:
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<PAGE> 17
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 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:
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<PAGE> 18
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, 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.
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. DOCUMENTS REGARDING PUERTO RICO COLLATERAL.
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 maintain in
effect the security agreement relating to
Collateral consisting of intellectual property
items, which form is entitled "Collateral
Assignment, Patent Mortgage and Security
Agreement" (the "Copyright Assignment") and
perform all of the terms and conditions thereof
in accordance therewith. In connection
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<PAGE> 19
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
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<PAGE> 20
parties shall be subordinated in favor of
Silicon pursuant to written subordination
agreements in Silicon's standard form.
BORROWER:
EMULEX CORPORATION, A CALIFORNIA 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: VICE PRESIDENT
<PAGE> 1
EXHIBIT 10.15
COLLATERAL ASSIGNMENT, PATENT MORTGAGE
AND SECURITY AGREEMENT
This Collateral Assignment, Patent Mortgage and Security Agreement is
made as of the 18th day of September 1996, by and between DIGITAL HOUSE, LTD.
(the "Assignor"), and Silicon Valley Bank, a California banking corporation
("Assignee").
RECITALS
A. Assignee has agreed to lend to Emulex Corporation and affiliate
companies certain funds (the "Loans"), pursuant to a Loan and Security Agreement
dated March 31, 1994, as amended, and as amended and restated pursuant to the
Amended and Restated Loan and Security Agreement dated as of the date hereof
(the "Loan Agreement"). Assignor is a guarantor of the Loans and other
obligations under the Loan Agreement in favor of Assignee.
B. In order to induce Assignee to make the Loans, Assignor has agreed to
assign certain intangible property to Assignee for purposes of securing the
obligations of Assignor to Assignee.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Assignment, Patent Mortgage and Grant of Security Interest. As
collateral security for the prompt and complete payment and performance of all
of Assignor's present or future indebtedness, obligations and liabilities to
Assignee, Assignor hereby assigns, transfers, conveys and grants a security
interest and mortgage to Assignee, as security, but not as an ownership interest
in and to Assignor's entire right, title and interest in, to and under the
following (all of which shall collectively be called the "Collateral"):
(a) All of present and future United States registered copyrights
and copyright registrations, including, without limitation, the registered
copyrights listed in Exhibit A-1 to this Agreement (and including all of the
exclusive rights afforded a copyright registrant in the United States under 17
U.S.C. Section106 and any exclusive rights which may in the future arise by act
of Congress or otherwise) and all of Grantor's present and future applications
for copyright registrations (including applications for copyright registrations
of derivative works and compilations) (collectively, the "Registered
Copyrights"), and any and all royalties, payments, and other amounts payable to
Grantor in connection with the Registered Copyrights, together with all renewals
and extensions of the Registered Copyrights, the right to recover for all past,
present, and future infringements of the Registered Copyrights, and all computer
programs, computer databases, computer program flow diagrams, source codes,
object codes and all tangible property embodying or incorporating the Registered
Copyrights, and all other rights of every kind whatsoever accruing thereunder or
pertaining thereto.
(b) All present and future copyrights which are not registered in
the United States Copyright Office (the "Unregistered Copyrights"), whether now
owned or hereafter acquired, including without limitation the Unregistered
Copyrights listed in Exhibit A-2 to this Agreement, and any and all royalties,
payments, and other amounts payable to Grantor in connection with the
Unregistered Copyrights, together with all renewals and extensions of the
Unregistered Copyrights, the right to recover for all past, present, and future
infringements of the Unregistered Copyrights, and all computer programs,
computer databases, computer program flow diagrams, source codes, object codes
and all tangible property embodying or incorporating the Unregistered
Copyrights, and all other rights of every kind whatsoever accruing thereunder or
pertaining thereto. The Registered Copyrights and the Unregistered Copyrights
collectively are referred to herein as the "Copyrights."
(c) All right, title and interest in and to any and all present
and future license agreements with respect to the Copyrights, including without
limitation the license agreements listed in Exhibit A-3 to this Agreement (the
"Licenses").
(d) All present and future accounts, accounts receivable and
other rights to payment arising from, in connection with or relating to the
Copyrights.
(e) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
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<PAGE> 2
(f) Any and all design rights which may be available to Assignor
now or hereafter existing, created, acquired or held;
(g) All patents, patent applications and like protections
including, without limitation, improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including without
limitation the patents and patent applications set forth on Exhibit B attached
hereto (collectively, the "Patents");
(h) Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Assignor connected with
and symbolized by such trademarks, including without limitation those set forth
on Exhibit C attached hereto (collectively, the "Trademarks")
(i) Any and all claims for damages by way of past, present and
future infringements of any of the rights included above, with the right, but
not he obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(j) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights; and
(k) All amendments, extensions, renewals and extensions of any of
the Copyrights, Trademarks or Patents; and
(l) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
THE INTEREST IN THE COLLATERAL BEING ASSIGNED HEREUNDER SHALL NOT BE CONSTRUED
AS A CURRENT ASSIGNMENT, BUT AS A CONTINGENT ASSIGNMENT TO SECURE ASSIGNOR'S
OBLIGATIONS TO ASSIGNEE UNDER THE LOAN AGREEMENT.
2. Authorization and Request. Assignor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this conditional assignment.
3. Covenants and Warranties. Assignor represents, warrants, covenants
and agrees as follows:
(a) Assignor is now the sole owner of the Collateral, except for
non-exclusive licenses granted by Assignor to its customers in the ordinary
course of business.
(b) Listed on Exhibits A-1 and A-2 are all copyrights owned by
Assignor, in which Assignor has an interest, or which are used in Assignor's
business.
(c) Except where appropriate licenses have been obtained, each
employee, agent and/or independent contractor who has participated in the
creation of the property constituting the Collateral has either executed an
assignment of his or her rights of authorship to Assignor or is an employee of
Assignor acting within the scope of his or her employment and was such an
employee at the time of said creation.
(d) At least 95% of Assignor's present and future software,
computer programs and other works of authorship subject to United States
copyright protection (the "Copyrightable Collateral"), the sale, licensing or
other disposition of which results in royalties receivable, license fees
receivable, accounts receivable or other sums owing to Assignor (collectively,
"Receivables"), shall be registered with the United States Copyright Office
within 60 days of such time that Assignor requests or accepts the first loan
from Silicon with respect to such Receivables and within 60 days of the date
Assignor first includes any such Receivables in any accounts receivable aging,
borrowing base report or certificate or other similar report provided to
Silicon, provided that, in the aggregate, at least 80% of the Copyrightable
Collateral shall be registered with the United States Copyright Office at all
times that Silicon makes any loans relating to the Receivables after 90 days
from the initial effectiveness of this Agreement as set forth in paragraph 7 of
the section of Schedule to Loan Agreement entitled "Other Covenants (Section
4.1)." Assignor shall provide to Silicon copies of all such registrations
promptly upon the receipt of the same.
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<PAGE> 3
(e) Assignor shall undertake all reasonable measures to cause its
employees, agents and independent contractors to assign to Assignor all rights
of authorship to any copyrighted material in which Assignor has or may
subsequently acquire any right or interest.
(f) Performance of this Assignment does not conflict with or
result in a breach of any agreement to which Assignor is bound, except to the
extent that certain intellectual property agreements prohibit the assignment of
the rights thereunder to a third party without the licensor's or other party's
consent and this Assignment constitutes an assignment.
(g) During the term of this Agreement, Assignor will not transfer
or otherwise encumber any interest in the Collateral, except for licenses
granted by Assignor in the ordinary course of business or as set forth in this
Assignment;
(h) Each of the Patents is valid and enforceable, and no part of
the Collateral has been judged invalid or unenforceable, in whole or in part,
and no claim has been made that any part of the Collateral violates the rights
of any third party;
(i) Assignor shall promptly advise Assignee of any material
adverse change in the composition of the Collateral, including but not limited
to any subsequent ownership right of the Assignor in or to any Trademark, Patent
or Copyright not specified in this Assignment;
(j) Assignor shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Assignee in writing of material infringements detected and (iii)
not allow any Trademarks, Patents, or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Assignee, which shall not
be unreasonably withheld unless Assignor determines that reasonable business
practices suggest that abandonment is appropriate.
(k) Assignor shall promptly register the most recent version of
any of Assignor's Copyrights, if not so already registered, and shall, from time
to time, execute and file such other instruments, and take such further actions
as Assignee may reasonably request from time to time to perfect or continue the
perfection of Assignee's interest in the Collateral;
(l) This Assignment creates, and in the case of after acquired
Collateral, this Assignment will create at the time Assignor first has rights in
such after acquired Collateral, in favor of Assignee a valid and perfected first
priority security interest in the Collateral in the United States securing the
payment and performance of the obligations evidenced by the Loan Agreement upon
making the filings referred to in clause (m) below;
(m) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests and assignment created hereunder and
except as has been already made or obtained, no authorization, approval or other
action by, and no notice to or filing with, any U.S. governmental authority of
U.S. regulatory body is required either (i) for the grant by Assignor of the
security interest granted hereby or for the execution, delivery or performance
of this Assignment by Assignor in the U.S. or (ii) for the perfection in the
United States or the exercise by Assignee of its rights and remedies thereunder;
(n) All information heretofore, herein or hereafter supplied to
Assignee by or on behalf of Assignor with respect to the Collateral is accurate
and complete in all material respects.
(o) Assignor shall not enter into any agreement that would
materially impair or conflict with Assignor's obligations hereunder without
Assignee's prior written consent, which consent shall not be unreasonably
withheld. Assignor shall not permit the inclusion in any material contract to
which its becomes a party of any provisions that could or might in any way
prevent the creation of a security interest in Assignor's rights and interest in
any property included within the definition of the Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest in
such contracts.
(p) Upon any executive officer or Assignor obtaining actual
knowledge thereof, Assignor will promptly notify Assignee in writing of any
event that materially adversely affects the value of any material
-3-
<PAGE> 4
Collateral, the ability of Assignor to dispose of any material Collateral of the
rights and remedies of Assignee in relation thereto, including the levy of any
legal process against any of the Collateral.
4. Assignee's Rights. Assignee shall have the right, but not the
obligation, to take, at Assignor's sole expense, any actions that Assignor is
required under this Assignment to take but which Assignor fails to take, after
fifteen (15) days' notice to Assignor. Assignor shall reimburse and indemnify
Assignee for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this section 4.
5. Inspection Rights. Assignor hereby grants to Assignee and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Assignor, and any of Assignor's
plants and facilities that manufacture, install or store products (or that have
done so during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Assignor and as often as may be
reasonably requested, but not more than one (1) in every six (6) months;
provided, however, nothing herein shall entitle Assignee access to Assignor's
trade secrets and other proprietary information.
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Assignor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including, appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademarks Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as requested by Assignee, to perfect Assignee's security interest in all
Copyrights, Patents and Trademarks and otherwise to carry out the intent and
purposes of this Collateral Assignment, or for assuring and confirming to
Assignee the grant or perfection of a security interest in all Collateral.
(b) Assignor hereby irrevocably appoints Assignee as Assignor's
attorney-in-fact, with full authority in the place and stead of Assignor and in
the name of Assignor, Assignee or otherwise, from time to time in Assignee's
discretion, upon Assignor's failure or inability to do so, to take any action
and to execute any instrument which Assignee may deem necessary or advisable to
accomplish the purposes of this Collateral Assignment, including:
(i) To modify, in its sole discretion, this Collateral
Assignment without first obtaining Assignor's approval of or signature to such
modification by amending Exhibit A-1, Exhibit A-2, Exhibit A-3, Exhibit B and
Exhibit C, thereof, as appropriate, to include reference to any right, title or
interest in any Copyrights, Patents or Trademarks acquired by Assignor after the
execution hereof or to delete any reference to any right, title or interest in
any Copyrights, Patents or Trademarks in which Assignor no longer has or claims
any right, title or interest; and
(ii) To file, in its sole discretion, one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of Assignor where permitted by law.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Assignment:
(a) An Event of Default occurs under the Loan Agreement; or
(b) Assignor breaches any warranty or agreement made by Assignor
in this Assignment.
8. Remedies. Upon the occurrence and continuance of an Event of Default,
Assignee shall have the right to exercise all the remedies of a secured party
under the California Uniform Commercial Code, including without limitation the
right to require Assignor to assemble the Collateral and any tangible property
in which Assignee has a security interest and to make it available to Assignee
at a place designated by Assignee. Assignee shall have a nonexclusive, royalty
free license to use the Copyrights, Patents and Trademarks to the extent
reasonably necessary to permit Assignee to exercise its rights and remedies upon
the occurrence of an Event of Default. Assignor will pay any expenses (including
reasonable attorney's fees) incurred by Assignee in connection with the exercise
of any of Assignee's rights hereunder, including without limitation any expense
incurred in
-4-
<PAGE> 5
disposing of the Collateral. All of Assignee's rights and remedies with respect
to the Collateral shall be cumulative.
9. Indemnity. Assignor agrees to defend, indemnify and hold harmless
Assignee and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement, and (b) all
losses or expenses in any way suffered, incurred, or paid by Assignee as a
result of or in any way arising out of, following or consequential to
transactions between Assignee and Assignor, whether under this Assignment or
otherwise (including without limitation, reasonable attorneys fees and
reasonable expenses), except for losses arising form or out of Assignee's gross
negligence or willful misconduct.
10. Release. At such time as Assignor shall completely satisfy all of
the obligations secured hereunder, Silicon shall execute and deliver to Assignor
all assignments and other instruments as may be reasonably necessary or proper
to terminate Silicon's security interest in the Collateral, subject to any
disposition of the Collateral which may have been made by Silicon pursuant to
this Agreement. For the purpose of this Agreement, the obligations secured
hereunder shall be deemed to continue if Assignor enters into any bankruptcy or
similar proceeding at a time when any amount paid to Silicon could be ordered to
be repaid as a preference or pursuant to a similar theory, and shall continue
until it is finally determined that no such repayment can be ordered.
11. No Waiver. No course of dealing between Assignor and Silicon, nor
any failure to exercise nor any delay in exercising, on the part of Silicon, any
right, power, or privilege under this Agreement or under the Loan Agreement or
any other agreement, shall operate as a waiver. No single or partial exercise of
any right, power, or privilege under this Agreement or under the Loan Agreement
or any other agreement by Silicon shall preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege by Silicon.
12. Rights Are Cumulative. All of Silicon's rights and remedies with
respect to the Collateral whether established by this Agreement, the Loan
Agreement, or any other documents or agreements, or by law shall be cumulative
and may be exercised concurrently or in any order.
13. Course of Dealing. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
14. Attorneys' Fees. If any action relating to this Assignment is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys fees, costs and disbursements.
15. Amendments. This Assignment may be amended only by a written
instrument signed by both parties hereto. To the extent that any provision of
this Agreement conflicts with any provision of the Loan Agreement, the provision
giving Silicon greater rights or remedies shall govern, it being understood that
the purpose of this Agreement is to add to, and not detract from, the rights
granted to Silicon under the Loan Agreement. This Agreement, the Loan Agreement,
and the documents relating thereto comprise the entire agreement of the parties
with respect to the matters addressed in this Agreement.
16. Severability. The provisions of this Agreement are severable. If any
provision of this Agreement is held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such provision or part thereof in any other jurisdiction, or any
other provision of this Agreement in any jurisdiction.
17. Counterparts. This Assignment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
18. California Law and Jurisdiction. This Assignment shall be governed
by the laws of the State of California, without regard for choice of law
provisions. Assignor and Assignee consent to the nonexclusive jurisdiction of
any state or federal court located in Orange County, California.
19. Confidentiality. In handling any confidential information, Assignee
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Assignment
except that the disclosure of this information may be made (i) to the affiliates
of the Assignee, (ii) to prospective transferee or purchasers of an interest in
the obligations secured hereby, provided that they have entered into comparable
-5-
<PAGE> 6
confidentiality agreement in favor of Assignor and have deliver a copy to
Assignor, (iii) as required by law, regulation, rule or order, subpoena judicial
order or similar order and (iv) as may be required in connection with the
examination, audit or similar investigation of Assignee.
20. WAIVER OF RIGHT TO JURY TRIAL. SILICON AND ASSIGNOR EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT
OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND ASSIGNOR; OR (III) ANY
CONDUCT, ACTS OR OMISSIONS OF SILICON OR ASSIGNOR OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
SILICON OR ASSIGNOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment on the
day and year first above written.
ADDRESS OF ASSIGNOR: ASSIGNOR:
3535 Harbor Boulevard DIGITAL HOUSE, LTD.
Costa Mesa, California 92626
By: /s/ Paul F. Folino
Name: Director
-6-
<PAGE> 7
STATE OF CALIFORNIA )
) ss.
COUNTY OF _______________________ )
On ________________, 1996, before me,
___________________________________, personally appeared
_______________________________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
----------------------------
(Seal)
-7-
<PAGE> 8
Exhibit "A-1" attached to that certain Collateral Assignment, Patent Mortgage
and Security Agreement
EXHIBIT "A-1"
REGISTERED COPYRIGHTS
REG. NO. REG. DATE COPYRIGHT
- -------- --------- ---------
None
-8-
<PAGE> 9
Exhibit "A-2" attached to that certain Collateral Assignment, Patent Mortgage
and Security Agreement
EXHIBIT "A-2"
UNREGISTERED COPYRIGHTS
DESCRIPTION OF COPYRIGHTS
None
-9-
<PAGE> 10
Exhibit "A-3" attached to that certain Collateral Assignment, Patent Mortgage
and Security Agreement
EXHIBIT "A-3"
DESCRIPTION OF LICENSE AGREEMENTS
None
-10-
<PAGE> 11
Exhibit "B" attached to that certain Collateral Assignment, Patent Mortgage and
Security Agreement
EXHIBIT "B"
PATENTS
<TABLE>
<CAPTION>
DOCKET NO. COUNTRY SERIAL NO. FILING DATE STATUS
- ---------- ------- ---------- ----------- ------
<S> <C> <C> <C> <C>
USA 4,320,453 3/16/82 Issued
(Dual Sequencer
Microprocessor)
</TABLE>
-11-
<PAGE> 12
Exhibit "C" attached to that certain Collateral Assignment, Patent Mortgage and
Security Agreement
EXHIBIT "C"
TRADEMARKS
MARK COUNTRY SERIAL NO. STATUS
- ---- ------- ---------- ------
None
-12-
<PAGE> 1
EXHIBIT 10.16
SUPPLEMENT TO COLLATERAL ASSIGNMENT
This Supplement to Collateral Assignment is dated as of September 18,
1996 to supplement the Collateral Assignment, Patent Mortgage and Security
Agreement (the "Collateral Assignment"), dated as of March 31, 1994, by Emulex
Corporation, InterConnections, Inc. and Emulex Europe Limited (jointly and
severally, the "Grantor"), in favor of Silicon Valley Bank, ("Silicon"), a copy
of which is attached hereto as Exhibit X.
NOW, THEREFORE, the parties hereby supplement the Copyright Agreement as
follows:
1. Exhibit A-1, Exhibit B and Exhibit C to the Collateral Assignment are
hereby amended and replaced by Exhibit A-1, Exhibit B and Exhibit C,
respectively, which are attached hereto.
IN WITNESS WHEREOF, the undersigned has executed this Supplement as of
the date first above written.
SILICON VALLEY BANK EMULEX CORPORATION
By: /s/ Michael P. Quain By: /s/ Paul F. Folino
Title: Vice President Title: President
INTERCONNECTIONS, INC.
By: /s/ Paul F. Folino
Title: President
EMULEX EUROPE LIMITED
By: /s/ Paul F. Folino
Title: Director
<PAGE> 2
Exhibit "A-1" attached to that certain Collateral Assignment, Patent Mortgage
and Security Agreement
EXHIBIT "A-1"
REGISTERED COPYRIGHTS
<TABLE>
<CAPTION>
REG. NO. REG. DATE COPYRIGHT
- -------- --------- ---------
<S> <C> <C>
TX1807309 November 18, 1985 BOB-GRAPHICS MODE O/PUT
TX1807308 November 18, 1985 BOB-CHARACTER RAM DECODER
TX1770506 November 18, 1985 PARAMETER CONVERSION EPROM CODE
TX1770505 November 18, 1985 CHARACTER SET EPROM CODE
</TABLE>
SEE ATTACHMENT TO EXHIBIT "A-1" ANNEXED HERETO FOR ADDITIONAL COPYRIGHTS.
<PAGE> 3
Exhibit "B" attached to that certain Collateral Assignment, Patent Mortgage and
Security Agreement
EXHIBIT "B"
PATENTS
<TABLE>
<CAPTION>
DOCKET NO. COUNTRY SERIAL NO. FILING DATE STATUS
- ---------- ------- ---------- ----------- ------
<S> <C> <C> <C> <C>
USA 08/452,274 May 26, 1995 PENDING
USA 08/410,712 March 27, 1995 Allowed
USA 08/429,916 April 27, 1995 PENDING
USA 08/484,592 June 7, 1995 PENDING
USA 08/488,035 June 7, 1995 PENDING
USA 4,320,453 March 16, 1982
USA D282,160 January 14, 1986
</TABLE>
<PAGE> 4
Exhibit "C" attached to that certain Collateral Assignment, Patent Mortgage and
Security Agreement
EXHIBIT "C"
TRADEMARKS
<TABLE>
<CAPTION>
MARK COUNTRY SERIAL NO. STATUS
- ---- ------- ---------- ------
<S> <C> <C> <C>
CONNECT PLUS USA 74/662,809 PENDING
DCP LINK USA 74/727,920 PUBLISHED
EMULEX AND DESIGN USA 1,264,502 REGISTERED
EMULEX USA 1,160,761 REGISTERED
EMULEX LOGO USA 1,261,502 REGISTERED
ENSTALL USA 1941.0001 Awaiting Specimen
FRAMEEXPRESS USA 75/121,294 PENDING
LIGHTPULSE USA 75/004,410 PENDING
NETJET USA 1,892,032 REGISTERED
NETJET (STYLIZED) USA 1,889,726 REGISTERED
NETQUE USA 1,892,031 REGISTERED
NETQUE (STYLIZED) USA 1,889,731 REGISTERED
NETQUE MATE USA 74/647,108 ALLOWED
NETQUE PRO USA 74/719,667 PENDING
PERFORMANCE USA 74/719,920 PENDING
WAIT-LESS PRINTING California, USA 76,316 REGISTERED
MINI MONO CARD California, USA 76,534 REGISTERED
SHORT PORT COLOR CARD USA 1,410,938 REGISTERED
1* USA 1,628,113 REGISTERED
LEVERAGE USA 1,754,459 REGISTERED
INTERCONNECTORS USA 74-022,602 PENDING
INTERCONNECTIONS USA 74-302,242 PENDING
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
INTERCONNECTIONS USA 74-302,243 PENDING
</TABLE>
<PAGE> 6
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________________ )
On ___________________, 1996, before me,
__________________________________, a Notary Public in and for said county and
state, personally appeared ______________________
_________________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
-------------------------------
(Seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________________ )
On ___________________, 1996, before me,
__________________________________, a Notary Public in and for said county and
state, personally appeared ______________________
_________________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
-------------------------------
(Seal)
<PAGE> 1
EXHIBIT 10.17
[GRAPHIC OMITTED] SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
18606 BOTHELL WAY, N.E.
BOTHELL, WASHINGTON 98011-1929
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATED: SEPTEMBER 18, 1997
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 Amended and Restated Loan and
Security Agreement between them, dated September 18, 1996 (as amended or
modified from time to time, the "Loan Agreement"), as follows, effective as of
the date hereof.
1. REVISED SECTION 1.1. Section 1.1 of the Loan Agreement is hereby
amended to read as follows:
"1.1 LOANS. * Silicon will make loans to the Borrower (the "Loans") in
amounts up to the amount (the "Credit Limit") shown on the Schedule to
this Agreement (the "Schedule"), provided no Event of Default and no
event which, with notice or passage of time or both, would constitute
an Event of Default has occurred. The Borrower is responsible for
monitoring the total amount of Loans and other Obligations outstanding
from time to time, and Borrower shall not permit the same, at any time,
to exceed the Credit Limit. If at any time the total of all outstanding
Loans and all other Obligations exceeds the Credit Limit, the Borrower
shall immediately pay the amount of the excess to Silicon, without
notice or demand.
-1-
<PAGE> 2
* SUBJECT TO THE TERMS AND CONDITIONS HEREOF, "
2. REVISED CREDIT LIMIT. The section of the Schedule to Loan Agreement
entitled "Credit Limit (Section 1.1)" that now reads as follows:
"An amount not to exceed * the lesser of: (i) $7,000,000 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",
is hereby amended to read as follows:
"An amount not to exceed * the lesser of: (i) $10,000,000 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"
3. REVISED MATURITY DATE. The Maturity Date as set forth in section 5.1
of the Schedule to Loan Agreement is hereby amended to be "SEPTEMBER 17, 1998".
4. REVISED FINANCIAL COVENANTS. The section of the Schedule to Loan
Agreement entitled "Financial Covenants (Section 4.1)" is hereby amended to read
as follows:
"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
1.00 to 1.
TANGIBLE NET WORTH: Parent shall maintain a tangible net worth of
not less than $23,000,000.
-2-
<PAGE> 3
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 During the Parent's 1998 fiscal year, the
quarterly losses (after taxes) that the Parent
may incur shall not exceed $1,000,000, in the
aggregate, in such fiscal year, and Parent
shall not incur an annual loss (after taxes)
for the 1998 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), cash equivalents, 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 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."
5. REVISED SECTION 4.5. Section 4.5 of the Loan Agreement is hereby
amended to read as follows:
-3-
<PAGE> 4
"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 Borrower shall reimburse
Silicon for its reasonable costs for annual accounts receivable audits,
and Silicon may debit Borrower's deposit accounts with Silicon for the
cost of such 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"
6. CERTAIN BORROWER REPORTING. Paragraph 2 of the section of the
Schedule to the Loan Agreement entitled "Other Covenants (Section 4.1)" is
hereby amended to read as follows:
"2. MONTHLY BORROWING BASE CERTIFICATE AND LISTING. Within 30 days
after the end of each month, 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."
7. FEE. Borrower shall pay to Silicon a fee in the amount of $50,000 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.
8. 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.
-4-
<PAGE> 5
BORROWER: SILICON:
EMULEX CORPORATION SILICON VALLEY BANK
BY /S/ PAUL F. FOLINO BY /S/ MICHAEL P. QUAIN
PRESIDENT OR VICE PRESIDENT TITLE: VICE PRESIDENT
BY /S/ MICHAEL J. ROCKENBACH
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/ MICHAEL J. ROCKENBACH BY /S/ MICHEAL J. ROCKENBACH
SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY
-5-
<PAGE> 6
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.
Further, Computer Array Development, Inc. and Highspeed Communications, Inc., as
prior guarantors, have been deleted as guarantors as such corporations have been
dissolved.
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: InterConnections, Inc., a California corporation
(formerly known as Digital House, Ltd.)
By /s/ Paul F. Folino
Title: President
Guarantor Signature: Emulex Foreign Sales Corporation
By /s/ Paul F. Folino
Title: President
-6-
<PAGE> 1
EXHIBIT 10.18
SUPPLEMENT TO COLLATERAL ASSIGNMENT
This Supplement to Collateral Assignment is dated as of September 18,
1997 to supplement the Collateral Assignment, Patent Mortgage and Security
Agreement (the "Collateral Assignment"), dated as of March 31, 1994, as amended,
by Emulex Corporation, InterConnections, Inc. and Emulex Europe Limited (jointly
and severally, the "Grantor"), in favor of Silicon Valley Bank, ("Silicon").
NOW, THEREFORE, the parties hereby supplement the Collateral Assignment
as follows:
1. Exhibit A-1, Exhibit B and Exhibit C to the Collateral Assignment are
hereby amended and replaced by Exhibit A-1, Exhibit B and Exhibit C,
respectively, as attached hereto.
IN WITNESS WHEREOF, the undersigned has executed this Supplement as of
the date first above written.
SILICON VALLEY BANK EMULEX CORPORATION
By: /s/ Michael P. Quain By: /s/ Paul F. Folino
Title: Vice President Title: President
INTERCONNECTIONS, INC.
By: /s/ Paul F. Folino
Title: President
EMULEX EUROPE LIMITED
By: /s/ Paul F. Folino
Title: Director
<PAGE> 2
Exhibit "A-1" attached to that certain Collateral Assignment, Patent Mortgage
and Security Agreement
EXHIBIT "A-1"
REGISTERED COPYRIGHTS
<TABLE>
<CAPTION>
REG. NO. REG. DATE COPYRIGHT
- -------- --------- ---------
<S> <C> <C>
TX1807309 November 18, 1985 BOB-GRAPHICS MODE O/PUT
TX1807308 November 18, 1985 BOB-CHARACTER RAM DECODER
TX1770506 November 18, 1985 PARAMETER CONVERSION EPROM CODE
TX1770505 November 18, 1985 CHARACTER SET EPROM CODE
</TABLE>
SEE ATTACHMENT TO EXHIBIT "A-1" ANNEXED HERETO FOR ADDITIONAL COPYRIGHTS.
<PAGE> 3
Exhibit "B" attached to that certain Collateral Assignment, Patent Mortgage and
Security Agreement
EXHIBIT "B"
PATENTS
<TABLE>
<CAPTION>
NAME. COUNTRY SERIAL NO. FILING DATE STATUS
- ----- ------- ---------- ----------- ------
<S> <C> <C> <C> <C>
USA 08/452,274 May 26, 1995 Pending
USA 08/410,712 March 27, 1995 Allowed
USA 08/429,916 April 27, 1995 Pending
USA 08/484,592 June 7, 1995 Pending
USA 08/488,035 June 7, 1995 Pending
USA 4,320,453 March 16, 1982
USA D282,160 January 14, 1986
Window Comparator USA 5,588,000 12/24/96 (Issue Date) Issued
Timer Manager (now
named Copmuter Control
Device for Managing Timer
Array) USA 5,659,720 8/19/97 (Issue Date) Issued
Burst Broadcasting on a
Peripheral Component
Interconnect Bus USA 5,634,138 5/27/97 (Issue Date) Issued
</TABLE>
<PAGE> 4
Exhibit "C" attached to that certain Collateral Assignment, Patent Mortgage and
Security Agreement
EXHIBIT "C"
TRADEMARKS
<TABLE>
<CAPTION>
MARK COUNTRY SERIAL NO. STATUS
- ---- ------- ---------- ------
<S> <C> <C> <C>
CONNECT PLUS USA 74/662,809 PENDING
DCP LINK USA 2,013,467 REGISTERED
EMULEX AND DESIGN USA 1,264,502 REGISTERED
EMULEX USA 1,160,761 REGISTERED
EMULEX LOGO USA 1,261,502 REGISTERED
ENSTALL USA 1941.0001 Awaiting Specimen
FRAMEEXPRESS USA 75/121,294 PENDING
LIGHTPULSE USA 2,078,482 REGISTERED
NETJET USA 1,892,032 REGISTERED
NETJET (STYLIZED) USA 1,889,726 REGISTERED
NETQUE USA 1,892,031 REGISTERED
NETQUE (STYLIZED) USA 1,889,731 REGISTERED
NETQUE MATE USA 74/647,108 ALLOWED
NETQUE PRO USA 74/719,667 PENDING
PERFORMANCE USA 1,993,408 REGISTERED
WAIT-LESS PRINTING California, USA 76,316 REGISTERED
MINI MONO CARD California, USA 76,534 REGISTERED
SHORT PORT COLOR CARD USA 1,410,938 REGISTERED
1* USA 1,628,113 REGISTERED
LEVERAGE USA 1,754,459 REGISTERED
INTERCONNECTORS USA 74-022,602 PENDING
INTERCONNECTIONS USA 74-302,242 PENDING
INTERCONNECTIONS USA 74-302,243 PENDING
</TABLE>
<PAGE> 5
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________________ )
On ___________________, 1997, before me, _____________________________
__________________________________, a Notary Public in and for said county and
state, personally appeared ___________________________________________________
_________________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
-------------------------------
(Seal)
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________________ )
On ___________________, 1997, before me, _____________________________
__________________________________, a Notary Public in and for said county and
state, personally appeared ___________________________________________________
_________________________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
-------------------------------
(Seal)
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Following is a list of the subsidiaries of the Registrant:
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ -------------
<S> <C>
InterConnections, Inc. California
Emulex Caribe, Inc. Delaware
Emulex Corporation California
Emulex Europe Limited United Kingdom
Emulex Foreign Sales Corporation U.S. Virgin Islands
Emulex Italia S.r.l. Italy
InterConnections, Inc. Washington
Emulex Australia Pty. Limited Australia
Emulex GMBH Germany
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Emulex Corporation:
We consent to incorporation by reference in the registration statements (Nos.
2-89162, 33-40959 and 33-44484) on Form S-8 of Emulex Corporation of our report
dated August 12, 1997, relating to the consolidated balance sheets of Emulex
Corporation and subsidiaries as of June 29, 1997 and June 30, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended June 29, 1997, and
the related schedule, which report appears in the June 29, 1997 annual report on
Form 10-K of Emulex Corporation.
KPMG Peat Marwick LLP
Orange County, California
September 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EMULEX
CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET, STATEMENT OF
OPERATIONS AND STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED JUNE 29, 1997
AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-29-1997
<PERIOD-END> JUN-29-1997
<CASH> 484
<SECURITIES> 0
<RECEIVABLES> 15,281
<ALLOWANCES> 496
<INVENTORY> 12,713
<CURRENT-ASSETS> 29,328
<PP&E> 21,091
<DEPRECIATION> 14,130
<TOTAL-ASSETS> 37,175
<CURRENT-LIABILITIES> 10,859
<BONDS> 79
0
0
<COMMON> 1,220
<OTHER-SE> 23,056
<TOTAL-LIABILITY-AND-EQUITY> 37,175
<SALES> 64,763
<TOTAL-REVENUES> 64,763
<CGS> 39,924
<TOTAL-COSTS> 39,924
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 131
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> 1,063
<INCOME-TAX> (506)
<INCOME-CONTINUING> 1,569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,569
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
