<PAGE>
SECURITIES AND EXCHANGE
COMMISSION
Washington, D. C. 20549
Form 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1994
-----------------
[ ] Transitional _____ pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For the transition period from ______
to ______.
Commission File Number 0-13381
MYLEX CORPORATION
____________________________________________________
(Exact name of registrant as specified in its charter)
FLORIDA 59-2291597
_______________________________ ___________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
34551 Ardenwood Boulevard
Fremont, California 94555
_____________________________________ ___________
Address of principal executive office (Zip code)
Registrant's telephone number, including area code: 510-796-6100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
____________________________
(Title of class)
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes___X___ No______
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the mean of the closing bid and asked price of the
Common Stock on March 23, 1995, as reported on NASDAQ was approximately
$104,436,600. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
the definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this form 10-K. [ ]
As of March 23, 1995, registrant had total outstanding 14,390,111 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV incorporate information by reference from the Annual Report to
Shareholders for the year ended December 31, 1994. Part III incorporates
information by reference from the definitive proxy statement for the Annual
Meeting of Shareholders to be held on April 24, 1995.
2
<PAGE>
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business 5
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a
Vote of Security Holders 14
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 15
Item 8. Consolidated Financial Statements and
Supplementary Data 15
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers
of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain
Beneficial Owners and Management 16
Item 13. Certain Relationships and Related
Transactions 16
3
<PAGE>
PART IV
Item 14. Exhibits, Consolidated Financial Statements,
Financial Statement Schedules, and
Reports on Form 8-K 17
4
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Mylex Corporation (the "Company") is presently engaged in the design,
development, production, and marketing of high performance disk array
controllers, net work interface cards, personal computer system boards, and
SCSI host adaptors as well as supporting proprietary software and firmware.
The products currently being produced by the Company provide enhanced
performance for a wide range of personal computers, workstations and servers.
The Company was incorporated under the laws of the State of Florida in May
1983. In September, 1987, the Company moved its headquarters and manufacturing
facility from Florida to Fremont, California. In May 1991, the Company again
moved to a larger facility in Fremont, California.
Production of system boards based on the Intel 80386 ("386")
microprocessor was launched in 1987. After intensive research in 1988 and
1989, the Company introduced in 1989 two system boards based on the Intel 80486
microprocessor ("486"), and three new peripheral products based on Extended
Industry Standard Architecture ("EISA")(1). Sales of these products began in
1990. Four new 486 system boards, based on Local Bus Architecture were
introduced in 1992.
As the market for system boards matured and with the entry of
foreign-based low-cost manufacturers, price competition placed extreme
pressures on the Company's margins. In order to reduce its reliance on
revenues derived from system boards, the Company began a program in early 1991
which focused on the development of storage management computer peripheral
products for the networked PC market. As a result of this program the Company
developed its first RAID (Redundent Array of Independent Disks) disk array
controller. In the fourth quarter of 1992, the Company began shipping its new
five channel Disk Array Controllers and Subsystems. In the first quarter of
1993 the Company introduced one, two and three channel disk array controllers
as well as a custom disk array controller product for one of its large OEM
customers. Volume shipments of the one, two and three channel disk array
controller products commenced during the first quarter of 1994. Production
level shipments of the custom disk array
----------
(1) EISA (Extended Industry Standard Architecture) is a system architecture
licensed to the Company by Intel Corporation ("Intel"). The license permits the
Company to manufacture, use, lease, import, export, or sell any product
incorporating the EISA patent owned by Intel.
5
<PAGE>
controller product began in the second quarter of 1993. During the second
quarter of 1994 the Company introduced two new families of disk array
controller products; Peripheral Component Interconnect (PCI) local bus based
disk array controllers and Small Computer System Interface ("SCSI") disk array
controllers. The SCSI standard provides an interface between the computer and
the peripherals for virtually any hardware platform.
All of the Company's products are sold in the high-technology electronic
products segment. The Company's customers are original equipment manufacturers
(OEMs), system integrators, value-added resellers (VARs) and computer
distributors and dealers.
PRODUCTS
During the last half of 1993 the Company transitioned from a supplier of
primarily system board products to a manufacturer of input/output (I/O) and
storage management enhancing computer peripheral products. This trend
continued in 1994 as our core business activities focused on the development of
high-performance RAID solutions for PC and non-PC based networks and
workstations. During 1994, the Company's RAID (Redundent Array of Independent
Disks) disk array controller products accounted for 81%, or $50 million, of net
sales as compared to 44% during 1993. Sales of system board products accounted
for 17% of net sales as compared to 37% of net sales during 1993. Other
peripheral product sales (LAN, graphics and SCSI adapter products) accounted
for 2% of net sales as compared to 5% of net sales during 1993.
The Mylex disk array controllers (DAC960E and DAC960P), which utilize RAID
technology provide high-performance, fault tolerant data storage solutions for
EISA, micro-channel and PCI bus PC platforms. The Mylex SCSI-to-SCSI disk
array controllers (DAC960S/SI/SE) bring the performance of RAID technology to
virtually any hardware platform without requiring special host software. The
Mylex disk array products are designed for both internal and external storage
options and are compatible with most commonly used operating systems.
The Company continues to dedicate most of its research to products which
offer solutions to the performance-limiting I/O bottlenecks, storage management
tasks, and other computer requirements of business and sophisticated
scientific users.
The Company is committed to and dependent upon continued development of
new products as well as enhancement of existing products. The Company believes
its future profitability is dependent to a large extent upon the continued
market acceptance
6
<PAGE>
of its PCI and SCSI-to-SCSI disk array product families as well as the
successful introduction of new feature enhanced and/or cost reduced disk array
products. However, there can be no assurance that new products will be
successfully developed or, if developed, that such products or the Company's
current products will achieve and sustain market acceptance.
PRODUCT MANUFACTURE AND SUPPLIERS
The manufacture of Mylex products entails placing semiconductors and other
electronic components onto the printed circuit board and soldering them into
place. Each product is then subjected to a series of quality control tests.
Almost all of Mylex manufacturing is done on the Fuji Surface Mount Technology
machine ("SMT"). The SMT automatically positions and attaches chips and other
components to systems boards, increasing the speed and accuracy of the
manufacturing process. There can, however, be no assurance that the Company's
products will be free of manufacturing defects, notwithstanding the
quality-control tests performed by the Company or its subcontractors, or that
the Company's manufacturing capabilities and materials sources will be adequate
to meet product demand.
The Company's manufacturing facility is located in the United States.
Approximately 60% of the Company's products are currently manufactured in-house
with the remainder manufactured by local ISO 9000 certified subcontract
manufacturers.
The Company depends heavily upon its suppliers to provide high quality
materials on a timely basis, at a reasonable price and with suitable credit
terms. Although many of the components for the Company's products are
available from numerous sources at competitive prices, some of the most
critically-needed components are sole-sourced. Moreover, because of high
industry demand for many such components, manufacturers of these components are
not always able to make delivery on a timely basis.
The most critical components used in the Company's disk array controller
boards are the i960 RISC processor procured from Intel and the proprietary chip
provided by one of the Company's large OEM customers for inclusion on its
custom product. This proprietary chip has frequently been in short supply.
The Company currently has no long term supply commitments with these vendors.
As a result, there can be no assurance that sufficient quantities of these or
other critical components will be available for the Company's production needs.
In the event that these essential components cannot be obtained, the Company
may be unable to meet demand for its products, adversely affecting results from
operations.
7
<PAGE>
The Company's need to manufacture products before receiving firm purchase
orders, combined with risks of technological obsolescence and rapid shifts in
market demand, may lead to inventory devaluation or obsolescence, either of
which could have a material adverse effect on operations.
SALES AND MARKETING
As of February 28, 1995, the Company's sales and sales support personnel
numbered approximately 18 persons who devoted substantially all their time to
marketing, sales and customer support of the Company's products. The Company
plans to increase the number of sales and marketing employees during 1995 to
support its expanding customer base and product lines.
Potential customers are identified by research and analysis of industry
publications; through the Company's advertising programs; and by attendance at
trade shows such as CeBIT in Hanover, Germany, in March and COMDEX (Computer
Dealers Exposition) in Las Vegas in November.
Sales of the Company's disk array controller products increased by 151% in
1994 over 1993 levels, reflecting the Company's numerous design wins in late
1993 and 1994. The net sales growth in 1994 was attributable to overall market
growth and strong demand for the Company's disk array controller products.
Sales from disk array products represented 81% of total sales in 1994 compared
to 44% in 1993 and 2% in 1992. Sales of system board products accounted for
17% of net sales as compared to 37% of net sales during 1993 and 71% in 1992.
System board sales have declined from 1993 levels primarily due to the
allocation of the Company's research and development resources to the higher
margin disk array product families. Other peripheral product sales (LAN,
graphics and SCSI adapter products) accounted for 2% of net sales as compared
to 5% of net sales during 1993 and 14% in 1992. The Company expects its
dependence upon disk array controller products to continue during 1995.
The Mylex disk array controller products are designed for integration into
the client-server, networked PC, and scientific workstation environments.
Because of the Company's transition to primarily disk array controller
products, marketing these products entailed the development of new distribution
channels and marketing methods. The Company continued to market its disk array
products to several OEMs during 1994. Sales to major OEMs accounted for 69%
of the Company's total revenues during 1994. Additionally, the Company was
able to market these products to leading distributors, system integrators and
value added resellers during 1994 through its newly formed alternate channel
sales division.
8
<PAGE>
This course of seeking additional new markets was originally motivated by
declining profit margins generated by personal computer system boards, and by
the Company's commitment to technological innovation and desire to diversify
its product line. Despite this strategy, the Company expects that sales of its
current families of disk array controller products will continue to generate an
important part of the Company's revenues during 1995 and 1996. A major
reduction in sales of such products without a corresponding increase in the
sales of the Company's newer products would have a material adverse effect on
the Company.
During the year ended December 31, 1994, the Company renewed agreements
with several distributors to distribute the Company's products. These
distributors include Merisel, Ingram Micro, Tech Data, and Gates/Arrow. Sales
to these distributors accounted for 8% of the Company's total sales during 1994.
The Company was also successful in signing agreements with additional
technology distributors such as Avnet Corporation during 1994.
The Company's largest customer during 1994 was IBM Corporation ("IBM")
which accounted for 22% of the Company's sales as compared to 18% during 1993.
The Company's next two largest customers, Digital Equipment Corporation and
Hewlett-Packard Company, accounted for an additional 17% and 14% respectively
of total sales during 1994. Hewlett-Packard accounted for approximately 10% of
the Company's sales during 1993. Many of the Company's customers manufacture
and sell products in the networked PC market, which is subject to rapid
technological change and intense price competition. These factors affecting
the networked PC market in general, or any of the Company's customers in
particular, could have a material adverse effect on the Company's future
results of operations. While there are OEM agreements in place that define the
terms of the sales and support services with some of the Company's largest
customers, these agreements do not include specific quantity commitments. The
Company sells products to its customers on a purchase order basis, and
currently has no long term purchase commitments. As a result, historical sales
cannot be relied upon as an accurate indicator of future sales.
The Company currently has a customer base consisting of approximately 100
customers actively buying on a regular basis. Export sales were 16% of net
sales in 1994, including 8% in Europe, 2% in Canada, and 6% in the rest of the
world. Export sales comprised 16%, 21%, and 29% of net sales in 1994, 1993
and 1992 respectively.
The general custom of the market for disk array controllers and system
boards is that customers are not bound contractually to make long-term purchase
commitments and may cancel orders at any time. Additionally, the Company's
ability to produce and
9
<PAGE>
deliver customer orders is dependent upon receipt of the certain key components
from its suppliers.
BACKLOG
The Company's backlog as of December 31, 1994, totaled $5.8 million as
compared to $11.2 million as of December 31, 1993. The decrease in the backlog
was attributable to the delay of purchase orders covering first quarter
requirements from one of the Company's large OEM customers - IBM. The IBM
purchase order for first quarter requirements was subsequently received once
pricing negotiations for 1995 had been concluded. Due to industry practice
with respect to customer changes in delivery schedules and cancellation of
orders, the Company believes that backlog as of any particular date may not be
indicative of actual net revenues for any succeeding period. Substantially all
orders outstanding at December 31, 1994 which were not subsequently changed or
canceled would have been scheduled for delivery within the three months ended
March 31, 1995.
CONTRACTUAL AGREEMENTS
On November 19, 1990, the Company signed a license agreement with a major
computer manufacturer, which became effective December 1, 1990, under which the
Company must pay royalties based on the prices of system board products which
incorporate certain patents. Under this license agreement, the Company has the
option of paying royalties at the rate of 2% of the selling price for certain
Company products or at the rate of 8% of that portion of the selling price
attributable to the patents. The license also contains a condition requiring
that the Company license to the manufacturer, on a "most favored licensee"
basis, any patented invention or copyrighted material related to PC compatible
system boards.
COMPETITION
Numerous companies in the computer industry produce and market computer
peripheral cards and system boards in competition with the Company. In
addition, in its efforts to sell specialized products to distributors, original
equipment manufacturers, and private label users, the Company faces competition
from other board manufacturers. Many of these manufacturers have substantially
greater financial resources than those of the Company. Technological
advancements and more sophisticated users' needs have created demands for
newer, faster, and more powerful products and applications for specialized
markets such as local area networks (LANs); multi-user, real-time environments;
CAD/CAM; desktop publishing and engineering scientific workstations. The
Company expects price competition for its products to increase as additional
competitors enter the market for the Company's products. This trend has
prompted the Company to broaden its product offerings to include products
10
<PAGE>
for all bus architectures and non-platform dependent SCSI-to-SCSI products,
including the emerging PCI bus which provides superior system performance as
compared to the EISA bus found in older PC architectures. As this is a
relatively new market for the Company, there can be no assurance of continued
acceptance by this market of the Company's products, nor any certainty of the
value the market will place on the products.
The Company's ability to compete successfully in either the personal
computer market or the market for its more sophisticated products depends upon
its ability to develop products which obtain market acceptance, which can be
sold at competitive prices while maintaining adequate gross margin levels and
which are proven to be reliable. Although the Company believes that certain of
its products have certain competitive advantages, there can be no assurance
that the Company will be able to compete successfully in the future or that
other companies may not develop products with greater performance or at more
favorable prices and thus reduce the demand for the Company's products. The
Company is dedicated to continuance of its research and development efforts to
obtain and maintain whatever competitive advantages may be available to it.
11
<PAGE>
EMPLOYEES
As of February 28, 1995, the Company employed approximately 138 employees.
The employees are not represented at the Company by any labor union nor
employed by the Company under any collective bargaining agreement.
RESEARCH AND DEVELOPMENT
Mylex increased its expenditures for research and development in 1994 by
35%. For the year ended December 31, 1994, research and development
expenditures totaled $3.3 million (or 5.3% of net sales) as compared to $2.5
million (or 5.5% of net sales) for the year ended December 31, 1993, and $2.8
million (or 5.8% of net sales) for the year ended December 31, 1992. The growth
in research and development expenses was primarily due to increased technology
development efforts related to intelligent input/output management projects.
The Company expects to increase its investment in research and development
activities during 1995 to achieve market acceptance of new products and to
continue its strategy of maintaining technology leadership in the RAID market.
During 1995, the Company plans to significantly increase the number of
employees engaged in research and development activities.
PATENTS AND TRADEMARKS
Except for Patent 4,553,035 for a Data Acquisition Control Method and
System for a Hand Held Reader, the Company currently holds no patents on any
of its products. The Company has taken and continues to take other measures
reasonably available to it to protect its rights with respect to product
designs, component selections, production processes, and any other information
considered by the Company to be proprietary, whether patentable or not, by such
means as protecting its proprietary trade secrets, innovative skills, and
technical expertise. While these means have proven thus far to be satisfactory
in protecting the Company's property, the Company may seek patent protection on
some of its more advanced products. However, there can be no assurance that
such patents will be granted or that other companies will not develop products
which are competitive with the unpatented products of the Company using
proprietary designs or software of the Company.
The Company is the owner of a registered trademark, Reg. No. 1,310,862,
for its MYLEX logo.
Certain patents and copyrights owned by others are of critical importance
to the high-technology electronic product industry segment in which the Company
operates. The Company has obtained licenses to certain technology protected
by patents or
12
<PAGE>
copyrights which the Company believes are adequate for the operation of the
business of the Company as it is currently being conducted. It is likely that
such licenses, and licenses to produce, use, and market new technologies, will
continue to be important to the Company. In the future, the Company may be
required to obtain licenses from others and there are no assurances that such
licenses would be available or on terms satisfactory to the Company.
ITEM 2. PROPERTIES
On April 1, 1991, the Company moved to its current headquarters and
manufacturing facility, located in a 73,887 square foot facility in Fremont,
California. The Company's lease on this facility extends through March 31,
1996.
ITEM 3. LEGAL PROCEEDINGS
The Company and American Megatrends, Inc. ("AMI") entered into an
agreement on February 15, 1987, pursuant to which, inter alia, AMI licensed to
the Company the rights to use a basic input/output system ("BIOS") and certain
other technical information in consideration for the payment of royalties. On
May 5, 1992, AMI initiated arbitration proceedings before the American
Arbitration Association in Miami, Florida, asserting a right under the
agreement to audit the Company's books and records for the purpose of
calculating royalties. The Company counterclaimed against AMI for breach of
contract, failure to pay a written account, failure to pay for goods sold and
delivered, and failure to provide required information.
On March 16, 1993, AMI amended its demand for arbitration, seeking
specific performance of AMI's audit rights under the February 15, 1987,
agreement, and in particular, seeking to include in the audit additional
records sought by AMI. AMI has also asserted claims for any monies that the
audit may indicate are due to AMI, for recovery of all fees and costs
associated with the arbitration, and for recovery of additional costs allegedly
incurred with respect to the audit.
On September 3, 1993, while arbitration was still pending, AMI also filed
suit against the Company in the United States District Court in Atlanta,
Georgia, alleging claims similar to those presented in the arbitration. The
complaint alleged claims for breach of contract, fraud, breach of fiduciary
duty, tortious interference with contractual rights and prospective business
relations, and unfair competition. The relief sought
13
<PAGE>
included injunctive relief, accounting damages in an unspecified amount,
exemplary damages and attorneys fees and costs. On October 29, 1993, the
Company filed an answer and counterclaim denying the allegations of the
complaint, setting forth various affirmative defenses, and presenting counter
claims for breach of contract, unjust enrichment and unfair competition. On
April 1, 1994, both AMI and the Company filed amended pleadings in the
arbitration to include all claims and counterclaims previously asserted in the
federal court action. Pursuant to a stipulation of the parties, the federal
court lawsuit was dismissed without prejudice in February 1995. Preliminary
conferences with the arbitrators were held on March 19, 1993, on November 2,
1993, on July 29, 1994 and on November 22, 1994. The matter is in the
discovery stage. The evidentiary hearings are scheduled for a two-week period
beginning June 19, 1995.
While the Company believes it has numerous defenses to AMIs claims and
intends to continue to vigorously defend the arbitration, there can be no
assurance that the Company will ultimately prevail. An unfavorable outcome
could have a material adverse effect on the Company's business and results of
operations.
The former Chief Executive Officer of the Company, Dr. M.A. Chowdry, filed
a complaint against the Company and its outside directors seeking $5 million in
damages on October 13, 1994, claiming breach of am employment agreement that he
entered into with the Company approximately three months prior to his
termination as the Company's Chief Executive Officer. Dr. Chowdry voluntarily
filed an amendment to his complaint on February 23, 1995. On March 17, 1995
the Company and the individual defendants filed a response (demurer) to the
amended complaint. A hearing on the demurrer filed by the Company and the
individual defendants is scheduled for April 27, 1995. The Company believes it
has meritorious defenses and will vigorously defend this lawsuit.
In addition to matters discussed herein, the Company is a party to routine
suits and claims arising in the ordinary course of its business which the
Company does not believe will have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Incorporated by reference from the information under the caption "Market
for Registrants Common Equity and Related Stockholder Matters" on page 18 of
the Annual Report to Shareholders for the year ended December 31, 1994.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference from the information under the caption "Selected
Five Year Consolidated Financial Data" on page 13 of the Annual Report to
Shareholders for the year ended December 31, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference from the information under the caption
"Managements Discussion and Analysis of Financial Condition and Results of
Operations" on pages 14 through 17 of the Annual Report to Shareholders for the
year ended December 31, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Mylex Corporation at December 31,
1994 and 1993 and for each of the three years in the period ended December 31,
1994 and the independent public accountants report thereon are incorporated by
reference from pages 19 through 28 of the Annual Report to Shareholders for the
year ended December 31, 1994.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by item 10 of Form 10-K is incorporated by
reference from the information under the caption "Directors and Executive
Officers" of the Registrants definitive Proxy Statement for the Annual Meeting
of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by item 11 of Form 10-K is incorporated by
reference from the information under the caption "Executive Officers
Compensation" of the Registrants definitive Proxy Statement for the Annual
Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by item 12 of Form 10-K is incorporated by
reference from the information under the caption "Securities Ownership of
Management" of the Registrants definitive Proxy Statement for the Annual
Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by item 13 of Form 10-K is incorporated by
reference from the information under the caption "Certain Relationships and
Related Transactions" of the Registrants definitive Proxy Statement for the
Annual Meeting of Shareholders.
16
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following Consolidated Financial Statements of Mylex Corporation and the
Report of Independent Public Accountants, as listed under (a) (1) below, are
incorporated herein by reference to the Registrants Annual Report to
Shareholders for the year ended December 31, 1994.
(a) (1)Financial Statements
Page in
Annual
Report
--------
Consolidated Statements of Operations - Years ended
December 31, 1994, 1993 and 1992 20
Consolidated Balance Sheets at December 31, 1994 and 1993 19
Consolidated Statement of Cash Flow - Years ended December 31,
1994, 1993 and 1992 22
Consolidated Statements of Shareholder Equity - Years ended
December 31, 1994, 1993 and 1992 21
Notes to Consolidated Financial Statements 23-28
Report of Independent Public Accountants 28
(2) The following financial statement schedule and report on schedule are
submitted herewith:
Page
in 10-K
-------
Schedule II - Valuation and Qualifying Accounts S-1
Report of Independent Public Accountants on Schedules S-2
17
<PAGE>
(3) Exhibits included herein (numbered in accordance with Item 601 of
Regulation S-K):
Exhibit No. Exhibit
3.1 (d) Articles of Incorporation of Registrant, as amended
3.2 (d) By-laws of Registrant as amended March 30, 1989
10.10 (c) 1983 Incentive Stock Option Plan of Registrant as amended and
restated March 8, 1991.
10.11 (f) 1993 Stock Option Plan.
10.20 (c) Lease Agreement of premises at 34551 Ardenwood
Boulevard dated March 6, 1991.
10.21 (a) Documents related to the Company's revolving line of credit
with Imperial Bank; Security and Loan Agreement date July 15,
1994.
10.25 (e) Digital Equipment Corporation Basic Order Agreement.
10.28 (c) License Agreement with IBM effective December 1, 1990.
10.29 (c) Master Lease Agreement between United States Leasing
International, Inc., (formerly Ford Equipment Leasing Company)
and the Company, dated December 29, 1990, and related lease
commitments.
10.30 (c) Master Lease Agreement between the Company and Linc
Scientific Leasing, a division of Scientific Leasing Inc.
10.40 (a) The Company's 401(k) plan; Target Investment Advisory
Agreement, Standardized Adoption Agreement.
11.0 (a) The Company's statement regarding computation of per
share earnings.
18
<PAGE>
13.1 (a) Annual Report to Shareholders for the fiscal year ended
December 31, 1994.
24.1 (a) Consent of the Independent Auditors. (see schedule S-2.)
28.1 (c) Trademark registration No. 1,310,862.
(b) Reports on Form 8-K, none.
----------------------------------------------------------------------------
(a) Filed herewith
(b) Filed as an exhibit to the Registrants Annual Report on Form 10-K for the
year ended December 31, 1988, Commission File No. 0-13381 and incorporated
herein by reference.
(c) Filed as an exhibit to the Registrants Annual Report on Form 10-K, for
the year ended December, 1992, Commission File No. 0-13381 and incorporated
herein by reference.
(d) Filed as an exhibit to the Registration Statement on Form S-8 and Form 3,
on July 24, 1989, No. 33-30104 and incorporated herein by reference.
(e) Filed as an exhibit to the Registrants Quarterly Report on Form 10-Q, for
the period ended September 30, 1993, and incorporated herein by reference.
(f) Filed as an exhibit to the Registrants Annual Report on Form 10-K for
the year ended December 31, 1993, Commission File 0-13381 and incorporated
herein by reference.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MYLEX CORPORATION
Date: March 28, 1995 By: /s/ AL MONTROSS
--------------------------------
Al Montross
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appear
below constitutes and appoint Mr. Ismael Dudhia and Dr. M. Yaqub Mirza, jointly
and several, his attorneys-in-fact, each with power of substitution, for him in
any and all capacities, to sign any amendments to this Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or his substitute or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the Requirements of the Securities Exchange Act of 1934, this
Report of Form 10-K has been signed below by the following persons on behalf of
the Registrant and I n the capacities and on the dated indicated.
Signature Title Date
--------- ----- ----
/s/ Ismael Dudhia Chairman of the Board of Directors 3/28/95
----------------------
Mr. Ismael Dudhia
/s/ Richard Love Treasurer and Director 3/28/95
----------------------
Mr. Richard Love
/s/ M. Yaqub Mirza Secretary and Director 3/28/95
----------------------
Dr. M. Yaqub Mirza
20
<PAGE>
/s/ Inder Singh Director 3/28/95
----------------------
Dr. Inder Singh
/s/ Stephen McKenzie Director 3/28/95
----------------------
Mr. Stephen McKenzie
/s/ Al Montross President and Chief Executive Officer 3/28/95
---------------------- (Principal Executive Officer)
Mr. Al Montross
/s/ Colleen Meyers Vice President Finance and Chief 3/28/95
---------------------- Financial Officer
Ms. Colleen Meyers (Principal Accounting Officer)
21
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
SCHEDULE II
Valuation and Qualifying Accounts
Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
beginning cost and to other at
Classification of year expense accounts Charges (a) year-end
-------------- ---------- ---------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Amount deducted from assets to
which they apply:
Year ended December 31, 1994
Allowance for doubtful
accounts - accounts
receivable $5,403,000 -- -- ($48,871,000) $ 532,000
Year ended December 31, 1993
Allowance for doubtful
accounts - accounts
receivable $ 852,000 $4,676,000 -- ($ 125,000) $5,403,000
Year ended December 31, 1992
Allowance for doubtful
accounts - accounts
receivable $1,475,000 $1,956,000 -- ($ 2,579,000) $ 852,000
<FN>
(a) Doubtful accounts written off, less recoveries.
</TABLE>
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT AND CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Mylex Corporation:
Under date of January 30, 1995, we reported on the consolidated balance sheets
of Mylex Corporation and subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1994,
as contained the 1994 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1994. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related financial statement schedule as listed in item 14(a)2 of this Form
10-K. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We consent to incorporation by reference in the registration statements (Nos.
33-74022 and 33-82334) on Form S-8 of Mylex Corporation of our report dated
January 30, 1995, relating to the consolidated balance sheets of Mylex
Corporation and subsidiary as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1994, and our
report on the related schedule, which reports appear or are incorporated by
reference in the December 31, 1994, annual report on Form 10-K of Mylex
Corporation.
[SIGNATURE]
KPMG PEAT MARWICK LLP
San Jose, California
March 27, 1995
S-2
<PAGE>
EXHIBIT 10.21
[LOGO]
CORPORATE RESOLUTION REGARDING CREDIT
OFFICE: Oakland Regional ADDRESS: 1999 Harrison Street
Oakland, California 94612
RESOLVED, that MYLEX CORPORATION
borrow from IMPERIAL BANK, hereinafter referred to as "Bank", from time to
time, such sums of money as, in the judgement of the officer or officers
hereinafter authorized, this corporation may require; provided that the
aggregate amount of such borrowing, pursuant to this resolution, shall not at
any one time exceed the principal sum of Six Million and No/100 DOLLARS
($6,000,000.00), in addition to such amount as may be otherwise authorized;
RESOLVED FURTHER, that any 1 of the following named officers
Albert E. Montross President/C.E.O.
------------------------------------ the -------------------------------
Colleen Meyers Chief Financial Officer
------------------------------------ the -------------------------------
------------------------------------ the -------------------------------
------------------------------------ the -------------------------------
------------------------------------ the -------------------------------
of this corporation (the officer or officers acting in combination,
authorized to act pursuant hereto being hereinafter designated as "authorized
officers"), be and they are hereby authorized, directed and empowered, for
and on behalf and in the name of this corporation (1) to execute and deliver
to the Bank such notes or other evidences of indebtedness of this corporation
for the monies so borrowed, with interest thereon, as the Bank may require,
and to execute and deliver, from time to time, renewals or extensions of such
notes or other evidences of indebtedness; (2) to grant a security interest
in, transfer, or otherwise hypothecate or deed in trust for Bank's benefit
and deliver by such instruments in writing or otherwise as may be demanded by
the Bank, any of the property of this corporation as may be required by the
Bank to secure the payment of any notes or other indebtedness of this
corporation or third parties to the Bank, whether arising pursuant to this
resolution or otherwise; and (3) to perform all acts and execute and deliver
all instruments which the Bank may deem necessary to carry out the purposes
of this resolution;
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized and empowered, and that any one of said authorized officers be and
he/she is hereby authorized and empowered (1) to discount with or sell to the
Bank conditional sales contracts, notes, acceptances, drafts, bailment
agreements, leases, receivables and evidences of indebtedness payable to this
corporation, upon such terms as may be agreed upon by them and the Bank, and
to endorse in the name of this corporation said notes, acceptances, drafts,
bailment agreements, leases, receivables and evidences of indebtedness so
discounted, and to guarantee the payment of the same to the Bank, and (2) to
apply for and obtain from the Bank letters of credit and in connection
therewith to execute such agreement, applications, guarantees, indemnities
and other financial undertakings as Bank may require;
RESOLVED FURTHER, that said authorized officers are also authorized to
direct the disposition of the proceeds of any such obligation, and to accept
or direct delivery from the Bank of any property of this corporation at any
time held by the Bank;
RESOLVED FURTHER, that the authority given hereunder shall be deemed
retroactive and any and all acts authorized hereunder performed prior to the
passage of this resolution are hereby ratified and affirmed;
RESOLVED FURTHER, that this resolution will continue in full force and
effect until the Bank shall receive official notice in writing from this
corporation of the revocation thereof by a resolution duly adopted by the
Board of Directors of this corporation, and that the certification of the
Secretary of this corporation as to the signatures of the above named person
shall be binding on this corporation.
I, Dr. M. Yaqub Mirza, Secretary of the above named corporation, duly
organized and existing under the laws of the State of Florida, do hereby
certify that the foregoing is a full, true and correct copy of a resolution
of the Board of Directors of said corporation, duly and regularly passed and
adopted by the Board of Directors of said corporation.
I further certify that said resolution is still in full force and effect
and has not been amended or revoked, and that the specimen signatures
appearing below are the signatures of the officers authorized to sign for
this corporation by virtue of said resolution.
EXECUTED ON July 11, 94
AUTHORIZED SIGNATURES:
----------------------
Signature: ----------------------
Signature: ---------------------- ------------------------------------
(SECRETARY)
Signature: ---------------------- Dr. M. Yaqub Mirza
Signature: ----------------------
Signature: ----------------------
<PAGE>
LOGO
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE AND/OR INVENTORY)
This agreement is entered into between MYLEX CORPORATION
, a Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as may
be determined by Bank up to, but not exceeding in the aggregate unpaid
principal balance, the following Borrowing Base:
80.000 % of Eligible Accounts
0.000 % of the Value of Inventory
and in no event more than $5,500,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be
debited to the loan ledger account of Borrower maintained by Bank (herein
called "Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid
balance of Borrower's Loan Account on demand and (b) on or before the tenth
day of each month, interest on the average daily unpaid balance of the Loan
Account during the immediately preceding month at the rate of No &
750/1000ths percent (0.750%) per annum in excess of the rate of interest
which Bank has announced as its prime lending rate ("Prime Rate") which shall
vary concurrently with any change in such Prime Rate. Interest shall be
computed at the above rate on the basis of the actual number of days during
which the principal balance of the loan account is outstanding divided by
360, which shall for interest computation purposes be considered one year.
Bank at its option may demand payment of any or all of the amount due under
the Loan Account including accrued but unpaid interest at any time. Such
notice may be given verbally or in writing and should be effective upon
receipt by Borrower. The amount of interest payable each month by Borrower
shall not be less than a minimum monthly charge of $250.00. Bank is hereby
authorized to charge Borrower's deposit account(s) with Bank for all sums due
Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by
Borrower in a form satisfactory to Bank and shall contain a certification
setting forth the matters referred to in Section 1, which shall disclose that
Borrower is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to
be sold or to be leased, or for services rendered or to be rendered no matter
how evidenced, including accounts receivable, contract rights, chattel paper,
instruments, purchase orders, notes, drafts, acceptances, general intangibles
and other forms of obligations and receivables.
B. "Inventory" means all of the Borrower's goods, merchandise and other
personal property which are held for sale or lease, including those held for
display or demonstration or out on lease or consignment or to be furnished
under a contract of service or are raw materials, work in process or
materials used or consumed, or to be used or consumed in Borrower's business,
and shall include all property rights, patents, plans, drawings, diagrams,
schematics, assembly and display materials relating thereto.
C. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now
has or hereafter acquires a security interest.
D. "Eligible Accounts" means all of Borrower's Accounts excluding,
however, (1) all Accounts under which payment is not received within 90 days
from any invoice date, (2) all Accounts against which the account debtor or
any other person obligated to make payment thereon asserts any defense,
offset, counterclaim or other right to avoid or reduce the liability
represented by the Account and (3) any Accounts if the account debtor or any
other person liable in connection therewith is insolvent, subject to
bankruptcy or receivership proceedings or has made an assignment for the
benefit of creditors or whose credit standing is unacceptable to Bank and
Bank has so notified Borrower. Eligible Accounts shall only include such
accounts as Bank in it sole discretion shall determine are eligible from
time to time.
E. "Value of Inventory" means the value of Borrower's Inventory determined
in accordance with generally accepted accounting principles consistently
applied excluding, however, the amount of progress payments, pre-delivery
payments, deposits and any other sums received by Borrower in anticipation of
the sale and delivery of Inventory, all Inventory on consignment or lease to
others, and all property on consignment or lease from others to Borrower.
5. Borrower hereby assigns to Bank all Borrower's present and future
Accounts, including all proceeds due thereunder, all guaranties and security
therefor and all merchandise giving rise thereto, and hereby grants to Bank a
continuing security interest in all Borrower's Inventory and in all proceeds
and products thereof, whether now owned or hereafter existing or acquired,
including all moneys in the Collateral Account referred to in Section 6
hereof, as security for any and all obligations of Borrower to Bank, whether
now owing or hereafter incurred and whether direct, indirect, absolute or
contingent. So long as Borrower is indebted to Bank or Bank is committed to
extend credit to Borrower, Borrower will execute and deliver to Bank such
assignments, including Bank's standard forms of Specific or General
Assignment covering individual Accounts, notices, financing statements, and
other documents and papers as Bank may require in order to affirm, effectuate
or further assure the assignment to Bank of the Collateral or to give any third
party, including the account debtors obligated on the Accounts, notice of
Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts and Inventory
proceeds pursuant to paragraph 10, Borrower will collect with diligence all
Borrower's Accounts and Inventory proceeds, provided that no legal action
shall be maintained thereon or in connection therewith without Bank's prior
written consent. Any collection of Accounts or Inventory proceeds by
Borrower, whether in the form of cash, checks, notes, or other instruments for
the payment of money (properly endorsed or assigned where required to enable
Bank to collect same), shall be in trust for Bank, and Borrower shall keep
all such collections separate and apart from all other funds and property so
as to be capable of identification as the property of Bank and deliver said
collections, together with the proceeds of all cash sales, daily to Bank in
the identical form received. The proceeds of such collections when received
by Bank may be applied by Bank directly to the payment of Borrower's Loan
Account or any other obligation secured hereby. Any credit given by Bank upon
receipt of said proceeds shall be conditional credit subject to collection.
Returned items at Bank's option may be charged to Borrower's general account.
All collections of the Accounts and Inventory proceeds shall be set forth on
an itemized schedule, showing the name of the account debtor, the amount of
each payment and such other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts or Inventory
proceeds pursuant to paragraph 10, Borrower may continue its present policies
with respect to returned merchandise and adjustments. However, Borrower shall
immediately notify Bank of all cases involving returns, repossessions, and
loss or damage of or to merchandise represented by the Accounts or
constituting Inventory and of any credits, adjustments or disputes arising in
connection with the goods or services represented by the Accounts or
constituting Inventory and, in any of such events, Borrower will immediately
pay to Bank from its own funds (and not from the proceeds of Accounts or
Inventory) for application to Borrower's Loan Account or any other obligation
secured hereby the amount of any credit for such returned or repossessed
merchandise and adjustments made to any of the Accounts. Until payment is
made as provided herein or until release by Bank from its security interest,
all merchandise returned to or
Page 1 of 2
<PAGE>
repossessed by Borrower shall be set aside and identified as the property of
Bank and Bank shall be entitled to enter upon any premises where such
merchandise is located and take immediate possession thereof and remove same.
8. Borrower represents and warrants to Bank: (i) If Borrower is a
corporation, that borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other incorporation
papers, or of any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is found or affected; (ii) Borrower is, or at the
time the collateral becomes subject to Bank's security interest will be, the
true and lawful owner of and has, or at the time the Collateral becomes
subject to Bank's security interest will have, good and clear title to the
Collateral, subject only to Bank's rights therein; (iii) Each Account is, or
at the time the Account comes into existence will be, a true and correct
statement of a bona fide indebtedness incurred by the debtor named therein in
the amount of the Account for either merchandise sold or delivered (or being
held subject to Borrower's delivery instructions) to, or services rendered,
performed and accepted by, the account debtor; (iv) That there are or will be
no defenses, counterclaims, or setoffs which may be asserted against the
Accounts; and (v) any and all financial information, including information
relating to the Collateral, submitted by Borrower to Bank, whether previously
or in the future, is or will be true and correct.
9. Borrower will: (i) Furnish Bank from time to time such financial
statements and information as Bank may reasonably request and inform Bank
immediately upon the occurrence of a material adverse change therein; (ii)
Furnish Bank periodically, in such form and detail and at such times as Bank
may require, statements showing aging and reconciliation of the Accounts and
collections thereon, and reports as to the Inventory and sales thereof; (iii)
Permit representatives of Bank to inspect the Inventory and Borrower's books
and records relating to the Collateral and make extracts therefrom at any
reasonable time and to arrange for verification of the Accounts, under
reasonable procedures, acceptable to Bank, directly with the account debtors
or otherwise at Borrower's expense; (iv) Promptly notify Bank of any
attachment or other legal process levied against any of the Collateral and any
information received by Borrower relative to the Collateral, including the
Accounts, the account debtors or other persons obligated in connection
therewith, which may in any way affect the value of the Collateral or the
rights and remedies of Bank in respect thereto; (v) Reimburse Bank upon
demand for any and all legal costs, including reasonable attorney's fees, and
other expense incurred in collecting any sums payable by Borrower under
Borrower's Loan Account or any other obligation secured hereby, enforcing any
term or provision of this Security Agreement or otherwise or in the checking,
handling and collection of the Collateral and the preparation and enforcement
of any agreement relating thereto; (vi) Notify Bank of each location at which
the Inventory is or will be kept, other than for temporary processing,
storage or similar purposes, and of any removal thereof to a new location and
of each office of Borrower at which records of Borrower relating to the
Accounts are kept; (vii) Provide, maintain and deliver to Bank policies
insuring the Collateral against loss or damage by such risks and in such
amounts, forms and companies as Bank may require and with loss payable solely
to Bank, and, in the event Bank takes possession of the Collateral, the
insurance policy or policies and any unearned or returned premium thereon
shall at the option of Bank become the sole property of Bank, such polices and
the proceeds of any other insurance covering or in any way relating to the
Collateral, whether now in existence or hereafter obtained, being hereby
assigned to Bank; (viii) Do all acts necessary to maintain, preserve and
protect all Inventory, keep all Inventory in good condition and repair and
not to cause any waste or unusual or unreasonable depreciation thereof, and
(ix) In the event the unpaid balance of Borrower's Loan Account shall exceed
the maximum amount of outstanding loans to which Borrower is entitled under
Section 1 hereof, Borrower shall immediately pay to Bank, from its own funds
and not from the proceeds of Collateral, for credit to Borrower's Loan
Account the amount of such excess.
10. Bank may at any time, without prior notice to Borrower, collect the
Accounts and Inventory proceeds and may give notice of assignment to any and
all account debtors, and Borrower does hereby make, constitute and appoint
Bank its irrevocable, true and lawful attorney with power to receive, open
and dispose of all mail addressed to Borrower, to endorse the name of
Borrower upon any checks or other evidences of payment that may come into the
possession of Bank upon the Accounts or as proceeds of Inventory; to endorse
the name of the undersigned upon any document or instrument relating to the
Collateral; in its name or otherwise, to demand, sue for, collect and give
acquittances for any and all moneys due or to become due upon the Accounts;
to compromise, prosecute or defend any action, claim or proceeding with
respect thereto; and to do any and all things necessary and proper to carry
out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or grant
a security interest in any of the Collateral other than to Bank, or execute
any financing statements covering the Collateral in favor of any secured
party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or breach
be made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any statement or representation made for the
purpose of obtaining credit hereunder prove false; (iii) Bank deem the
Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower become
insolvent or make an assignment for the benefit of creditors; or (v) Any
proceeding be commended by or against Borrower under any bankruptcy,
reorganization, arrangements, readjustment of debt or moratorium law or
statute; then in any such event, Bank may, at its option and without demand
first made and without notice to Borrower, do any one or more of the
following: (a) Terminate its obligation to make loans to Borrower as
provided in Section 1 hereof; (b) Declare all sums secured hereby immediately
due and payable; (c) Immediately take possession of the Collateral wherever it
may be found, using all necessary force so to do, or require Borrower to
assemble the Collateral and make it available to Bank at a place designated
by Bank which is reasonably convenient to Borrower and Bank, and Borrower
waives all claims for damages due to or arising from or connected with any
such taking; (d) Proceed in the foreclosure of Bank's security interest and
sale of the Collateral in any manner permitted by law, or provided for
herein; (e) Sell, lease or otherwise dispose of the Collateral at public or
private sale, with or without having the Collateral at the place of sale, and
upon terms and in such manner as Bank may determine, and Bank may purchase
same at any such sale; (f) Retain the Collateral in full satisfaction of the
obligations secured thereby; (g) Exercise any remedies of a secured party
under the Uniform Commercial Code. Prior to any such disposition, Bank may,
at its option, cause any of the Collateral to be repaired or reconditioned in
such manner and to such extent as Bank may deem advisable, and any sums
expended therefor by Bank shall be repaid by Borrower and secured hereby.
Bank shall have the right to enforce one or more remedies hereunder
successively or concurrently, and any such action shall not estop or prevent
Bank from pursuing any further remedy which it may have hereunder or by law.
If a sufficient sum is not realized from any such disposition of Collateral to
pay all obligations secured by this Security Agreement, Borrower hereby
promises and agrees to pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process
be issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, the obligation of Bank to make loans to
Borrower as provided in Section 1 hereof shall immediately terminate and the
unpaid balance of the Loan Account, all other obligations secured hereby and
all other sums due hereunder shall immediately become due and payable without
demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and record submitted to Bank in
connection with the transactions contemplated herein at any time subsequent
to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but each
and every condition hereof shall be in addition thereto.
*16. Additional Provisions: See attached Addendum marked Exhibit "A"
Executed this 15th day of July , 1994
MYLEX CORPORATION
------------------------------------
(Name of Borrower)
IMPERIAL BANK BY:
------------------------------------
(Authorized Signature and Title)
BY: BY:
--------------------------- ------------------------------------
Title (Authorized Signature and Title)
*If none, insert "None"
Page 2 of 2
<PAGE>
[LOGO]
Member FDIC
NOTE
$ 500,000.00 Oakland, California July 15, 1994
On May 15, 1995, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its Oakland Regional office, the principal sum of
$500,000.00 MAXIMUM or such sums up to the maximum if so stated, as the Bank
may now or hereafter advance to or for the benefit of the undersigned in
accordance with the terms hereof, together with interest from date of
disbursement or N/A, whichever is later, on the unpaid principal balance
/ /at the rate of % per year /X/at the rate of 2.000% per year in excess of
the rate of interest which Bank has announced as its prime lending rate (the
"Prime Rate"), which shall vary concurrently with any change in such Prime
Rate, or $250.00, whichever is greater. Interest shall be computed at the
above rate on the basis of the actual number of days during which the
principal balance is outstanding, divided by 360, which shall, for interest
computation purposes, be considered one year.
Interest shall be payable /X/monthly / /quarterly / /included with principal
/ /in addition to principal / /beginning August 15, 1994, and if not so paid
shall become a part of the principal. All payments shall be applied first to
interest, and the remainder, if any, on principal. / /(if checked), Principal
shall be payable in installments of $ , or more, each installment on
the day of each , beginning . Advances not to
exceed any unpaid balance owing at any one time equal to the maximum amount
specified above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice or
demand, the entire balance of principal and accrued interest then remaining
unpaid shall (a) become immediately due and payable, and (b) thereafter bear
interest, until paid in full, at the increased rate of 5% per year in excess
of the rate provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the
maker(s) to pay principal or interest when due; the filing as to each person
obligated hereon, whether as maker, co-maker, endorser or guarantor
(individually or collectively referred to as the "Obligor") of a voluntary or
involuntary petition under the provisions of the Federal Bankruptcy Act; the
issuance of any attachment or execution against any asset of any Obligor; the
death of any Obligor; or any deterioration of the financial condition of any
Obligor which results in the holder hereof considering itself, in good faith,
insecure.
/ / If any installment payment or principal balance payment due hereunder is
delinquent ten or more days, Obligor agrees to pay a late charge in the
amount of 5% of the payment so due and unpaid, in addition to the payment;
but nothing in this paragraph is to be construed as any obligation on the
part of the holder of this note to accept payment of any installment past due
or less than the total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all
costs and expenses of collection and reasonable attorney's fees incurred by
the holder hereof on account of such collection, plus interest at the rate
applicable to principal, whether or not suit is filed hereon. Each Obligor
shall be jointly and severally liable hereon and consents to renewals,
replacements and extensions of time for payment hereof, before, at, or after
maturity; consents to the acceptance, release or substitution of security for
this note; and waives demand and protest and the right to assert any statute
of limitations. Any married person who signs this note agrees that recourse
may be had against separate property for any obligations hereunder. The
indebtedness evidenced hereby shall be payable in lawful money of the United
States. In any action brought under or arising out of this note, each
Obligor, including successor(s) or assign(s) hereby consents to the
application of California law, to the jurisdiction of any competent court
within the State of California, and to service of process by any means
authorized by California law.
No single or partial exercise of any power hereunder, or under any deed
of trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder
hereof in exercising any right hereunder, or under any deed of trust,
security agreement or other agreement, shall not operate as a waiver of such
right, or of any other right, under this note or any deed of trust, security
agreement or other agreement in connection herewith.
MYLEX CORPORATION
-------------------------------------- --------------------------------------
BY
-------------------------------------- --------------------------------------
-------------------------------------- --------------------------------------
<PAGE>
[LOGO]
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
Name(s): MYLEX CORPORATION Date: July 15, 1994
$ paid to you directly by Cashiers Check No.
$ credited to deposit account No.
$ paid on Loan(s) No.
$ 500,000.00 amounts paid to Bank for: repayment of Letters of Credit
when drawn on.
Amounts paid to others on your behalf:
$ to Title Insurance Company
$ to Public Officials
$ to
$ to
$ to
$ to
$ 500,000.00 SUBTOTAL (NOTE AMOUNT)
LESS $ 0.00 Prepaid Finance Charge (Loan fee(s))
$ 500,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds as stated above.
MYLEX CORPORATION
BY
-------------------------------------- --------------------------------------
Signature Signature
-------------------------------------- --------------------------------------
Signature Signature
<PAGE>
"EXHIBIT A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT
("SECURITY AND LOAN AGREEMENT") BETWEEN
MYLEX CORPORATION AND IMPERIAL BANK
DATED: JULY 15, 1994.
This Addendum is made and entered into as of July 15, 1994 by and between
Mylex Corporation ("Borrower") and Imperial Bank ("Bank"). This Addendum
amends and supplements the Security and Loan Agreement. In the event of any
inconsistency between the terms herein and the terms of the Security and Loan
Agreement, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meaning set forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on May 15,
1995, subject to Bank's right to renew or extend said commitment in its sole
and absolute discretion. Any such renewal or extension of the commitment
shall not be binding upon Bank unless it is in writing and signed by an
officer of the Bank. If Bank elects to terminate the line of credit prior to
May 15, 1995, Bank shall give Borrower 90 days prior written notice of
termination. In the event of default, however, Bank shall only give five days
prior notice.
2. In addition to the provisions in the Security and Loan Agreement,
Eligible Accounts shall only include such accounts as Bank in its sole
discretion shall from time to time determine are eligible. Eligible Accounts
shall also not include any of the following:
a. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
b. Accounts with respect to which twenty five percent (25%) or more of
the account debtor's total accounts or obligations outstanding to Borrower are
not eligible.
c. Accounts representing billings for service or maintenance
contracts or for inventory or equipment on rent to the account debtor.
d. Accounts with respect to international transactions unless insured
in a manner acceptable to Bank or covered by letter(s) of credit, in form and
substance
<PAGE>
EXHIBIT A
ADDENDUM TO SECURITY AND LOAN AGREEMENT
MYLEX CORPORATION
JULY 15, 1994
Page 2.
acceptable to Bank.
3. Borrower represents and warrants that:
a. Except as disclosed on Exhibit 3.a., There is no litigation or
other proceeding pending or threatened against or affecting Borrower, and
Borrower is not in default with respect to any order, writ, injunction,
decree or demand of any court or other governmental or regulatory authority.
b. The balance sheet of Borrower dated as of March 31, 1994, and the
related profit and loss statement for the three months then ended, a copy of
which has heretofore been delivered to Bank by Borrower, and all other
statements and data submitted in writing by Borrower to Bank in connection
with its request for credit are true and correct, and said balance
sheet and profit and loss statement truly present the financial condition of
Borrower as of the date thereof and the results of the operations of Borrower
for the period covered thereby, and have been prepared in accordance with
generally accepted accounting principles on a basis consistently maintained.
Since such date, there have been no material adverse changes. Borrower has no
knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any
special commitments or substantial contracts which are not reflected in said
balance sheet, other than in the ordinary and normal course of its business,
which may have a materially adverse effect upon its financial condition,
operations or business as now conducted.
c. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
d. Borrower, as of the date hereof, possesses all necessary
trademarks, trade names, copyrights, patents, patent rights, and licenses to
conduct its business as now operated, without any known conflict with valid
trademarks, trade names, copyrights, patents and license rights of others.
4. Borrower agrees that so long as it is indebted to Bank, it will not,
without prior written consent of Bank:
a. Make any substantial change in the character of its business; or
make any change in its executive management; or allow the salary, bonuses or
other compensation of its executives, to exceed $1,500,000 per year, in the
aggregate.
<PAGE>
EXHIBIT A
ADDENDUM TO SECURITY AND LOAN AGREEMENT
MYLEX CORPORATION
JULY 15, 1994
Page 3.
b. Create, incur, assume or permit to exist any indebtedness for
borrowed monies other than loans from Bank except obligations now existing as
shown in financial statement dated March 31, 1994, excluding those being
refinanced by Bank; or sell or transfer, either with or without recourse, any
accounts or notes receivable or any monies due or to become due.
c. Create, incur, or assume any mortgage, pledge, encumbrance, lien or
charge of any kind (including the charge upon property at any time purchased
or acquired under conditioned sale or other title retention agreement) upon
any asset now owned or hereafter acquired by it, other than liens for taxes
not delinquent and liens in Bank's favor.
d. Make any loans or advances to any person or other entity other than
in the ordinary and normal course of its business as now conducted or make
any investment in the securities of any person or other entity other than the
United States Government; or guarantee or otherwise become liable upon the
obligation of any person or other entity, except by endorsement of negotiable
instruments for deposit or collection in the ordinary and normal course of
its business.
e. Purchase or otherwise acquire the assets or business of any person
or other entity; or liquidate, dissolve, merge or consolidate, or commence
any proceedings therefore; or except in the ordinary and normal course of its
business, sell (including without limitation the selling of any property or
other asset accompanied by the leasing back of the same) any assets including
any fixed assets, any property, or other assets necessary for the continuance
of its business as now conducted.
f. Declare or pay any dividend or make any other distribution on any
of its capital stock now outstanding or hereafter issued or purchase, redeem
or retire any of such stock.
g. Make, or incur obligations for, capital expenditures in excess of
$500,000 in any fiscal year.
h. Make, or incur liability for, payments of rent under leases of real
property in excess of $1,000,000 and personal property in excess of $30,000
in any one fiscal year.
5. Borrower affirmatively covenants that so long as any loans, obligations
or liabilities remain outstanding or unpaid to Bank, it will:
<PAGE>
EXHIBIT A
ADDENDUM TO SECURITY AND LOAN AGREEMENT
MYLEX CORPORATION
JULY 15, 1994
Page 4.
a. At all times maintain a minimum tangible net worth (meaning the
excess of all assets, excluding any value for goodwill, trademarks, patents,
copyrights, organization expense and other similar intangible items but
including subordinated debt, over its liabilities) of not less than the sum
of $8,000,000 plus the actual cumulative profit for the quarters ended June
30, September 30, and December 31, 1994;
b. At all times maintain a maximum ratio of total debt to tangible net
worth not to exceed one and one half to one (1.50 : 1).
c. At all times maintain a minimum working capital, net of accounts
receivable reserves and inventory reserves, of $4,000,000.
d. At all times maintain a current ratio of at least one and four
tenths to one (1.40 : 1).
e. Earn a minimum profit of at least $700,000 during each fiscal
quarter ("Quarterly Profit).
f. At all times maintain an accounts receivable turnover not to exceed
sixty (60) days.
g. At all times maintain an inventory turnover not to exceed sixty two
(62) days.
h. Within fifteen (15) days after the end of each month, delivery to
Bank an accounts receivable aging, accounts payable aging, inventory summary,
and transaction report (with supporting schedules) in form satisfactory to
Bank, and certified by an officer of Borrower.
i. Within thirty (30) days after the end of each month, deliver to
Bank a financial statement consisting of a balance sheet and profit and loss
statement in form satisfactory to Bank, and certified by an officer of
Borrower.
j. Within ninety (90) days after the end of Borrower's fiscal year,
deliver to Bank a report of audit of Borrower's financial statements together
with changes in financial position certified without qualification by an
independent certified public accountant selected by Borrower but acceptable
to Bank. Quarterly 10-Q reports and annual 10-K reports shall be delivered to
Bank within five (5) days after filing of same
<PAGE>
EXHIBIT A
ADDENDUM TO SECURITY AND LOAN AGREEMENT
MYLEX CORPORATION
JULY 15, 1994
Page 5.
with the Securities and Exchange Commission.
k. In conjunction with each financial statement submission, deliver to
Bank a completed Compliance Certificate in the form of Exhibit 1, attached
hereto, and certified by an officer of Borrower.
l. Maintain and preserve all rights, franchises and other authority
adequate for the conduct of its business; maintain its properties, equipment
and facilities in good order and repair; conduct its business or partnership,
maintain and preserve its existence.
m. Maintain public liability, property damage and workers compensation
insurance and insurance on all its insurable property against fire and other
hazards with responsible insurance carriers to the extent usually maintained
by similar businesses. Borrower shall provide evidence of property insurance
in amounts and types acceptable to Bank, and certificates naming Bank as loss
payee.
n. Pay and discharge, before the same become delinquent and before
penalties accrue thereon, all taxes, assessments and governmental charges
upon or against it or any of its properties, and any of its other liabilities
at any time existing, except to the extent and so long as:
(i) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
affect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
(ii) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed
by it adequate with respect thereto.
o. Maintain a standard and modern system of accounting in accordance
with generally accepted accounting principles on a basis consistently
maintained; permit Bank's representatives to have access to, and to examine
its properties, books and records at all reasonable times.
<PAGE>
EXHIBIT A
ADDENDUM TO SECURITY AND LOAN AGREEMENT
MYLEX CORPORATION
JULY 15, 1994
Page 6.
6. In addition to any other amounts due, or to become due, Borrower agrees
to pay a loan fee in the amount of thirty thousand dollars ($30,000) to Bank
upon signing of this Agreement.
7. Borrower will maintain substantially all its banking relationship with
Bank and hereby agrees to maintain not less than $500,000 in net free
collected, non-interest bearing compensating balances with Bank after
deducting for reserves and any balance necessary to cover charges for
services provided.
8. No failure or delay on the part of Bank or any holder of Notes issued
hereunder, in the exercise of any power, right to privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise
thereof. All rights and remedies existing under this agreement or any not
issued in connection with a loan that Bank may make hereunder, are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
MYLEX CORPORATION "BORROWER" IMPERIAL BANK "BANK"
-------------------------------------- --------------------------------------
BY BY
-------------------------------------- --------------------------------------
TITLE TITLE V.P.
-------------------------------------- --------------------------------------
BY COLLEEN MEYERS BY
-------------------------------------- --------------------------------------
TITLE CHIEF FINANCIAL OFFICER TITLE VICE PRESIDENT
-------------------------------------- --------------------------------------
BY
--------------------------------------
TITLE
--------------------------------------
<PAGE>
EXHIBIT A
ADDENDUM TO SECURITY AND LOAN AGREEMENT
MYLEX CORPORATION
JULY 15, 1994
Page 7.
EXHIBIT 1
COMPLIANCE CERTIFICATE
The financial statement of Mylex Corporation (Borrower) attached hereto dated
as of , and submitted to Imperial bank pursuant to
the Loan and Security Agreement between us dated July 15, 1994, shows
compliance with all financial covenants (unless otherwise noted, below) as
specified therein, as follows:
COVENANT: ACTUAL:
5.a. Minimum Tangible Net Worth: $8,000,000, plus
Quarterly Profit to date $ . ----------------
5.b. Maximum Debt to Tangible Net Worth Ratio: 1.50 : 1. ----------------
5.c. Minimum Working Capital: $4,000,000. ----------------
5.d. Minimum Current Ratio: 1.40 : 1. ----------------
5.e. Minimum Quarterly Profit: $700,000. ----------------
(Show quarter to date)
5.f. Maximum Accounts Receivable Turnover: 60 days. ----------------
5.g. Maximum Inventory Turnover: 62 days. ----------------
Exceptions: (if none, so state)
----------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
The undersigned authorized officer of Mylex Corporation hereby certifies that
Borrower is in complete compliance with the terms and conditions of the
Security and Loan Agreement for the period ending ,
except as noted above. I know of no pending conditions which may cause an
Event of Default in the next thirty (30) days. The required support documents
for this certification are attached and prepared in accordance with generally
accepted accounting principles, consistently applied.
Mylex Corporation,
By: Date:
---------------------------------------------- ------------------------------
Authorized Signer: Title:
---------------------------------------------- ------------------------------
(please print)
<PAGE>
EXHIBIT A
ADDENDUM TO SECURITY AND LOAN AGREEMENT
MYLEX CORPORATION
JULY 15, 1994
Page 8.
Exhibit 3.a.
LITIGATION DISCLOSURE
Borrower has the following litigation pending:
1. AMI suit filed on September 3, 1993 in the United District Court,
Atlanta Georgia.
<PAGE>
EXHIBIT 10.40
401(k) Profit Sharing Plan
Standardized
Adoption Agreement
<PAGE>
PRUDENTIAL SECURITIES INCORPORATED RETIREMENT PLUS 3 401(K) PLAN
(WITH FULL PARTICIPANT DIRECTION)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Employer Business Name:
MYLEX CORPORATION
----------------------------------------------------------
The Employer named above hereby
/X/ adopts a Section 401(k) plan in the form of the Prudential
Securities Incorporated Retirement Plus 3 401(k) Plan.
/ / amends and continues its existing Section 401(k) plan referred to
in Item 2 below to provide as set forth in the Prudential Securities
Incorporated Retirement Plus 3 401(k) Plan.
The name of the plan is
MYLEX CORPORATION 401(k) Plan
-----------------------------------------
Employer Business Name
------------------------------------------------------------------------------
------------------------------------------------------------------------------
1. EMPLOYER DATA
A. 34551 Ardenwood Blvd.
---------------------------------------
Employer's Address: Number and Street
Fremont CA 94555
----------------------------------------
City State Zip
B. (510) 796-6100
----------------------------------------
Employer's Telephone Number
C. Jan. 1
-----------------------------------------
Employer's Taxable Year Begins
D. 592291597
------------------------------------------
Employer's Taxpayer Identification Number
E. The Employer is: /X/ a corporation
/ / a partnership or unincorporated
sole proprietorship
/ / an S corporation
F. MANUFACTURE
------------------------------------------
Type of Business
<PAGE>
------------------------------------------------------------------------------
------------------------------------------------------------------------------
2. PLAN DATA
A. Effective Date: The first day of the Plan Year beginning Jan. 1
(insert date).
B. If this is an amendment of an existing plan, complete the following:
--------------------------------------------------------------------
Name of Prior Plan
--------------------------------------------------------------------
Original Effective Date of Prior Plan
C. Dec. 31
--------------------------------------------------------------------
The Plan Year Ends
------------------------------------------------------------------------------
------------------------------------------------------------------------------
3. PARTICIPATION REQUIREMENTS
A. ELIGIBILITY. All Employees of all Employers and Affiliates are
eligible to participate in the Plan, except that certain union
employees and non-resident aliens (as further defined in the
Prototype Plan) are automatically excluded.
/ / Employees subject to collective bargaining (union) are
included
/ / Non-resident alien employees with no U.S. source income are
included.
B. AGE AND SERVICE REQUIREMENTS.
1. AGE (choose one):
/ / No minimum age requirement
/X/ The Employee must be at least age 21 (not greater
than 21)
2. YEARS OF SERVICE (choose one):
/ / No service requirement
/X/ The Employee must complete one Year of Service.
<PAGE>
3. WAIVER (choose one):
For individuals employed on Sept. 20, 1994 (insert date):
/ / The age and service requirements are not waived
/ / The age requirement is waived
/X/ The service requirement is waived
/ / The age and service requirements are both waived
C. ENTRY DATE (choose one):
/ / Monthly as of the first day of the calendar month.
/X/ Quarterly as of the first day of the calendar quarter.
/ / Semi-annually as of the first day of the first month and first
day of the seventh month of the Plan Year.
D. PREDECESSOR SERVICE. For purposes of eligibility (choose one):
/X/ Service with unaffiliated employers or predecessors will not be
counted
/ / Service with the following unaffiliated employer(s) or
predecessors will be considered:
----------------------------------------------------------
----------------------------------------------------------
(NOTE: Item 3.D. does not override any predecessor service required to
be credited under section 414(a) of the Code.)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
4. CONTRIBUTIONS AND FORFEITURES
A. SECTION 401(K) CONTRIBUTIONS:
1. SALARY REDUCTION CONTRIBUTIONS. Participant elections to
reduce Compensation shall be made in increments of one
percent and shall not be less than 1% nor greater than 15%
(not greater than 20).
The reduction amount is to be allocated to the Participant's
Account under the Plan as a Section 401(k) Contribution.
<PAGE>
2. 401(K) BONUS CONTRIBUTIONS
If the Employer declares a 401(k) Bonus Contribution for a Plan
Year, the contribution will be allocated as a Section 401(k)
Contribution to the Accounts of (choose one):
/ / All eligible Participants
/X/ Only eligible Participants who are Non-Highly Compensated
Employees
B. MATCHING CONTRIBUTIONS:
1. AMOUNT OF MATCHING CONTRIBUTIONS (choose one):
/ / No Matching Contributions shall be made.
/X/ The Employer shall make Matching Contributions for each
Participant equal to 25% of the first 2% of the
Participant's Compensation which is contributed as a Salary
Reduction Contribution, but no Matching Contribution shall
be made on Salary Reduction Contributions in excess of $375
per year (specify time period).
/ / The Employer shall make Matching Contributions equal to the
sum of (1) ____ % of the portion of the Participant's Salary
Reduction Contribution which does not exceed _____ % of the
Participant's Compensation plus (2) _____ % of the portion
of the Participant's Salary Reduction Contribution which
exceeds _____ % of the Participant's Compensation, but does
not exceed _____ % of the Participant's Compensation.
(NOTE: The percentage entered in (2) must not be greater
than the percentage in (1).)
2. FORFEITURES ATTRIBUTABLE TO MATCHING CONTRIBUTIONS (choose one):
/ / will be reallocated at the end of the Plan Year in which the
forfeiture occurs to each eligible Participant's Account, in
the ratio that the Participant's total Compensation bears to
all eligible Participants' total Compensation.
/X/ will be used to reduce the Employer's Matching Contribution in
the Plan Year in which they occur in the manner described in
Section 3.8 of the Prototype Plan.
C. PROFIT-SHARING CONTRIBUTIONS:
/ / No Profit-Sharing Contributions shall be made.
/X/ The Employer may make discretionary Profit-Sharing Contributions
under the Plan.
1. WHO SHARES IN PROFIT-SHARING CONTRIBUTIONS:
GENERAL RULE: Except as provided below, any Participant who has
Compensation in the Plan Year will be entitled to share in Profit-
Sharing Contributions for the Plan Year (choose one):
<PAGE>
/ / No exceptions to the general rule apply.
/X/ A Participant who is not employed by an Employer or an
Affiliate on the last day of the Plan Year and who did not
complete more than 500 Hours of Service for the Plan Year
will not share in Profit-Sharing Contributions for that year.
2. ALLOCATION OF PROFIT-SHARING CONTRIBUTIONS (choose one):
/X/ Profit-Sharing Contributions will not be integrated with Social
Security contributions.
/ / Profit-Sharing Contributions will be integrated with Social
Security contributions.
The Plan's Integration Level will be (choose one):
/ / The Taxable Wage Base.
/ / $_____ (no more than the Taxable Wage Base currently in
effect).
/ / _____ % (not to exceed 100%) of the Taxable Wage Base.
3. COMPENSATION
/X/ will / / will not
include amounts contributed under any salary reduction or similar
arrangement and which is not included in the Employee's gross income
under Code section 125, 402(a)(8), 402(h) or 403(b).
D. VOLUNTARY CONTRIBUTIONS (choose one):
/ / Voluntary Contributions will be permitted.
/X/ Voluntary Contributions will not be permitted.
<PAGE>
------------------------------------------------------------------------------
------------------------------------------------------------------------------
5. VESTING OF CONTRIBUTIONS
A. NORMAL RETIREMENT AGE IS: age 59 1/2 (not over 65)
B. VESTING SCHEDULE
1. Profit-Sharing Contributions vest in accordance with the
following schedule (Note: If the Plan is a Top-Heavy Plan,
the vesting schedule chosen below must be at least as
favorable as one of the schedules listed in Item 8.C.)
(choose one):
/ / Full and immediate vesting
/ / 100% after _____ (not greater than 5) Years of Service
/X/ 20% after 1 (not greater than 3) Years of Service and
an additional 20% for each year thereafter
2. Matching Contributions vest in accordance with the following
Schedule (choose one):
/ / Full and immediate vesting
/X/ Same vesting schedule as Profit-Sharing Contributions
3. Service excluded for vesting (OPTIONAL):
/X/ Service during any period for which neither the
Employer nor any Affiliate maintained the Plan or a
predecessor plan
/ / Service before age _____ (up to 18)
4. For vesting purposes (choose one):
/X/ Service with unaffiliated employers or predecessors
will not be considered
<PAGE>
/ / Service with the following unaffiliated employer(s) or
predecessors will be considered:
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
(NOTE: Item B.4. does not override any predecessor service
required to be credited under section 414(a) of the Code.)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
6. WITHDRAWALS, LOANS AND DISTRIBUTIONS
A. WITHDRAWALS AFTER AGE 59 1/2 OR DISABILITY (choose one):
/X/ Withdrawals of the vested portion of the Participant's
Account attributable to the following amounts will be
permitted to the extent allowable under the law after
a Participant attains age 59-1/2 or upon a Participant's
Disability (check applicable boxes, if any):
/X/ Profit-Sharing Contributions
/X/ Matching Contributions
/X/ Salary Reduction Contributions
/X/ 401(k) Bonus Contributions
/X/ Trustee Transfers
/ / Are not permitted
B. HARDSHIP WITHDRAWALS
Hardship withdrawals of the vested portion of a Participant's Account
(choose one):
<PAGE>
/X/ Are permitted to the full extent allowable under the law
/ / Are permitted, but only the Participant's Salary
Reduction Contributions may be withdraw
/ / Are not permitted
C. LOANS
/ / Loans will not be permitted
/X/ Loans will be permitted
D. FORM OF DISTRIBUTIONS (choose one):
Subject to Article VII of the Plan, distributions are payable
in (choose one):
/X/ Single-sum distributions only
/ / Installments only
/ / Any combination of the foregoing
E. COMMENCEMENT OF DISTRIBUTIONS (choose one)
/X/ Distributions to a Participant shall commence as soon as
practicable following the Participant's retirement or other
termination of Employment.
/ / Distributions to a Participant shall commence as soon as
practicable following the later of (1) the Participant's
termination of Employment and (2) the Participant's
attainment of age _____ (not greater than Normal Retirement
Age).
------------------------------------------------------------------------------
------------------------------------------------------------------------------
7. INVESTMENTS
A. PARTICIPANT-DIRECTED ACCOUNTS
/X/ Each Participant may direct the investment of all amounts in his
Account in accordance with the terms of the Plan.
<PAGE>
B. LIMITED DIRECTION OR EMPLOYER DIRECTION OF ACCOUNTS
1. All contributions under the Plan are to be invested in shares of
investment companies available through Prudential Securities
Incorporated selected by the Employer as investment options under
the Plan.
In addition, contributions under the Plan may be (check appropriate
boxes, if any):
(a) / / Invested in securities of the Employer or any affiliate
of the Employer, subject to Section 10.4 of the Plan and
provided the securities are traded on a recognized
exchange or in the "national market system" maintained
by the National Association of Securities Dealers, Inc.
(b) / / Invested in any investment available for acquisition in
accordance with the Plan, provided that this option shall
not be effective unless all investment decisions pursuant
to this option are made by an Investment Manager approved
by Prudential. (If this option is checked, "By the
Employer" must be selected in Item 7.B.2. below for each
subaccount to be invested in accordance with this option.)
2. Investment of accounts will be directed among the selected
investment companies and/or the options specified in B.1.(a) and
(b) above, if any (check appropriate boxes):
By the By the
Participant Employer
----------- --------
Section 401(k) Contribution /X/ / /
Matching Contribution /X/ / /
Profit-Sharing Contribution /X/ / /
Voluntary, Transfer and
and Rollover Contributions /X/ / /
To the extent a Participant fails to exercise investment control over
his Account when such control is given to him above, the assets in the
Participant's Account will be invested in the "default investment
vehicle" selected by the Employer.
<PAGE>
3. / / If this box is checked, investment selections and investment
directions otherwise to be made or given by the Employer will
be made or given by the fiduciary named here:
---------------------------------------------------------
---------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
8. TOP-HEAVY PROVISIONS
A. / / Check this box if this Plan is to automatically satisfy the top-
heavy requirements each Plan Year. Each Plan Year the Employer
will make a Profit-Sharing Contribution at least equal to _____%
of the Compensation of each eligible Participant. (If this Box
is checked, the vesting schedule selected in Item 5.B. must be
at least as favorable as one of the vesting schedules provided
for under Item 8.C. below.)
B. /X/ Check this box and complete the remainder of this item if this
Plan is to satisfy the top-heavy requirements only in Plan Years in
which the Plan is a Top-Heavy Plan. If the Employer or any of its
Affiliates maintain any other plan, indicate which plan will
provide the required minimum allocation:
--------------------------------------------------------------
--------------------------------------------------------------
C. TOP-HEAVY VESTING SCHEDULE:
/ / 100% after _____ (not in excess of 3) Years of Service
/X/ 20% after 2 Years of Service and 20% for each year thereafter
(If the vesting schedule selected in Item 5.B. is more favorable
than the schedule selected above, that schedule will continue to
apply even in Plan Years in which the Plan is a Top-Heavy Plan.)
D. TOP-HEAVY AMENDMENTS. Notwithstanding any other provision of the
Plan to the contrary, the following provisions shall apply (specify
any special top-heavy adjustments, e.g., minimum allocation and
valuation date provisions and interest rate
<PAGE>
and mortality assumptions for defined benefit plan computations):
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
9. MAXIMUM ALLOCATIONS
A. OTHER DEFINED CONTRIBUTION PLANS. If a Participant is covered under
another Defined Contribution Plan (other than a Master or Prototype
Plan), or a Welfare Benefits Fund or Individual Medical Account (choose
one):
/X/ The provisions of Section 4.1 of the Prototype Plan will apply
so that Annual Additions under this Plan will be reduced first.
/ / The following method will be used to limit total Annual Additions
to the Maximum Permissible Amount, in a manner that precludes
Employer discretion:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
B. DEFINED BENEFIT PLANS. If a Participant is or has ever been a
participant in a Defined Benefit Plan the following method (which
must preclude Employer discretion) will be used to ensure that the
sum of the Defined Benefit Fraction and the Defined Contribution
Fraction does not exceed 1.0:
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
C. LIMITATION YEAR (if other than the Plan Year):
------------------------------------------------------------------
<PAGE>
------------------------------------------------------------------------------
------------------------------------------------------------------------------
10. PLAN ADMINISTRATOR
The Plan Administrator will be the Employer, unless another person
identified below has been appointed.
---------------------------------------------------------------------
Name
---------------------------------------------------------------------
Street Address
---------------------------------------------------------------------
City State Zip
( )
---------------------------------------------------------------------
Telephone
---------------------------------------------------------------------
Signature of Plan Administrator (if other than the Employer)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
11. CUSTODIAN/TRUSTEESHIP (choose one):
A. / / There will not be a Trustee and Prudential Securities Incorporated
will be the Custodian.
B. /X/ The Trustee will be [name of institution designated by Sponsor to
serve as Trustee to be inserted by Sponsor at time of printing]:
Prudential Bank & Trust
--------------------------------------------------------------
C. / / The Trustee will be the following individual(s):
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
<PAGE>
12. REQUIRED ADOPTION AGREEMENT STATEMENTS
Prudential is required under Internal Revenue Service rules to print the
following statements on this Adoption Agreement:
1. The Sponsor of this prototype plan is Prudential Securities
Incorporated, 127 John Street, New York, New York 10292
(212) 214-1000.
2. Prudential will send a notice to the address indicated on this
Adoption Agreement in the event of any amendments to the Plan
or in the unlikely event it decides to discontinue or abandon
this form of prototype plan.
3. Please note, failure to properly complete this adoption agreement
may result in disqualification of the Employer's plan in the
form of this prototype plan.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
13. EMPLOYER SIGNATURE
This Adoption Agreement must be used only in conjunction with the Prudential
Securities Incorporated Prototype 401(k) Plan (Basic Plan Document #02).
NOTE: An Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in section 419(e) of the Internal
Revenue Code, which provides post-retirement medical benefits allocated to
separate accounts for key employees, as defined in section 419A(d)(3) of the
Internal Revenue code, or an individual medical account, as defined in
section 415(1)(2) of the Code) in addition to this Plan may not rely on the
opinion letter issued by the National Office of the Internal Revenue Service
as evidence that this Plan is qualified under section 401 of the Internal
Revenue Code. If the Employer who adopts or maintains multiple plans wishes
to obtain reliance that its plans are qualified, application for a determination
letter should be made to the appropriate Key District Director of Internal
Revenue.
The Employer adopts or amends this Plan by signing below.
<PAGE>
THE PLAN DOCUMENT CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE FOUND ON P.___,
ARTICLE X SECTION 10.15 ARBITRATION.
Mylex Corporation August 30, 1994
--------------------------------------------------------------------------
Print Employer's Name Date
By: /s/ Al Montross President & CEO
-----------------------------------------------------------------------
Signature Title
ATTEST:
/s/ Colleen Meyers Chief Financial Officer
-------------------------------------------------------------------
Signature Title
ACCEPTANCE:
Accepted by Prudential Securities Incorporated, this _____ day of
________________________, 19__.
By:
--------------------------------------------------------------
Signature Title
[if applicable]
Accepted by [name of institution designated by Sponsor to serve as Trustee
to be inserted by Sponsor at time of printing] ___________________ this
______ day of __________________, 19__.
By:
---------------------------------------------------------------
Signature Title
[if applicable]
The undersigned individual(s) accept(s) appointment as Trustee, this _____
day of ____________________, 19__.
------------------------------------------------------------------
Signature
------------------------------------------------------------------
Signature
------------------------------------------------------------------
Signature
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<PAGE>
TARGET INVESTMENT ADVISORY AGREEMENT
For Individual
Retirement
Accounts and
Qualified Employee
Benefit Plans
Prudential Securities [LOGO]
<PAGE>
Prudential Securities [LOGO]
--------------------------------------------------------------------------------
The TARGET Investment Advisory Agreement
FOR INDIVIDUAL RETIREMENT ACCOUNTS AND QUALIFIED EMPLOYEE BENEFIT PLANS
--------------------------------------------------------------------------------
The undersigned, on behalf of himself or herself if an individual, or on
behalf of a qualified employee benefit plan if a fiduciary to such a plan
(Client), hereby retains Prudential Securities Incorporated (PSI) to act as
investment adviser with respect to assets invested by Client in The Target
Program in accordance with the following terms and conditions (the Agreement).
1. INVESTMENT ADVICE. Client has furnished PSI information regarding
Client's circumstances and investment objectives (Client Profile) in an
investment profile questionnaire (the Questionnaire). Client has received from
PSI a recommendation as to an allocation of Client's assets among a combination
of investment portfolios which is based upon Client's objectives (the
Evaluation) and Client has read the Evaluation. Client agrees that the Client
Profile as set forth in the Questionnaire and Evaluation is complete and
accurate in all respects. The Evaluation contains investment advice based on
the Client Profile and Questionnaire as to an appropriate allocation of
Client's assets designated by Client for the Target Program among a series of
mutual fund portfolios (the Portfolios) of The Target Portfolio Trust (the
Trust), a diversified, management investment company registered with the
Securities and Exchange Commission. The investment advice in the Evaluation
will seek to balance Client's investment objectives against his or her means
and risk tolerances as part of a long term investment strategy. Client
understands that there can be no assurance that these objectives can be
achieved.
PSI will send to Client a quarterly account report (the Quarterly Account
Monitor) which may contain a summary of the allocation of Client's assets among
the Portfolios, a record of the performance of the Client's assets in the
Portfolios and rates of return as compared to appropriate market indices and
may recommend, where appropriate, a change in the allocation of assets among
the Portfolios. PSI may change the Quarterly Account Monitor at any time
without notice to Client. PSI will also send to Client a statement reflecting
confirmation of all securities transactions in Client's account. Client
understands that PSI and affiliated companies are compensated for providing
services to the Trust in various capacities as set forth in the prospectus for
the Trust, as it may be amended from time to time (Prospectus).
Client agrees to inform PSI in writing of any material change in Client's
circumstances which may affect the manner in which Client's assets should be
invested and to provide PSI with such other information or documentation as it
shall reasonably request. At Client's request, PSI will prepare a new
Evaluation based on new information regarding Client's circumstances provided
by Client. In connection with the advisory services being provided to Client,
PSI is entitled to rely on the Client Profile as reflected in the most recent
Questionnaire and Evaluation.
Client understands that PSI has no discretion with respect to Client's
Target Program account, will perform no discretionary acts with respect to such
account, will effect only such transactions as it is instructed to by Client
and will provide no advice as to the voting of proxies.
Client understands that PSI and its affiliates perform, among other things,
investment banking, research, brokerage and investment advisory services to
other clients. Client recognizes that PSI may give advice and take action in
the performance of its duties to such clients (including those who may also be
participants in the Target Program) which may differ from advice given, or in
the timing and nature of action taken, with respect to Client. By reason of
its investment banking and other activities. PSI and its affiliates may from
time to time acquire confidential information and information about
corporations or other entities and their securities. Client acknowledges and
agrees that PSI will not be free to divulge, or to act upon, such information
with respect to its performance of this Agreement.
2. OTHER SERVICES. PSI will maintain custody of Client's assets in the
Target Program and will credit Client's account with all dividends paid on
shares of the Portfolios.
3. FEES. Client will compensate PSI on a quarterly basis for its services
by payment of a Program fee in accordance with the following schedule:
VALUE OF TARGET EQUITY ASSETS VALUE OF TARGET INCOME ASSETS
Annual Fee: 1.25% Annual Fee: 1.35%
The annual Program fee is subject to negotiation for assets in the Target
Program in excess of $100,000. Such fees may differ based on a number of
factors, including but not limited to, the size of the account and other
accounts with PSI. The minimum initial amount of assets required for the
Target Program, and the level at which fees may be negotiated, are set forth in
the Prospectus. For purposes of determining when the Program fee may be
subject to negotiation and when the minimum initial investment requirement is
met, fiduciary accounts having a common trustee (unaffiliated with PSI) may be
aggregated provided that such accounts, in the aggregate, have at least
$250,000 in assets in the Target Program.
Client has selected one of the Program fee payment options set forth in this
Agreement. If Client has elected to have the Program fee charged to his
account, such fee will be payable in full six (6) business days after the trade
date for the initial investment. For purposes of this Agreement, a "business
day" shall mean any day that the New York Stock Exchange is open for business.
If Client has elected to be billed, the Program fee will be payable in full
within forty-five (45) calendar days after the trade date for the Initial
Investment. The Initial Program fee is based on the value of assets in the
Target Program on the trade date of the initial investment. The initial
Program fee will cover the period from the initial investment trade date
through the last calendar day of the calendar quarter, and will be pro-rated
accordingly. Thereafter, the quarterly Program fee will cover the period from
the first calendar day through the last calendar day of the current calendar
quarter. The quarterly Program fee is based on the value of assets in the
Target Program measured as of the last calendar day of the previous quarter
and, at the election of the Client, may either be automatically charged to the
Client's securities account and payable on the sixth business day of the
current quarter or billed to the Client and payable on the forty-fifth calendar
day of the current quarter.
Each time that additional funds aggregating $10,000 or more are invested in
the Portfolios during any one quarter, the applicable Program fee, pro-rated
for the number of calendar days then remaining in the quarter and covering the
amount of such additional funds, shall be charged and be payable either on the
sixth business day (if charged to the securities account) or on the forty-fifth
calendar day (if billed to the Client), after such funds aggregate $10,000. In
the case of redemptions aggregating $10,000 or more during a quarter, the
Program fee shall be reduced accordingly, pro-rated for the number of calendar
days then remaining in the quarter. Client will receive a credit in the amount
of the Program fee applicable to the Portfolio shares redeemed based on the
proportion of the quarter remaining after the redemption is effected. For
purposes of calculating additional fees or credits during a quarter, additional
investments and redemptions are netted and accordingly may offset each other.
The Program fee schedule specified herein may be modified or changed by PSI
upon notice to Client. If this Agreement is terminated by Client, all
Portfolio shares held in the Target Program account will be redeemed within
five business days. If termination of this Agreement is accompanied by a
redemption of all Portfolio shares (see Paragraph 7 below), a pro-rata refund
of the Program fee from the date of redemption of all Portfolio shares through
the end of the then current quarter will be made. If this Agreement is
terminated by PSI, all Portfolio shares held in the Target Program account will
be redeemed and a pro-rata refund of the Program fee from the date of
termination of this Agreement through the end of the current quarter will be
made. No Program fee adjustment will be made within any quarter for
appreciation or depreciation in the value of the Target Program assets during
that quarter.
The Program fee covers only the services provided for in this Agreement.
Client acknowledges receipt of a copy of the Prospectus and understands that
the Trust will charge separate fees and expenses as set forth therein. All
fees will be reflected in the Quarterly Account Monitor sent to Client. If
Client pays by automatic debit to Client's Securities account and there are
insufficient liquid assets (in the form of cash or shares of non-Target money
market funds) in the account to pay the Program fee, PSI will automatically
redeem, in accordance with its policy then in effect and as disclosed in the
Prospectus, an appropriate number of shares in the Client's Target Portfolios.
If client is billed for the Program Fee and does not pay such fee when due,
then PSI will automatically debit
OSF 956671 GT
---------------------------
Branch Account Number FA
<PAGE>
the Client's securities account for such fee. If there are insufficient liquid
assets in the account, to pay the fee, then PSI will automatically redeem an
appropriate number of shares of the Client's Target Portfolios as described
above.
A portion of the Program fee is paid to Financial Advisors and other
employees of PSI and its affiliates in connection with the provision of
supplemental advisory and client-related services. Such payments may be made
for the duration of this Agreement.
4. VALUATION. In computing the market value of assets in the Target
Program, shares in the Portfolios shall be valued at their respective net asset
values as calculated on the valuation date in accordance with the Trust's
Prospectus. Any such valuation shall not be deemed a guarantee of any kind
whatsoever with respect to the value of the assets in the account.
5. AUTHORITY. If Client is a trustee or other fiduciary for a "qualified
employee benefit plan" as those terms are defined in the Employee Retirement
Income Security Act of 1974 ("ERISA"), then it must make the representations
below. If the Client is a participant in a qualified employee benefit plan,
then the named fiduciary to the plan must sign this Agreement and make the
representations below. Representations: (i) the Target Program is within the
scope of the investments authorized pursuant to any applicable plan, trust
and/or applicable law; (ii) the undersigned is duly authorized to negotiate the
terms of this Agreement including fees and to enter into this Agreement and
will advise PSI of any event which might affect this authority or the propriety
of this Agreement; (iii) the Plan's governing instruments provide that an
"investment manager" as defined in ERISA may be appointed; (iv) the person
executing this Agreement is a "named fiduciary" as defined in ERISA, or
designated as a "named fiduciary" pursuant to the procedure described in ERISA
who has the power under the plan to appoint an investment manager; and (v) that
its governing instruments expressly reserves to the "named fiduciary" the right
to vote proxies.
6. PROXIES AND OTHER LEGAL NOTICES. PSI shall not render any advice or
take any action on behalf of Client with respect to securities or other
investments held in the Target Program account, or the issuers thereof, which
become the subject of any legal proceedings, including bankruptcies. Client
hereby expressly retains the right and obligation to take action relating to the
securities held in the account.
PSI shall not take any action or render any advice with respect to the
voting of proxies solicited by, or with respect to, the issuers of any
securities held in the Target Program account, except to the extent otherwise
required by law, and Client expressly retains the right and obligation to vote
any proxies relating to the securities held in the account to the extent
consistent with applicable law; provided, however, Client may delegate said
rights and obligations to any property authorized agent. Notwithstanding the
foregoing and consistent with applicable rules and regulations of the New York
Stock Exchange relating to the giving of proxies by member organizations. PSI
may vote proxies with respect to the issuers of securities held in the account.
If it has transmitted proxy soliciting material to Client (the beneficial
owner), solicited voting instructions from Client and not received instructions
from Client by the date specified in the proxy statement.
7. TERMINATION OF AGREEMENT. This Agreement may be terminated at any time
upon five business days prior written notice by either party. Such termination
shall not, however, affect the liabilities or obligations of the parties under
this Agreement arising from transactions initiated prior to such termination,
including the provisions regarding arbitration which shall survive any
termination of this Agreement. Termination of this Agreement by Client must be
accompanied by a redemption order for all Portfolio shares held in the account.
PSI shall have the right to terminate this Agreement, and redeem all
Portfolio shares, if the value of the Portfolio shares held in an account falls
below $10,000 by reason other than fluctuations in the net asset values of the
Portfolio shares or redemption of Portfolio shares to pay Program fees, if
Client does not restore the share value to in excess of $10,000 within thirty
days after written notice by the Trust.
PSI may terminate the Target Program by giving thirty days' written notice
to all Clients. In the event of the termination of the Target Program, this
Agreement shall terminate as of the day the Program terminates but the
Portfolio shares will not be automatically redeemed.
This Agreement shall terminate automatically within six months after all
Portfolio shares are redeemed for any reason and there is no remaining balance
in the Client's Target Program account.
Upon the termination of this Agreement, PSI shall be under no obligation
whatsoever to recommend any action with regard to the shares of the Trust. PSI
retains the right, however, to complete any transactions open as of the
termination date and to retain amounts in the account sufficient to effect such
completion. Upon termination, it shall be Client's exclusive responsibility
to issue instructions in writing regarding any shares of the Trust.
8. BONDING. Client agrees to obtain and maintain for the period of this
Agreement any Bond required pursuant to the provisions of ERISA or other
applicable law and to include within the coverage of such bond PSI and any of
its officers, directors, employees and agents, whose inclusion is required by
law. Client agrees to promptly provide PSI with appropriate documentation
evidencing such coverage upon request.
9. ASSIGNMENT. This Agreement shall not be assigned by PSI without the
prior consent of Client.
10. GOVERNING LAW. This Agreement including the arbitration provision
contained herein shall be governed by the laws of the State of New York without
giving effect to the choice of law or conflict of laws provision thereof,
provided that nothing herein shall be construed in any manner inconsistent with
the Investment Advisers Act of 1940, as amended, or any rule, regulation or
order of the Securities and Exchange Commission promulgated thereunder. All
transactions for the account shall be subject to the regulations of all
applicable federal, state and self-regulatory agencies including but not
limited to the Securities and Exchange Commission, the NASD and the Board of
Governors of the Federal Reserve System and the constitution, rules and customs
of the exchange or market (and clearing house, if any) where executed.
11. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a statute, rule, regulation, decision of a tribunal or otherwise,
the remainder of this Agreement shall not be affected thereby and, to this
extent, the provisions of this Agreement shall be deemed to be severable.
12. MISCELLANEOUS. PSI represents that it is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended.
PSI reserves the right to refuse to accept or renew this Agreement in its
sole discretion and for any reason.
Client acknowledges that PSI may withhold any tax to the extent required by
law and may remit such taxes to the appropriate governmental authority.
This Agreement shall not be effective until accepted by PSI, which
acceptance will be evidenced by the opening of a Target Program account.
As used herein reference to persons in the masculine gender shall include
persons of the feminine gender. References in the singular shall, as and if
appropriate, include the plural. All paragraph headings in this Agreement are
for convenience of reference only, do not form a part of this Agreement and
shall not affect in any way the meaning or interpretation of this Agreement.
All written communication to PSI or the Target Program pursuant to this
Agreement shall be sent to the Prudential Securities Target Program at One
Seaport Plaza, New York, New York 10292, unless PSI designates otherwise in
writing. All written communications to Client shall be sent to the address of
Client specified below, unless Client designates otherwise in writing.
All information, recommendations and advice furnished to Client pursuant to
the Target Program shall be treated as confidential by Client.
PSI will provide to Client PSI's Target Program brochure or Part II of Form
ADV as required by Rule 204-3 under the Investment Advisers Act of 1940.
Notwithstanding anything to the contrary herein, Client shall have the right to
terminate this Agreement without penalty within five business days after
receipt of such brochure. Any such termination of this Agreement must be
accompanied by a redemption of all Portfolio shares (see paragraph 7 above).
13. ACKNOWLEDGMENTS. In my capacity as an individual establishing an
individual retirement account ("IRA"), self-employed Keogh Plan participant,
fiduciary to a Qualified Employee Benefit Plan or participant in a
self-directed Qualified Employee Benefit Plan (each individually referred to as
a "Plan"), I hereby represent and warrant to PSI, in connection with the
participation of the Plan in the Target Program and in anticipation of the
purchase of shares by the Plan in the portfolios of the Trust, that:
---------------------------
Branch Account Number FA
2
<PAGE>
1(a) FOR IRA AND KEOGH PLANS AND FOR SELF-DIRECTED PLAN PARTICIPANTS WHO
MAINTAIN DISCLOSED ACCOUNTS AT PSI: I am an individual establishing an
individual retirement account, a self employed Keogh Plan participant or the
participant of a self-directed Qualified Employee Benefit Plan;
(b) FOR FIDUCIARIES OF SELF-DIRECTED PLAN PARTICIPANTS WHO MAINTAIN
NONDISCLOSED ACCOUNTS AT PSI: I am the plan administrator, trustee or named
fiduciary for the Plan for purposes of ERISA. The Plan is a Qualified Employee
Benefit Plan within the meaning of ERISA and the Internal Revenue Code. I have
considered, in a prudent manner, the relationship of the fees to be paid by the
Plan along with the level of services provided by PSI and will make the
Prospectus of the Trust available to all Plan participants;
(c) FOR ALL OTHER QUALIFIED PLANS: I am the Trustee, administrator, or
named fiduciary for the Plan for purposes of ERISA, I am responsible for all
investment decisions relating to the Plan and I am capable of making an
independent decision regarding the investment of the assets of the Plan and
will make the Prospectus of the Trust available to all Plan participants. The
Plan is a Qualified Employee Benefit Plan within the meaning of ERISA and the
Internal Revenue Code;
2. I am independent of PSI and its affiliates;
3. FOR ALL PLANS EXCEPT IRAs AND SELF-DIRECTED PLANS WHICH MAINTAIN
DISCLOSED ACCOUNTS AT PSI: I am knowledgeable with respect to the Plan in
Administrative matters and funding matters related thereto;
4. I am able to make an informed decision concerning the participation by
the Plan in The Target Program and the purchase of shares of the Trust by the
Plan; and
5. I have received, prior to the purchase of any shares in the Trust by the
Plan, and have reviewed and am familiar with (a) the Prospectus and any
Supplements to the Prospectus, (b) if I have so requested, the Statement of
Additional Information for the Trust, (c) this Agreement, (d) a copy of the
Notice of Proposed Exemption relating to the Target Program issued by the
Department of Labor and a copy of the order granting such exemption, and (e) if
I have so requested in writing, a copy of the subadvisory agreement between
Prudential Mutual Fund Management Co. and the sub-advisers for the Trust.
14. ARBITRATION AGREEMENT.
- Arbitration is final and binding on the parties.
- The parties are waiving their right to seek remedies in court,
including the right to jury trial.
- Pre-arbitration discovery is generally more limited than and different
from court proceedings.
- The arbitrators' award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification
of rulings by the arbitrators is strictly limited
- The panel of arbitrators will typically include a minority of
arbitrators who were or are affiliated with the securities industry.
Any controversy arising out of or relating to Client's account, the Target
Program, the Trust or the Portfolios, or with respect to transactions of any
kind executed by, through or with PSI, its officers, directors, agents and/or
employees, or with respect to this Agreement or any other agreements entered
into with PSI relating to Client's accounts with PSI, whether entered into
prior, on or subsequent to the date below or the breach thereof, shall be
settled by arbitration. The arbitration may be before either the National
Association of Securities Dealers, Inc. (NASD) or the New York Stock Exchange,
Inc., as Client may elect and shall be governed by the laws of the State of New
York. If Client does not make the above election by registered mail addressed
to PSI at its main office within 5 business days after demand by PSI that
Client make such election, then PSI shall have the right to elect the
arbitration tribunal of its choice. Notice preliminary to, in conjunction with
or incident to arbitration, may be sent to Client by mail and personal service
is hereby waived. Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction thereof, without notice to Client.
No person shall bring a putative or certified class action to arbitration,
nor seek to enforce any pre-dispute arbitration agreement against any person
who has initiated in court a putative class action; or who is a member of a
putative class who has not opted out of the class with respect to any claims
encompassed by the putative class action until: (i) the class certification is
denied; or (ii) the class is decertified; or (iii) the customer is excluded
from the case by the court. Such forbearance to enforce an agreement to
arbitrate shall not constitute a waiver of any rights under this agreement
except to the extent stated herein.
NOTE: Client has selected the following Advisory Fee Payment Option (Please
check one)
/X/ Send me a bill to pay by check / / Charge my account automatically.
Agreed to this 30th day of August 1994.
NOTE: This Agreement contains a pre-dispute arbitration clause which appears
in paragraph 14.
MYLEX CORPORATION
--------------------------------------------------------------------------------
Account Name (Please Print)
COLLEEN MEYERS -- Chief Financial Officer -- Mylex Corporation
--------------------------------------------------------------------------------
Signature of Client (If not signing as an individual or if signing as a
fiduciary, please indicate.)
--------------------------------------------------------------------------------
Address
PRUDENTIAL SECURITIES INCORPORATED
If Client is a participant in a Qualified Employee Benefit Plan, then the
"named fiduciary" to the Plan must make the representations contained in
paragraph ?? and sign below:
--------------------------------------------------------------------------------
Plan Fiduciary
--------------------------------------------------------------------------------
Address
---------------------------
Branch Account Number FA
3
<PAGE>
MYLEX CORPORATION AND SUBSIDIARY
Earnings (Loss) Per Share Computations
Years Ended December 31, 1994, 1993 and 1992
The basis of computing net earnings (loss) per share is described in Note 1 to
the consolidated financial statements, beginning on Page F-1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
The computation of primary and fully diluted earnings (loss) per share is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1994 1993 1992
------ -------- --------
<S> <C> <C> <C>
Primary earnings (loss) per share:
Net income (loss) $7,509 ($4,444) ($3,000)
------ -------- --------
------ -------- --------
Weighted average number of common shares
outstanding during the period 13,622 12,740 12,103
Number of common share equivalent resulting
from stock options and warrants, computed
using the treasury stock method and the
average stock price during 1994 586 -- --
------ -------- --------
Number of common and common share
equivalents used in computation 14,208 12,740 12,103
------ -------- --------
------ -------- --------
Primary earnings (loss) per share $0.53 ($0.35) ($0.25)
------ -------- --------
------ -------- --------
Fully diluted earnings (loss) per share:
Net income (loss) $7,509 ($4,444) ($3,000)
Interest on convertible subordinated debentures
(net of tax) 194 -- --
------ -------- --------
Adjusted earnings (loss) $7,703 ($4,444) ($3,000)
------ -------- --------
------ -------- --------
Weighted average number of common shares
outstanding during the period 13,622 12,740 12,103
Number of common share equivalents resulting
from stock options and warrants, computed
using the treasury stock method and the
ending stock price as of December 31, 1994 1,038
Number of common share equivalents resulting
from convertible debentures, computed using
the "if converted" method 587 -- --
------ -------- --------
------ -------- --------
------ -------- --------
Weighted average common and dilutive common
shares outstanding 15,247 12,740 12,103
------ -------- --------
------ -------- --------
Fully diluted earnings (loss) per share $0.51 ($0.36) ($0.25)
------ -------- --------
</TABLE>
<PAGE>
EXHIBIT 13.1
[LOGO]
ANNUAL REPORT 1994
<PAGE>
CORPORATE PROFILE
Mylex Corporation designs and manufactures disk array controllers, system
boards, network interface cards as well as supporting proprietary software
and firmware for a wide range of personal computers, workstations and
servers. Recognized by major OEMs, system integrators and value-added
resellers as a world leader in RAID (Redundant Array of Independent Disks)
technology. Mylex is the standard seller for RAID solutions and fully
integrated PCI systems. Founded in 1983, Mylex is headquartered in Fremont,
California. The company's stock is traded on the NASDAQ market under the
symbol MYLX.
<PAGE>
MYLEX HIGHLIGHTS FOR THE YEAR 1994
[GRAPH]
Mylex opens sales office in UK MARCH 7
DEC selects the Mylex DAC960E controllers for their Storage Works family of
modular storage products MARCH 10
Mylex begins shipping the DAC960P, a RAID disk array controller for the PCI
bus MAY 23
Mylex begins shipping the DAC960S, a SCSI-to-SCSI disk array controller for
non-PC platforms JUNE 20
Mylex becomes an authorized test copier for Novell's Certification Alliance
Time to market cycles are dramatically reduced OCTOBER 28
Mylex introduces "system ready" SCSI to SCSI internal and external RAID
controller products NOVEMBER 14
Mylex announces the industry's first dual connector disk array controller for
the PCI bus, the DAC960PD DECEMBER 15
Mylex stock price closes at record high of $11.188, up 69% from the 1993
year-end close of $6.625 DECEMBER 30
[GRAPH]
<PAGE>
"PACE-SETTING MYLEX SURGED TO THE TOP OF THE
LIST ON THE STRENGTH OF A PRODUCT WITH AN EXOTIC
NAME (RAID) AND GROWING CUSTOMER BASE . . ."
VALLEY TIMES OCTOBER 3, 1994
[LOGO]
"DISK DRIVE ARRAYS GENERATED $3.4 BILLION
IN WORLDWIDE REVENUES IN 1993, AND THE TOTAL
IS FORECASTED TO REACH $13.0 BILLION IN 1997."
1994 DISK/TREND REPORT
3
<PAGE>
[GRAPH]
FISCAL 1994 PROVED TO BE AN IMPORTANT TURN-AROUND YEAR FOR MYLEX, HIGHLIGHTED
BY RECORD REVENUES, NET INCOME AND EARNINGS PER SHARE. OUR RETURN TO GROWTH
AND PROFITABILITY CAN BE ATTRIBUTED TO INCREASED WORLDWIDE ACCEPTANCE AND
DEMAND FOR OUR INDUSTRY-LEADING RAID STORAGE PRODUCTS, WHICH ARE NOW REACHING
A BROADER SEGMENT OF USERS AND APPLICATIONS THAN EVER BEFORE.
4
<PAGE>
During 1994 we shipped a record number of disk array controllers, testimony
to Mylex's leadership position in today's expanding worldwide market. Sales
orders grew at a brisk rate for both our OEM division and our newly formed
Alternate Channel Sales division.
FINANCIAL PERFORMANCE: A BANNER YEAR
Mylex reported record revenues of $62.5 million in 1994, a 38% increase over
1993's $45.2 million. Net income for the year was $7.5 million, or $0.51 per
share, a significant improvement compared to the previous year's net loss of
$4.4 million, or ($0.35) per share. Mylex's cash, cash equivalents and
short-term investment balance was $3.9 million at the close of 1994, compared
to a balance of $3.3 million for 1993. The company's stock reached an
all-time high of $11 3/16 per share on December 31, 1994 -- almost
two-and-a-half times its mid-year selling price.
As a result of this outstanding financial performance, Mylex was able to
negotiate a sizable increase in the company's line of credit, which rose from
$2.5 million to $6 million.
[PHOTO]
Improved financial and operational procedures enabled us to increase sales by
38%, double our assets and fund our growth without increasing the amount
drawn down on our line of credit.
Mylex's RAID (Redundant Array of Independent Disks) disk array
controller products accounted for 81% -- or $50 million -- of our net sales
for 1994. This robust growth was across all industries, all company sizes and
all geographic areas. Our remaining revenues were generated through the sale
of system boards and other related hardware and software products. During the
year, our OEM division added a significant number of world-class
organizations to its customer list.
This growth was bolstered by developments in our Alternate Channel Sales
division, which added major distributors to our global marketing network. In
general, Mylex's marketing activities during 1994 focused on increasing the
company's visibility with the financial and technical community through a
combination of aggressive advertising, expanded press activities and
significantly greater trade show appearances, and field presentations by
senior management.
5
<PAGE>
GOING GLOBAL: INTERNATIONAL GROWTH
Demand for Mylex products was strong in the international marketplace during
1994, particularly throughout Europe. To serve our growing customer base in
western Europe, we established a sales office in the United Kingdom early in
the year. And we began to take advantage of a number of opportunities in
eastern Europe, which continues to undergo an economic and technological
awakening. Over the last year, many countries that had previously settled for
archaic tools and architectures demonstrated a newfound appetite for the
latest technological developments. As a result, Mylex has entered into robust
business partnerships with key customers in Poland, Turkey, Czechoslovakia and
the Ukraine. To build on this foundation, we intend to expand our international
efforts by a significant increase in our focus on Latin America and the Far
East in 1995.
PRODUCTS NEWS: EXPANSION ON ALL FRONTS
Mylex's core business and superior technical expertise continue to focus on
the production of high-performance RAID solutions for PC-based networks and
workstations. According to
[PHOTO]
the most recent DISK/TREND Report, in fact, we've shipped more disk array
controllers than all of our worldwide competitors combined. With the
introduction of a MicroChannel controller, a dual-connector PCI controller
and an external SCSI controller, Mylex now offers a RAID solution for
virtually every microcomputer-based platform in the industry today.
Mylex's ability to quickly design and market new products is illustrated
by our presence in the Peripheral Component Interconnect (PCI) local bus
arena. Thanks to its higher system performance, wider data path and increased
expandability, the PCI bus is rapidly replacing the EISA bus found in older
personal computer architectures. Mylex anticipated demand for PCI bus
products by applying the technology to our three principal product lines. As
a result, we were the first board manufacturer to offer PCI-compatible
solutions in three different areas: RAID disk array controllers, network
interface cards and mother-boards. All of these innovative products have been
received enthusiastically.
6
<PAGE>
In all, four new products swung into full production in 1994: the
DAC960S SCSI-to-SCSI RAID controller; the ASIC-based DAC960E and DAC960P,
RAID controllers for the EISA and PCI buses, respectively, and the MPE-PNTM,
a Pentium-based motherboard. The DAC960E and DAC960P rely on proprietary
custom application-specific integrated circuits (ASICs) designed and
developed by Mylex.
During 1994 we refined our system board product line, which now includes
a trio of environmentally responsible, Energy Star-compliant "green" boards.
As a result, Mylex now enjoys a comfortable mix between our familiar system
board technology and our newer, high performance RAID controller products.
OPERATIONS: IMPROVEMENTS AT EVERY TURN
During 1994 Mylex instituted a number of operational changes to improve
overall business productivity. We enhanced the tools our employees rely upon
to do their jobs better and meet the diverse needs of our customers. We
upgraded our information systems capabilities to allow for increased
transaction activity and accommodate additional system users.
[PHOTO]
[GRAPH]
7
<PAGE>
And we rebuilt the infrastructure of our finance department to increase our
business/transaction analysis capabilities and put controls in place to deal
responsibly with the challenges of rapid growth.
On the manufacturing front, Mylex restructured operations to prepare for
ISO 9001 certification in 1995. This internationally recognized set of
guidelines for ensuring product quality has become an important
differentiator for supplying the increasing number of OEMs, VARs and system
integrators who now use ISO quality standards as a crucial part of their
vendor selection criteria.
In addition, Mylex entered into new purchasing agreements with some of
the world's largest component suppliers during 1994, enabling us to achieve
significant cost reductions, increased material availability and greater
access to future technology developments. We implemented material scheduling
and inventory control systems to ensure a flexible and responsive product
pipeline. And through out-sourcing to local ISO 9000 sub-contractors, we
reduced production cycles while maintaining a high level of quality for our
customers.
[PHOTO]
We utilized our in-house manufacturing capabilities primarily to produce our
many new products which we introduced during the year.
As a result of all of these operational improvements, Mylex was able to
maintain very strong quality "report cards" with our major OEM customers. Our
performance consistently met and exceeded industry standards for quality,
product delivery, technology, reliability and business relationships.
ENGINEERING: NEW HORIZONS
Mylex's intellectual property resides in the proprietary ASICs firmware and
software that we develop. To augment and enhance our design capabilities, we
focused on hiring engineers with strong backgrounds in state-of-the-art ASIC
development using high-level methodologies such as behavioral design and
synthesis. Over the course of the past year, in fact, Mylex increased
hardware and software engineering headcount by 30%, with a similar increase
planned for 1995.
8
<PAGE>
[GRAPH]
[PHOTO]
Mylex has also become an authorized test center for Novell through the
Novell Certification Alliance (NCA), a self-testing and certification
program. The NCA program enables us to perform Novell Labs in-house
certification test suites on our Novell-approved products, dramatically
shortening time to market cycles. In addition, the NCA provides an avenue for
marketing and advertising Novell-approved Mylex products. Once testing is
completed and verified, Novell Labs issues certification and test bulletins
which are released through a variety of Novell's extensive distribution
channels.
OUR PEOPLE
Above all, Mylex is a people-oriented company. Our new corporate culture
demands that we take great pains to ensure that our employees are empowered
to solve problems and contribute to the Company's success. Customer
satisfaction is a main focus at Mylex, and we believe that all employees --
regardless of their position or function -- have a profound effect on
customer satisfaction. For that reason, in 1994 we instituted the Total
Customer Satisfaction Award, presented monthly to a Mylex employee who
demonstrates superior per-
9
<PAGE>
formance in a specific area and exemplary customer service in carrying out
his or her duties. We plan to continue to focus in 1995 on improving programs
for our employees and providing them with the tools they need to increase
productivity at all levels and maintain our high revenue-to-employee ratio.
Just as we encourage our employees to achieve excellence, so we also
encourage them to plan for their futures. Management took major steps forward
in 1994 to upgrade our employee benefits package. These steps included
introducing a tax-deferred 401(k) saving plan, along with a new
medical/dental/vision plan that provides our people with greater flexibility
in choosing benefit options that meet their specific family needs, while
reducing their costs for these coverages.
OUR FUTURE
Mylex entered 1994 with a brand new management team and a full agenda to
promote change. We're happy to report success in these endeavors; our strong
sales growth of 38% over 1993 resulted in a return to solid profitability. We
intend to maintain our leadership
[PHOTO]
position in the growing market for storage management products through
continued investment in research and development activities.
Much of Mylex's future will center on the continued development of
leading-edge technology in the Intelligent I/O arena, where our RAID products
hold a dominant position. We believe the partnerships we've forged with
industry leaders, along with our aggressive product development efforts, will
yield new opportunities and expanded horizons for the application of our
technology base. We look forward to those opportunities and horizons, and the
challenges they will bring.
[SIGNATURE]
[LOGO]
10
<PAGE>
[GRAPH]
Selected Financial Data -- PAGE 13
Management's Discussion and Analysis -- PAGE 14
Consolidated Balance Sheets -- PAGE 19
Consolidated Statement of Operations -- PAGE 20
Consolidated Statement of Equity -- PAGE 21
Consolidated Statement of Cash Flows -- PAGE 22
Notes to Financial Statements -- PAGE 23
Independent Auditor's Report -- PAGE 28
Corporate Information -- INSIDE BACK COVER
[GRAPH]
<PAGE>
SELECTED FIVE YEAR CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT SHARE DATA)
------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net Sales $62,513 45,234 48,769 54,268 47,867
Cost of Sales 40,322 36,456 42,112 47,634 35,417
Gross Profit 22,191 8,778 6,657 6,634 12,450
Operating Expenses and
Other Income/Expense 12,130 13,268 11,118 9,931 6,758
Income (loss)
Before Income Tax 10,061 (4,490) (4,461) (3,297) 5,692
Income Tax (Expense) Benefit (2,552) 46 1,461 1,092 (2,308)
Net Income (loss) 7,509 (4,444) (3,000) (2,205) 3,384
------- ------- ------- ------- -------
Income (loss) Per Share:
Primary $ .53 $ (.35) $ (.25) $ (.19) $ .31
------- ------- ------- ------- --------
Fully Diluted $ .51 $ (.35) $ (.25) $ (.19) $ .28
======= ======= ======= ======= ========
Average Common Shares Outstanding:
Primary 14,208 12,740 12,103 11,337 11,076
Fully Diluted 15,247 12,740 12,103 11,337 12,299
CONSOLIDATED BALANCE SHEET DATA
Total Assets $27,358 $14,640 $23,694 $22,433 $25,929
Working Capital $16,562 $ 3,461 $ 6,286 $ 8,405 $11,107
Long-term Obligations $ 493 $ 910 $ 1,293 $ 1,651 $ 1,382
Stockholders' Equity $17,760 $ 4,664 $ 7,963 $10,060 $11,420
</TABLE>
SUMMARY QUARTERLY DATA
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
DEC 31 SEP.30 JUNE 30 MAR. 31 DEC. 31 SEP. 30 JUNE 30 MAR. 31
QUARTER ENDED 1994 1994 1994 1994 1993 1993 1993 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $18,619 16,119 14,132 13,642 12,098 11,764 8,504 12,868
Gross Profit 7,458 5,741 5,004 3,988 3,284 2,510 928 2,057
Income/(loss)
From Operations 4,025 2,966 2,030 1,603 867 (4,174) (894) 177
Net Income/(loss) 2,851 2,136 1,433 1,089 732 (4,312) (929) 65
Net Income/(loss)
Per Share:
Primary .19 .14 .10 .07 .05 (.34) (.07) .00
Fully Diluted .19 .14 .10 .07 .05 (.34) (.07) .00
Weighted Average
Shares:
Primary 14,937 14,820 13,984 14,652 14,636 12,768 12,767 13,708
Fully Diluted 15,540 15,718 14,548 15,249 14,636 12,768 12,767 13,739
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: 1994 VS 1993
YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1993
In 1994 the Company returned to profitability and improved its financial
condition. Profitability increased as a result of higher revenues, improved
gross margins and decreased operating expenses. The Company's financial
condition improved as a result of positive cash flow from operations, from
the conversion of subordinated debentures to common stock and from employees
purchasing the Company's common stock through the Company's 1993 Stock Option
Plan.
SALES AND PROFITS
Net sales increased by 38% to $62.5 million in 1994 from $45.2 million in
1993. Sales of the Company's disk array controller products increased by 151%
in 1994 over 1993 levels, reflecting the Company's numerous design wins in
late 1993 and 1994. The net sales growth in 1994 was attributable to overall
market growth and strong demand for the Company's disk array controller
products. Sales from disk array products represented 81% of total sales in
1994 compared to 44% in 1993.
The Company is committed to and dependent upon continued development of
new products as well as enhancement of existing products. The Company
believes its future profitability is dependent to a large extent upon the
successful introduction of its new PCI and SCSI to SCSI disk array product
families as well as continued market acceptance of its current disk array
products. However, there can be no assurance that new products will be
successfully developed or, if developed that such new products or the
Company's current products will achieve and sustain market acceptance.
The Company depends heavily upon its suppliers to provide high quality
materials on a timely basis, at a reasonable price, and with suitable credit
terms. Although many of the components for the Company's products are
available from numerous sources at competitive prices, some of the most
critically-needed components are sole-sourced. As a result, there can be no
assurance that sufficient quantities of these or other critical components
will be available for the Company's production needs. In the event that these
essential components cannot be obtained, the Company may be unable to meet
demand for its products, adversely affecting results from operations.
The Company's largest customer during 1994 was IBM Corporation ("IBM")
which accounted for 22% of the Company's sales. The Company's next two
largest customers, Digital Equipment Corporation and Hewlett-Packard Company,
accounted for an additional 17% and 14% respectively of total sales. Many of
the Company's customers manufacture and sell products in the networked PC
market, which is subject to rapid technological change and intense price
competition. These factors affecting the networked PC market in general, or
any of the Company's customers in particular, could have a material adverse
effect on the Company's future results of operations. While there are OEM
agreements in pace that define the terms of the sales and support services
with some of the company's largest customers, these agreements do not include
specific quantity commitments. The Company sells products to its customers on
a purchase order basis. As a result, historical sales cannot be relied upon
as an accurate indicator of future sales.
Gross profit was $22.2 million or 35.5% of sales in 1994, compared to $8.8
million or 19.4% of sales in 1993. The increase in gross profits in fiscal
1994 was due to higher margin disk array controller products representing
greater sales volumes and an increased percentage of the product mix. Gross
profits of the Company's disk array controller boards increased during 1994
due to the replacement of several costly components on the controller boards
with less costly ASIC chips designed by the
14
<PAGE>
Company which resulted in decreased material costs. Maintenance of current
gross margins or improvements of gross margins are dependent upon continued
manufacturing cost reductions and the successful development and market
acceptance of the Company's new disk array controller products. There can be
no assurance that the Company will be able to develop and introduce such
products in a timely manner, or that such products will gain or sustain
market acceptance. The Company anticipates increased competition in the
market for its disk array products during 1995. The impact of such
competition on the Company's sales and gross profits is uncertain. The
Company anticipates that additional competition could result in a decline in
the selling prices for these products which would impact both gross margins
and operating results.
RESEARCH AND DEVELOPMENT
Expenditures for research and development increased by 35% to $3.3 million in
1994 as compared to $2.5 million in 1993. Research and development expenses
decreased slightly as a percent of sales to 5.3% from 5.5% in 1993 due to the
significant growth of net sales. The growth in research and development
expenses was primarily due to increased technology development efforts
related to intelligent input/output management projects. The Company expects
to increase its investment in research and development activities during 1995
to achieve market acceptance of new products and to continue its strategy of
maintaining technology leadership in the RAID market.
SELLING AND MARKETING
Sales and marketing expenses were $3.6 million or 5.7% of net sales in 1994,
compared to $3.0 million or 6.5% of net sales in 1993. The 21% increase in
sales and marketing expenses was primarily due to the addition of employees
to manage the increased volume and to higher commission, advertising and
travel related expenses. The Company expects that sales and marketing
expenses will increase during 1995 as the infrastructure is expanded to
support growing market opportunities through domestic and international
distribution channels.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased to $4.6 million or 7.4% of net
sales in 1994 from $2.7 million or 5.9% of net sales in 1993. The increase
in general and administrative expenses of 73% during 1994 was due to the
addition of personnel to support the growth in the Company's business and
significantly increased legal expenses over those incurred in 1993. The
Company anticipates that general administrative expenses will increase
during 1995. These expenses may vary as a percentage of net sales in future
periods.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE
The provision for uncollectible accounts receivable decreased by $4.7 million
in 1994. The Company did not incur any bad debt expense during the year as
accounts written off during 1994 had been fully reserved as of December 31,
1993. The Company wrote off $4.8 million of uncollectible accounts receivable
during 1994, $4.6 million of which was related to products shipped to
Northgate Computer Systems, Inc. The receivable from Northgate was fully
reserved during 1993 due to the deterioration of Northgate's financial
condition. The receivable from Northgate was written off during 1994 as a
resale of Northgate's filing for bankruptcy and after an analysis of the
assets remaining to satisfy both secured and unsecured creditors. The Company
has obtained a security interest in Northgate's inventories during 1993 and
expects to receive approximately $113 thousand in net proceeds from the sale
of such inventories.
IMPACT OF INFLATION
The impact of inflation on the Company's business was not material during the
year ended December 31, 1994.
INTEREST EXPENSES AND OTHER
Interest expense increased by approximately 8% due to increasing interest
rates in the second half of 1994. Other income/expense reflects the net of
other expenses such as business licenses fees and were in line with the prior
year's expenses.
15
<PAGE>
INCOME TAXES
The Company's combined federal, and state effective income tax provision rate
of 25% is less than the federal statutory rate of 34% primarily due to a
change in the beginning of the year valuation allowance for which no benefit
had been recognized.
Net income increased by $11.9 million to $7.5 million or 12% of net sales
in 1994 from a net loss of $4.4 million in 1993, as a result of increased
sales, improved margins and significantly reduced bad debt expenses.
RESULTS OF OPERATIONS: 1993 VS 1992
YEAR ENDED DECEMBER 31, 1993, COMPARED TO YEAR ENDED DECEMBER 31, 1992
SALES AND PROFITS
The Company's net sales for the year ended December 31, 1993, decreased by
$3.6 million to $45.2 million compared to $48.8 million for the year ended
December 31, 1992. Sales declined primarily due to aggressive price
competition leading to a reduction in both the selling prices and unit
volumes of the Company's system boards. The number of system boards shipped
by the Company during 1993 totaled approximately 50,000 as compared to
approximately 80,000 shipped during 1992. Sales of the Company's disk array
products increased significantly during 1993 due to growing industry
acceptance of the Company's disk array technology and product family.
The Company's largest customer during 1993 was IBM Corporation ("IBM")
which accounted for $8.3 million or 18% of the Company's sales during that
year. During the quarter ended December 31, 1993 sales to IBM accounted for
38% of net sales.
Gross profit for fiscal 1993 increased by $2.1 million to $8.8 million
from $6.7 million for fiscal 1992. Gross profit for 1993 was 19.4% of net
sales compared to 13.7% for 1992. The increase in gross profit in fiscal 1993
was due to the increased sales of higher margin disk array controllers
products which more than offset the declining margins of the Company's
system boards. Sales of disk array products accounted for 44.4% of sales
during the year ended December 31, 1993, and 71.5% of sales during the fourth
quarter of 1993.
The Company recorded a loss before taxes for the year ended December 31,
1993, of $4.5 million or 9.9% of net sales, compared to a pre-tax loss of
4.5 million or 9.1% of net sales for the year ended December 31, 1992. The
net loss after income tax benefits for fiscal 1993 was $4.4 million, an
increase from the net loss after income tax benefits for fiscal 1992 of $3.0
million. The increased net loss was partially due to a reduction of income
tax benefits available to the Company during 1993.
RESEARCH AND DEVELOPMENT
Research and development expenses for the year ended December 31, 1993, were
$2.5 million or 5.8% of net sales, a decrease of 12.4% from the amount
expended for the year ended December 31, 1992, of $2.8 million or 5.5% of net
sales. This decrease in research and development expenses was due to the
completion of several projects during early 1993 and the elimination of the
Company's multiprocessor project resulting in lower engineering consulting
and prototype expenses.
SELLING AND MARKETING
Sales and marketing expenses for the year ended December 31, 1993, were $3.0
million, a 12% decrease from the $3.4 million reported for the year ended
December 31, 1992. The decrease in sales and marketing expenses was due to a
reduction in the number of sales and marketing personnel supporting the
system board product line and lower advertising expenses. The Company expects
the level of spending to increase with the introduction of additional new
products. The 1993 sales and marketing expenses were 6.5% of net sales as
compared to 6.9% of net sales during 1992.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the year ended December 31, 1993,
totaled $2.7 million or 5.9% of net sales compared to $2.5 million or 5.2% of
net sales for the year ended December 31, 1992.
16
<PAGE>
The 6.9% increase was primarily due to higher legal expenses and director and
officer liability insurance premiums. These increases in general and
administrative expenses were only partially offset by reduced compensation and
benefit expenses resulting from lower staffing levels during 1993 as compared
to 1992.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE
The provision for uncollectible accounts receivable increased by $2.7 million
to $4.7 million or 10.3% of sales or the year ended December 31, 1993. The
increase was due to the rapid deterioration in the financial condition
during the third quarter of 1993, of one of the Company's customers,
Northgate Computer Systems, Inc. Subsequent to August 1993, product sales to
Northgate have been minimal and on a cash-in-advance basis.
IMPACT OF INFLATION
The impact of inflation on the Company's business was not material during the
year ended December 31, 1993.
INCOME TAXES
The Company had a net operating loss for its fiscal year ended December 31,
1993, the financial statements reflect a tax benefit of $46,100 for that year
as compared to a tax benefit of $1.5 million for the year ended December 31,
1992. The Company had recorded substantially all of the tax benefits
available to it in years prior to 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition improved during 1994. Working capital as of
December 31, 1994 was $16.6 million, an increase of $13.1 million from the
$3.5 million reported as of the end of 1993. Cash and cash equivalents
increased by 19% to $3.9 million as of the end of 1994 as compared to $3.3
million as of December 31, 1993.
Cash provided by operating activities in 1994 was $1.2 million compared to
$0.5 million in 1993. The sale of common stock to employees under stock
options plans and the repayment of notes receivable from stockholders added
an additional $0.7 million in cash resources. The Company utilized these cash
resources primarily to purchase $0.8 million in property and equipment and to
reduce long term debt by $0.4 million. As a result of positive cash flow
resulting primarily from increased profitability, the Company's current ratio
improved to 2.8 to 1 as of December 31, 1994 as compared to 1.4 to 1 as of
December 31, 1993.
At December 31, 1994, the Company's principal sources of liquidity
consisted of cash and cash equivalents and a $6 million line of credit. The
Company negotiated a renewal to its line of credit with Imperial Bank (the
"Bank") in July of 1994. The line of credit was increased to $6.0 million
from $2.5 million, is secured by the Company's unencumbered assets and
expires on May 15, 1995. The line of credit bears interest at the Bank's
prime rate plus 0.75%. Borrowings are limited to 80% of eligible accounts
receivable. The Company is required to maintain a compensating deposit
balance with the Bank of at least $500,000 but this amount is not legally
restricted. Additionally, the Company is also required to comply with certain
covenants with respect to dividends, stock repurchases, borrowings and
maintenance of specific financial ratios. As of December 31, 1994, the
Company was in compliance with the covenants under this line of credit except
for the covenant related to inventory turns. The Bank has agreed to waive
this covenant violation. Borrowings outstanding against this line of credit
totaled $2.4 million as of December 31, 1994. The Company paid down the line
of credit on February 9, 1995.
The Company expects to finance operations and capital requirements through
cash provided by continuing operations, existing cash balances and borrowings
under its revolving bank line of credit. There can be no assurance that the
Company will not require outside financing, or if required, that such
financing will be available on terms favorable to the Company.
17
<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock ($0.01 par value) is traded on the National
Association of Securities Dealers National Marketing System ("NMS") and is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the symbol MYLX.
The following table sets forth quarterly high and low bid quotations for
the Company's common stock for the two year period ended December 31, 1994
as quoted by the NASDAQ National Market System. Such bid quotations represent
inter-dealer prices without retail mark-up or mark-down or commission and may
not, therefore, represent actual transaction prices.
-------------------------------------------------
COMMON STOCK (MYLEX) HIGH BID LOW BID
-------------------------------------------------
1993
First quarter 6 1/4 4 1/8
Second quarter 5 1/2 3 1/2
Third quarter 5 5/8 3 1/2
Fourth quarter 7 3/4 4 3/4
-------------------------------------------------
1994
First quarter 7 3/8 4 7/8
Second quarter 5 3/4 3 5/8
Third quarter 9 5/8 4 3/8
Fourth quarter 11 3/4 7 3/4
-------------------------------------------------
As of January 31, 1995, there were approximately 750 record holders of the
Company's common stock.
DIVIDENDS
The Company has not paid cash dividends on its common stock during either of
the two most recent fiscal years nor during the period subsequent thereto.
While the Board of Directors has general authority over dividend policy, it
does not anticipate paying cash dividends in the foreseeable future.
The Company has a revolving line of credit with Imperial Bank (the
"Bank"), secured by the Company's unencumbered assets, which expires on May
15, 1995. The line of credit bears interest at the Bank's prime rate plus
0.75%. Borrowings are limited to 80% of eligible accounts receivable, and are
subject to an overall limit of $6,000,000. The agreement states that so long
as the Company is indebted to the Bank, the Company will not declare or pay
any dividend (other than dividends payable in the Company's common stock) or
make any other distribution on any of its capital stock, or purchase, redeem
or retire any of such stock without written consent of the Bank. The Company
is required to comply with certain covenants with respect to borrowings and
maintenance of specific financial ratios. As of December 31, 1994, the
Company was in compliance with the covenants under this line of credit except
for the covenant related to inventory turns. The Bank has agreed to waive
this covenant violation.
18
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
-------------------------------------------------------------------------------
DECEMBER 31, 1994 1993
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and equivalents $ 3,866 3,253
Accounts receivable, including
trade accounts receivable from
affiliate of $4,633 in 1993 11,321 9,424
Allowance for doubtful accounts (532) (5,403)
------- ------
Net accounts receivable 10,789 4,021
Inventories 10,237 4,631
Prepaid expenses and other current assets 775 622
Total current assets 25,667 12,527
Property and equipment, net 1,579 2,001
Other assets 112 112
------- ------
$27,358 14,640
------- ------
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable $ 3,187 2,479
Accrued liabilities 3,151 1,377
Line of credit payable to bank 2,350 2,500
Current portion of long-term capital
lease obligations 417 385
Convertible subordinated debentures -- 2,325
------- -----
Total current liabilities 9,105 9,066
Long-term capital lease obligations 493 910
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value;
25,000,000 shares authorized;
14,580,000 and 13,036,000 shares issued
and outstanding in 1994 and 1993, respectively 146 130
Additional paid-in capital 13,526 8,149
Notes receivable from stockholders -- (194)
Retained earnings (deficit) 4,088 (3,421)
------ ------
Total stockholders' equity 17,760 4,664
------ ------
$27,358 14,640
======= ======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.)
-------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1994 1993 1992
<S> <C> <C> <C>
Net sales, including sales
to affiliate of $5,020 and $18,703
in 1993 and 1992, respectively $62,513 45,234 48,769
Cost of sales 40,322 36,456 42,112
------- ------ ------
Gross profit 22,191 8,778 6,657
OPERATING EXPENSES:
Selling and marketing 3,592 2,962 3,370
Research and development 3,332 2,474 2,824
General and administrative 4,643 2,690 2,515
Provision for uncollectible accounts receivable -- 4,676 1,956
------ ------ ------
Operating income (loss) 10,624 (4,024) (4,008)
Other income (expense)
Interest income 52 103 48
Interest expense (512) (475) (522)
Other income (expense) (103) (94) 21
------ ------ ------
Income (loss) before
income tax expense (benefit) 10,061 (4,490) (4,461)
Income tax expense (benefit) 2,552 (46) (1,461)
------ ------ ------
Net income (loss) $ 7,509 (4,444) (3,000)
======= ====== ======
EARNINGS (LOSS) PER SHARE:
Primary $ .53 (.35) (.25)
------- ------ ------
Fully diluted $ .51 (.35) (.25)
------- ------ ------
WEIGHTED AVERAGE NUMBER OF SHARES:
Primary 14,208 12,740 12,103
------- ------ ------
Fully diluted 15,247 12,740 12,103
------- ------ ------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
------------------------------------------------------------------------------------------------------------------------------------
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE RETAINED TOTAL
------------------------- PAID-IN FROM EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS (DEFICIT) EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1991 11,612,000 $ 116 5,921 -- 4,023 10,060
Common stock issued for cash
upon exercise of options and warrants 206,000 2 306 -- -- 308
Subordinated debentures converted 595,000 6 589 -- -- 595
Net income (loss) -- -- -- -- (3,000) (3,000)
---------- ------ ------ ---- ------ ------
Balances as of December 31, 1992 12,413,000 $ 124 6,816 -- 1,023 7,963
Common stock issued for cash and
notes receivable from stockholders
upon exercise of options 442,000 4 633 (194) -- 443
Subordinated debentures converted 181,000 2 700 -- -- 702
Net income (loss) -- -- -- -- (4,444) (4,444)
---------- ------ ------ ---- ------ ------
Balances as of December 31, 1993 13,036,000 130 8,149 (194) (3,421) 4,664
Common stock issued for cash
upon exercise of options, net of
294,000 shares surrendered at exercise 863,000 9 494 -- -- 503
Subordinated debentures converted 681,000 7 2,631 -- -- 2,638
Tax benefit from disqualifying
dispositions of stock options -- -- 2,252 -- -- 2,252
Notes receivable from stockholders -- -- -- 194 -- 194
Net income -- -- -- -- 7,509 7,509
---------- ------ ------ --- ----- ------
Balances as of December 31, 1994 14,580,000 $ 146 13,526 -- 4,088 17,760
---------- ------ ------ --- ----- ------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,509 (4,444) (3,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Tax benefit related to disqualifying
dispositions of stock options 2,252 -- --
Depreciation and amortization 1,192 987 849
Provision for uncollectible
accounts receivable -- 4,676 1,956
Interest expense on convertible
debentures converted to common
stock 313 27 --
Changes in operating assets and
liabilities:
Accounts receivable (6,768) (197) (3,678)
Inventories (5,606) 2,469 (1,430)
Prepaid expenses and other
current assets (153) 10 508
Tax refund receivable -- 2,807 199
Accounts payable 708 (5,737) 5,441
Accrued liabilities 1,774 (131) (21)
------- ------ ------
Net cash provided by operating activities 1,221 467 824
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (770) (144) (487)
Change in other assets -- 14 (25)
------- ------ ------
Net cash used in investing activities (770) (130) (512)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments against line of credit,
net of borrowings (150) (1,864) (1,136)
Proceeds from issuance of convertible
subordinated debentures 300 3,000 --
Repayment of convertible subordinated
debentures (300) -- --
Repayment of capital lease obligations (385) (348) (330)
Proceeds from exercise of stock options
and warrants 503 443 308
Repayment of notes receivable
from stockholders 194 -- --
------ ------ ------
Net cash provided by (used in)
financing activities 162 1,231 (1,158)
------ ------ ------
Net change in cash and equivalents 613 1,568 (846)
Cash and equivalents at beginning
of year 3,253 1,685 2,531
------ ------ ------
Cash and equivalents at end of year $3,866 3,253 1,685
------ ------ ------
CASH PAID DURING THE YEAR FOR:
Interest $ 267 363 522
------ ------ ------
Income taxes $ 594 1 1
------ ------ ------
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING AND INVESTING ACTIVITIES:
Conversion of subordinated debentures $2,638 702 595
------ ------ ------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Mylex Corporation (the Company or Mylex) and its wholly owned subsidiary. All
material intercompany accounts have been eliminated in the consolidated
financial statements.
INDUSTRY SEGMENT
Mylex designs, produces, markets, and supports high-performance storage
management electronics products for both PC and non-PC servers and
workstations as well as system boards for personal computers, and operates in
this one industry segment.
REVENUE RECOGNITION
Net sales are recognized upon shipment to customers, including sales made to
distributors under agreements allowing limited right of return and price
protection on merchandise unsold by the distributors. For sales made to
distributors, reserves are provided for expected returns and price protection
at the time of shipment.
CASH EQUIVALENTS
Cash equivalents include all highly liquid investments, consisting
principally of money market accounts, purchased with a maturity of three
months or less.
INVENTORIES
Inventories are valued at the lower of cost (first in, first out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Assets recorded under capital
leases are stated at the present value of future minimum lease payments at
the inception of the lease. Depreciation on property and equipment is
calculated on the straight-line method over the estimated useful life of the
asset (generally five years). Assets recorded under capital leases are
amortized using the straight-line method over the shorter of the lease term
or estimated useful life of the asset.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
whereby deferred assets and liabilities are recorded for differences between
the book and tax carrying amounts of balance sheet items. Deferred
liabilities or assets at the end of each period are determined using the tax
rate expected to be in effect when the taxes are actually paid or recovered.
The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits that are not expected to be
realized. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
EARNINGS (LOSS) PER SHARE DATA
Primary earnings (loss) per share is based on the weighted average common and
common equivalent shares, if dilutive, outstanding each year. Common
equivalent shares consist of shares issuable upon the exercise of stock
options and warrants, except where antidilutive. In determining fully diluted
earnings (loss) per share, convertible subordinated debentures, if dilutive,
are included in outstanding shares using the "if converted" method.
23
<PAGE>
[2] RELATED PARTY TRANSACTIONS
On July 17, 1992, a group of investors, consisting of certain directors and
several officers and stockholders of the Company, purchased a majority
interest in Northgate Computer Systems, Inc. (Northgate). As a result of this
investment, two directors and one officer of the Company have served on the
Northgate Board of Directors. The Company has no direct equity interest in
Northgate.
As of December 31, 1993, $4,633,000 of the Company's gross accounts
receivable were attributable to Northgate. These receivables were fully
reserved. The reserve was increased to 100% of the outstanding balance as a
result of decreased payments from Northgate during the third quarter of 1993
and the continued deterioration during 1993 of Northgate's financial
condition. Subsequent to August 1993, sales to Northgate have been minimal
and on a cash-in-advance basis. During 1994, all outstanding receivables from
Northgate were written off against the reserve. Northgate filed for
bankruptcy in 1994.
[3] INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
DECEMBER 31, 1994 1995
<S> <C> <C>
Raw materials $ 6,924 1,495
Work in process 2,263 2,683
Finished goods 1,050 453
------- -----
$10,237 4,631
======= =====
----------------------------------------------------------------------------
</TABLE>
[4] PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
DECEMBER 31, 1994 1995
<S> <C> <C>
Machinery and equipment $ 4,122 3,656
Furniture and fixtures 656 511
Computer equipment and software 1,372 1,213
------- -----
6,150 5,380
Less accumulated depreciation and amortization 4,571 3,379
------- -----
$ 1,579 2,001
======= =====
----------------------------------------------------------------------------
</TABLE>
As of December 31, 1994, equipment recorded under capital leases was
$2,079,000 and accumulated amortization thereon was $1,648,000.
[5] ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
DECEMBER 31, 1994 1995
<S> <C> <C>
Accrued compensation and benefits $ 1,234 400
Accrued legal 855 --
Other 1,062 977
------- -----
$ 3,151 1,377
======= =====
----------------------------------------------------------------------------
</TABLE>
[6] LINE OF CREDIT
The Company has a $6,000,000 line of credit expiring in May 1995 which bears
interest at the bank's prime rate plus 0.75% (8.5% as of December 31, 1994).
Borrowings under this line of credit are limited to 80% of eligible accounts
receivable and are secured by the Company's unencumbered assets. The
agreement requires the Company to maintain a $500,000 compensating balance
and contains covenants that include the maintenance of specific financial
ratios and prohibitions on dividend payments, stock
24
<PAGE>
repurchases, and additional indebtedness without the prior consent of the
bank. As of December 31, 1994 the Company was in compliance with these
covenants, except for the covenant related to inventory turns, which was
waived by the bank. This compensating balance is not legally restricted.
[7] INCOME TAXES
Income taxes for the year ended December 31, 1994, 1993 and 1992, were
comprised of the following (in thousands):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
DECEMBER 31, 1994 1993 1992
<S> <C> <C>
CURRENT TAX EXPENSE (BENEFIT):
Federal $ 911 (472) (1,927)
State 27 1 1
------- ------ ------
Total current 938 (471) (1,926)
------- ------ ------
DEFERRED TAX EXPENSE (BENEFIT):
Federal (638) 425 465
------- ------ ------
State -- -- --
------- ------ ------
Total deferred (638) 425 465
------- ------ ------
CHANGE IN LIEU OF TAXES ATTRIBUTABLE
TO EMPLOYER STOCK OPTION PLANS:
Current year 1,222 -- --
Prior years 1,030 -- --
------- ------ ------
Total charge 2,252 -- --
------- ------ ------
Total tax expense (benefit) $ 2,552 (46) (1,461)
======= ====== ======
------------------------------------------------------------------------------------------
</TABLE>
The reconciliation between the amount computed by applying the federal
statutory rate of 34% to income (loss) before income taxes and the actual
income tax expense (benefit) were as follows (in thousands):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
DECEMBER 31, 1994 1993 1992
<S> <C> <C> <C>
Statutory federal income tax, at 34% $ 3,421 (1,527) (1,517)
State income tax, net of federal tax benefit 102 (275) 1
Foreign sales corporation benefit (41) -- --
Credits available from application of loss carryback -- (335) --
Change in the beginning of the year
valuation allowance, including losses and credits
for which no benefit has been recognized (1,986) 2,081 --
Credit to paid-in capital 1,030 -- --
Other, net 26 10 55
------- ------ ------
Total tax expense (benefit) $ 2,552 (46) (1,461)
------- ------ ------
------- ------ ------
------------------------------------------------------------------------------------------
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities is presented
below (in thousands):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
DECEMBER 31, 1994 1993
<S> <C> <C>
DEFERRED TAX ASSETS:
Accounts receivable valuation reserves $ 214 1,800
Lower of cost or market adjustments to inventory
and other tax related adjustments 145 190
Reserves and accruals for reporting
purposes not taken for tax purposes 1,059 220
Other credits -- 600
State tax benefit, including net operating
loss carryovers, net of federal tax reduction -- 675
Valuation allowance (1,299) (3,285)
------ ------
Net deferred tax assets 119 200
------ ------
DEFERRED TAX LIABILITIES:
Depreciation and amortization (119) (200)
------ ------
Net deferred tax liabilities (119) (200)
------ ------
Net deferred tax assets $ -- --
====== ======
------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
The net change in the valuation allowance for the year ended December 31,
1994, was a decrease of $956,000, after adjustment for approximately
$1,030,000 realized benefit from prior years' disqualifying disposition of
stock options credited to paid-in capital. Management believes sufficient
uncertainty exists regarding the realizability of these net deferred tax
assets such that a valuation allowance is required.
As of December 31, 1994, for California tax purposes, the Company had
net operating loss carry-forwards of approximately $975,000, which expire in
1997 through 1998. The Company had no loss carryforwards for federal tax
purposes. The difference between the net operating loss carryforwards for
federal income tax purposes and for California income tax purposes results
from limitations on the carryback of losses in California.
[8] CONVERTIBLE SUBORDINATED DEBENTURES
During 1993, the Company sold $3,000,000 of 8% convertible debentures through
a private placement. The debentures paid interest semiannually and provided
for conversion of the principal and any outstanding accrued interest into
common stock at conversion prices ranging from $3.875 to $5.00 per share.
Members of the Company's Board of Directors purchased $775,000 of the
debentures, and, during 1993, $675,000 of the debentures held by Board
members, along with $27,300 of related accrued interest, were converted to
common stock.
Of the $2,325,000 debentures outstanding as of December 31, 1993,
$300,000 were due December 31, 1993, and $2,025,000 were due at the earlier
of December 31, 1994, or the closing date of a public offering of stock or
debt pursuant to which the Company receives proceeds of at least $10,000,000.
The debentures due December 31, 1993, were repaid in January 1994.
During 1994, an additional $300,000 of 8% convertible debentures were
issued to replace those repaid in January 1994. These debentures and the
$2,025,000 outstanding as of December 31, 1993, along with $313,000 of
related accrued interest, were converted to common stock during 1994 at a
rate of $3.875 per share.
With respect to common stock issued upon conversion of the debentures,
the holders may require, at the Company's expense, filing of a registration
statement under the Securities Act of 1933 covering the securities issued
upon conversion.
[9] COMMITMENTS AND CONTINGENCIES
Future minimum payments under leases as of December 31, 1994, will be as
follows (in thousands):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
YEAR ENDING DECEMBER 31, CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1995 $ 493 631
1996 522 211
------ -----
Total future minimum lease payments 1,015 $ 842
-----
-----
Less amount representing interest 105
------
Present value of capital lease obligations 910
Less current portion 417
------
Noncurrent portion of capital lease obligations $ 493
======
-----------------------------------------------------------------------------------
</TABLE>
The Company leases its facility under a noncancelable lease agreement
that expires in 1996 and provides for renewal options. Under this lease,
Mylex is required to pay property taxes, insurance, and normal maintenance
costs.
Rent expense was $743,000, $824,000, and $768,000 in 1994, 1993, and
1992, respectively.
The Company is party to an action that alleges breach of contract and
other claims relating to a royalty agreement entered into by the Company. The
amount of damages sought is unspecified. The Company has certain defenses and
counterclaims and intends to defend this action vigorously.
26
<PAGE>
The former chief executive officer of the Company filed a complaint
against the Company and its outside directors in October 1994, claiming
breach of his employment agreement. The claim is for compensatory and
consequential damages of at least $5 million. The Company believes it has
meritorious defenses and will vigorously defend this lawsuit.
The results of legal proceedings cannot be predicted with certainty;
however, in the opinion of management, the Company does not have a potential
liability in connection with these and any other proceedings that would have
a material effect on the Company.
[10] STOCKHOLDERS' EQUITY
Mylex's 1983 and 1993 incentive and nonqualified stock option plans provide
for the grant, by the Board of Directors, of stock options to employees,
officers, consultants, and outside directors at an exercise price per share
not less than the fair market value on the date of grant. Incentive stock
options granted under the 1983 plan generally vest ratably over 3 years from
date of grant and expire 10 years from date of grant. Nonqualified stock
options begin vesting immediately and expire 5 years from date of grant.
Options granted under the 1993 plan generally vest ratably over 4 years from
the date of grant and expire 10 years from the date of grant.
The 1983 and 1993 plans also provide for automatic grants to outside
directors of options to purchase 50,000 common shares upon election to the
Board of Directors. A summary of stock option transactions under the plans
are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
OUTSTANDING OPTIONS
SHARES ----------------------------
AVAILABLE NUMBER EXERCISE
FOR GRANT OF SHARES PRICE
<S> <C> <C> <C>
Balances as of December 31, 1991 42,000 2,386,000 $1.125 - 5.06
Increases in number of shares
available for grant 750,000 -- --
Granted (300,000) 300,000 4.25 - 4.75
Exercised -- (163,000) 1.125 - 2.75
Canceled 320,000 (320,000) 1.125 - 4.75
---------- ----------
Balances as of December 31, 1992 812,000 2,203,000 1.15 - 5.06
Increases in number of shares
available for grant 750,000 -- --
Granted (1,168,000) 1,168,000 3.87 - 7.00
Exercised -- (442,000) 1.15 - 4.63
Canceled 29,000 (29,000) 2.75 - 4.63
Shares expiring with 1983 plan (404,000) -- --
---------- ----------
Balances as of December 31, 1993 19,000 2,900,000 1.25 - 7.00
Increases in number of shares
available for grant 625,000 -- --
Granted (566,000) 566,000 4.63 - 10.25
Exercised -- (1,157,000) 1.25 - 4.13
Canceled under 1983 plan -- (491,000) 1.50 - 5.75
Canceled under 1993 plan 41,000 (41,000) 3.88 - 10.25
---------- ----------
Balances as of December 31, 1994 119,000 1,777,000 1.56 - 10.25
========== ==========
Exercisable as of December 31, 1994 553,000 1.56 - 5.06
==========-----
-------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1994, the Company had warrants outstanding for the
purchase of 7,500 shares at $1.125 per share.
27
<PAGE>
[11] CONCENTRATION OF CREDIT RISK AND SALES TO MAJOR CUSTOMERS
The Company sells its products primarily to original equipment manufacturers
and distributors in the personal computer industry. The Company generally
requires no collateral on trade receivables, although certain export sales
are guaranteed by letters of credit. As described in Note 2, the Company's
largest customer in 1992, Northgate, was an affiliate. Receivables from
Northgate were fully reserved during 1993 due to the deterioration of
Northgate's financial condition. The receivable from Northgate was written
off during 1994 as a result of Northgate's filing for bankruptcy.
Sales to major customers, as a percentage of net sales, and the amount
receivable (in thousands) as of December 31, 1994, from such customers were as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
CROSS
AMOUNT
CUSTOMER 1994 1993 1992 RECEIVABLE
<S> <C> <C> <C> <C>
A 22% 18% -- $1,426
B 17% -- -- 1,788
C 14% 10% -- 1,018
D 5% 3% -- 1,631
E 4% 10% 1% 95
Northgate -- 11% 38% --
-----------------------------------------------------------------------------------------
</TABLE>
Export sales, principally to Europe, comprised 16%, 21%, and 29% of net
sales in 1994, 1993, and 1992, respectively.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mylex Corporation:
We have audited the accompanying consolidated balance sheets of Mylex
Corporation and subsidiary as of December 31, 1994 and 1993, and the related
consolidated statements of operation, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mylex
Corporation and subsidiary as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
San Jose, California
January 30, 1995
28
<PAGE>
CORPORATE DIRECTORY
OFFICERS AND DIRECTORS
MR. ISMAEL DUDHIA
Chairman of the Board
Mylex Corporation
MR. AL MONTROSS
President, Chief
Executive Officer
and Director
Mylex Corporation
DR. M. YAQUB MIRZA
Director and Secretary
Mylex Corporation
Executive Vice President and
Chief Operating Officer
Mar-Jac Investments
Herndon, Virginia
DR. INDER SINGH
Director
Mylex Corporation
President
Lynx Real-Time Systems Inc.
Los Gatos, California
MR. RICHARD LOVE
Director and Treasurer
Mylex Corporation
Principal
RJL Capital Management
Santa Barbara, California
MR. STEPHEN McKENZIE
Director
Mylex Corporation
Chairman of the Board
Microspeed, Incorporated
Fremont, California
DR. PARVEEN GUPTA
Sr. Vice President and
General Manager
Disk Array Division
Mylex Corporation
MS. COLLEEN MEYERS
Vice President, Finance
& Chief Financial Officer
Mylex Corporation
MR. PETER SHAMBORA
Vice President, Sales &
Marketing
Mylex Corporation
MR. SHERMAN W. TOM
Vice President, Operations
Mylex Corporation
MR. KRISHNAKUMAR RAO
Vice President, Engineering
Mylex Corporation
CORPORATE COUNSEL
WILSON, SONSINI,
GOODRICH & ROSATI, P.C.
650 Page Mill Rd.
Palo Alto, California 94304
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
50 West San Fernando Street
San Jose, California 95113
TRANSFER AGENT
CONTINENTAL STOCK
TRANSFER AND TRUST
COMPANY
2 Broadway
New York, New York 10004
CORPORATE
HEADQUARTERS
MYLEX CORPORATION
34551 Ardenwood Blvd.
Fremont, California 94555
FINANCIAL PUBLIC
RELATIONS
LIPPERT/HEILSHORN
& ASSOCIATES
800 Third Avenue
New York, New York 10022
FORM 10-K
The Company has filed an annual report on Form 10-K with the Securities and
Exchange Commission. Stockholders may obtain a copy at no extra charge by
writing to the Company at: P.O. Box 5035, Fremont, California 94537-5035
Attn: Investor Relations
STOCK LISTINGS
Mylex Corporation Common Stock is traded on the NASDAQ National Market under
the symbol MYLX
ANNUAL MEETING
The annual meeting of stockholders will be held at:
MYLEX CORPORATION
34551 Ardenwood Blvd.
Fremont, California 94555
At 2:00 pm, April 24th, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000731619
<NAME> MYLEX CORP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 3,866
<SECURITIES> 0
<RECEIVABLES> 11,321
<ALLOWANCES> (532)
<INVENTORY> 10,237
<CURRENT-ASSETS> 25,667
<PP&E> 6,150
<DEPRECIATION> (4571)
<TOTAL-ASSETS> 27,358
<CURRENT-LIABILITIES> 9,105
<BONDS> 493
<COMMON> 146
0
0
<OTHER-SE> 17,614
<TOTAL-LIABILITY-AND-EQUITY> 27,358
<SALES> 62,513
<TOTAL-REVENUES> 62,513
<CGS> 40,322
<TOTAL-COSTS> 40,322
<OTHER-EXPENSES> 11,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 512
<INCOME-PRETAX> 10,061
<INCOME-TAX> 2,552
<INCOME-CONTINUING> 7,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,509
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.51
</TABLE>
