<PAGE> 1
EMULEX CORPORATION
3535 Harbor Boulevard
Costa Mesa, California 92626
(714) 662-5600
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 18, 1999
To the Stockholders of EMULEX CORPORATION:
You are cordially invited to attend the Annual Meeting of
Stockholders of Emulex Corporation, a Delaware corporation (the "Company"),
which will be held at the corporate headquarters of the Company at 3535 Harbor
Boulevard, Costa Mesa, California, at 10:00 a.m., Pacific Standard Time, on
Thursday, November 18, 1999, to consider and act upon the following matters, all
as more fully described in the accompanying Proxy Statement which is
incorporated herein by this reference:
1. To elect a board of five directors to serve until the next
annual meeting of the Company's stockholders and until their successors have
been elected and qualify;
2. To consider and take action concerning an amendment of the
Company's Certificate of Incorporation (the form of which is included as
Appendix A to the accompanying Proxy Statement), pursuant to which (i) the
authorized number of shares of common stock of the Company will be increased
from 20,000,000 to 120,000,000 shares, (ii) a stock split of outstanding shares
of common stock of the Company will be effected on the basis of one new share of
common stock for each outstanding share of common stock, and (iii) the par value
of the common stock of the Company will be reduced from $.20 per share to
$.10 per share;
3. To consider and take action concerning approval of an
amendment of the Company's Employee Stock Option Plan (a copy of which, as
amended, is included as Appendix B to the accompanying Proxy Statement) which
increases the number of shares authorized for issuance under such plan by
725,000 shares;
4. To consider and take action concerning approval of an
amendment of the Company's 1997 Stock Option Plan for Non-Employee Directors (a
copy of which, as amended, is included as Appendix C to the accompanying Proxy
Statement) which increases the number of shares authorized for issuance under
such plan by 100,000 shares;
5. To ratify the selection of KPMG LLP as the Company's
independent public accountants for fiscal year 2000; and
6. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Stockholders of record of the Company's common stock at the
close of business on October 4, 1999, the record date fixed by the Board of
Directors, are entitled to notice of, and to vote at, the meeting.
THOSE WHO CANNOT ATTEND ARE URGED TO SIGN, DATE, AND OTHERWISE
COMPLETE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ANY
STOCKHOLDER GIVING A PROXY HAS THE RIGHT TO REVOKE IT AT ANY TIME BEFORE IT IS
VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Michael J. Rockenbach
Michael J. Rockenbach
<PAGE> 2
Vice President, Chief Financial Officer,
Secretary and Treasurer
Costa Mesa, California
October 22, 1999
<PAGE> 3
EMULEX CORPORATION
3535 Harbor Boulevard
Costa Mesa, California 92626
(714) 662-5600
-----------------
PROXY STATEMENT
------------------
Approximate date proxy material first sent
to stockholders: October 22, 1999
------------------
The following information is provided in connection with the
solicitation of proxies for the Annual Meeting of Stockholders of Emulex
Corporation, a Delaware corporation (the "Company"), to be held at the Company's
headquarters at 3535 Harbor Boulevard, Costa Mesa, California, at 10:00 a.m.,
Pacific Standard Time, on Thursday, November 18, 1999, and adjournments thereof
(the "Meeting"), for the purposes stated in the Notice of Annual Meeting of
Stockholders preceding this Proxy Statement.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy is being furnished herewith by the Company to
each stockholder, and, in each case, is solicited on behalf of the Board of
Directors of the Company for use at the Meeting. The entire cost of soliciting
these proxies will be borne by the Company. The Company may pay persons holding
shares in their names or the names of their nominees for the benefit of others,
such as brokerage firms, banks, depositaries, and other fiduciaries, for costs
incurred in forwarding soliciting materials to their principals. In that
connection, the Company has retained ChaseMellon Shareholder Services, Los
Angeles, California, to deliver soliciting materials to such record holders for
distribution by them to their principals and to assist the Company in collecting
proxies from such holders. The cost of these services, excluding out-of-pocket
expenses, is not expected to exceed $4,000. Members of the management of the
Company may also solicit some stockholders in person, or by telephone, telegraph
or facsimile, following solicitation by this Proxy Statement, but will not be
separately compensated for such solicitation services.
Proxies duly executed and returned by stockholders and
received by the Company before the Meeting will be voted "FOR" the election of
all five of the nominee-directors specified herein, "FOR" the amendment of the
Company's Certificate of Incorporation, "FOR" approval of the amendment of the
Company's Employee Stock Option Plan, "FOR" approval of the amendment of the
Company's 1997 Stock Option Plan for Non-Employee Directors, and "FOR" the
ratification of the selection of KPMG LLP as the Company's independent public
accountants for fiscal year 2000, unless a contrary choice is specified in the
proxy. Where a specification is indicated as provided in the proxy, the shares
represented by the proxy will be voted and cast in accordance with the
specification made. As to other matters, if any, to be voted upon, the persons
designated as proxies will take such actions as they, in their discretion, may
deem advisable. The persons named as proxies were selected by the Board of
Directors of the Company and each of them is a director of the Company.
Under the Company's Bylaws and Delaware law, shares
represented by proxies that reflect abstentions or "broker non-votes" (i.e.,
shares held by a broker or nominee which are represented at the Meeting, but
with respect to which such broker or nominee is not empowered to vote on a
particular proposal) will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. Any shares not voted
(whether by abstention, broker non-vote or otherwise) will have no impact in the
election of directors, except to the extent that the failure to vote for an
individual results in another individual receiving a larger proportion of votes.
Abstentions as to the proposals to amend the Company's Certificate of
Incorporation, approve the amendment of the Company's Employee
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Stock Option Plan, approve the amendment of the Company's 1997 Stock Option Plan
for Non-Employee Directors, and ratify the selection of KPMG LLP as the
Company's independent public accountants will have the same effect as votes
against such proposals. For purposes of the proposal to amend the Company's
Certificate of Incorporation, broker non-votes will have the same effect as
votes against such proposal, but with respect to each of the other proposals,
broker non-votes will be treated as unvoted for purposes of determining approval
of such proposals and will not be counted as votes for or against such
proposals.
Your execution of the enclosed proxy will not affect your
right as a stockholder to attend the Meeting and to vote in person. Any
stockholder giving a proxy has a right to revoke it at any time by either (a) a
later-dated proxy, (b) a written revocation sent to and received by the
Secretary of the Company prior to the Meeting, or (c) attendance at the Meeting
and voting in person.
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The Company has outstanding only common stock, of which
17,519,618 shares were outstanding as of the close of business on October 4,
1999 (the "Record Date"). Only stockholders of record on the books of the
Company at the close of business on the Record Date will be entitled to vote at
the Meeting. Each share of common stock is entitled to one vote.
Representation at the Meeting by the holders of a majority of
the outstanding common stock of the Company, either by personal attendance or by
proxy, will constitute a quorum.
The following table sets forth information as to the
beneficial ownership of the Company's common stock by all directors and the
persons identified in the Summary Compensation Table, as well as by current
directors and executive officers of the Company as a group and, to the best of
the Company's knowledge, beneficial owners of 5% or more of the Company's common
stock. The information in the following table is based on ownership of the
Company's common stock as of the Record Date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS(2)
-------------- ------------------------ ----------------------- -------------------
<S> <C> <C> <C>
DIRECTORS:
Common Stock Fred B. Cox 505,000(3) 2.9%
Common Stock Paul F. Folino 366,772(4) 2.1
Common Stock Michael P. Downey 69,000(4) *
Common Stock Robert H. Goon 15,552(5) *
Common Stock Don M. Lyle 60,000(4) *
NON-DIRECTOR
EMPLOYEES:
Common Stock Ronald P. Quagliara 68,623(6) *
Common Stock Kirk D. Roller 3,126(4) *
Common Stock Michael J. Rockenbach 68,915(7) *
Common Stock Teresa W. Blackledge(8) 45,281 *
Common Stock All directors and executive
officers as a group
(11 persons)(9) 1,247,892(4) 6.9%
5% STOCKHOLDERS:
Common Stock Fidelity Management & 2,153,216(10) 12.3%
Research
One Federal Street
Boston, MA 02109
</TABLE>
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<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS(2)
-------------- ------------------------ ----------------------- -------------------
<S> <C> <C> <C>
Common Stock Putnam Investment 1,349,320(10) 7.7%
Management, Inc.
One Post Office Square
Boston, MA 02109
Common Stock Pilgrim Baxter & Associates 1,076,600(10) 6.1%
825 Duportail Road
Wayne, PA 19087
</TABLE>
- --------------------
(1) Except as otherwise indicated and subject to applicable community
property and similar laws, the Company assumes that each named owner has
the sole voting and investment power with respect to their shares (other
than shares subject to options).
(2) Percent of class is based on the number of shares outstanding on the
Record Date plus, with respect to each named person, the number of
shares of common stock, if any, which the stockholder has the right to
acquire within 60 days of such date. Ownership of less than one percent
is indicated by an asterisk.
(3) Consists of 450,000 shares held in a family trust of which Mr. Cox and
his wife are co-trustees and share voting and investment power and
55,000 shares which are subject to options held by Mr. Cox which are
currently, or within the next 60 days will be, exercisable.
(4) Includes shares which are purchasable pursuant to stock options which
are currently, or within the next 60 days will be, exercisable.
(5) Consists of 552 shares held by Mr. Goon's wife and 15,000 shares which
are subject to options held by Mr. Goon which are currently, or within
the next 60 days will be, exercisable.
(6) Consists of 9,280 shares held by Mr. Quagliara, 720 shares held by his
children and 58,623 shares which are subject to options held by Mr.
Quagliara which are currently, or within the next 60 days will be,
exercisable.
(7) Consists of 39,212 shares held by Mr. Rockenbach, 840 shares held by his
children and 28,863 shares which are subject to options held by Mr.
Rockenbach which are currently, or within the next 60 days will be,
exercisable.
(8) Ms. Blackledge resigned as an officer of the Company in October 1999.
(9) Includes persons who serve as executive officers of the Company's
principal subsidiaries.
(10) Based on conversations with the beneficial owner and/or public filings
by such owner, it is the Company's belief that (i) these shares are
beneficially owned in the capacity of an investment adviser registered
under the Investment Advisers Act of 1940, (ii) voting power is
exercised pursuant to investment management contracts, and (iii) no
single client of the adviser owns more than 5% of the Company's common
stock.
The Company knows of no contractual arrangements which may at a
subsequent date result in a change of control of the Company.
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NOMINATION AND ELECTION OF DIRECTORS
The Company's directors are to be elected at each annual meeting
of stockholders. The five nominees for election as directors at this Meeting set
forth in the table below are all recommended by the Board of Directors of the
Company. All of the nominated directors were elected as directors at the 1998
Annual Meeting of Stockholders of the Company.
In the event that any of the nominees for director should become
unable to serve if elected, it is intended that shares represented by proxies
which are executed and returned will be voted for such substitute nominee(s) as
may be recommended by the Company's existing Board of Directors.
The five nominee-directors receiving the highest number of votes
cast at the Meeting will be elected as the Company's directors to serve until
the next annual meeting of stockholders and until their successors are elected
and qualify. Subject to certain exceptions specified below, stockholders of
record on the Record Date are entitled to cumulate their votes in the election
of the Company's directors (i.e., they are entitled to the number of votes
determined by multiplying the number of shares held by them times the number of
directors to be elected) and may cast all of their votes so determined for one
person, or spread their votes among two or more persons as they see fit. No
stockholder shall be entitled to cumulate votes for a given candidate for
director unless such candidate's name has been placed in nomination prior to the
vote and the stockholder has given notice at the Meeting, prior to the voting,
of the stockholder's intention to cumulate his or her votes. If any one
stockholder has given such notice, all stockholders may cumulate their votes for
candidates in nomination. Discretionary authority to cumulate votes is hereby
solicited by the Board of Directors.
The Company's Bylaws provide that only persons who are nominated
in accordance with specified Bylaw procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors may be
made at a meeting of stockholders by, or at the direction of, the Board of
Directors or by any stockholder entitled to vote for the election of directors
who complies with certain notice procedures set forth in the Bylaws. Such
nominations must be made by written notice to the Secretary of the Company and
must be delivered or mailed and received at the principal executive offices of
the Company not less than 60 days or more than 90 days prior to the date of the
meeting. In the event that the first public disclosure of the date of the
meeting is made less than 70 days prior to the date of the meeting, notice by
the stockholder will be timely if received not later than the close of business
on the tenth day following the day on which such disclosure was first made. The
stockholder's notice must set forth certain information concerning the proposed
nominee and the stockholder giving notice, as set forth in the Bylaws.
The following table sets forth certain information concerning the
nominees for election as directors (all of such nominees being continuing
members of the Company's present Board of Directors):
<TABLE>
<CAPTION>
Nominee(1) Principal Occupation Age
- ---------- -------------------- ---
<S> <C> <C>
Fred B. Cox(2) Chairman of the Company and Director of Continuus 65
Software Corporation
Paul F. Folino President and Chief Executive Officer of the Company 54
Michael P. Downey(3) Chairman of the Board of Artisoft, Inc. 52
Robert H. Goon(3) Lawyer, Partner in the law firm of Jeffer, Mangels, 58
Butler & Marmaro LLP, counsel to the Company
Don M. Lyle(2) Principal of Technology Management Co., a management 60
consulting firm specializing in high technology companies
</TABLE>
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(1) The Company does not have a nominating committee of the Board of
Directors. The nominees for election as directors at the Meeting were
selected by the Board of Directors of the Company.
(2) Member of the compensation committee of the Board of Directors of the
Company, currently consisting of two directors, neither of whom is an
employee of the Company, which held four meetings during the last fiscal
year of the Company. The compensation committee reviews the performance
of the executive officers of the Company and its subsidiaries and
reviews the compensation programs for other key employees, including
salary and cash bonus levels and option grants under the Emulex
Corporation Employee Stock Option Plan.
(3) Member of the audit committee of the Board of Directors of the Company,
currently consisting of two directors, neither of whom is an employee of
the Company, which held four meetings during the last fiscal year of the
Company. The audit committee reviews, acts on, and reports to the Board
of Directors with respect to various auditing and accounting matters,
including the selection of the Company's independent public accountants,
the scope of the annual audits, the nature of nonaudit services, the
fees to be paid to the independent public accountants, the performance
of the Company's independent public accountants and the accounting
practices of the Company.
Mr. Cox is a founder of the Company and has served as a director
since its inception in 1979. Mr. Cox served as the Company's Chief Executive
Officer from its inception until he retired in October 1990. From November 1991
until November 1994, Mr. Cox served as President of Continuus Software
Corporation, a developer and marketer of computer software products, and
currently serves as a member of its Board of Directors.
Mr. Folino was appointed in May 1993 to serve as the President
and Chief Executive Officer of the Company and as a director of the Company.
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. Downey has served as a director of the Company since February
1994 and is Chairman of the Audit Committee. From 1986 to 1997, Mr. Downey
served as the senior financial executive of Nellcor Puritan Bennett and one of
its predecessors, a manufacturer of medical instruments. From 1984 to 1986, Mr.
Downey was Vice President of Finance with Shugart Corporation, a manufacturer of
disk drives. Mr. Downey serves as chairman of the board of Artisoft, a
networking software company, and as a director of Resound Corporation, a hearing
health company.
Mr. Goon has served as a director of the Company since its
inception in 1979. He has been engaged in the practice of law for 34 years. For
more than the last five years, he has been a partner in the law firm of Jeffer,
Mangels, Butler & Marmaro LLP, counsel to the Company.
Mr. Lyle has served as a director of the Company since February
1994 and is Chairman of the Compensation Committee. Since 1983 he has served as
an independent consultant to various computer and venture capital companies and
as a principal of Technology Management Company, a management consulting firm
specializing in high technology companies. Mr. Lyle also serves as a member of
the board of directors of Axiohm Transaction Systems, a print head and specialty
printing company, Systech Corp., a data communications company, and Datawatch
Corporation, an applications software company.
There were five meetings of the Board of Directors of the Company
during the last fiscal year of the Company. Each of the directors of the Company
attended 75% or more of the aggregate of the total number of meetings of the
Board of Directors held during the last fiscal year and the total number of
meetings held by all committees of the Board of Directors on which he served
during the last fiscal year.
COMPENSATION OF DIRECTORS
Directors' Fees. Directors who are not employees of the Company
receive a quarterly retainer of $4,000 plus $1,000 for each meeting of the Board
of Directors in excess of five per year, and reimbursement for travel expenses.
In addition, the chairman of the audit and compensation committees receive an
additional quarterly retainer of $500, while committee members receive an
additional quarterly retainer of $300. Directors who are employees of the
Company
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<PAGE> 8
receive no additional compensation for serving on the Board of Directors.
Directors are entitled to reimbursement for out-of-pocket expenses in connection
with attendance at Board and committee meetings.
Stock Options. Pursuant to the terms of the Emulex Corporation
Non-Employee Director Stock Option Plan (the "Old Director Plan") a maximum of
250,000 shares of common stock of the Company were authorized to be issued
pursuant to exercise of stock options granted under the plan to directors who
are not employees of the Company or any of its subsidiaries. The Old Director
Plan expired by its terms on December 31, 1996. However, upon such expiration,
options granted under the Old Director Plan continue to remain in effect in
accordance with their terms.
Under the Old Director Plan each director of the Company was
eligible to receive an option only if such director (i) was not then an employee
of the Company or any of its subsidiaries, and (ii) had not, within the period
of three years immediately preceding such time, received any stock option, stock
bonus, stock appreciation right, or other similar stock award from the Company
or any of its subsidiaries other than options granted to such director under the
Old Director Plan ("Eligible Director"). Only Eligible Directors were eligible
to receive options under the Old Director Plan.
The Old Director Plan provided that an option to purchase 25,000
shares of common stock of the Company was to be granted automatically to each
Eligible Director upon the later to occur of (i) the date of adoption of the Old
Director Plan by the Board (October 24, 1990), or (ii) the date on which such
director first became an Eligible Director.
Payment for shares purchased on exercise of an option granted
under the Old Director Plan may be made in either cash or in common stock of the
Company having a fair market value (determined in the manner the exercise price
of options is determined) equal to the aggregate exercise price of the shares
being purchased. No option granted under the Old Director Plan may be exercised
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 for any reason.
On October 9, 1997, the Board of Directors of the Company adopted
the Company's 1997 Stock Option Plan for Non-Employee Directors (the "Director
Plan") under which a maximum of 200,000 shares of common stock of the Company
may be issued pursuant to exercise of stock options granted under the Director
Plan to directors who are not employees of the Company or any of its
subsidiaries. The Director Plan was approved by stockholders of the Company at
the 1997 Annual Meeting of Stockholders.
Each director of the Company is eligible to receive an option
under the Director Plan only if such director (i) is not then an employee of the
Company or any of its subsidiaries, and (ii) has not, within the period of three
years immediately preceding such time, received any stock option, stock bonus,
stock appreciation right or other similar stock award from the Company or any of
its subsidiaries other than options granted to such director under the Director
Plan or the Old Director Plan ("Plan Eligible Director"). Only Plan Eligible
Directors may receive options under the Director Plan. There are currently four
Plan Eligible Directors -- Messrs. Cox, Downey, Goon and Lyle.
The Director Plan provides that an option to purchase 30,000
shares of common stock of the Company is granted automatically to each Plan
Eligible Director upon the later to occur of (i) the date of adoption of the
Director Plan by the stockholders, or (ii) the date on which such director first
becomes a Plan Eligible Director. In addition, on each yearly anniversary of the
date of grant of the initial option to each Plan Eligible Director, each such
Plan Eligible Director is automatically granted an additional option to purchase
10,000 shares of common stock. The options will be non-qualified stock options
not eligible for the favorable tax consequences given to incentive stock options
by Section 422A of the Code. The purchase price per share of the common stock of
the Company issuable upon exercise of the option is 100% of the fair market
value per share of such common stock at the date of grant.
Payment for shares purchased on exercise of an option may be made
in either, (i) cash, (ii) in common stock of the Company having a fair market
value (determined in the manner the exercise price of options is determined)
equal to the aggregate exercise price of the shares being purchased, or (iii) by
cashless exercise through the sale of the common stock underlying the option and
remission to the Company of the aggregate exercise price from the proceeds of
such sale. However, payment for exercises of less than 1,000 shares of common
stock must be made in cash.
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Other Compensation. In fiscal 1999, the Company and/or its
subsidiaries obtained legal services from the law firm of Jeffer, Mangels,
Butler & Marmaro LLP, of which Mr. Goon is a partner, on terms which the Company
believes were as favorable as would have been obtained from unaffiliated
parties.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth information concerning
compensation of the principal executive officer of the Company and the four most
highly compensated other executive officers of the Company or its subsidiaries
for each of the last three completed fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------------------- ---------------------------
Other All
Annual Stock Other
Name and Compen- Option Compen-
Principal Position Year Salary Bonus sation(1) Grants(2) sation(3)
------------------ ---- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Paul F. Folino 1999 $289,000 $140,187 $ -0- 50,000 $13,143
President & CEO 1998 286,370 24,092 134,079(8) 40,000 10,093
1997 303,119 -0- -0- 60,000 8,301
Ronald P. Quagliara 1999 210,469 42,239 -0- 110,000(5) 2,267
Senior V.P., 1998 186,144 9,785 -0- -0- 471
Research & 1997 170,814 25,138 -0- -0- 421
Development
Kirk D. Roller(6) 1999 150,000 61,910 -0- 50,000(7) 7,730
V.P., Worldwide 1998 23,077 10,385 16,540(8) -0- 21
Sales -
Michael J. Rockenbach 1999 150,716 28,441 -0- 93,000(9) 8,877
V.P. and CFO 1998 138,176 6,790 17,729 -0- 6,531
1997 117,953 8,000 -0- -0- 8,075
Teresa W. Blackledge(10) 1999 131,303 24,728 70,226(11) 70,000(12) 5,026
V.P., Marketing 1998 126,123 6,630 17,729 -0- 4,402
1997 121,226 8,000 63,020(11) -0- 6,133
</TABLE>
- --------------------------
(1) Except where indicated in the Summary Compensation Table, perquisites
and other personal benefits did not in the aggregate equal or exceed
the lesser of $50,000 for any named individual or 10 percent of the
total of annual salary and bonus reported in this table for such
person.
(2) The amounts in the table represent shares of the Company's common stock
covered by stock options granted to the named individual under the
Emulex Corporation Employee Stock Option Plan during the fiscal year in
question.
(3) This column includes the Company's matching contributions to the Emulex
Retirement Savings Plan, group term life insurance premiums and health
care reimbursement paid with respect to the named executive.
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<PAGE> 10
(4) Includes $114,550 which represent the realized values of options
exercised in 1998.
(5) Includes 85,000 shares subject to options which were granted in
previous years and repriced in 1999. The shares subject to options
shown in this table as having been granted in 1998 and 1997 are reduced
by options which were repriced in 1999. See "Report of Executive
Compensation Committee -- Repricing of Stock Options."
(6) Mr. Roller became an officer of the Company in April 1998.
(7) Represents shares subject to options which were granted in 1998 and
repriced in 1999. The shares subject to options shown in this table as
having been granted in 1998 are reduced by options which were repriced
in 1999. See "Report of Executive Compensation Committee -- Repricing
of Stock Options."
(8) Includes $15,540 which represents a hiring bonus.
(9) Includes 78,000 shares subject to options which were granted in
previous years and repriced in 1999. The shares subject to options
shown in this table as having been granted in 1998 and 1997 are reduced
by options which were repriced in 1999. See "Report of Executive
Compensation Committee -- Repricing of Stock Options."
(10) Ms. Blackledge resigned as an officer of the Company in October 1999.
(11) Includes $63,331 and $57,020 which represents the realized values of
options exercised in 1999 and 1997, respectively.
(12) Includes 55,000 shares subject to options which were granted in
previous years and repriced in 1999. The shares subject to options
shown in this table as having been granted in 1998 and 1997 are
reduced by options which were repriced in 1999. See "Report of
Executive Compensation Committee -- Repricing of Stock Options."
KEY EMPLOYEE RETENTION AGREEMENTS
The Company has previously entered into an agreement with Mr.
Folino under which Mr. Folino would be entitled to receive the following
payments and benefits in the event of termination of his employment by the
Company without cause or by Mr. Folino because of a demotion within two years
after a change in control of the Company: (i) a severance payment equal to the
present value of two times the sum of Mr. Folino's annual salary plus the
highest annual average of any two of his last three annual bonuses; (ii)
continuation for two years following termination of employment of his health and
life insurance, disability income, tax assistance and executive automobile
benefits (reduced to the extent similar benefits are received by him from
another employer); and (iii) acceleration of vesting of his right to exercise
his stock options based on the length of his continued employment following the
grant of the option by one year upon the change in control of the Company and
full acceleration of vesting of such exercise right in the event of termination
of his employment without cause or because of a demotion as aforesaid within two
years after the change in control. The Company also has entered into similar
agreements with Messrs. Quagliara, Roller and Rockenbach and Ms. Blackledge, and
with two other executives of the Company. The key employee retention agreements
for Messrs. Quagliara, Roller and Rockenbach and Ms. Blackledge provide for
payments and benefits similar to those described above, except that the
severance payment is equal to the present value of one times the sum of the
employee's annual salary plus the highest annual average of any two of the
employee's last three annual bonuses; and continuation following termination of
employment of the employee's health and life insurance, disability income, tax
assistance and executive automobile benefits (reduced to the extent similar
benefits are received by the employee from another employer) is limited to one
year.
OPTION GRANTS DURING FISCAL 1999
The following table sets forth information on grants of stock
options pursuant to the Emulex Corporation Employee Stock Option Plan during the
fiscal year ended June 27, 1999, to the officers identified in the Summary
Compensation Table:
8
<PAGE> 11
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
Potential
Realizable
Value at Assumed
Annual Rates of
% of Total Stock Price
Options Appreciation for
Granted to Option Term(4)
Options Employees Exercise ---------------------
Name Granted(1) in 1999(2) Price (3) Expiration Date 5% 10%
---- ---------- ----------- --------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Paul F. Folino 50,000 3.44 $ 5.375 8/18/08 $169,015 $428,318
Ronald P. Quagliara 15,000 1.03 5.375 8/18/08 50,705 128,495
10,000 0.69 39.75 6/01/09 249,899 633,243
50,000(5) 3.44 3.00 4/02/05 58,402 135,147
20,000(5) 1.38 3.00 11/20/06 30,286 73,300
15,000(5) 1.03 3.00 8/12/07 25,156 62,138
Kirk D. Roller 50,000(5) 3.44 3.00 4/26/08 92,059 232,014
Michael Rockenbach 15,000 1.03 5.375 8/18/08 50,705 128,495
8,000(5) 0.55 3.00 2/22/05 9,171 21,161
15,000(5) 1.03 3.00 8/24/05 18,736 43,822
2,000(5) 0.14 3.00 2/20/06 2,705 6,413
3,000(5) 0.21 3.00 5/21/06 4,216 10,062
5,000(5) 0.34 3.00 8/20/06 7,296 17,534
20,000(5) 1.38 3.00 12/08/06 30,503 73,928
15,000(5) 1.03 3.00 8/12/07 25,156 62,138
10,000(5) 0.69 3.00 11/16/07 17,375 43,238
Teresa Blackledge(6) 15,000 1.03 5,375 8/18/08 50,705 128,495
10,000(5) 0.69 3.00 11/16/04 10,924 25,025
20,000(5) 1.24 3.00 8/24/05 24,981 58,429
10,000(5) 0.69 3.00 11/20/06 15,143 36,650
15,000(5) 1.03 3.00 8/12/07 25,150 62,138
</TABLE>
- ---------------------------
(1) The amounts in the table represent shares of the Company's common stock
covered by stock options granted to the named individual under the
Emulex Corporation Employee Stock Option Plan. Each option granted
becomes exercisable on a cumulative basis as to 25% of the option shares
one year after the date of grant and as to an additional 6.25% of the
option shares each three month interval thereafter.
(2) The number of shares of Company common stock covered by the options
granted to the named individual during the last completed fiscal year of
the Company equals the percentage set forth below of the total number of
shares of the Company's common stock covered by all options granted by
the Company to employees of the Company during such year.
(3) The exercise price of each option is the market price of the common
stock of the Company on the date of grant.
(4) These columns present hypothetical future values of the stock obtainable
upon exercise of the options net of the option's exercise price,
assuming that the market price of the Company's common stock appreciates
at a five and ten percent compound annual rate over the ten year term of
the options. The five and ten percent rates of stock price appreciation
are presented as examples pursuant to the Securities and Exchange
Commission rules governing the preparation of proxy statements and do
not necessarily reflect management's assessment of the Company's future
stock price performance. The potential realizable values presented are
not intended to indicate the value of the options.
(5) Represents shares of common stock covered by options which were granted
under the Emulex Corporation Employee Stock Option Plan prior to 1999
and repriced in July 1998, subject to the requirement that amended
options could not be exercised prior to July 6, 1999. The exercise price
of each option was decreased on July 6, 1998 to the market price per
share of common stock of the Company on that date.
(6) Ms. Blackledge resigned as an officer of the Company in October 1999.
OPTION EXERCISES IN FISCAL 1999 AND YEAR-END OPTION VALUES
The following table sets forth information concerning stock options
which were exercised during, or held at the end of, fiscal 1999 by the officers
named in the Summary Compensation Table:
9
<PAGE> 12
OPTION EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired at Fiscal Year End at Fiscal Year End(1)
on Value ----------------------------- -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul F. Folino -0- $ -- 353,749 106,251 $13,860,342 $3,966,908
Ronald P. Quagliara -0- -- 66,561(2) 43,439(2) 2,745,641(2) 1,388,734(2)
Kirk D. Roller -0- -- 12,500(2) 37,500(2) 515,625(2) 1,546,875(2)
Michael J. Rockenbach 7,000 246,608 52,185(2) 40,815(2) 2,152,631(2) 1,647,994(2)
Teresa W. Blackledge(3) 9,250 63,331 49,309(2) 29,691(2) 2,031,184(2) 1,189,129(2)
</TABLE>
- --------------------------
(1) Common Stock valued at $44.25 per share.
(2) On July 6, 1998, the Compensation Committee of the Company adopted a
resolution whereby -- at the option of the employee -- all outstanding
options granted under the Emulex Corporation Employee Stock Option Plan
having exercise prices higher than $3.00 per share and held by current
employees, other than Mr. Folino, were amended to provide for exercise
prices of $3.00 per share, subject to the requirement that amended
options could not be exercised prior to July 6, 1999.
(3) Ms. Blackledge resigned as an officer of the Company in October 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1999, Don M. Lyle and Fred B. Cox served as members of the
Compensation Committee of the Company. After the meeting, it is anticipated that
Messrs. Cox and Lyle will remain members of the Compensation Committee. Neither
Mr. Cox nor Mr. Lyle is now, nor was at any time during the last completed
fiscal year of the Company, an officer or employee of the Company. During fiscal
1999, no executive officer of the Company served as a member of the Compensation
Committee (or its equivalent) or as a director of any entity whose executive
officers served on either the Compensation Committee or the Board of Directors
of the Company.
REPORT OF EXECUTIVE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors makes this report on
executive compensation pursuant to Item 402 of Regulation S-K. Notwithstanding
anything to the contrary set forth in any of the Company's previous filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), that might incorporate future filings,
including this Proxy Statement, in whole or in part, this report and the graph
which follows this report shall not be incorporated by reference into any such
filings, and such information shall be entitled to the benefits provided in Item
402(a)(9).
10
<PAGE> 13
The Compensation Committee reviews the performance of the executive
officers of the Company, makes recommendations to the Board of Directors as to
the compensation of the executive officers of the Company and its subsidiaries,
reviews the compensation programs for other key employees, including salary and
cash bonus levels, reviews and approves certain employee benefit policies and
programs, and reviews and makes recommendations to management with respect to
executive recruitment. In addition, the Compensation Committee administers the
Emulex Corporation Employee Stock Option Plan ("Employee Plan"), including
review and approval of grants of options under the plan to executive officers
and other key employees of the Company and its subsidiaries.
Compensation Policies and Philosophy. The Company's executive compensation
policies are designed to attract, retain and reward executive officers who
contribute to the Company's success, to provide economic incentives for
executive officers to achieve the Company's business objectives by linking the
executive officers' compensation to the performance of the Company, to
strengthen the relationship between executive pay and stockholder value and to
reward individual performance. The Company uses a combination of base salary,
cash bonuses and stock option awards to achieve the aforementioned objectives.
The Compensation Committee considers a number of factors which include the
level and types of compensation paid to executive officers in similar positions
by comparable companies. In addition, the Compensation Committee evaluates
corporate performance by looking at factors such as performance relative to
competitors, performance relative to business conditions, and the success of the
Company in meeting its financial objectives. The Compensation Committee also
reviews the individual performance of each executive officer, including a review
of the ability of a given executive to meet individual performance objectives,
demonstration of job knowledge and skills, and the ability to work with others
toward the achievement of the Company's goals.
Components of Compensation. Executive officer salaries are established in
relation to a range of salaries for comparable positions among a peer group of
other computer companies of comparable size and complexity. The Company seeks to
pay its executive officers salaries that are commensurate with their
qualifications, duties and responsibilities and that are competitive in the
marketplace. In general, the Company attempts to set executive compensation
between the 50th and 75th percentile of salaries paid to executives of the
Company's peer group of corporations. In making its annual salary
recommendations, the Compensation Committee looks at the Company's financial
position and performance, the contribution of the individual executive officers
during the prior fiscal year in helping to meet the Company's financial and
business objectives, and the executive officers' performance of their individual
responsibilities.
Executive officer cash bonuses are used to provide executive officers with
financial incentives to meet performance targets of the Company. Performance
targets and bonus recommendations for executives, other than principal executive
officers, are proposed by the management of the Company based on the Company's
annual operating plan, reviewed and, when appropriate, revised by the
Compensation Committee and approved by the Board of Directors. Personal goals
and bonus recommendations for the principal executive officers are recommended
by the Compensation Committee based on the Company's achievement in comparison
to the annual operating plan, and approved by the Board.
The Compensation Committee believes that equity ownership by executive
officers provides incentives to build stockholder value and align the interests
of executive officers with the stockholders. Upon hiring executive officers, the
Compensation Committee typically recommends stock option grants to the officers
under the Employee Plan, subject to applicable vesting periods. Thereafter, the
Compensation Committee considers awarding additional grants, usually on an
annual basis, under the Employee Plan. The Compensation Committee believes that
these additional annual grants provide incentives for executive officers to
remain with the Company. Options are granted at the current market price for the
Company's common stock and, consequently, have value only if the price of the
Company's common stock increases over the exercise price. The size of the
initial grant is usually based upon factors such as comparable equity
compensation offered by other computer companies, the seniority of the executive
officer and the contribution that the executive officer is expected to make to
the Company. In determining the size of the periodic grants, the Compensation
Committee considers prior grants to the executive officer, the executive's
performance during the current fiscal year and his or her expected contributions
during the succeeding fiscal year.
Compensation of the Principal Executive Officer. The Compensation Committee
reviews the performance of the principal executive officer, as well as other
executive officers of the Company and its subsidiaries, annually. Based upon
11
<PAGE> 14
the Company's financial performance for fiscal year 1998, effective September
1998 the Compensation Committee elected to maintain Mr. Folino's annual base
salary and bonus base at $289,000 and $144,500, respectively. He was awarded a
stock option grant of 50,000 shares under the Emulex Corporation Employee Stock
Option Plan at an exercise price of $5.375.
Repricing of Stock Options. On July 6, 1998, the exercise prices of certain
outstanding options under the Emulex Corporation Stock Option Plan were reduced
- -- at the option of the employee -- with the approval of the Compensation
Committee. Specifically, the exercise price of each outstanding option with an
exercise price higher than $3.00, including options held by executive officers
of the Company (excluding Mr. Folino), was reduced to that price, subject to the
requirement that amended options could not be exercised prior to July 6, 1999.
The reduced price was based on and equal to the market price per share of common
stock of the Company on July 6, 1999. No other changes were made in the repriced
options. No other options granted by the Company have been repriced in the last
ten years.
The following table sets forth information concerning repriced options held
by executive officers of the Company, all of which were repriced at the option
of the officer on July 6, 1998:
TEN-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
Number of shares Market price of Exercise New Length of original
underlying stock at time of price at time exercise term remaining at
Name and Position repriced options repricing of repricing price date of repricing
- ----------------- ---------------- ---------------- ------------- -------- -------------------
<S> <C> <C> <C> <C> <C>
Ronald P. Quagliara 50,000 $3.00 $9.3125 $3.00 6.7 years
Senior V.P., 20,000 3.00 8.125 3.00 8.4
Research & Development 15,000 3.00 8.0625 3.00 9.1
Kirk D. Roller 50,000 3.00 3.9375 3.00 9.8
V.P., Worldwide Sales
Michael J. Rockenbach 8,000 3.00 7.5313 3.00 6.6
V.P. and CFO 15,000 3.00 10.875 3.00 7.1
2,000 3.00 5.3125 3.00 7.6
3,000 3.00 10.375 3.00 7.9
5,000 3.00 6.75 3.00 8.1
20,000 3.00 9.00 3.00 8.4
15,000 3.00 8.0625 3.00 9.1
10,000 3.00 7.6565 3.00 9.4
Teresa W. Blackledge(1) 10,000 3.00 5.375 3.00 6.4
V.P., Marketing 20,000 3.00 10.875 3.00 7.1
10,000 3.00 8.125 3.00 8.4
15,000 3.00 8.0625 3.00 9.1
</TABLE>
- --------------------
(1) Ms. Blackledge resigned as an officer of the Company in October 1999.
The Compensation Committee approved this repricing of options out of
concern that the affected options were not providing a meaningful incentive to
the their holders since they had been granted when the prevailing market price
of the Company's stock was significantly higher.
Respectfully submitted,
12
<PAGE> 15
Compensation Committee:
Don M. Lyle, Chairman
Fred B. Cox
13
<PAGE> 16
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The graph below compares the cumulative total stockholder return on the
Company's common stock with the cumulative total return on the Standard & Poor's
500 Index and the Hambrecht & Quist Computer Hardware Sector Index for the
period of five fiscal years commencing July 4, 1994 and ended June 27, 1999.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
EMULEX CORPORATION COMMON STOCK, S&P 500 INDEX AND
HAMBRECHT & QUIST COMPUTER HARDWARE SECTOR INDEX
[INSERT GRAPH]
- -------------------------
* Assumes that the value of the investment in the Company's common stock
and each index was $100 on July 4, 1994.
14
<PAGE> 17
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), authorizes the issuance of 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. On October 5, 1999, the Board of Directors of the
Company approved a proposal to amend the Certificate of Incorporation to (i)
increase the authorized number of shares of common stock from 20,000,000 to
120,000,000, (ii) effect a stock split of outstanding shares of common stock
of the Company on the basis of one new share of common stock for each
outstanding share of common stock, and (iii) reduce the par value of the common
stock of the Company from $.20 per share to $.10 per share, and to submit the
proposed amendment to the stockholders at this Annual Meeting.
A copy of the form of Certificate of Amendment of Certificate of
Incorporation, as proposed to be amended by the Board subject to stockholder
approval, is set forth in full as Appendix A to this Proxy Statement.
REASONS FOR AMENDMENT OF THE CERTIFICATE OF INCORPORATION
The first general purpose and effect of the proposed amendment to the
Company's Certificate of Incorporation will be to authorize 100,000,000
additional shares of common stock. The Board of Directors believes that it is
prudent to have the additional shares of common stock available for general
corporate purposes, including payment of stock dividends, stock splits or other
recapitalizations, acquisitions, equity financings, and grants of stock options.
Accordingly, the Company has determined that securing stockholder approval of
100,000,000 additional authorized shares of common stock would be appropriate in
order to provide the Company with the flexibility to consider a combination of
possible actions that might require the issuance of additional shares of common
stock.
On October 5, 1998, the record date for the 1998 Annual Meeting of
Stockholders, the Company had 6,141,976 shares of common stock outstanding.
Since that date, the Company has issued 2,315,000 shares in connection with a
follow-on public offering of common stock completed in June 1999, as well as
607,732 shares as a result options being exercised to purchase shares under its
Employee Stock Option Plan and its 1997 Stock Option Plan for Non-Employee
Directors. Additionally, in August 1999, the Company performed a two-for-one
common stock split in the form of a dividend of one share of common stock for
each share outstanding, doubling the number of shares outstanding.
The Company currently has 20,000,000 authorized shares of common stock.
As of October 4, 1999, the Company had 17,519,618 shares issued and outstanding
and of the remaining 2,480,382 authorized but unissued shares, the Company has
reserved approximately 1,822,534 shares pursuant to the Company's option plans.
Except in connection with the reserved shares described above, the
Company currently has no arrangements or understandings for the issuance of
additional shares of common stock, although opportunities for acquisitions and
equity financings could arise at any time. While the intent of the amendment to
the Certificate of Incorporation is otherwise, the proposed increase in the
number of authorized shares, in addition to general corporate purposes, can be
used to make a change in control of the Company more difficult, as detailed
below.
Except for the change in par value, the additional shares of common
stock for which authorization is sought would be identical to the shares of
common stock of the Company authorized prior to approval of the proposed
amendment. If the Board of Directors deems it to be in the best interest of the
Company and the stockholders to issue additional shares of common stock in the
future, the Board of Directors generally will not seek further authorization by
vote of the stockholders, unless such authorization is otherwise required by law
or regulations.
The second general purpose and effect of the proposed amendment to the
Certificate of Incorporation will be to complete a two-for-one common stock
split. The Board of Directors believes that by increasing the number of shares
15
<PAGE> 18
outstanding, the proposed stock split will expand the base of stockholders and
increase the liquidity afforded the Company's stockholders. In addition, the
Board believes that the Company's shares become more attractive to individual
investors when it is possible to acquire a larger number of them for the same
total dollar amount. The Board of Directors considered a number of factors,
including the 1420% gain in the price per share of the Company's common stock
from October 5, 1998 to October 4, 1999, as well as general market conditions,
in deciding to effect the stock split. Accordingly, the Company has determined
that securing stockholder approval of an additional two-for-one stock split is
appropriate in order to increase the attractiveness of the common stock to
individual investors.
The third general purpose and effect of the proposed amendment to the
Certificate of Incorporation will be to decrease the par value of the common
stock of the Company from $.20 per share to $.10 per share to reflect the
above-mentioned stock split.
POTENTIAL ANTI-TAKEOVER EFFECT OF INCREASE IN AUTHORIZED SECURITIES
The increase in the authorized common stock may facilitate certain
anti-takeover devices that may be advantageous to management if management
attempts to prevent or delay a change of control. The Board of Directors could
create impediments to a takeover or transfer of control of the Company by
causing such additional authorized shares to be issued to a holder or holders
who might side with the Board of Directors in opposing a takeover bid. In this
connection, the Board of Directors could issue shares of common stock to a
holder that would thereby have sufficient voting power to assure that certain
types of proposals would not receive the requisite stockholder vote, including
any proposal to remove directors, to accomplish certain business combinations
opposed by the Board of Directors, or to alter, amend or repeal provisions in
the Company's Certificate of Incorporation or Bylaws relating to any such
action. Furthermore, the existence of such shares might have the effect of
discouraging any attempt by a person or entity, through the acquisition of a
substantial number of shares of common stock, to acquire control of the
Company, since the issuance of such shares could dilute the common stock
ownership of such person or entity. Employing such devices may adversely
impact stockholders who desire a change in management or who desire to
participate in a tender offer or other sale transaction involving the Company.
By use of such anti-takeover devices, the Board of Directors may thwart a
merger or tender offer even though stockholders might be offered a substantial
premium over the then current market price of the common stock.
At the present time, the Company is not aware of any contemplated
mergers, tender offers or other plans by a third party to attempt to effect a
change in control of the Company, and the proposed amendment to the Certificate
of Incorporation is not being made in response to any such attempt. Moreover,
the Board of Directors does not currently intend to propose any additional
anti-takeover measures in the foreseeable future.
VOTE REQUIRED FOR AMENDMENT OF THE CERTIFICATE OF INCORPORATION
Amendment of the Certificate of Incorporation to (i) increase the
number of authorized shares of common stock from 20,000,000 to 120,000,000, (ii)
effect a stock split of outstanding shares of common stock of the Company on the
basis of one new share of common stock for each outstanding share of common
stock, and (iii) reduce the par value of the common stock of the Company from
$.20 per share to $.10 per share requires the affirmative vote of the holders of
a majority of the shares of common stock of the Company entitled to vote at the
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" AMENDMENT OF THE
CERTIFICATE OF INCORPORATION.
APPROVAL OF AMENDMENT OF THE EMPLOYEE STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
In 1980, the Board of Directors of the Company adopted the Emulex
Corporation Employee Stock Option Plan (the "Employee Plan"). Under the Employee
Plan, as currently in effect, a maximum of 5,560,000 shares of common stock of
the Company may be issued pursuant to exercise of options granted under the
Employee Plan. As of October 4, 1999, a total of 3,997,466 shares had been
issued under the Employee Plan as a result of exercise of previously granted
options; options were outstanding in respect of an aggregate of 1,492,882
shares; and an aggregate of 69,752 shares were available for future grants of
options under the Employee Plan.
In October 1999, the Board of Directors amended the Employee Plan,
subject to approval of the stockholders, to increase the number of shares
covered by the plan by 725,000 shares, and (ii) extend the expiration date of
the plan by three years. The Employee Plan is intended to provide additional
compensation and incentives to eligible individuals whose present and potential
contributions are important to the continued success of the Company, to afford
such persons an opportunity to acquire a proprietary interest in the Company and
to enable the Company to continue to enlist and retain the best available talent
for the successful conduct of its business. The amendment was adopted and is
recommended for approval by the Company's stockholders because the Board
believes that option grants and the stock issuances under the Employee Plan play
an important role in the Company's efforts to attract employees of outstanding
ability and to reward employees for outstanding performance. In the event the
amendment to the Employee Plan is not approved by the stockholders, the Board
believes that the Company's inability to grant additional options under the
Employee Plan will adversely impact the Company's future hiring, promotion and
operating plans.
A copy of the Employee Plan, as amended by the Board subject to
stockholder approval, is set forth in full as Appendix B to this Proxy
Statement. Following is a summary of the principal provisions of the Employee
Plan, qualified by reference to the complete text of the Employee Plan, as so
amended:
Purpose. The purpose of the Employee Plan will continue to be to
further the growth and development of the Company and its subsidiaries by
providing, through an equity interest in the Company, an incentive to officers
and other key employees who are in a position to contribute materially to the
prosperity of the Company, to increase such persons'
16
<PAGE> 19
interests in the Company's welfare, to encourage them to continue their services
to the Company or its subsidiaries and to attract individuals of outstanding
ability to enter the employment of the Company or its subsidiaries.
Types of Options. Two types of options may be granted under the
Employee Plan: options intended to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); and
non-qualified stock options not specifically authorized or qualified for
favorable federal income tax consequences.
Administration. The Employee Plan is administered by the Board of
Directors, or in the discretion of the Board, by a Committee ("Committee")
consisting of two or more directors of the Company where each such director is a
"non-employee director" (within the meaning of amended Rule 16b-3 under the
Securities Exchange Act of 1934). The Employee Plan administrator shall have
exclusive authority to determine employees to whom options will be granted, the
timing and manner of the grant of options, the exercise price, the number of
shares covered by and all of the terms of options, the duration and purpose of
leaves of absence which may be granted to optionees without constituting
termination of employment for purposes of the Employee Plan and all other
determinations necessary or advisable for administration of the Employee Plan.
Members of the Committee are appointed by and serve at the pleasure of the Board
and may be removed by the Board at its discretion. The Company's stockholders
may elect to remove one or all of the members of the Board or of the Committee
by voting for the removal of such members as directors of the Company.
Eligibility. Any employee of the Company or any of its subsidiaries who
does not own stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or any of its parent or subsidiary
corporations is eligible to receive an option under the Employee Plan.
Shares Subject to the Employee Plan. The aggregate number of shares of
common stock of the Company which may be issued pursuant to exercise of options
granted under the Employee Plan, including shares which have previously been
issued, shall not exceed 6,285,000 shares (subject to adjustment pursuant to the
"anti-dilution" provisions of the Employee Plan). This represents an increase of
725,000 shares in the aggregate number of shares covered by the Employee Plan
prior to amendment. Since an aggregate of 3,997,466 shares have already been
issued as a result of exercise of options previously granted under the Employee
Plan, this amendment would allow the Company to issue in the future a maximum of
2,287,534 shares upon exercise of options which are now outstanding or which may
be granted in the future. Subject to the provisions of the Employee Plan, the
Board or the Committee may determine, in its sole discretion, the number of
shares of common stock of the Company with respect to which incentive stock
options and non-qualified stock options may be granted.
Grant, Term and Conditions of Options. The purchase price for the
shares subject to any option granted under the Employee Plan shall not be less
than 100% of the fair market value of the shares of common stock of the Company
on the date the option is granted.
The purchase price for any shares purchased pursuant to exercise of an
option granted under the Employee Plan must be paid in full upon exercise of the
option in cash or, at the discretion of the Board or Committee, upon such terms
and conditions as it may approve, by transferring to the Company for redemption
shares of common stock at their fair market value. Notwithstanding the
foregoing, the Company may extend and maintain, or arrange for the extension and
maintenance of, credit to any optionee to finance his or her purchase of shares
pursuant to exercise of an option on such terms as may be approved by the Board
or Committee, subject to applicable regulations of the Federal Reserve Board and
any other laws or regulations in effect at the time such credit is extended.
(Transfer to the Company for redemption of shares of common stock at their fair
market value as payment for the shares acquired upon exercise of the option may
enable employees to use a technique known as "pyramiding," if the fair market
value of the shares acquired upon exercise of the option exceeds the price at
which the option may be exercised. Pyramiding of stock options, in brief, works
as follows: An optionee may exercise a limited portion of his or her option for
cash to acquire a few shares of stock. Because the value of the stock the
optionee acquires exceeds the exercise price of the option, he or she may
immediately exercise his or her option again by exchanging the shares acquired
by the first exercise to acquire a greater number of shares. This process may be
repeated until the optionee has fully exercised his or her options. The optionee
does not keep the shares he or she exchanges upon each exercise of the option.
Pyramiding may result in an optionee fully exercising his or her options at any
one time by this series of stock exchanges with a nominal initial cash payment.)
The Company has not
17
<PAGE> 20
previously permitted any optionee to transfer shares of common stock of the
Company owned by the optionee to the Company as any part of the purchase price
of shares purchased under an option granted under the Employee Plan.
No option shall be exercisable during the lifetime of an optionee by
any other person. The Board or the Committee has the power to set the time(s)
within which each option shall be exercisable and to accelerate the time(s) of
exercise. Unless otherwise provided by the Board or the Committee, each option
shall become exercisable on a cumulative basis as to 25% of the total number of
shares covered by the option at any time after one year from the date the option
is granted and as to an additional 6 1/4% after the end of each consecutive
calendar quarter thereafter.
No option shall be exercisable after the earliest of the following: the
expiration of ten years after the date the option is granted; three months after
the date the optionee's employment with the Company and its subsidiaries
terminates if termination is for any reason other than permanent disability,
death, or cause; the date the optionee's employment terminates if termination is
for cause; or one year after the date the optionee's employment terminates if
termination is a result of death or permanent disability.
The aggregate fair market value (determined as of the time the option
is granted) of stock with respect to which incentive stock options are
exercisable by any employee for the first time during any calendar year shall
not exceed $100,000.
Within certain limitations, the Board or Committee has the power to
modify, extend, or renew outstanding options granted under the Employee Plan,
accept the surrender of outstanding options and authorize the granting of new
options in substitution therefor.
Mergers, Reorganizations and Consolidations. In the event of a
liquidation of the Company or a merger, reorganization or consolidation of the
Company with any other corporation in which the Company is not the surviving
corporation or the Company becomes a subsidiary of another corporation, any
unexercised options previously granted under the Employee Plan shall be deemed
canceled unless the surviving corporation elects to assume the options or to use
substitute options. However, unless the surviving corporation elects to assume
the options or to use substitute options, the optionee shall have the right,
exercisable during a ten day period ending on the fifth day prior to such
liquidation, merger or consolidation, to fully exercise the optionee's option in
whole or in part without regard to any installment exercise provisions otherwise
provided in the Employee Plan.
Employee Plan Amendments. The Employee Plan may be terminated or
amended by the Board as it shall deem advisable. Without the authorization and
approval of the stockholders, however, the Board may not make any amendments
which would (i) increase the total number of shares covered by the Employee
Plan, (ii) change the class of persons eligible to participate, or (iii) extend
the term of the Employee Plan beyond ten years from the date of adoption.
Term of Employee Plan. Unless sooner terminated by the Board in its
sole discretion, the Employee Plan will expire on September 30, 2003. This
represents an extension of the prior expiration date by a period of three years.
FEDERAL INCOME TAX CONSEQUENCES
Both non-qualified stock options and incentive stock options may be
granted under the Employee Plan. The federal income tax consequences to the
Company and to any person granted an option under the Employee Plan, under the
existing applicable provisions of the Code and the regulations thereunder, are
substantially as set forth below.
Non-Qualified Options. Under current federal income tax law, the grant
of a non-qualified option under the Employee Plan will have no federal income
tax consequences to the Company or the optionee. Generally, upon exercise of a
non-qualified stock option granted under the Employee Plan, the excess of the
fair market value of the stock at the date of exercise over the option price
(the "Spread") is taxable to the optionee as ordinary income. All such amounts
taxable to an employee are deductible by the Company as compensation expense.
The deduction will be allowed for the taxable year of the Company which includes
the end of the taxable year in which the optionee includes an amount in income.
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Code Section 162(m) generally denies a tax deduction to any publicly
held corporation for compensation that exceeds one million dollars paid to
certain senior executives in a taxable year, subject to an exception for
"performance based compensation" as defined in the Code and subject to certain
transition provisions. Section 162(m) could limit the deductibility of
compensation related to the exercise of options granted under the Employee Plan.
Generally, the shares received on exercise of an option under the
Employee Plan are not subject to restrictions on transfer or risks of forfeiture
and, therefore, the optionee will recognize income on the date of exercise of a
non-qualified stock option. However, if the optionee is subject to Section 16(b)
of the Exchange Act, the Section 16(b) restriction will be considered a
substantial risk of forfeiture for tax purposes. Under current law, employees
who are either directors or officers of the Company will be subject to
restrictions under Section 16(b) of the Exchange Act during their term of
service and for up to six months after termination of such service. SEC Rule
16b-3 provides an exemption from the restrictions of Section 16(b) for the grant
of derivative securities, such as stock options, under qualifying plans. Because
the Employee Plan satisfies the requirements for exemption under SEC Rule 16b-3,
the grant of options will not be considered a purchase and the exercise of the
options to acquire the underlying shares of the Company common stock will not be
considered a purchase or a sale. Thus, ordinary income will be recognized and
the Spread will be measured on the date of exercise.
The taxable income resulting from the exercise of a non-qualified stock
option will constitute wages subject to withholding and the Company will be
required to make whatever arrangements are necessary to ensure that funds
equaling the amount of tax required to be withheld are available for payment,
including the deduction of required withholding amounts from the optionee's
other compensation and requiring payment of withholding amounts as part of the
exercise price. The tax basis for the Company common stock acquired is the
option price plus the taxable income recognized. An optionee will recognize gain
or loss on the subsequent sale of shares acquired upon exercise of a
non-qualified stock option in an amount equal to the difference between the
amount realized and the tax basis of such shares. Such gain or loss will be
long-term or short-term capital gain or loss, depending upon whether the shares
have been held for more than one year.
Incentive Stock Options. There will be no federal income tax
consequences to the Company or the employee as a result of the grant of an
incentive stock option. The optionee also will not recognize income when the
incentive stock option is exercised (subject to the alternative minimum tax
rules discussed below). Generally, the Company receives no deduction at the time
of exercise.
In the event of a disposition of shares acquired upon exercise of an
incentive stock option, the tax consequences depend upon how long the employee
has held the shares. If the employee does not dispose of the shares within two
years after the incentive stock option was granted, or within one year after the
incentive stock option was exercised and shares were purchased, then the
employee must recognize only a long-term capital gain or loss. The Company is
not entitled to any deduction under these circumstances.
If the optionee fails to satisfy either of the foregoing holding
periods, then he or she must recognize ordinary income in the year of
disposition (referred to as a "disqualifying disposition"). The amount of such
ordinary income generally is determined under the rules applicable to
non-qualified options (see above). However, such ordinary income will in no
event exceed the amount of the gain realized on the sale, provided that the
disposition involves an arm's-length sale or exchange with an unrelated party.
Any gain in excess of the amount taxed as ordinary income will be treated as
capital gain. The Company, in the year of the disqualifying disposition, is
entitled to a deduction equal to the amount of ordinary income recognized by the
optionee.
The Spread under an incentive stock option is treated as an adjustment
in computing alternative minimum taxable income ("AMTI") for the year of
exercise. If a taxpayer's AMTI exceeds an exemption amount equal to $45,000 in
the case of a married individual filing a joint return ($33,750 in the case of a
single taxpayer), then the alternative minimum tax equals 26% of the first
$175,000 of the excess and 28% of the taxable excess that exceeds $175,000,
reduced by the amount of the regular federal income tax paid for the same
taxable year. The exemption amount is subject to reduction in an amount equal to
25% of the amount by which AMTI exceeds $150,000 in the case of a married
individual filing a joint return ($112,500 in the case of a single taxpayer). A
subsequent disqualifying disposition of shares acquired upon exercise of an
incentive stock option will eliminate the AMTI adjustment if the disposition
occurs in the same taxable year
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as the exercise. A disqualifying disposition in a subsequent taxable year will
not affect the alternative minimum tax computation in the earlier year.
Payment of Option Exercise Price in Shares. To the extent an optionee
pays all or part of the option exercise price of a non-qualified stock option by
tendering shares of common stock owned by the optionee, the tax consequences
described above apply except that the number of shares of common stock received
upon such exercise which is equal to the number of shares surrendered in payment
of the option price will have the same tax basis and holding periods as the
shares surrendered. The additional shares of common stock received upon such
exercise will have a tax basis equal to the amount of ordinary income recognized
on such exercise and a holding period which commences on the day following the
date of recognition of such income. Under proposed Treasury regulations, if an
optionee exercises an incentive stock option by tendering shares of Company
common stock previously acquired by the exercise of an incentive stock option
that have not satisfied statutory holding period requirements, a disqualifying
disposition will occur and the optionee will recognize income and be subject to
other basis allocation and holding period requirements.
OPTIONS OUTSTANDING UNDER THE EMPLOYEE PLAN
As of October 4, 1999, a total of 3,997,466 shares had been issued
under the Employee Plan as a result of previously granted awards. As of that
date, options were outstanding under the Employee Plan held by approximately 129
persons to purchase an aggregate of 1,492,882 shares of Company common stock at
an average exercise price of $13.56 per share, and 69,752 shares were available
for future grants of options under the Employee Plan. Total options granted to
date under the Employee Plan as of October 4, 1999, were as follows: Paul F.
Folino -- 640,000 shares; Ronald P. Quagliara -- 130,000 shares; Michael J.
Rockenbach -- 120,000 shares; Kirk D. Roller -- 70,000 shares; all current
executive officers as a group (six persons) -- 1,120,500 shares; all current
employees as a group (excluding executive officers)(approximately 123 persons)
- -- 1,085,960 shares. Directors or nominees for director who are not employees of
the Company have not been granted any options under the Employee Plan. In
addition, no associate of any director, nominee for director or executive
officer has been granted any options under the Employee Plan.
The market price of the Company's common stock on October 4, 1999 was
$93.125 per share.
REASONS FOR AMENDMENT OF THE EMPLOYEE PLAN
The Board of Directors believes that amendment of the Employee Plan is
necessary because the option grants and stock issuances under the Employee Plan
play an important role in the Company's efforts to attract employees of
outstanding ability and to reward employees for outstanding performance.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT OF THE EMPLOYEE PLAN
Approval of the amendment of the Employee Plan requires the affirmative
vote of the holders of a majority of the shares of common stock of the Company
present, or represented, and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF AMENDMENT OF
THE EMPLOYEE PLAN.
APPROVAL OF AMENDMENT OF THE 1997 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
In 1997, the Board of Directors adopted, and the stockholders approved,
the Emulex Corporation 1997 Stock Option Plan for Non-Employee Directors (the
"Director Plan"). Under the Director Plan, as currently in effect, a maximum of
200,000 shares of common stock of the Company may be issued pursuant to exercise
of stock options granted under the plan to directors who are not employees of
the Company or any of its subsidiaries. As of October 4, 1999, a total of 15,000
shares had been issued under the Director Plan as a result of exercise of
previously granted options; options were outstanding in respect of an aggregate
of 145,000 shares; and an aggregate of 40,000 shares were available for future
grants of options under the Director Plan.
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In October 1999, the Board of Directors amended the Director Plan,
subject to approval of the stockholders, to increase the number of shares
covered by the plan by 100,000 shares. The Director Plan is intended to increase
the proprietary and vested interest of the non-employee directors of the Company
in the growth and performance of the Company and to help enable the Company to
continue to retain and attract highly qualified persons to serve as non-employee
directors. The amendment was adopted and is recommended for approval by the
Company's stockholders because the Board believes that option grants and the
stock issuances under the Director Plan play an important role in the Company's
efforts to attract and retain highly qualified persons to serve as non-employee
directors.
A copy of the Director Plan, as amended by the Board subject to
stockholder approval, is set forth in full as Appendix C to this Proxy
Statement. Following is a summary of the principal provisions of the Director
Plan, qualified by reference to the complete text of the Director Plan, as so
amended:
Administration. The Board of Directors is authorized to administer the
Director Plan in accordance with its terms; however, the Board shall have no
discretion with respect to the selection of directors to receive options, the
number of shares of common stock of the Company subject to any such options, or
the exercise price thereof. The Board may, in its sole discretion, delegate any
or all of its administrative duties to a committee of not fewer than two members
of the Board.
Eligibility. Each director of the Company shall be eligible to receive
an option under the Director Plan only if such director (i) is not then an
employee of the Company or any of its subsidiaries, and (ii) has not, within the
period of three years immediately preceding such time, received any stock
option, stock bonus, stock appreciation right or other similar stock award from
the Company or any of its subsidiaries other than options granted to such
director under the Director Plan or the Old Director Plan ("Eligible Director").
Only Eligible Directors may receive options under the Director Plan. There are
currently four Eligible Directors -- Messrs. Cox, Downey, Goon and Lyle.
Shares Subject to the Director Plan. The aggregate number of shares of
common stock of the Company which may be issued pursuant to exercise of options
granted under the Director Plan, including shares which have previously been
issued, shall not exceed 300,000 shares (subject to adjustment pursuant to the
"anti-dilution" provisions of the Director Plan). This represents an increase of
100,000 shares in the aggregate number of shares covered by the Director Plan
prior to amendment. Since an aggregate of 15,000 shares have already been issued
as a result of exercise of options previously granted under the Director Plan,
this amendment would allow the Company to issue in the future a maximum of
285,000 shares upon exercise of options which are now outstanding or which may
be granted in the future.
Grant, Term and Conditions of Options. The Director Plan provides that
an option to purchase 30,000 shares of common stock of the Company shall be
granted automatically to each Eligible Director upon the later to occur of (i)
the date of adoption of the Director Plan by the stockholders, or (ii) the date
on which such director first becomes an Eligible Director. In addition, on each
yearly anniversary of the date of grant of the initial option to each Eligible
Director, each such Eligible Director shall automatically be granted an
additional option to purchase 10,000 shares of common stock. The options will be
non-qualified stock options not eligible for the favorable tax consequences
given to incentive stock options by Section 422A of the Code. The purchase price
per share of the common stock of the Company issuable upon exercise of the
option shall be 100% of the fair market value per share of such common stock.
Payment for shares purchased on exercise of an option shall be made in either,
(i) cash, (ii) in common stock of the Company having a fair market value
(determined in the manner the exercise price of options is determined) equal to
the aggregate exercise price of the shares being purchased, or (iii) by cashless
exercise through the sale of the common stock underlying the option and
remission to the Company of the aggregate exercise price from the proceeds of
such sale. However, payment for exercises of less than 1,000 shares of common
stock must be made in cash.
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 for any reason.
The initial options to purchase 30,000 shares granted under the
Director Plan shall be exercisable as to one-third of the shares on each
anniversary of the date the option is granted if the director to whom the option
is granted is still a director of the Company on such anniversary. The
subsequent options to purchase 10,000 shares shall be exercisable as
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<PAGE> 24
to one-half of the shares on the six month anniversary of the date the option is
granted and shall be exercisable for an additional one quarter of the shares on
the nine month and one year anniversary of the grant date. No options may be
granted under the Director Plan prior to the approval of the Director Plan by
the stockholders of the Company.
In the event of the death of an optionee, any option (or unexercised
portion thereof) held by the optionee, to the extent exercisable by him or her
on the date of death, may be exercised by the optionee's personal
representatives, heirs, or legatees in accordance with the Director Plan. No
option shall be transferable by an optionee otherwise than by will or the laws
of descent and distribution, and during the lifetime of the individual to whom
an option is granted it may be exercised only by such individual or such
individual's guardian or legal representative.
Mergers, Reorganizations and Changes in Control. In the event of a
liquidation of the Company or a merger, reorganization or consolidation of the
Company with any other corporation in which the Company is not the surviving
corporation or the Company becomes a subsidiary of another corporation, any
unexercised options previously granted under the Director Plan shall be deemed
canceled unless the surviving corporation elects to assume the options or to use
substitute options. However, if such options would otherwise be canceled, the
optionee shall have the right, exercisable during a ten day period ending on the
fifth day prior to such liquidation, merger or consolidation, to fully exercise
the optionee's option in whole or in part without regard to any installment
exercise provisions otherwise provided in the Director Plan. In the event of a
change in control of the Company, as defined in the Director Plan, any
unexercised option previously granted under the Director Plan which is not then
already exercisable as to all of the shares subject to the option shall become
exercisable upon such change in control as to all of the shares as to which the
option is not already exercisable in addition to the shares, if any, as to which
the option is already exercisable.
Director Plan Amendment. The Director Plan may be terminated or amended
by the Board as it shall deem advisable. Without the authorization and approval
of the stockholders, however, the Board may not increase the total number of
shares covered by the Director Plan, change the class of directors eligible to
receive options under the Director Plan or materially increase benefits accruing
to participants under the Director Plan.
Terms of Director Plan. Unless sooner terminated by the Board in its
sole discretion, the Director Plan will expire on October 31, 2007.
FEDERAL INCOME TAX CONSEQUENCES
Only non-qualified options which are not intended to meet the incentive
stock option requirements of Section 422A of the Code will be issued under the
Director Plan. Under current federal income tax law, the grant of an option
under the Director Plan will have no federal income tax consequences to the
Company or the Eligible Director to whom it is granted. Generally, upon exercise
of a non-qualified stock option granted under the Director Plan, the excess of
the fair market value of the stock at the date of exercise over the option price
(the "Spread") is taxable to the optionee as ordinary income. All such amounts
taxable to an optionee are deductible by the Company as compensation expense.
The deduction will be allowed for the taxable year of the Company in which the
optionee includes an amount in income.
Generally, the shares received on exercise of an option under the
Director Plan are not subject to restrictions on transfer or risks of forfeiture
and, therefore, the optionee will recognize income on the date of exercise. The
Company believes that the Director Plan will comply with the requirements of
Section Rule 16b-3 of the Act and, as a result, there will be no risk of
forfeiture. However, if the Director Plan were not to comply with Rule 16b-3 and
the optionee is subject to Section 16(b) of the Act, the Section 16(b)
restriction will be considered a substantial risk of forfeiture for tax
purposes. Under current law, optionees who are either directors or officers of
the Company will be subject to restrictions under Section 16(b) of the Act
during their term of service and for up to six months after termination of such
service. Thus, ordinary income will be recognized and the Spread will be
measured on the first day on which the sale of such shares at a profit is no
longer subject to restrictions under Section 16(b) of the Act. Income tax
regulations provide that such day is six months (less one day) from the transfer
date for such shares. However, the optionee is entitled to elect to recognize
income on the date of transfer. Such election must be made within 30 days of the
transfer of the shares to the optionee.
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The foregoing discussion, based upon federal tax laws now in effect, is
not intended to cover all relevant tax aspects of the Director Plan.
REASONS FOR AMENDMENT OF THE DIRECTOR PLAN
The Board of Directors believes that the amendment of the Director Plan
is necessary because the option grants and stock issuances under the Director
Plan increase the proprietary and vested interest of the non-employee directors
of the Company in the growth and performance of the Company and help enable the
Company to continue to attract highly qualified persons to serve as non-employee
directors.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT OF THE DIRECTOR PLAN
Approval of the amendment of the Director Plan requires the affirmative
vote of the holders of a majority of the shares of common stock of the Company
present, or represented, and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF AMENDMENT OF
THE DIRECTOR PLAN.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of KPMG LLP serves the Company as its independent
public accountants at the direction of the Board of Directors of the Company.
One or more representatives of KPMG LLP are expected to be present at the
Meeting and will have an opportunity to make a statement, if they desire to do
so, and to be available to respond to appropriate questions.
The Board of Directors recommends a vote "FOR" the ratification of the selection
of KPMG LLP as the independent public accountants for the Company for fiscal
year 2000. This matter is not required to be submitted for stockholder approval,
but the Board of Directors has elected to seek ratification of its selection of
the independent public accountants by the affirmative vote of a majority of the
shares represented and voting at the Meeting.
Notwithstanding the ratification by shareholders of the appointment of
KPMG LLP, the Board of Directors may, if the circumstances dictate, appoint
other independent accountants.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16 of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file various reports with the Securities and
Exchange Commission and the Nasdaq National Market concerning their holdings of,
and transactions in, securities of the Company. Copies of these filings must be
furnished to the Company.
Based on a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and directors,
the Company believes that during the 1999 fiscal year its officers, directors
and greater than 10% stockholders complied with all applicable Section 16(a)
filing requirements.
STOCKHOLDER PROPOSALS
Stockholders who wish to present proposals for action at the 2000
Annual Meeting should submit their proposals in writing to the Secretary of the
Company at the address of the Company set forth on the first page of this Proxy
Statement. Proposals must be received by the Secretary no later than April 15,
2000, for inclusion in next year's proxy statement and proxy card.
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ANNUAL REPORT TO STOCKHOLDERS
The Annual Report to Stockholders of the Company for the fiscal year
ended June 27, 1999, including audited consolidated financial statements, has
been mailed to the stockholders concurrently herewith, but such Report is not
incorporated in this Proxy Statement and is not deemed to be a part of the proxy
solicitation material.
OTHER MATTERS
The Management of the Company does not know of any other matters which
are to be presented for action at the Meeting. Should any other matters come
before the Meeting or any adjournment thereof, the persons named in the enclosed
proxy will have the discretionary authority to vote all proxies received with
respect to such matters in accordance with their collective judgment.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission (exclusive of Exhibits), will be furnished
without charge to any person from whom the accompanying proxy is solicited upon
written request to Investor Relations, Emulex Corporation, 3535 Harbor
Boulevard, Costa Mesa, California 92626. If Exhibit copies are requested, a
copying charge of $.20 per page will be made.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Michael J. Rockenbach
Michael J. Rockenbach
Vice President, Chief Financial Officer,
Secretary and Treasurer
Costa Mesa, California
October 22, 1999
STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND TO DATE, SIGN, AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR
COOPERATION WILL BE APPRECIATED.
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APPENDIX A
EMULEX CORPORATION
FORM OF CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
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, as amended, of the Corporation, declaring said
amendment to be advisable and to be presented to the stockholders at the annual
meeting of 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, as previously amended, be further
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 121,000,000 shares,
divided into 120,000,000 shares of Common Stock, par value $0.10 per
share, and 1,000,000 shares of Preferred Stock, par value $0.01 per
share. Upon the effectiveness of this Amendment, each outstanding share
of Common Stock, par value $0.20 per share, shall be split, converted
and changed into two shares of Common Stock, par value $0.10 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."
SECOND: That thereafter, pursuant to resolutions of the Board of
Directors, the proposed amendment was presented to the stockholders at the
annual meeting of stockholders of the Corporation held on November 18, 1999,
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.
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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 Michael
J. Rockenbach, its Vice President, Chief Financial Officer, Secretary and
Treasurer, this 19th day of November, 1999.
By:________________________________
Paul F. Folino,
President and Chief Executive
Officer
Attest:
- ---------------------------------
Michael J. Rockenbach,
Vice President, Chief Financial
Officer, Secretary and Treasurer
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APPENDIX B
EMULEX CORPORATION
EMPLOYEE STOCK OPTION PLAN
1. PURPOSE. The purpose of this Emulex Corporation Employee Stock
Option Plan ("Plan") is to further the growth and development of Emulex
Corporation ("Company") and its subsidiaries by providing, through ownership of
stock of the Company, an incentive to officers and other key employees who are
in a position to contribute materially to the prosperity of the Company, to
increase such persons' interests in the Company's welfare, to encourage them to
continue their services to the Company or its subsidiaries, and to attract
individuals of outstanding ability to enter the employment of the Company or its
subsidiaries.
2. INCENTIVE AND NON-QUALIFIED STOCK OPTIONS. Two types of options
(referred to herein as "options" without distinction between such two types) may
be granted under the Plan: Options intended to qualify as incentive stock
options ("incentive stock options") under Section 422 of the Internal Revenue
Code of 1986, as amended, and any successor statutes ("Code"); and other options
not specifically authorized or qualified for favorable income tax treatment by
the Code ("non-qualified stock options").
3. ADMINISTRATION.
3.1 Administration by Board. Subject to Section 3.2, the Plan
may be administered by the Board of Directors of the Company (the "Board").
Subject to the provisions of the Plan, the Board shall have authority to
construe and interpret the Plan, to promulgate, amend, and rescind rules and
regulations relating to its administration, from time to time to select from
among the eligible employees (as determined pursuant to Section 4) of the
Company and its subsidiaries those employees to whom options will be granted, to
determine the timing and manner of the grant of the options, to determine the
exercise price, the number of shares covered by and all of the terms of the
options, to determine the duration and purpose of leaves of absence which may be
granted to optionees without constituting termination of their employment for
purposes of the Plan, and to make all of the determinations necessary or
advisable for administration of the Plan. The interpretation and construction by
the Board of any provisions of the Plan, or of any agreement issued and executed
under the Plan, shall be final and binding upon all parties. No member of the
Board shall be liable for any action or determination undertaken or made in good
faith with respect to the Plan or any agreement executed pursuant to the Plan.
3.2 Administration by Committee. The Board may, in its sole
discretion, delegate any or all of its administrative duties to a committee (the
"Committee") of not fewer than two (2) members of the Board, all of the members
of which Committee shall be persons who, in the opinion of counsel to the
Company, are "non-employee directors" as defined in Rule 16b-3(b)(3)(i)
promulgated by the Securities and Exchange Commission, as amended and in effect
on and after August 15, 1996, to be appointed by and serve at the pleasure of
the Board. From time to time, the Board may increase or decrease (to not less
than two members) the size of the Committee, and add additional members to, or
remove members from, the Committee. The Committee shall act pursuant to a
majority vote, or the written consent of a majority of its members, and minutes
shall be kept of all of its meetings and copies thereof shall be provided to the
Board. Subject to the provisions of the Plan and the directors of the Board, the
Committee may establish and follow such rules and regulations for the conduct of
its business as it may deem advisable. No member of the Committee shall be
liable for any action or determination undertaken or made in good faith with
respect to the Plan or any agreement executed pursuant to the Plan.
4. ELIGIBILITY. Any employee of the Company or any of its subsidiaries
who does not own stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or any of its parent or subsidiary
corporations shall be eligible to receive an option under the Plan. A director
or employee may receive more than one option under the Plan. No director who is
not also an employee shall be eligible to receive an option under the Plan.
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5. SHARES SUBJECT TO OPTIONS. The stock available for grant of options
under the Plan shall be shares of the Company's authorized but unissued, or
reacquired, common stock. The aggregate number of shares which may be issued
pursuant to exercise of options granted under the Plan (including shares issued
from the date of adoption of the Plan) shall not exceed 6,285,000 shares of
common stock (subject to adjustment as provided in Section 6.14). In the event
that any outstanding option under the Plan for any reason expires or is
terminated, the shares of common stock allocable to the unexercised portion of
the option shall again be available for options under the Plan as if no option
had been granted with respect to such shares.
6. TERMS AND CONDITIONS OF OPTIONS. Options granted under the Plan
shall be evidenced by agreements (which need not be identical) in such form and
containing such provisions which are consistent with the Plan as the Board or
Committee shall from time to time approve. Each agreement shall specify whether
the option granted thereby is an incentive stock option or a non-qualified stock
option. Such agreements may incorporate all or any of the terms hereof by
reference and shall comply with and be subject to the following terms and
conditions:
6.1 Number of Shares Subject to Option. Each option agreement
shall specify the number of shares subject to the option.
6.2 Option Price. The purchase price for the shares subject to
any option shall not be less than 100% of the fair market value of the shares of
common stock of the Company on the date the option is granted. For purposes of
the Plan, the "fair market value" of any share of common stock of the Company at
any date shall be (a) if the common stock is listed on an established stock
exchange or exchanges, the last reported sale price per share on such date on
the principal exchange on which it is traded, or if no sale was made on such
date on such principal exchange, at the closing reported bid price on such date
on such exchange, or (b) if the common stock is not then listed on an exchange,
the last reported sale price per share on such date reported by NASDAQ, or if
sales are not reported by NASDAQ or no sale was made on such date, the average
of the closing bid and asked prices per share for the common stock in the
over-the-counter market as quoted on NASDAQ on such date, or (c) if the common
stock is not then listed on an exchange or quoted on NASDAQ, an amount
determined in good faith by the Board or the Committee.
6.3 Medium and Time of Payment. The purchase price for any
shares purchased pursuant to exercise of an option granted under the Plan shall
be paid in full upon exercise of the option in cash, or by check, or, at the
discretion of the Board or the Committee, upon such terms and conditions as the
Board or the Committee shall approve, by transferring to the Company for
redemption shares of common stock of the Company at their fair market value
(determined in the manner provided in Section 6.2 as of the date provided in
Section 6.5). Shares of common stock transferred to the Company upon exercise of
an option shall not increase the number of shares available for issuance under
the Plan. Notwithstanding the foregoing, the Company may extend and maintain, or
arrange for the extension and maintenance of, credit to any optionee to finance
the optionee's purchase of shares pursuant to exercise of any option, on such
terms as may be approved by the Board or the Committee, subject to applicable
regulations of the Federal Reserve Board and any other laws or regulations in
effect at the time such credit is extended.
6.4 Term of Option. No option granted to an employee
(including a director who is an employee) shall be exercisable after the
expiration of the earliest of (i) ten years after the date the option is
granted, (ii) three months after the date the optionee's employment with the
Company and its subsidiaries terminates if such termination is for any reason
other than permanent disability, death, or cause, (iii) the date the optionee's
employment with the Company and its subsidiaries terminates if such termination
is for cause, as determined by the Board or by the Committee, in its sole
discretion, or (iv) one year after the date the optionee's employment with the
Company and its subsidiaries terminates if such termination is a result of death
or permanent disability, or death or permanent disability results within not
more than three months of the date on which the optionee ceases to be an
employee; provided, however, that the option agreement for any option may
provide for shorter periods in each of the foregoing instances. For the purposes
of this Section 6.4 (a), "permanent disability" shall mean a disability of the
type defined in Section 22(c) (3) of the Code.
6.5 Exercise of Option. No option shall be exercisable during
the lifetime of an optionee by any person other than the optionee. The Board or
the Committee shall have the power to set the time or times within which each
option shall be exercisable and to accelerate the time or times of exercise.
Unless otherwise provided by the Board or the Committee, each option granted
under the Plan shall become exercisable on a cumulative basis as to 25% of the
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total number of shares covered thereby at any time after one year from the date
the option is granted and an additional 6 1/4% of such total number of shares at
any time after the end of each consecutive calendar quarter thereafter until the
option has become exercisable as to all of such total number of shares. To the
extent that an optionee has the right to exercise an option and purchase shares
pursuant thereto, the option may be exercised from time to time by written
notice to the Company, stating the number of shares being purchased and
accompanied by payment in full of the purchase price for such shares. If shares
of common stock of the Company are used in part or full payment for the shares
to be acquired upon exercise of the option, such shares shall be valued for the
purpose of such exchange as of the date of exercise of the option in accordance
with the provisions of Sections 6.2 and 6.3. Any certificate(s) for shares of
outstanding common stock of the Company used to pay the purchase price shall be
accompanied by stock power(s) duly endorsed in blank by the registered holder of
the certificate(s) (with the signature thereon guaranteed). In the event the
certificate(s) tendered by the optionee in such payment cover more shares than
are required for such payment, the certificate(s) shall also be accompanied by
instructions from the optionee to the Company's transfer agent with respect to
disposition of the balance of the shares covered thereby.
6.6 No Transfer of Option. No option shall be transferable by
an optionee otherwise than by will or the laws of descent and distribution.
6.7 Prior Outstanding Incentive Stock Options. No incentive
stock option granted under the Plan prior to 1987 shall be exercisable to any
extent at any time while there is outstanding any incentive stock option which
was granted prior to the granting of such option to the optionee by the Company
or any subsidiary or parent corporation of the Company or any predecessor
corporation of the Company or any subsidiary or parent corporation of the
Company. For the purpose of this Section 6.7, an option shall be outstanding
until such time as the option is exercised in full or expires by reason of lapse
of time.
6.8 Limit on Incentive Stock Options.
(a) The aggregate fair market value (determined as of
the time the option is granted) of the stock for which any employee may be
granted incentive stock options in any calendar year commencing after December
31, 1980 and continuing before January 1, 1987 (under all option plans of the
Company and its parent and subsidiary corporations) shall not exceed $100,000
plus any unused limit carryover to such year allowed under Section 422(c)(4) of
the Code.
(b) The aggregate fair market value (determined at
the time the option is granted) of the stock with respect to which incentive
stock options granted after December 31, 1986 are exercisable for the first time
by an optionee during any calendar year (under all incentive stock option plans
of the Company and its subsidiaries) shall not exceed $100,000.
6.9 Restriction on Issuance of Shares. The issuance of options
and shares shall be subject to compliance with all of the applicable
requirements of law with respect to the issuance and sale of securities,
including, without limitation, any required qualification under the California
Corporate Securities Law of 1968, as amended.
6.10 Investment Representation. Any optionee may be required,
as a condition of issuance of shares covered by his or her option, to represent
that the shares to be acquired pursuant to exercise of the option will be
acquired for investment and without a view to distribution thereof, and in such
case, the Company may place a legend on the certificate evidencing the shares
reflecting the fact that they were acquired for investment and cannot be sold or
transferred unless registered under the Securities Act of 1933, as amended, or
unless counsel for the Company is satisfied that the circumstances of the
proposed transfer do not require such registration.
6.11 Rights as a Stockholder or Employee. An optionee or
transferee of an option shall have no rights as a stockholder of the Company
with respect to any shares covered by any option until the date of issuance of a
share certificate for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether cash, securities, or other property) or
distribution or other rights for which the record date is prior to the date such
share certificate is issued, except as provided in Section 6.14. Nothing in the
Plan or in any option agreement shall confer upon
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any employee any right to continue in the employ of the Company or any of its
subsidiaries or interfere in any way with any right of the Company or any
subsidiary to terminate the optionee's employment at any time.
6.12 No Fractional Shares. In no event shall the Company be
required to issue fractional shares upon the exercise of an option.
6.13 Exercisability in the Event of Death. In the event of the
death of the optionee while he or she is an employee and/or director of the
Company or any of its subsidiaries or within not more than three months of the
date on which he or she ceased to be an employee and/or director, any option or
unexercised portion thereof granted to the optionee, to the extent exercisable
by him or her on the date of death, may be exercised by the optionee's personal
representatives, heirs, or legatees subject to the provisions of Section 6.4
hereof.
6.14 Recapitalization or Reorganization of Company. Except as
otherwise provided herein, appropriate and proportionate adjustments shall be
made in the number and class of shares subject to the Plan and to the option
rights granted under the Plan, and the exercise price of such option rights, in
the event of a stock dividend (but only on common stock), stock split, reverse
stock split, recapitalization, reorganization, merger, consolidation,
separation, or like change in the capital structure of the Company. In the event
of a liquidation of the Company, or a merger, reorganization, or consolidation
of the Company with any other corporation in which the Company is not the
surviving corporation or the Company becomes a wholly-owned subsidiary of
another corporation, any unexercised options theretofore granted under the Plan
shall be deemed canceled unless the surviving corporation in any such merger,
reorganization, or consolidation elects to assume the options under the Plan or
to use substitute options in place thereof; provided, however, that,
notwithstanding the foregoing, if such options would otherwise be canceled in
accordance with the foregoing, the optionee shall have the right, exercisable
during a ten-day period ending on the fifth day prior to such liquidation,
merger, or consolidation, to exercise the optionee's option in whole or in part
without regard to any installment exercise provisions in the optionee's option
agreement. To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board or the
Committee, the determination of which in that respect shall be final, binding,
and conclusive, provided that each option granted pursuant to the Plan shall not
be adjusted in a manner that causes the option to fail to continue to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
6.15 Modification, Extension, and Renewal of Options. Subject
to the terms and conditions and within the limitations of the Plan, the Board or
Committee may modify, extend, or renew outstanding options granted under the
Plan, accept the surrender of outstanding options (to the extent not theretofore
exercised), and authorize the granting of new options in substitution therefor
(to the extent not theretofore exercised). The Board or Committee shall not,
however, modify any outstanding incentive stock option in any manner which would
cause the option not to qualify as an incentive stock option within the meaning
of Section 422 of the Code. Notwithstanding the foregoing, no modification of an
option shall, without the consent of the optionee, alter or impair any rights of
the optionee under the option.
6.16 Other Provisions. Each option may contain such other
terms, provisions, and conditions not inconsistent with the Plan as may be
determined by the Board or Committee.
7. TERMINATION OR AMENDMENT OF PLAN. The Board may at any time
terminate or amend the Plan; provided that, without approval of the stockholders
of the Company, there shall be, except by operation of the provisions of Section
6.14, no increase in the total number of shares covered by the Plan, no change
in the class of persons eligible to receive options granted under the Plan or
other material modification of the requirements as to eligibility for
participation in the Plan, no material increase in the benefits accruing to
participants under the Plan, and no extension of the latest date upon which
options may be granted; and provided further that, without the consent of the
optionee, no amendment may adversely affect any then outstanding option or any
unexercised portion thereof.
8. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board or the Committee, the members of the
Board or the Committee administering the Plan shall be indemnified by the
Company against reasonable expenses, including attorney's fees, actually and
necessarily incurred in connection with the defense of any action, suit, or
proceeding, or in connection with any appeal therein, to which they or any of
them
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may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any action, suit, or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit, or
proceeding that such member is liable for negligence or misconduct in the
performance of his duties, provided that within 60 days after institution of any
such action, suit, or proceeding, the member shall in writing offer the Company
the opportunity, at its own expense, to handle and defend the same.
9. NON-QUALIFIED STOCK OPTION PLAN. The Plan as set forth herein
constitutes an amendment and restatement of the Company's Non-Qualified Stock
Option Plan which was adopted in November 1980. The Board or the Committee may,
in its discretion, authorize the conversion, to the fullest extent permitted by
law, of non-qualified stock options granted under the Non-Qualified Stock Option
Plan prior to such amendment to incentive stock options under this Plan, as so
amended. Any such options converted to incentive stock options shall be treated
as incentive stock options for all purposes under the Plan; provided, however,
that none of the terms or conditions of any such options, including, but not
limited to, the exercise price, the term of the option, and the time(s) within
which the option may be exercised, shall be altered or amended by reason of such
conversion.
10. STOCKHOLDER APPROVAL AND TERM OF PLAN. The Plan shall not take
effect until approved by the stockholders of the Company. Unless sooner
terminated by the Board in its sole discretion, the Plan will expire on
September 30, 2003.
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APPENDIX C
EMULEX CORPORATION
1997 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE.
(a) The purpose of the Emulex Corporation 1997 Stock Option Plan for
Non-Employee Directors (the "Plan") is to provide a means by which each director
of Emulex Corporation, a Delaware corporation (the "Company"), who is not an
employee of the Company or any of its subsidiaries (each such person being
hereafter referred to as a "Non-Employee Director") will be given an opportunity
to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. The Committee shall act pursuant to a majority vote
or the written consent of a majority of its members, and minutes shall be kept
of all of its meetings and copies thereof shall be provided to the Board.
Subject to the provisions of the Plan and the directions of the Board, the
Committee may establish and follow such rules and regulations for the conduct of
its business as it may deem advisable.
(c) No member of the Board or the Committee shall be liable for any
action or determination undertaken or made in good faith with respect to the
Plan or any agreement executed pursuant to the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate three hundred thousand
(300,000) shares of the Company's common stock (the "Common Stock"). If any
option granted under the Plan shall for any reason expire or otherwise terminate
without having been exercised in full, the stock not purchased under such option
shall again become available for options under the Plan as if no option had been
granted with respect to such shares.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company
who are eligible directors at the time of grant. Each Non-Employee Director
shall be eligible to receive an option under the Plan if such director is not
then an employee of the Company or any of its subsidiaries. A director of the
Company shall not be deemed to be an employee of the Company or any of its
subsidiaries solely by reason of the existence of an agreement between such
director and
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the Company or any subsidiary thereof pursuant to which the director provides
services as a consultant to the Company or its subsidiaries on a regular or
occasional basis for compensation.
5. AUTOMATIC GRANTS.
(a) Each person who is an eligible Non-Employee Director on the date
this Plan is first approved by the stockholders of the Company shall, upon such
date, automatically be granted an initial option to purchase fifteen thousand
(15,000) shares of the Company's Common Stock (subject to adjustment as provided
in paragraph 10 hereof) upon the terms and conditions set forth herein.
(b) Each person who first becomes an eligible Non-Employee Director
after the date this Plan is first approved by the stockholders of the Company
shall, upon the date of his or her initial qualification as an eligible Non-
Employee Director, automatically be granted an initial option to purchase thirty
thousand (30,000) shares of the Company's Common Stock (subject to adjustment as
provided in paragraph 10 hereof) upon the terms and conditions set forth herein.
(c) Thereafter, on each anniversary of the date of grant of the initial
option to each eligible Non-Employee Director pursuant to subparagraph 5(a) or
5(b), each such eligible Non-Employee Director shall automatically be granted an
additional option to purchase ten thousand (10,000) shares of the Company's
Common Stock (subject to adjustment as provided in paragraph 10 hereof) upon the
terms and conditions set forth herein.
6. OPTION PROVISIONS.
Each option shall contain the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten years from the date of grant. The term of each option may terminate
sooner than such Expiration Date if the optionee's service as a director of the
Company terminates for any reason or for no reason. In the event of such
termination of service, the option shall terminate on the earlier of the
Expiration Date or the date one year following the date of termination of
service. In any and all circumstances, an option may be exercised following
termination of the optionee's service as a director of the Company only as to
that number of shares as to which it was exercisable on the date of termination
of such service under the provisions of subparagraph 6(e). Notwithstanding the
foregoing, if exercise within the foregoing periods is prohibited under
paragraph 13 below, the term of the option shall be extended to a date thirty
(30) days following the first date on which the condition of paragraph 13 of the
Plan has been met, and the option shall be exercisable as to that number of
shares that could have been exercised on the date of termination of service had
the condition of paragraph 13 been satisfied on that date.
(b) The exercise price of each option shall be one hundred percent
(100%) of the fair market value of the stock subject to such option on the date
such option is granted. For purposes of the Plan, the "fair market value" of any
share of Common Stock of the Company at any date shall be (i) if the Common
Stock is listed on an established stock exchange or exchanges, the last reported
sale price per share on such date on the principal exchange on which it is
traded, or if no sale was made on such day on such principal exchange, at the
closing reported bid price on such day on such exchange, (ii) if the Common
Stock is not then listed on an exchange, the last reported sale price per share
on such date reported by NASDAQ, or if sales are not reported by NASDAQ or no
sale was made on such day, the average of the closing bid and asked prices per
share for the Common Stock in the over-the-counter market as quoted on NASDAQ on
such day, or (iii) if the Common Stock is not then listed on an exchange or
quoted on NASDAQ, an amount determined in good faith by the Board or the
Committee.
(c) An option that is exercisable may be exercised by the delivery to
the Company of written notice of exercise on any business day, at the Company's
principal office, addressed to the attention of the Board or the Committee. Such
notice shall specify the number of shares of Common Stock with respect to which
the option is being exercised and shall be accompanied by payment in full of the
exercise price per share of the shares of Common Stock for which the option is
being exercised. Payment of the exercise price of each option is due in full in
cash upon any exercise when the number of shares being purchased upon such
exercise is less than 1,000 shares; but when the number of shares being
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purchased upon an exercise is 1,000 or more shares, the optionee may elect to
make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash at
the time of exercise; or
(ii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly
in The Wall Street Journal, payment by delivery of
already owned shares of Common Stock of the Company
owned by the optionee for at least six (6) months and
owned free and clear of any liens, claims,
encumbrances or security interests, which Common
Stock shall be valued at fair market value on the
date of exercise; or
(iii) Provided that at the time of exercise the Company's
Common Stock is publicly traded and quoted regularly
in The Wall Street Journal, a copy of instructions to
a broker directing such broker to sell the Common
Stock for which such Option is exercised, and to
remit to the Company the aggregate exercise price of
such Stock Option (a "cashless exercise"). Payment in
full of the exercise price per share need not
accompany the written notice of exercise provided
that the notice of exercise directs that the
certificate or certificates for the shares of Common
Stock for which the option is exercised be delivered
to a licensed broker acceptable to the Company as the
agent for the individual exercising the option and,
at the time such certificate or certificates are
delivered, the broker tenders to the Company cash (or
cash equivalents acceptable to the Company) equal to
the exercise price per share for the shares of Common
Stock purchased pursuant to the exercise of the
option plus the amount (if any) of federal and/or
other taxes which the Company may, in its judgment,
be required to withhold with respect to the exercise
of the option.
(iv) Payment by a combination of the methods of payment
specified in subparagraphs 6(c)(i), 6(c)(ii) and
6(c)(iii) above.
(d) An option shall not be transferable except by will or by the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined by the Internal Revenue Code of 1986, as amended (the "Code"), or
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules thereunder (a "QDRO"), and shall be exercisable during
the lifetime of the person to whom the option is granted only by such person or
by his guardian or legal representative or any transferee pursuant to a QDRO.
(e) The options shall become exercisable in installments as follows:
(i) Each of the options described in subparagraph 5(a) or
5(b) shall become exercisable in installments as
follows: one-third (1/3) of the shares covered by the
option (10,000 shares) on each of the first three
anniversaries of the date of grant, until all the
shares have become purchasable, provided that options
shall become exercisable only during periods that the
optionee is a director of the Company.
(ii) Each of the options described in subparagraph 5(c)
shall become exercisable in installments as follows:
one-half (1/2) of the shares covered by the option
(5,000 shares) on the date six (6) months after the
date of grant, one-fourth (1/4) of the shares covered
by the option (2,500 shares) on the date nine (9)
months after the date of grant, and one-fourth (1/4)
of the shares covered by the option (2,500 shares) on
the first anniversary of the date of grant, until all
the shares have become purchasable; provided that
options shall become exercisable only during periods
that the optionee is a director of the Company.
(iii) Subject to the limitations contained herein, including,
without limitation, those contained in subparagraph 13(b), each option shall be
exercisable with respect to each installment on or after the date of
exercisability applicable to such installment.
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(f) Each option shall contain a representation and any optionee may be
required, as a condition of the grant of the option and the issuance of shares
covered by his or her option, to represent that the option and the shares to be
acquired pursuant to exercise of the option will be acquired for investment and
without a view to distribution thereof. In addition, the Company may require any
optionee or any person to whom an option is transferred under subparagraph 6(d),
as a condition of exercising any such option: (i) to give written assurances
satisfactory to the Company as to the optionee's knowledge and experience in
financial and business matters; and (ii) to give written assurances satisfactory
to the Company stating that such person is acquiring the stock subject to the
option for such person's own account and not with any present intention of
selling or otherwise distributing the stock. These requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (A) the
issuance of the shares upon the exercise of the option has been registered under
a then currently effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), or (B) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan or any stock issued or issuable pursuant to any such option. If the Company
is unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms,
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or shall affect any right of the Company or its Board or
stockholders to terminate the service of any Non-Employee Director with or
without cause.
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him or her, shall
have any right, title or interest in or to any option reserved for the purposes
of the Plan except as to such shares of Common Stock, if any, as shall have been
reserved for him or her pursuant to an option granted to him or her.
(d) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director or to evidence the removal of any restrictions on
transfer that such Non-Employee Director make arrangements satisfactory to the
Company to insure that
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<PAGE> 38
the amount of any federal or other withholding tax required to be withheld with
respect to such sale or transfer, or such removal or lapse, is made available to
the Company for timely payment of such tax. The Non-Employee Director may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such option by any of the following means or by a combination of
such means: (i) tendering a cash payment; (ii) authorizing the Company to
withhold from the shares of Common Stock otherwise issuable to the participant
as a result of the exercise of the stock option a number of shares having a fair
market value less than or equal to the amount of withholding tax obligation; or
(iii) delivering to the Company owned and unencumbered shares of Common Stock
having a fair market value less than or equal to the amount of the withholding
tax obligation.
(e) In the event of the death of an optionee, any option (or
unexercised portion thereof) held by the optionee, to the extent exercisable by
him or her on the date of death, may be exercised by the optionee's personal
representatives, heirs, or legatees subject to the provisions of subparagraphs
6(a) and 6(e) hereof.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(b) In the event of a liquidation of the Company, or a merger,
reorganization, or consolidation of the Company with any other corporation in
which the Company is not the surviving corporation or the Company becomes a
subsidiary of another corporation, any unexercised options theretofore granted
under the Plan shall be deemed canceled unless the surviving corporation in any
such merger, reorganization, or consolidation elects to assume the options under
the Plan or to use substitute options in place thereof; provided, however, that,
notwithstanding the foregoing, if such options would otherwise be canceled in
accordance with the foregoing, the optionee shall have the right, exercisable
during a ten-day period ending on the fifth day prior to such liquidation,
merger, or consolidation, to fully exercise the optionee's option in whole or in
part without regard to any installment exercise provisions otherwise provided by
subparagraph 6(e). In the event of a Change in Control of the Company, as
defined below, any unexercised option theretofore granted under the Plan which
is not then already exercisable as to all of the shares subject to the option
shall become exercisable upon such Change in Control in addition to the shares,
if any, as to which the option is already exercisable. To the extent that the
foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Board or the Committee, the determination of
which in that respect shall be final, binding, and conclusive. A "Change in
Control" shall be deemed to have occurred if:
(i) any person, or any two or more persons acting as a
group, and all affiliates of such person or persons,
shall own beneficially one-third (1/3) or more of the
common stock of the Company outstanding; or
(ii) if following:
(A) a tender or exchange offer for voting
securities of the Company (other than any
such offer made by the Company), or
(B) a proxy contest for election of directors of
the Company,
the persons who were directors of the Company
immediately before the initiation of such event (or
directors who were appointed by such directors) cease
to constitute a majority of the Board of the Company
upon the completion of such tender or exchange offer
or proxy contest or within one year after such
completion.
5
<PAGE> 39
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the vote of the
majority of the shares of the Company represented and voting at a duly held
meeting within twelve (12) months before or after the adoption of the amendment,
where the amendment will:
(i) Materially increase the number of shares which may be
issued under the Plan;
(ii) Materially modify the requirements as to eligibility
for participation in the Plan; or
(iii) Materially increase the benefits accruing to
participants under the Plan, whether by increasing
the number of shares for which an option may be
granted to an optionee or otherwise.
(b) Rights and obligations under any option granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan except
with the consent of the person to whom the option was granted.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on October 31, 2007. No options may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan except with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in subparagraph 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
The Plan shall become effective on November 1, 1997, subject to the
condition subsequent that the Plan is approved by the vote or written consent of
the holders of a majority of the shares of the Company represented and voting at
the next special or annual meeting of stockholders of the Company. No option
shall be granted under the Plan unless and until the stockholder approval
condition of this paragraph 13 has been satisfied.
14. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as
members of the Board or the Committee, the members of the Board or the Committee
administering the Plan shall be indemnified by the Company against reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit, or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any action, suit, or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit, or proceeding that such member is liable
for negligence or misconduct in the performance of his or her duties, provided
that within 60 days after institution of any such action, suit, or proceeding,
the member shall in writing offer the Company the opportunity, at its own
expense, to handle and defend the same.
15. CAPTIONS.
The use of captions in this Plan or any related option agreement is for
the convenience of reference only and shall not affect the meaning of any
provision of the Plan or such option agreement.
6
<PAGE> 40
16. OTHER PROVISIONS.
Each option granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board or
Committee, in its sole discretion.
17. NUMBER AND GENDER.
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine gender,
etc., as the context requires.
18. SEVERABILITY.
If any provision of the Plan or any option agreement shall be
determined to be illegal or unenforceable by any court of law in any
jurisdiction, the remaining provisions hereof and thereof shall be severable and
enforceable in accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.
19. GOVERNING LAW.
The validity and construction of this Plan and the instruments
evidencing the options granted hereunder shall be governed by and construed in
accordance with the laws of the State of California.
7
<PAGE> 41
PROXY
EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Fred B. Cox and Robert H. Goon as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them or either of them to represent and to vote as designated on the reverse
side, all the shares of common stock of Emulex Corporation held of record by the
undersigned at the close of business on October 4, 1999, at the Annual Meeting
of Stockholders to be held on November 18, 1999, or any adjournment thereof.
-- FOLD AND DETACH HERE --
<PAGE> 42
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER, IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3, 4 AND 5.
Please mark you votes [X] as indicated in this example.
1. ELECTION OF DIRECTORS (INSTRUCTION: To withhold authority to
vote for any individual nominees, mark the
box next to the nominee's name below):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR all nominees WITHHHOLD
listed to the right AUTHORITY [ ] Fred B. Cox [ ] Robert H. Goon
(except as marked to vote for all nominees [ ] Michael P. Downey [ ] Don M. Lyle
to the contrary) listed to the right [ ] Paul F. Folino
</TABLE>
2. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. AMENDMENT OF THE CERTIFICATE OF INCORPORATION
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. APPROVAL OF AMENDMENT OF THE EMPLOYEE STOCK OPTION PLAN
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. APPROVAL OF AMENDMENT OF THE 1997 STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Dated: , 1999
------------------------------
------------------------------------------
Signature
------------------------------------------
Signature if held jointly
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee, or guardian, please give full
title as such. If a corporation, please
sign in full corporate name of the
President or other authorized officer. If
a partnership,
<PAGE> 43
please sign in partnership name by authorized
person.
PLEASE READ, SIGN, DATE, AND RETURN THIS
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
--FOLD AND DETACH HERE--
<PAGE> 44
EMULEX CORPORATION
YOUR VOTE IS IMPORTANT TO THE COMPANY
PLEASE SIGN AND RETURN YOUR PROXY BY
TEARING OFF THE TOP PORTION OF THE SHEET
AND RETURNING IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE
