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SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934, for the fiscal year ended December 27, 1997
[ ] Transitional report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______.
Commission File Number 0-13381
MYLEX CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 59-2291597
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
34551 Ardenwood Boulevard
Fremont, California 94555
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(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 Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, $.01 par value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the mean of the closing sale price of the Common Stock on
March 13, 1998, as reported on Nasdaq, was $150,430,569. As of March 13, 1998,
registrant had 18,656,898 outstanding shares of Common Stock. Shares of Common
Stock held by each executive 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 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. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV incorporate information by reference from the Annual Report to
Shareholders for the year ended December 27, 1997. Part III incorporates
information by reference from the definitive proxy statement for the 1998 Annual
Meeting of Shareholders to be held May 21, 1998, which proxy statement will be
filed in April, 1997.
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TABLE OF CONTENTS
PART I
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Page
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Item 1. Business 5
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a
Vote of Security Holders 16
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 17
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 17
Item 8. Consolidated Financial Statements and
Supplementary Data 17
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers
of the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain
Beneficial Owners and Management 18
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Item 13. Certain Relationships and Related
Transactions 18
PART IV
Item 14. Exhibits, Consolidated Financial Statements,
Financial Statement Schedules, and
Reports on Form 8-K 19
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PART I
ITEM 1. BUSINESS
GENERAL
Mylex Corporation is a leading producer of RAID technology and network
management products. Mylex produces high performance disk array (RAID)
controllers, PCI bus based and external, Ultra SCSI host bus adapters (HBA) and
complementary computer products for network servers, mass storage systems and
workstations. Through its wide range of RAID controllers and HBA products,
Mylex provides enabling intelligent I/O technologies that increase network
management control, enhance CPU utilization, optimize I/O performance, and
ensure data security and availability. Products are sold globally through a
network of OEMs, major distributors, VARs and system integrators. Through 1997,
more than twenty leading network file server and storage subsystem OEMs,
including Digital Equipment Corporation, NEC, Siemens, Fujitsu and Hitachi had
designed Mylex RAID controllers into their server and storage subsystem
products. The Company is incorporated under the laws of the State of Delaware.
During the late 1980s and early 1990s, the Company's principal business involved
the production and sale of system boards (so-called "mother boards") for
personal computers. In the early 1990s, Mylex responded to changes in the
computer industry by undertaking a series of product development initiatives
designed to reposition the Company to address the storage and input/output, or
"I/O," challenges facing the emerging client/server computing environment. In
1992, the Company introduced its first RAID controller product into the personal
computer network market. Sales of RAID controller products have grown rapidly
since 1992, and represented 88% of the Company's net sales during 1997.
The trend toward client/server computing that began in the mid-1980s has placed
particular demands on network storage systems and related I/O functions. The
development of faster microprocessors and more robust computer bus architectures
in network systems has often outstripped the capabilities of data storage and
I/O technologies, leading to systems "bottlenecks." To alleviate or avoid such
bottlenecks, networks require continual improvements in stored data retrieval
speed. In addition, the development of more complex applications and operating
systems has created the need for increased network storage capacity. Meanwhile,
the mission critical, enterprise-wide nature of networked computing often
requires a high level of "fault tolerance," or the ability to preserve data from
loss and to provide uninterrupted system service even if an individual data
storage device fails. The emergence of data-intensive applications such as
multimedia and video-on-demand are further driving the demands for speed,
capacity and reliability in network storage devices.
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Mylex RAID controllers enable increased speed, greater capacity, and a high
degree of fault tolerance in network storage and I/O functions. RAID, which
stands for redundant array of independent disks, is a method for distributing
data across several disk drives and allowing the server microprocessor to access
those drives simultaneously, thus increasing system storage I/O performance. In
addition, lost data on any drive can be recreated using special RAID algorithms,
thus ensuring the immediate availability of RAID protected data even in the
event of a disk drive failure. Mylex controllers support all major operating
systems and bus types, and the Company endeavors to rapidly develop products for
new bus, operating system, and platform standards as they are defined. RAID
controller products based on the PCI bus standard represented a majority of its
disk array product sales in 1997. The Company believes that its patents,
proprietary software and firmware as well as its large installed base of RAID
units are key competitive advantages in the RAID controller market.
In addition to the PCI RAID controllers, which generated approximately 75% of
the Company's revenues in 1997, the Company offers external RAID controllers,
including a fibre version, host bus adapters and a new product utilizing the
Company's new Autonet-TM- Thin Server Engine. Both the external RAID
controllers and HBA products are highly suited to applications that demand high
data throughput and low CPU utilization. The Autonet-TM- product will allow the
Company to participate in a market segment that uses thin server technology and
is only now emerging as the next growth area in file management on the network.
Consequently, the Company has moved beyond the "single product" stage, allowing
an offering of product solutions for desktop PC's to large networked systems.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Sales of the Company's RAID controller products accounted for 88% of the
Company's net sales in 1997 and 87% of net sales in 1996. Conversely the
Company's net sales of its host bus adapters (HBA's) were 10% in 1997 and 11% in
1996. The Company's RAID controller products are used principally in personal
computer network applications. The use of RAID technology in the personal
computer network market has become established over the previous few years, but
there can be no assurance that another technology will not replace RAID in the
disk array controller marketplace or that there will be continuing widespread
acceptance or growth of the use of RAID products in general, or the Company's
RAID controllers in particular, in that market. Furthermore, even if the market
continues to grow, there can be no assurance that the Company will be able to
continue, to market and sell its RAID controller products at similar or higher
rates, or with similar or improved gross margins, it experienced in 1997.
The Company's host adapter product family represents one of the broadest host
adapter product offerings available by providing a common interface to all of
today's PC bus architectures. These products are typically used in personal
computers ranging from the desktop up to file servers and work stations. SCSI,
which stands for small computer
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system interface, is a bus protocol that allows a computer to connect to
multiple internal and external peripherals from one slot and which improves I/O
performance over other protocols such as ATA, IDE and Enhanced IDE. There can
be no assurance that another technology will not replace SCSI, or the Company's
SCSI HBA products in particular, in that market. Furthermore, even if the market
continues to grow, there can be no assurance that the Company will be able to
continue to market and sell its HBA products at similar or the same rates, or
with similar or the same gross margins, it experienced in 1997.
The Autonet-TM- thin server engine product is the first in a new class of
products the Company expects to develop. In today's business environment, the
need for fast, reliable access to data is essential. In addition, businesses
need to be able to install and maintain network storage systems easily, with
minimal network downtime and minimal administrative overhead. The Autonet-TM-
product, developed by the Company's Network Power and Light-TM- Division, is an
open hardware and software architecture that combines simplicity, accessibility,
scalability and low cost into a thin server engine designed to manage network
attached storage devices and entry level networks. However, there can be no
assurance that the Company will be able to deliver and gain market acceptance of
its Autonet-TM- product, without materially impacting gross margins, if at all.
In addition, in order to be able to compete successfully in the RAID controller
and HBA market, the Company will have to develop and market new RAID controller
and HBA products. There can be no assurance that the Company will be able to
develop and introduce new RAID controller and HBA products in a timely manner or
that any such products will gain or sustain market acceptance.
The Company's 1997 revenue depended on a customer base that was concentrated.
The Company's four largest customers, Digital Equipment Corporation ("DEC"),
Siemens, NEC and Fujitsu collectively accounted for 47% of the Company's net
sales in 1997. Sales to DEC alone represented 23% of the Company's net sales
during 1997. Sales to Siemens, NEC and Fujitsu accounted for 10%, 8% and 6% of
net sales, respectively. The Company has no long-term purchase commitments from
its customers, and customers generally may cancel their orders on 30-days
notice. Accordingly, there can be no assurance that orders from existing
customers, including the Company's principal customers, will continue at their
historical levels, or that the Company will be able to obtain orders from new
customers. The loss of one or more of the Company's current customers,
particularly a significant customer, or cancellation or rescheduling of orders
already placed, could materially and adversely affect the Company's business and
operating results.
The Company's OEM customers have integrated the Company's RAID controller
products into their servers and storage subsystems. Any of these OEM customers
may choose to develop their own RAID controller products which could be
substituted for, and thus reduce or eliminate their purchases of, the Company's
RAID controller products. Most of
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the Company's OEM customers, and particularly its principal customers, have
extensive product development experience and expertise, substantial financial
resources and ongoing, substantial product development activities. As a result,
it is possible that those customers may engage in RAID development programs on a
continuing basis. Any material reduction in purchases of RAID controller
products by any OEM customer as a result of such customer developing its own
competing product will materially and adversely affect the Company's business
and operating results.
COMPETITION
The markets for the Company's RAID controller and HBA products have been
competitive and are likely to remain competitive. Furthermore, there are
numerous companies with established reputations in the controller and personal
computer related markets, many of which have greater financial, manufacturing
and marketing resources than those of the Company. The Company believes that
its principal competitors for RAID controllers are American Megatrends (AMI) and
Adaptec. The principal competitor for the Company's HBA products is Adaptec.
The Company's share of the HBA market is quite smaller, particularly when
compared to Adaptec's share, and Adaptec has significantly greater financial,
manufacturing and marketing resources than the Company.
Some OEMs, such as Compaq and IBM, have developed their own RAID controllers.
As noted, the customers historically accounting for the most significant volumes
of the Company's sales are major OEMs, any of which could develop their own
controllers at any time rather than purchase such products from the Company.
The Company's ability to compete successfully in the RAID controller and the HBA
markets depends upon its ability to continue to develop products, which are
proven to be reliable and obtain market acceptance, which can be sold at
competitive prices, while maintaining adequate gross margin levels. Although
the Company believes that its RAID controller and HBA products have certain
competitive advantages, which include performance and cost, there can be no
assurance that the Company will be able to compete successfully in the future in
the market for such products or that other companies may not develop products
with greater performance or more favorable prices and thus reduce the demand for
the Company's products. Furthermore, as more companies enter the RAID
controller market, the Company expects to encounter price competition for such
products which could materially and adversely affect its gross margins.
PRODUCTS
During the last half of 1993, the Company shifted its principal activity from
the supply of system board products to the manufacture of I/O devices and
storage management enhancing computer peripheral products. Additionally, the
acquisition of BusLogic in
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early 1996 has broadened the Company's product offering with a complementary
line of host bus adapters. Mylex designs its products to provide solutions for
all popular operating systems, including Novell Netware, Windows NT, SCO UNIX,
Solaris and Unixware. Mylex products also work with all popular hardware
platforms. These include personal computer platforms that use PCI architecture
and workstation platforms, including Sun Microsystems, Silicon Graphics and IBM
RS-6000 workstations that use the Company's SCSI-to-SCSI products.
Despite testing, new products may be affected by quality, reliability or
interoperability problems, which could result in returns, delays in collecting
accounts receivable, unexpected service or warranty expenses, reduced and
delayed orders and a decline in the Company's competitive position. In
addition, there can be no assurance that new products or technologies developed
by others, or the emergence of new industry standards, will not render the
Company's products or technologies noncompetitive or obsolete. For example,
efforts by the Company's OEM customers and other manufacturers to integrate
additional functions into system boards, to use chip sets that incorporate
additional functionality, or to design and utilize their own controllers and
other devices rather than purchase the Company's products could have a material
adverse effect on the Company's business and operating results.
All of the Company's current RAID controller products are based on the Intel
i960 family of processors. If another company develops a processor for RAID
applications which renders the i960 processor noncompetitive, whether as a
result of cost, specifications or other advantages of the new processor, or if
Intel ceases to produce the i960 processor or support the Company's efforts to
develop products based on the i960 processor, the Company will be forced to
develop new products based on another processor. Such development efforts will
be costly, and there can be no assurance that the Company will be able to timely
complete such development efforts or that such products, if developed, will have
the same degree of market acceptance or the same gross margin as the Company's
present RAID products.
Raid Controllers
Each bus-based Mylex RAID controller includes a proprietary application specific
integrated circuit, or "ASIC," that serves as an interface with the host
computer, a RISC processor, up to five SCSI channels to manage the transfer of
data to and from the disk drives in the array and a dynamic cache memory ranging
in size from 2 to 128 MB, depending on the product, to buffer the transfer of
information to and from the disks. The controller also includes Mylex firmware
residing on an EEPROM that implements the RAID algorithms and the algorithms
necessary for the cache and supporting software, including I/O drivers,
configuration utilities and system monitoring programs.
Mylex disk array controllers DAC960PG, DAC960PJ, DAC960PL and DAC960PU provide
high performance, fault tolerant data storage solutions for the PCI bus
platforms. The
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Mylex external disk array controllers, DAC960SF and DAC960SX, bring the
performance of RAID technology, which can operate in dual active mode, 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.
Products currently under development include a controller optimized for
multimedia and video imaging, controllers that will provide for high speed
serial interfaces to disk drives, clustering of storage subsystems and low-cost
RAID solutions. There can be no assurance that the Company will introduce its
products under development. If these products are introduced, there can be no
assurance that they will gain or sustain market acceptance or that their sales
will produce adequate gross margins.
Host Bus Adapters
The Company's host adapter products are ideal for data intensive LAN servers,
desktop publishing workstations and multimedia applications where efficient I/O
is essential. The HBA will support up to 15 SCSI devices that include disk,
tape, floppy, CD-ROM and optical drives and scanners. These devices can either
be internal or external to the system and be used in a multi-tasking
configuration. The Company continues to develop follow on versions of its PCI
based products. If these products are introduced, there can be no assurance
that they will gain or sustain market acceptance or that their sales will
produce adequate gross margins. Sales of HBA products in 1997 declined from
1996. The Company's HBA products have historically competed on performance and
features. During 1997, the Company experienced competition from low cost HBA
providers. As a result of these new HBA suppliers, the Company is now faced
with the additional pressure of competitive pricing for its HBA products.
Network Attached Storage Products
In addition to RAID controllers and host bus adapters, the Company has developed
a new product called AutoNet-TM-, which is a scalable, low cost thin server
engine. Thin server technology allows the server to be optimized to perform
file services with minimal complexity and cost. Standard servers are based on
personal computer architectures, and while they perform well for many
applications they are overly complex and costly for basic network services.
Initial applications for the new servers, based on the Autonet-TM- engine, are
expected to be in the areas of file service and network attached storage. There
can be no assurance that the Company will be able to develop and introduce the
AutoNet products in a timely manner or that any such products will gain or
sustain market acceptance. In any event, it is not expected that sales of
AutoNet products will be material to the Company any earlier than the third
quarter of 1998.
The markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards and relatively short product life
cycles. The
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Company's ability to compete successfully will depend on its ability, on a
timely and cost-effective basis, to enhance its existing products and to
introduce new products, such as its new PCI and external disk array
controllers, HBA products and network attached storage products, based on
Autonet-TM-, with features that meet changing customer requirements and with
competitive prices. There can be no assurance that the Company will be
successful in doing so. Delays in product enhancement and development or the
failure of the Company's new products or enhancements to gain or sustain
market acceptance could have a material adverse effect on the Company's
business and operating results.
PRODUCT MANUFACTURE AND SUPPLIERS
Mylex organizes its manufacturing as a continuous flow process. Manufacturing
entails placing semiconductors and other electronic components on printed
circuit boards and soldering them in place through an automated process. The
Company accomplishes all manufacturing through subcontractors that typically use
Fuji Surface Mount Technology equipment. This equipment automatically positions
and attaches chips and other components to circuit boards, increasing the speed
and accuracy of the manufacturing process.
The Company's manufacturing and distribution facility is located at its Fremont,
California headquarters. The Company has converted to assembling all of its
products through subcontract manufacturers who are ISO 9000 certified. Despite
its arrangements with local subcontractors, however, there can be no assurance
that the Company's manufacturing resources always will be adequate to meet
product demand.
In late 1996, the Company created a new subsidiary, called Mylex Distribution,
Inc., for the purpose of establishing a network of forward positioned inventory
locations. These locations are strategically situated in eleven different
states. The main function of this network of locations is to make available
emergency inventory, on a timely basis, to the Company's geographically diverse
customer base.
Mylex or its subcontractors perform quality control and inspection procedures
throughout the production process to ensure that products meet industry
standards. The Company, through its subcontractors, subjects all products to
100% in-circuit and functional tests.
The Company's most critical components are the i960 RISC processor, the
Company's applications specific integrated circuits or "ASIC", SCSI chips and
the SIMM memory module. The Company procures the i960 processor from Intel or
local distributors and its ASIC, SCSI chips and SIMM modules from Toshiba,
Symbios Logic, Atmel and Tanisys Corporation, respectively. Other components
are available from several sources at competitive prices.
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The Company has no long-term supply contracts. There can be no assurance that
the Company will be able to obtain, on a timely basis, all the components it
requires. If the Company cannot obtain critical components as required, it may
be unable to meet demand for its products, thereby adversely affecting its
operating results. In addition, scarcity of such components may result in cost
increases and adversely affect the Company's gross margins.
The Company's need to manufacture products before receiving firm purchase
orders, combined with risks of technological obsolescence and rapid shifts in
market demand, could result in inventory devaluation or obsolescence, either of
which could have a material adverse effect on its operating results.
SALES AND MARKETING
As of December 27, 1997, the Company employed 93 sales and sales support
personnel who devoted substantially all their time to marketing, sales, and
technical and customer support. The Company expects that sales and marketing
expenses will increase in 1998 as the rate of sales grows. However, there can
be no assurance that such sales growth will occur.
Sales to DEC accounted for 23% of net sales in 1997 and 17% of net sales during
1996. Sales to the next two largest customers, Siemens and NEC, each accounted
for an additional 10% and 8% of net sales, respectively, in 1997 and 5% and 6%,
respectively, in 1996. The Company's sales continue to remain concentrated in a
small group of OEM customers. In addition, the export portion of the Company
sales has increased to 73% in 1997 as compared to 65% in 1996. Although there
are OEM agreements in place with some of the Company's largest customers that
define the terms of sale and support services, these agreements do not include
specific quantity commitments and generally allow customers to cancel any orders
on 30 days notice. The Company generally sells products on a purchase order
basis. As a result, historical sales are not necessarily an accurate indicator
of future sales. The majority of the Company's sales are with OEM customers.
The OEM sales process is complex, requiring interaction with several layers of
the OEM customer's organization and extensive technical exchanges, product
demonstrations and commercial negotiations. As a result, the Company's typical
sales cycle is usually four to nine months. OEM relationship commitments are
generally made at a high level within the customer's organization, and the sales
process involves broad participation across the Mylex organization, from the
Chief Executive Officer to the engineers who designed the product.
The Company's sales which do not involve OEM's involve the marketing and
distribution of the Company's products to system integrators, value added
resellers and distributors (who also service major OEM customers in some
international markets)
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throughout the world. Mylex also uses the services of manufacturer
representatives in the United States and Canada in this sales channel.
The Company has distribution agreements with its distributors, including
companies such as Tech Data, Ingram Micro and Avnet Corporation. Mylex also has
agreements with various regional and specialty distributors, both domestic and
international. The Company also conducts extensive advertising in trade
publications, conducts various joint marketing activities with its distributors,
and sponsors exhibits at approximately 15 trade shows annually.
INTERNATIONAL SALES
Sales to customers outside the United States accounted for approximately 73% of
the Company's revenue in 1997. Of the total international sales, 29% of these
sales were destined to Pacific Rim customers. Sales to foreign affiliates of
U.S. customers are treated as foreign sales. Although there can be no
assurances given, the Company expects that international sales will continue to
represent a significant portion of the Company's revenue in 1998 and thereafter.
International sales pose certain risks not faced by companies that limit
themselves to domestic sales. Fluctuations in the value of foreign currencies
relative to the U.S. dollar, as recently witnessed in several Pacific Rim
countries, for example, could make the Company's products less price competitive
and, if the Company in the future denominates any of its sales in foreign
currencies, could result in losses from foreign currency transactions.
International sales also could be adversely affected by factors beyond the
Company's control, including the imposition of government controls, export
license requirements, restrictions on technology exports, changes in tariffs and
taxes and general economic and political conditions. In some countries, the laws
do not protect the Company's intellectual property rights to the same extent as
the laws in the United States.
BACKLOG
The Company's backlog as of December 27, 1997, totaled $5.4 million, as
compared to $7.8 million as of December 31, 1996. The decrease in the
backlog was attributable to an absence of orders in 1997, as compared to
1996, from IBM. Because almost all of the orders for the Company's products
may be canceled prior to shipment and customers may similarly change delivery
schedules, the Company believes that backlog as of any particular date may
not be indicative of actual net revenues for any succeeding period.
Furthermore, the Company's manufacturing capabilities may not be sufficient,
from time to time, to permit it to ship all products subject to a substantial
backlog by the shipment dates requested by the respective
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customer. Of the total $5.4 million backlog at December 27, 1997, all but a
small percentage of the orders would have been scheduled for delivery within the
three months ended March 28, 1998, unless the orders were canceled or
rescheduled by the respective customer.
RESEARCH AND DEVELOPMENT
The Company conducts an active and ongoing research and development
engineering program that focuses on the development of new products, new
features for the Company's existing products, rigorous design verification
and compatibility testing and the Company maintains an engineering support
group to follow up with customers. The Company continues to expand its
development activities and now has three engineering groups located in
Fremont, California and in Boulder, Colorado.
As part of its product development strategy, the Company actively seeks
cooperative and codevelopment activities with industry leaders in the
hardware, software, silicon and systems businesses and participates in a
number of industry forums, such as I(2)O and PCI RAID Advisory Group. The
Company's ability to compete successfully will depend in large part on its
ability, on a timely and cost-effective basis, to enhance its existing
products and introduce new products with features that meet changing customer
requirements and with competitive prices. Despite testing, new products may
be affected by quality, reliability and interoperability problems, which
could result in returns, delays in collecting accounts receivable, unexpected
service or warranty expenses, reduced orders and a decline in the Company's
competitive position.
EMPLOYEES
As of December 27, 1997, the Company employed 373 people. Those employees
included 140 engineering and product development employees, 49 finance and
administration employees, 93 employees in the sales, marketing and technical and
customer support areas, and 91 manufacturing employees.
Recruitment of personnel in the computer industry, particularly engineers, is
highly competitive. The Company believes that its future success will depend in
part on its ability to attract and retain highly skilled management, engineers,
sales, marketing, finance and technical personnel. There can be no assurance of
the Company's ability to recruit and retain the employees that it may require.
INTELLECTUAL PROPERTY
The Company holds one patent and has another patent awaiting final approval with
several other patent applications in different phases of review which are
applicable to its RAID controllers. Otherwise the Company relies on a
combination of trade secret,
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copyright and trademark laws and employee and third party non-disclosure
agreements to protect its intellectual property. There can be no assurance that
the steps taken by the Company to protect its rights will be adequate to prevent
misappropriation of the Company's technology or to preclude competitors from
developing products with features similar to the Company's products.
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 and copyrights which the Company believes are adequate for the operation
of its business as presently conducted. It is likely that such licenses to
produce, use and market new technologies will continue to be important to the
Company, particular with respect to its Autonet-TM- products. In the future,
the Company may be required to obtain licenses from others, and there are no
assurances that such licenses would be available on terms satisfactory to the
Company or at all.
There can be no assurance that third parties will not assert infringement or
related indemnity claims against the Company. In that circumstance, asserting
the Company's rights or defending against third party claims could involve
substantial expense, which could materially and adversely affect the Company's
results of operations.
ITEM 2. PROPERTIES
The Company's headquarters, manufacturing and distribution facilities are
located in two facilities with a combined square footage of 133,182 in Fremont,
California. The Company also has an engineering facility with approximately
16,000 square feet in Boulder, Colorado whose lease expires in December, 2000.
Approximately 74,000 square feet of the Fremont facilities is leased through
April, 2001, while the remaining square footage will be on lease through July,
2003.
ITEM 3. LEGAL PROCEEDINGS
In October 1994, the former Chief Executive Officer of the Company, Dr. M.A.
Chowdry, filed a complaint against the Company and its outside directors,
claiming breach of an employment agreement that he entered into with the Company
approximately three months prior to his termination as the Company's Chief
Executive Officer. The complaint alleges compensatory and consequential damages
of over $5 million (which would vary based on the price of the Company's Common
Stock) and unspecified punitive damages. The Company has filed a cross complaint
against Dr. Chowdry and believes it has meritorious defenses and will vigorously
defend this lawsuit. Nonetheless, given the unpredictable nature of legal
proceedings, there can be no assurance that the Company will prevail.
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The Company has incurred and expects to continue to incur substantial legal
expenses in defending against Dr. Chowdry's suit. Those expenses may fluctuate
from quarter to quarter and are likely to increase.
Although there can be no assurance given with respect to the results of legal
proceedings, based on information currently available to the Company, it
believes that it does not have potential liability with respect to these
proceedings that would have a material adverse effect on the Company.
In addition to matters discussed above, 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
"SAFE-HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
The foregoing discussion and in this annual report on Form 10-K contain
forward-looking information with respect to plans, projections or future
performance of the Company, the occurrence of which involve certain risks and
uncertainties that could cause actual results to differ materially. These risks
and uncertainties include, without limitation, changes in customer order
patterns, particularly those resulting from fluctuations in actual or projected
server shipments; demand and competition for the Company's existing and new
products, particularly its RAID controller, SCSI host adapter and Network Power
& Light's-TM- thin-server products; component availability; pricing pressures;
the ability of the Company to timely ship ordered products; business conditions
and growth in the computer industry and general economy; instability in foreign
economies, particularly in Asia; the capability of the Company to meet the
rapidly changing needs of its markets through timely product enhancements or new
product introductions; the risk of inventory obsolescence due to shifts in
market demand or other causes; the risk of a Company product being incompatible
with new products of other companies; and other risks and uncertainties detailed
in the Company's filings with the Securities and Exchange Commission, including
the 1996 Form 10-K and 1O-Q filings for the periods ended March 31, 1997, June
28, 1997 and September 27, 1997. These forward-looking statements speak only as
of the date hereof, and the Company disclaims any intent or obligation to update
such statements.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
This information is incorporated by reference from the information under the
caption "Market for Registrant's Common Equity and Related Stockholder Matters"
on page 33 of the Annual Report to Shareholders for the year ended December 27,
1997.
ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference from the information under the
caption "Selected Five Year Consolidated Financial Data" on page 28 of the
Annual Report to Shareholders for the year ended December 27, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
All other information regarding management's discussion and analysis of
financial condition and results of operations are incorporated by reference from
the information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 29 through 32 of the
Annual Report to Shareholders for the year ended December 27, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Mylex Corporation at December 27, 1997 and
December 31, 1996 and for each of the years in the three-year period ended
December 27, 1997 and the Independent Auditor's Report thereon are incorporated
by reference from pages 34 through 46 of the Annual Report to Shareholders for
the year ended December 27, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
17
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference from the information under the
caption "Election of Directors" and "Executive Officer Compensation" in the
Registrant's definitive Proxy Statement for its 1998 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the information under the
caption "Executive Officer Compensation" in the Registrant's definitive Proxy
Statement for its 1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the information under the
caption "Securities Ownership of Management and Principal Stockholders" in the
Registrant's definitive Proxy Statement for its 1998 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the information under the
caption "Certain Relationships and Related Transactions" in the Registrant's
definitive Proxy Statement for its 1998 Annual Meeting of Shareholders.
18
<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
Independent Auditor's Report, as listed under (a) (1) below, are incorporated
herein by reference from the Registrant's Annual Report to Shareholders for the
year ended December 27, 1997.
(a) (1) Financial Statements
<TABLE>
<CAPTION>
Page in
Annual
Report
-------
<S> <C>
Consolidated Statements of Operations - Years ended December,
1997, 1996 and 1995 35
Consolidated Balance Sheets at Year end December, 1997 and 1996 34
Consolidated Statements of Cash Flows - Years ended December,
1997, 1996 and 1995 37
Consolidated Statements of Shareholder' Equity - Years ended
December, 1997, 1996 and 1995 36
Notes to Consolidated Financial Statements 38-45
Independent Auditor's Report 46
</TABLE>
(2) The following financial statement schedule and report and consent are
submitted herewith:
<TABLE>
<CAPTION>
Page in
this Report
-----------
<S> <C>
Schedule I - Valuation and Qualifying Accounts S-1
</TABLE>
19
<PAGE>
(3) Exhibits included herein:
<TABLE>
<CAPTION>
Exhibit No. Exhibit
<S> <C>
3.1 (i) Certificate of Incorporation, Articles of Merger and
Agreement and Plan of Merger.
3.2 (a) By-laws (to be filed by amendment).
10.10 (c) 1983 Incentive Stock Option Plan, as amended and restated.
10.11 (k) 1993 Stock Option Plan, as amended.
10.13 (a) 1995 Employee Stock Purchase Plan as amended and restated.
10.20 (b) Lease Agreement of premises at 34551 Ardenwood Boulevard,
dated March 6, 1991.
10.20.1 (h) Amendment to Lease Agreement of premises at 34551 Ardenwood
Boulevard, dated February 26, 1996.
10.21 (g) Security and Loan Agreement, dated June 28,1996, with
Comerica Bank
10.22 (h) Lease Agreement of premises at 6607 Kaiser Drive, dated
December 9, 1995.
10.25 (d) Digital Equipment Corporation Basic Order Agreement.
10.40 (f) 401(k) Plan; Target Investment Advisory Agreement and
Standardized Adoption Agreement.
10.41 (e) Employment Agreement, dated as of January 1, 1995, with Al
Montross.
10.42 (a) Form of Severance Agreement with Executive Officers.
10.43 (j) Stockholder Rights Plan, as amended and restated.
11.0 (a) Statement regarding computation of per share earnings.
13.1 (a) Selected Five Year Consolidated Financial Data, MD&A, Market
for Registrant's Common Equity and Related Stockholder
Matters,
20
<PAGE>
Consolidated Financial Statements, Notes to
Consolidated Financial Statements and the Independent
Auditors' Report sections from the Annual Report to
Shareholders for the fiscal year ended December 27, 1997.
23.1 (a) Consent of Independent Auditor, KPMG Peat Marwick LLP.
27.1 (a) Financial Data Schedule
(b) Reports on Form 8-K, none.
</TABLE>
- --------------------------------------------------------------------------------
(a) Filed herewith
(b) Filed as an exhibit to the Registrant's Annual Report on
Form 10-K, for the year ended December 31, 1992, Commission
File No. 0-13381, and incorporated herein by reference.
(c) Filed as an exhibit to the Registration Statement on Form
S-8, July 24, 1989, No. 33-30104, and incorporated herein by
reference.
(d) Filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, for the period ended September 30, 1993, and
incorporated herein by reference.
(e) Filed as an exhibit to the Registrant's Registration
Statement on Form S-3, No. 33-61877, on August 17, 1995, and
incorporated herein by reference.
(f) Filed as an exhibit to the Registrant's Annual Report on
Form 10-K, for the year ended December 31, 1994, and
incorporated herein by reference.
(g) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q, for
period ended June 30, 1996, and incorporated herein by reference.
(h) Filed as an exhibit to Registrant's Annual Report on Form 10-K, for
period ended December 31, 1995, and incorporated herein by reference.
(i) Filed as an exhibit to Registrant's Annual Report on Form 10-K, for
period ended December 31, 1996, and incorporated herein by reference.
(j) Filed as an exhibit to Registrant's Registration Statement on
Form 8-A, No. 34-13381, on June 13, 1997, and incorporated herin
by reference.
(k) Filed as an exhibit to the Registration Statement on Form S-8,
February 3, 1998, No. 33-30104, and incorporated herein by reference.
21
<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 27, 1998 By: /s/ Al Montross
----------------------------
Al Montross
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below on March 27, 1998, by the following persons in the
capacities indicated.
Signature Title
--------- -----
/s/ Ismael Dudhia Chairman of the Board of Directors
- ------------------------------
Mr. Ismael Dudhia
/s/ Richard Love Treasurer and Director
- ------------------------------
Mr. Richard Love
/s/ M. Yaqub Mirza Secretary and Director
- ------------------------------
Dr. M. Yaqub Mirza
/s/ Inder Singh Director
- ------------------------------
Dr. Inder Singh
/s/ Stephen McKenzie Director
- ------------------------------
Mr. Stephen McKenzie
/s/ Walt Wilson Director
- ------------------------------
Mr. Walt Wilson
/s/ Al Montross President and Chief Executive Officer
- ------------------------------ and Director
Mr. Al Montross (Principal Executive Officer)
/s/ Colleen Gray Vice President Finance and Chief
- ------------------------------ Financial Officer
Ms. Colleen Gray (Principal Accounting Officer)
22
<PAGE>
MYLEX CORPORATION AND SUBSIDIARIES
SCHEDULE I
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 27, 1997 and DECEMBER 31, 1996 and 1995
<TABLE>
<CAPTION>
CHARGED
BALANCE AT (BENEFIT) TO CHARGED BALANCE
BEGINNING COST AND TO OTHER AT
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS CHARGES (a) YEAR-END
-------------- ---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Amounts deducted from assets to which they apply:
Year ended December 27, 1997
Allowance for doubtful
accounts-accounts receivable $ 436,000 (227,000) -- (19,000) 190,000
Year ended December 31, 1996
Allowance for doubtful
accounts-accounts receivable $ 707,000 (156,000) -- (115,000) 436,000
Year ended December 31, 1995
Allowance for doubtful
accounts-accounts receivable $ 782,000 192,000 -- (267,000) 707,000
</TABLE>
(a) Doubtful accounts written off, less recoveries.
S-1
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
MYLEX CORPORATION
ARTICLE I
OFFICES AND SEAL
1. OFFICES. The registered office of the Corporation in the State of
Delaware shall be in the City of Wilmington, County of New Castle. The
Corporation may also maintain such other offices at such other places, either
within or without the State of Delaware, as may be designated from time to time
by the Board of Directors.
2. CORPORATE SEAL. A corporate seal shall not be requisite to the
validity of any instrument executed by or on behalf of the Corporation.
Nevertheless, if in any instance a corporate seal is used, the same shall be in
the form of a circle and shall bear the full name of the Corporation and the
year and state of incorporation, or words and figures of similar import.
ARTICLE II
STOCKHOLDERS
1. ANNUAL MEETING. An annual meeting of stockholders shall be held at
such date and time as shall be designated by the Board of Directors and stated
in the notice of the meeting. At the annual meeting, stockholders shall elect a
Board of Directors and transact such other business as may properly be brought
before the meeting.
<PAGE>
2
2. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board or
President and shall be called by the Chairman of the Board or President or
Secretary at the request in writing of a majority of the Board of Directors, or
at the request in writing of stockholders owning a majority of the entire
capital stock of the Corporation issued, outstanding, and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
3. NOTICE FOR MEETINGS. Written or printed notice stating the place, day
and hour of the meeting and in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) days before the date of the meeting, either personally or by mail, by or at
the direction of the officer or persons calling the meeting, to each stockholder
of record entitled to vote at such meeting. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, addressed to the stockholder at his address as it appears on
the stock transfer books of the Corporation, with postage thereon prepaid.
Notice need not be given of an adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken, provided that
such adjournment is for less than thirty (30) days and further provided that a
new record date is not fixed for the adjourned meeting, in either of which
events, written notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at such meeting. At any adjourned
meeting, any business may be transacted which might have
<PAGE>
3
been transacted at the meeting as originally noticed. A written waiver of
notice, whether given before or after the meeting to which it relates, shall be
equivalent to the giving of notice of such meeting to the stockholder or
stockholders signing such waiver. Attendance of a stockholder at a meeting
shall constitute a waiver of notice of such meeting, except when the stockholder
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
4. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
A. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting.
B. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
<PAGE>
4
C. In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by these Bylaws, the Certificate of Incorporation or the laws of the
State of Delaware, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by these Bylaws, the Certificate of Incorporation or the laws of the
State of Delaware, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
D. In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the
<PAGE>
5
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty (60) days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
1. RECORD OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address and
the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at the Company's headquarters, at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder present.
2. QUORUM AND MANNER OF ACTING. At any meeting of the stockholders, the
presence, in person or by proxy, of the holders of a majority of the outstanding
stock entitled to vote shall constitute a quorum. All shares represented and
<PAGE>
6
entitled to vote on any single subject matter which may be brought before the
meeting shall be counted for quorum purposes. Only those shares entitled to
vote on a particular subject matter shall be counted for the purpose of voting
on that subject matter. Business may be conducted once a quorum is present and
may continue to be conducted until adjournment SINE DIE, notwithstanding the
withdrawal or temporary absence of stockholders leaving less than a quorum.
Except as otherwise provided in the Delaware General Corporation Law, the
affirmative vote of the holders of a majority of the shares of stock then
represented at the meeting and entitled to vote thereat shall be the act of the
stockholders; provided, however, that if the shares of stock so represented are
less than the number required to constitute a quorum, the affirmative vote must
be such as would constitute a majority if a quorum were present, except that the
affirmative vote of the holders of a majority of the shares of stock then
present is sufficient in all cases to adjourn a meeting.
3. VOTING.
A. At every meeting of the stockholders, each stockholder shall be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.
B. At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be voted or
acted upon after three (3) years from its date, unless the proxy provides for a
longer period.
<PAGE>
7
C. When a quorum is present at any meeting, the vote of the holders
of a majority of the voting power present, whether in person or represented by
proxy, shall decide any question brought before such meeting, unless the
question is one upon which, by express provision of the Delaware General
Corporation Law or of the Certificate of Incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
D. Upon the demand of any stockholder, the vote for directors and
upon any question before the meeting shall be by ballot.
1. ORDER OF BUSINESS. The order of business at all meetings of the
stockholders, shall be as follows:
A. Roll call.
B. Proof of notice of meeting or waiver of notice.
C. Reading of minutes of preceding meeting.
D. Reports of officers.
E. Reports of committees.
F. Elections, if any.
G. Unfinished business.
H. New business.
The order of business may be changed by the vote of stockholders holding a
majority of the shares present in person or by proxy at such meeting and
entitled to vote thereat.
1. ACTION WITHOUT MEETING.
A. Unless otherwise provided in the Certificate of Incorporation,
any action required or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice, and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding
<PAGE>
8
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all stockholders entitled
to vote thereon were present and voted and shall be delivered to the Corporation
by delivery to its registered office in Delaware, its principal place of
business or an officer or agent of the Corporation having custody of the book in
which proceedings of meetings of stockholders are recorded. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail return receipt requested.
B. Every written consent shall bear the date of signature of each
stockholder or member who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered in the manner required by this
section to the corporation, written consents signed by a sufficient number of
holders or members to take action are delivered to the corporation as provided
in subsection 9A above of this Article II.
C. Prompt notice of the taking of the corporation action without a
meeting by less than unanimous written consent shall be given to those
stockholders or members who have not consented in writing. In the event that
the action which is consented to is such as would have required the filing of a
certificate under any other section of this title, if such action had been voted
on by stockholders or by members at a meeting thereof, the certificate filed
under such other section shall state, in lieu of any statement required by such
section concerning any vote of stockholders or members, that written consent has
been given in accordance with this section, and that written notice has been
given as provided in this section.
<PAGE>
9
1. WAIVER OF NOTICE. Attendance of a stockholder at a meeting shall
constitute waiver of notice of such meeting, except when such attendance at the
meeting is for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Any
stockholder may waive notice of any annual or special meeting of stockholders by
executing a written notice of waiver either before or after the time of the
meeting.
ARTICLE III
BOARD OF DIRECTORS
1. GENERAL POWERS. The business and affairs of the Corporation shall be
managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts as are not by statute, the Certificate
of Incorporation, or these Bylaws directed or required to be exercised or done
by the stockholders. The Directors shall in all cases act as a board, and they
may adopt such rules and regulations for the conduct of their meetings and the
management of the Corporation, as they may deem proper, not inconsistent with
these Bylaws, the Certificate of Incorporation of this Corporation, and the laws
of the State of Delaware.
2. NUMBER. The Board of Directors shall consist of one (1) or more
members. The number of Directors shall be set by the Board of Directors. The
Directors shall be elected at the annual meeting of the stockholders, except as
provided in Section 3 of this Article, and each Director elected shall hold
office until his or her successor is elected and qualified. Directors need not
be stockholders.
<PAGE>
10
3. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by the affirmative
vote of a majority of the remaining Directors then in office, although less than
a quorum, or by a sole remaining Director, and the Directors so chosen shall
hold office until the next annual election and until their successors are duly
elected and qualified, unless sooner displaced. If there are no Directors in
office, then an election of Directors may be held in the manner provided by
statute.
4. REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such times as the Board shall from time to time by
resolution determine.
5. SPECIAL MEETINGS; NOTICE. Special meetings of the Board may be called
by the Chairman of the Board or a majority of the Directors at the time in
office, on one (1) day's notice to each Director, either personally or by
telephone, or on five (5) days' notice if notice is given by mail or telegram.
If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage thereon prepaid. If notice be
given by telegram, such notice shall be deemed to be delivered when the telegram
is delivered to the telegraph company. The attendance of a Director at a
meeting shall constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Any Director may waive
<PAGE>
11
notice of any annual, regular, or special meeting of Directors by executing a
written notice of waiver either before or after the time of the meeting.
6. PLACE OF MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
7. QUORUM. A majority of the membership of the Board of Directors shall
constitute a quorum and the concurrence of a majority of those present shall be
sufficient to conduct the business of the Board, except as may be otherwise
specifically provided by the Delaware General Corporation Law or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting
of the Board of Directors, the Directors then present may adjourn the meeting to
another time or place, without notice other than announcement at the meeting,
until a quorum shall be present. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the
Directors.
8. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or Committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or Committee.
9. EXECUTIVE AND OTHER COMMITTEES. The Board, by resolution, may
designate from among its members an executive committee and other committees,
each
<PAGE>
12
consisting of three or more Directors. Each such committee shall serve at the
pleasure of the Board.
10. REMOVAL OF DIRECTORS. Any or all of the Directors may be removed for
cause by vote of a majority of the stockholders or by action of the Board.
Directors may be removed without cause only by vote of the stockholders.
11. RESIGNATION. A Director may resign at any time by giving written
notice to the Board. Unless otherwise specified in the notice, the resignation
shall take effect upon receipt thereof by the Board and the acceptance of the
resignation shall not be necessary to make it effective.
12. COMPENSATION. No compensation shall be paid to Directors, as such,
for their services. However, the Board may, by resolution, authorize a fixed
sum and expenses for actual attendance at each regular or special meeting of the
Board. Nothing herein contained shall be construed to preclude any Director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings. The amount or rate of such
compensation of members of the Board of Directors or of committees shall be
established by the Board of Directors and shall be set forth in the minutes of
the Board.
13. PRESUMPTION OF ASSENT. A Director of the Corporation who is present
at a meeting of the Directors at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the
<PAGE>
13
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
ARTICLE IV
OFFICERS
1. NUMBER. The Corporation shall have the following officers: a
Chairman of the Board (who shall be a Director), a President, a Vice President,
a Secretary and a Treasurer. At the discretion of the Board of Directors, the
Corporation may also have additional Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers. Any two or more offices may be held by the same person.
2. ELECTION AND TERM OF OFFICE. The officers of the Corporation shall be
elected annually by the Board of Directors. Each officer shall hold office
until his or her successor shall have been duly elected and qualified or until
his or her death or until he or she shall resign or shall have been removed in
the manner hereinafter provided.
3. REMOVAL. Any officer may be removed by a majority of the whole Board
of Directors whenever in their judgment, the best interests of the Corporation
would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
<PAGE>
14
4. VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the directors for the
unexpired portion of the term.
5. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall have
been appointed and be serving, shall preside at all meetings of the Board of
Directors and shall perform such other duties as from time to time may be
assigned to him or her.
6. PRESIDENT. The President shall be the principal executive officer of
the Corporation and subject to the control of the Directors, shall in general
supervise and control all of the business and affairs of the Corporation. The
President shall preside at all meetings of stockholders, and if a Chairman of
the Board shall not have been appointed or, having been appointed, shall not be
serving or be absent, the President shall preside at all meetings of the Board
of Directors. He may sign, with the Secretary or any other proper officer of
the Corporation thereunto authorized by the Directors, certificates for shares
of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the Directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Directors or
by these Bylaws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of President and such other duties as may be
prescribed by the Directors from time to time.
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15
7. VICE PRESIDENT. In the absence of the President or in event of his
death, inability or refusal to act, the Vice President shall perform the duties
of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. The Vice President shall
perform such other duties as from time to time may be assigned to him by the
President or by the Directors.
8. SECRETARY. The Secretary shall keep the minutes of the stockholders'
and of the Directors' meetings in one or more books provided for that purpose,
see that all notices are duly given in accordance with the provisions of these
Bylaws or as required, be custodian of the corporate records and of the seal of
the Corporation and keep a register of the post office address of each
stockholder which shall be furnished to the Secretary by such stockholder, have
general charge of the stock transfer books of the Corporation and in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the President or by the Directors.
9. TREASURER. If required by the Directors, the Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Directors shall determine. He shall have charge and custody
of and be responsible for all funds and securities of the Corporation; receive
and give receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these Bylaws. He shall render financial statements to the President,
Directors, and stockholders at proper times. The Treasurer shall have charge
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16
of the preparation and filing of such reports, financial statements, and returns
as may be required by law. He shall in general perform all of the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the President or by the Directors.
10. ASSISTANT OFFICERS. Any persons elected as assistant officers shall
assist in the performance of the duties of the designated office and such other
duties as shall be assigned to them by any Vice President, the Secretary or the
Treasurer, as the case may be, or by the Board of Directors, the Chairman of the
Board, or the President.
11. SALARIES. The salaries of the officers shall be fixed from time to
time by the Directors and no officer shall be prevented from receiving such
salary by reason of the fact that he is also a Director of the Corporation. The
salaries of the officers or the rate by which salaries are fixed shall be set
forth in the minutes of the meetings of the Board of Directors.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. GENERAL. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees),
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17
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
2. DERIVATIVE ACTIONS. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the
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18
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
3. INDEMNIFICATION IN CERTAIN CASES. To the extent that a director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 and 2 of this Article V, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
4. PROCEDURE. Any indemnification under Sections 1 and 2 of this Article
V (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such Sections 1 and 2.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (c) by the stockholders.
5. ADVANCES FOR EXPENSES. Expenses incurred by a director, officer,
employee, or agent of the Corporation in defending a civil or criminal action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such
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19
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount if it shall be
ultimately determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article V.
6. RIGHTS NOT-EXCLUSIVE. The indemnification and advancement of expenses
provided by or granted pursuant to, the other Sections of this Article V shall
not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any law, by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
7. INSURANCE. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article V.
8. DEFINITION OF CORPORATION. For the purposes of this Article V,
references to "the Corporation" include, in addition to the resulting
corporation, all constituent corporations (including any constituent of a
constituent) absorbed in consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees and agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is
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20
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article V with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
9. OTHER DEFINITIONS. For purposes of this Article V, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article V.
10. CONTINUATION OF RIGHTS. The indemnification and advancement of
expenses provided by, or granted pursuant to this Article V shall continue as to
a person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
No amendment to or repeal of this Article V shall apply to or have any effect
on, the rights of any director, officer, employee or agent under this Article V
which rights come into existence by virtue of acts or
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21
omissions of such director, officer, employee or agent occurring prior to such
amendment or repeal.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS. The Directors may authorize any officer or officers, agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation, and such authority may be general
or confined to specific instances.
2. LOANS. No loans shall be contracted on behalf of the Corporation and
no evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation, shall be signed by such officer or officers, agent or agents of
the Corporation and in such manner as shall from time to time be determined by
resolution of the Directors.
4. DEPOSITS. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
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22
3. CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Directors. Such
certificates shall be signed by the President and by the Secretary or by such
other officers authorized by law and by the Directors. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the stockholders, the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in case of a lost,
destroyed or mutilated certificate a new one may be issued therefor upon such
terms and indemnity to the Corporation as the Directors may prescribe.
4. TRANSFERS OF SHARES.
A. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the Corporation which shall be kept at its principal
office.
B. The Corporation shall be entitled to treat the holder of record
of any share as the holder in fact thereof, and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share on the
part of any other person
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23
whether or not it shall have express or other notice thereof, except as
expressly provided by the laws of Delaware.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of
JANUARY and end on the last day of DECEMBER in each year.
ARTICLE VIV
AMENDMENTS
These Bylaws may be repealed, altered or amended by the affirmative vote of
the holders of a majority of the stock issued and outstanding and entitled to
vote at any meeting of Stockholders or by resolution duly adopted by the
affirmative vote of not less than a majority of the Directors in office at any
annual or regular meeting of the Board of Directors or at any special meeting of
the Board of Directors if notice of the proposed repeal, alteration or amendment
be contained in the notice of such special meeting, and new Bylaws may be
adopted, at any time only by the Board of Directors.
ADOPTED by the Board of Directors of the Corporation at ______________,
California, this _____ day of __________, 1997.
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DIRECTORS
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EXHIBIT 10.13
MYLEX CORPORATION
1995 EMPLOYEE STOCK PURCHASE PLAN
The Mylex Corporation 1995 Employee Stock Purchase Plan (the "Plan") shall
be established and operated in accordance with the following terms and
conditions.
1. DEFINITIONS:
As used in the Plan the following terms shall have the meanings set forth
below:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" means the committee appointed by the Board to administer
the Plan, as described in Section 4 below.
(d) "COMMON STOCK" means the Common Stock of the Company.
(e) "COMPANY" means Mylex Corporation, a Delaware corporation.
(f) "CONTINUOUS EMPLOYMENT" means the absence of any interruption or
termination of service as an Employee with the Company and/or its Participating
Subsidiaries. Continuous Employment shall not be considered interrupted in the
case of a leave of absence agreed to in writing by the Company, provided that
such leave is for a period of not more than sixty (60) days or reemployment upon
the expiration of such leave is guaranteed by contract or statute.
(g) "ELIGIBLE COMPENSATION" means, with respect to each Participant for
each pay period, the full salary and wages paid to such Participant by the
Company or a Participating Subsidiary, including commissions, bonuses and
overtime pay. Except as otherwise determined by the Committee, "Eligible
Compensation" does not include:
(i) any amounts contributed by the Company or a Participating
Subsidiary to any pension plan or plan of deferred compensation;
(ii) any automobile or relocation allowance (or reimbursement for any
such expenses);
(iii) any amounts paid as a starting bonus or finder's fee;
(iv) any amounts realized from the exercise of qualified or
non-qualified stock options;
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(v) any amounts paid by the Company or a Participating Subsidiary
forother fringe benefits, such as health care, hospitalization and group
life insurance benefits, or perquisites, or paid in lieu of such benefits
or perquisites, such as cash-out of credit generated under a plan qualified
under Code Section 125;
(vi) other similar forms of extraordinary compensation; or
(vii) any Participant's commissions, bonus or overtime pay to the
extent such Participant has elected to exclude, in a writing acceptable to
the Committee, such compensation from his or her Eligible Compensation.
(h) "ELIGIBLE EMPLOYEE" means an Employee who is eligible to participate
in the Plan, as described in Section 5 below.
(i) "EMPLOYEE" means any person, including an officer, who is customarily
employed for at least twenty (20) hours per week and more than five (5) months
in a calendar year by the Company or one of its Participating Subsidiaries.
(j) "ENROLLMENT DATE" means the first day of each Offering Period.
(k) "EXERCISE DATE" means each May 31 and November 30 during each Offering
Period.
(l) "EXERCISE PERIOD" means each period commencing on June 1 and
terminating on the immediately succeeding November 30 or commencing on December
1 and terminating on the immediately succeeding May 31.
(m) "EXERCISE PRICE" means the price per share of shares offered in a
given Offering Period determined as provided in Section 10 below.
(n) "FAIR MARKET VALUE" means, with respect to a share of Common Stock as
of any date, the last sale price of such Common Stock on the NASDAQ-NMS on such
date, as reported in the Wall Street Journal. In the event that such price is
not available for an Enrollment Date or an Exercise Date, the Fair Market Value
of a share of Common Stock on such date shall be the last sale price of a share
of the Common Stock on the NASDAQ-NMS on the last business day prior to such
date or such other amount as may be determined by the Committee by any fair and
reasonable means.
(o) "NASDAQ-NMS" means the National Association of Securities Dealers,
Inc. Automated Quotation National Market System.
(p) "OFFERING PERIOD" means the period during which an option granted
pursuant to the Plan may be exercised. From the commencement of the Plan
through May 31, 1997, each Offering Period shall be twelve (12) months.
Beginning June 1, 1997, each offering period shall be twenty-four (24) months.
A new Offering Period shall begin on each June 1 and December 1.
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(q) "PARTICIPANT" means an Eligible Employee who has elected to
participate in the Plan by filing an enrollment agreement with the Company, as
provided in Section 7 below.
(r) "PARTICIPATING SUBSIDIARY" means any Subsidiary other than a
Subsidiary excluded from participating in the Plan by the Committee, in its sole
discretion.
(s) "PLAN" means this Mylex Corporation 1995 Employee Stock Purchase Plan.
(t) "SUBSIDIARY" means any corporation, domestic or foreign, of which the
Company owns, directly or indirectly, not less than 50% of the total combined
voting power of all classes of stock or other equity interests and that
otherwise qualifies as a "subsidiary corporation" within the meaning of Section
424(f) of the Code or any successor thereto.
(u) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
2. PURPOSE OF THE PLAN
The purpose of the Plan is to provide present and future employees of the
Company and its Participating Subsidiaries an incentive in the performance of
their services by giving them an opportunity to acquire a proprietary interest
(or increase an existing proprietary interest) in the Company through the
purchase of Common Stock and to profit from increases in the value of the Common
Stock. It is the intention of the Company that the Plan qualify as an "employee
stock purchase plan" under Section 423 of the Code. Accordingly, the provisions
of the Plan shall be administered, interpreted and construed in a manner
consistent with the requirements of that section of the Code.
3. SHARES RESERVED FOR THE PLAN
There shall be reserved for issuance and purchase by Employees under the
Plan an aggregate of 300,000 shares of Common Stock, subject to adjustment as
provided in Section 15 below. Shares of Common Stock, subject to the Plan may
be newly issued shares or shares reacquired in private transactions or open
market purchases. If and to the extent that any right to purchase reserved
shares shall not be exercised by any Employee for any reason or if such right to
purchase shall terminate as provided herein, shares that have not been so
purchased hereunder shall again become available for the purposes of the Plan
unless the Plan shall have been terminated, but all shares sold under the Plan,
regardless of source, shall be counted against the limitation set forth above.
4. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by a Committee appointed by, and which
shall serve at the pleasure of, the Board. However, the Board may elect to
function as the Committee. The Committee shall consist of not less than two
members of the Board who are not officers or employees of the Company or of any
of its Subsidiaries and who are disinterested persons within the terms of Rule
16b-3 promulgated under the 1934 Act. The Committee shall have authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, and
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<PAGE>
to make all determinations necessary or advisable for the administration of the
Plan, all of which actions and determinations shall be final, conclusive and
binding on all persons.
(b) The Committee may request advice or assistance or employ such other
persons as it in its absolute discretion deems necessary or appropriate for the
proper administration of the Plan, including, without limitation, employing a
brokerage firm, bank or other financial institution to assist in the purchase of
shares hereunder, delivery of reports or other administrative aspects of the
Plan.
5. ELIGIBILITY TO PARTICIPATE IN THE PLAN
Subject to the provisions of the Plan and any limitations imposed by any
future amendments to Section 423(b) of the Code (or successor provisions), any
person who, as of an Enrollment Date, is an Employee of the Company or a
Participating Subsidiary (after it becomes a Participating Subsidiary) shall be
eligible to participate in the Plan for the Offering Period beginning on that
Enrollment Date.
6. OFFERING PERIODS
Shares shall be available for purchase under the Plan during consecutive
Offering Periods, with a new Offering Period commencing on each June 1 and
December 1 during the term of the Plan. The first such Offering Period shall
commence on December 1, 1995, or as otherwise determined by the Committee. The
Committee shall have the power to change the duration of the Offering Periods,
after the first Offering Period, from time to time, without shareholder approval
if such change is announced to all Eligible Employees at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be so affected.
7. ELECTION TO PARTICIPATE IN THE PLAN
(a) Each Eligible Employee may elect to participate in the Plan with
respect to an Offering Period by completing an enrollment agreement in the form
provided by the Company and filing such enrollment agreement with the Company
prior to the applicable Enrollment Date, unless another time for filing the
enrollment form with respect to a given Offering Period is set by the Committee.
An Eligible Employee may participate with respect to an Offering Period only if,
as of the Enrollment Date of such Offering Period, such Employee is not
participating in any prior Offering Period which is continuing at the time of
such proposed enrollment.
(b) All Participant purchases pursuant to the Plan shall be made only by
the proceeds of payroll deductions. Payroll deductions for a Participant shall
commence on the first payroll date following his or her Enrollment Date and
shall end on the last payroll date in the applicable Offering Period, unless
sooner terminated by the Participant as provided in Section 12 below.
(c) Unless an Eligible Employee elects otherwise prior to the Enrollment
Date for any Offering Period by submitting to the Company a form provided by the
Company for such purpose, such Eligible Employee, if he or she is participating
in the immediately preceding Offering Period (the "Prior Offering Period") as of
such Enrollment Date, shall be deemed to have (i) elected to participate in such
Offering Period, and (ii) authorized the same payroll deduction for such
Offering
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Period as was in effect for such Eligible Employee, as of such Enrollment Date,
for the Prior Offering Period.
(d) The Committee, in its discretion, may terminate the participation of
all Participants in any Offering Period as of the last day of any Exercise
Period (a "Termination Date") and, upon the occurrence of such a termination,
such Participant shall be automatically enrolled, as described below, in the new
Offering Period commencing immediately following such Termination Date if the
Exercise Price determined as of the Enrollment Date for such new Offering Period
is lower than the Exercise Price determined as of the Enrollment Date of the
Offering Period for which the Participants' participation is being terminated.
In such event, each of such Participants shall be deemed for purposes of this
Plan to have (i) elected to participate in such new Offering Period, and (ii)
authorized the same payroll deduction for such new Offering Period as was in
effect for such Participant immediately prior to the Termination Date.
8. PAYROLL DEDUCTIONS
(a) At the time a Participant files the enrollment agreement with respect
to an Offering Period, the Participant shall authorize payroll deductions to be
made on each payroll date during the Offering Period in an amount of from 1% to
10% of the Eligible Compensation which the Participant receives on such payroll
date. The amount of such payroll deductions shall be a whole percentage (i.e.,
1%, 2%, 3%, etc.) of the Participant's Eligible Compensation.
(b) All payroll deductions made for a Participant shall be deposited in
the Company's general corporate account and shall be credited to the
Participant's account under the Plan. No interest shall accrue or be credited
with respect to the payroll deductions of a Participant under the Plan. A
Participant may not make any additional payments into such account. All payroll
deductions received or held by the Company under the Plan may be used by the
Company for any corporate purpose, and the Company shall not be obligated to
segregate such payroll deductions.
(c) A Participant may discontinue participation in the Plan as provided in
Section 12 below. A Participant may at any time, but no more than once, during
an Exercise Period (but no more than one time during any calendar quarter)
reduce or increase (subject to the limitations of Section 8(a) above) the rate
of his or her payroll deductions by completing and filing with the Company a
change notice in the form provided by the Company. A Participant may suspend
his or her payroll deductions in any Exercise Period and may recommence payroll
deductions, effective the first date of any subsequent Exercise Period, by
completing and filing with the Company such change notice. Any such reduction
in the rate of a Participant's payroll deductions and any such suspension shall
be effective as of first pay period ending at least ten (10) days after the
Participant files the change notice with the Company. Any such increase in the
rate of Participant's payroll deductions shall be effective as of the first date
of the next Exercise Period within such Offering Period.
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9. GRANT OF OPTIONS
(a) On the Enrollment Date of each Offering Period, subject to the
limitations set forth in Sections 3 and 9(b) hereof, each Eligible Employee
shall be granted an option to purchase on each Exercise Date during such
Offering Period (at the Exercise Price as of such Exercise Date determined as
provided in Section 10 below) up to a number of shares of the Common Stock
determined by dividing such Employee's payroll deductions accumulated during the
Exercise Period ending on such Exercise Date by the Exercise Price (as
determined in accordance with Section 10 below).
(b) Notwithstanding any provision of the Plan to the contrary, no Employee
shall be granted an option under the Plan (i) if, immediately after the grant,
such Employee (or any other person whose stock would be attributed to such
Employee pursuant to Section 424(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of any
Subsidiary of the Company, or (ii) which permits such Employee's rights to
purchase Common Stock under all employee stock purchase plans of the Company and
its Subsidiaries, including, without limitation, this Plan, to accrue at a rate
which exceeds $25,000 of the Fair Market Value of such stock (determined at the
time such option is granted) for each calendar year in which such option is
outstanding at any time.
10. EXERCISE PRICE
The Exercise Price of each of the shares in each Offering Period shall be
the lower of (a) 85% of the Fair Market Value of a share of the Common Stock on
the applicable Enrollment Date, or (b) 85% of the Fair Market Value of a share
of the Common Stock on the applicable Exercise Date.
11. EXERCISE OF OPTIONS
Unless a Participant withdraws from the Plan as provided in Section 12
below, the Participant's option for the purchase of shares of Common Stock will
be exercised automatically on each Exercise Date of each Offering Period, and
the maximum number of full shares of Common Stock subject to such option will be
purchased for the Participant, at the applicable Exercise Price, with the
accumulated payroll deductions in the Participant's account. Any amount
remaining in the Participant's account after an Exercise Date shall be held in
the account until the next Exercise Date in such Offering Period, unless (a) the
Exercise Date is the last day of such Offering Period, in which event any such
amount remaining after the end of the Offering Period shall be refunded to the
Participant within fifteen (15) days after such Exercise Date, or (b) the Plan
has terminated with such Exercise Date as provided in Section 17 below, in which
event any such amount remaining after the pro rata allocation contemplated by
Section 17 below shall be refunded to the Participant within fifteen (15) days
after such termination or Exercise Date.
12. WITHDRAWAL AND TERMINATION OF EMPLOYMENT
(a) A Participant may withdraw all, but not less than all, of the payroll
deductions credited to the Participant's account under the Plan at any time by
giving written notice to the
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Company on a form provided by the Company for such purpose. Upon the receipt of
such notice of withdrawal from a Participant, all of such Participant's payroll
deductions credited to such Participant's account will be paid to him or her
within fifteen (15) days after receipt of such notice of withdrawal, such
Participant's participation in the Plan will be automatically terminated, and no
further payroll deductions for the purchase of shares by such Participant will
be made. Payroll deductions will not resume on behalf of a Participant who has
withdrawn from the Plan unless a new enrollment agreement is delivered to the
Company in accordance with Section 7(a) above and, in any event, may not resume
during the Offering Period in which such withdrawal occurs.
(b) Upon termination of a Participant's employment with the Company and/or
its Participating Subsidiaries for any reason, including, without limitation,
retirement or death, prior to the Exercise Date of an Offering Period, the
payroll deductions credited to such Participant's account will be returned to
such Participant or, in the case of death, to such Participant's estate, within
fifteen (15) days after the date of such termination, and such Participant's
options to purchase shares under the Plan will be automatically terminated as of
such date.
(c) In the event an Employee fails to maintain Continuous Employment for
at least twenty (20) hours per week during an Offering Period in which such
Employee is a Participant, such Employee will be deemed to have elected to
withdraw from the Plan, the payroll deductions credited to such Employee's
account will be returned to the Employee within thirty (30) days after the last
day of the week in which such Employee failed to work at least twenty (20)
hours, and the Employee's options to purchase shares under the Plan will be
terminated as of such date.
(d) A Participant's withdrawal from an Offering Period will not have any
effect upon such Participant's eligibility to participate in any succeeding
Offering Period or in any other stock purchase or other benefit plan adopted by
the Company.
(e) A Participant who is also an officer or director of the Company
subject to Section 16 of the 1934 Act, and who is deemed to "cease
participation" in the Plan within the meaning of Rule 16b-3 promulgated under
the 1934 Act, as amended from time to time, or any successor rule or regulation,
as a consequence of his or her withdrawal from the Plan pursuant to Section
12(a) above, shall not again participate in the Plan for at least six (6) months
after the date of such withdrawal, subject to the requirements of Section 7
above.
13. TRANSFERABILITY
Options to purchase Common Stock granted under the Plan are not
transferable by a Participant other than by will or the laws of descent and
distribution and are exercisable during a Participant's lifetime only by the
Participant.
14. REPORTS
Individual accounts will be maintained for each Participant in the Plan.
Statements of account, as of each Exercise Date, will be given to participating
Employees semi-annually within thirty (30) days after such Exercise Date. Each
statement will set forth the amounts of payroll deductions, the per share
purchase price, the number of shares purchased and the remaining cash balance,
if any, as of the applicable Exercise Date.
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15. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
(a) If the outstanding shares of Common Stock are increased or decreased,
or are changed into or are exchanged for a different number or kind of shares,
as a result of one or more reorganizations, restructurings, recapitalizations,
reclassifications, stock splits, reverse stock splits, stock dividends or the
like, upon authorization of the Committee, appropriate adjustments shall be made
in the number and/or kind of shares, and the per-share option price thereof,
which may be issued to any Participant upon exercise of options granted under
the Plan. No fractional share of stock shall be issued under the Plan pursuant
to any adjustment authorized under the provisions of this Section 15.
(b) In the event of the sale, merger, dissolution or liquidation of the
Company or a sale of all or substantially all of the Company's assets, any then
current Offering Periods and Exercise Periods will terminate immediately prior
to the date on which such proposed action is to be consummated, unless otherwise
determined by the Committee. Upon any such termination, unless otherwise
determined by the Committee, all options to purchase shares will be exercised
automatically, on such date (which shall thus be deemed to constitute an
Exercise Date), to purchase the maximum number of full shares that may be
purchased at the applicable Exercise Price with each Participant's accumulated
payroll deductions.
16. AMENDMENT OF THE PLAN
The Board may at any time, or from time to time, amend the Plan in any
respect; provided, however, that the Plan may not be amended in any way that
will cause rights issued under the Plan to fail to meet the requirements for
employee stock purchase plans provided in Section 423 of the Code or any
successor thereto, including, without limitation, as result of the failure to
obtain shareholder approval of such amendment, if required.
17. TERMINATION OF THE PLAN
The Plan and all rights of Participants hereunder shall terminate on the
earlier of:
(a) the Exercise Date that Participants become entitled to purchase a
number of shares greater than the number of reserved shares remaining available
for purchase under the Plan; or
(b) November 30, 2005, unless sooner terminated by the Board at any time
in its discretion.
In the event that the Plan terminates under circumstances described in
Section 17(a) above, reserved shares remaining as of the termination date shall
be sold to Participants pro rata, based on the number of shares that each of the
Participants is entitled to purchase as of such termination.
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18. NOTICES
All notices or other communications by a Participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, and by the
person, designated by the Company for the receipt thereof. All notices or other
communications by the Company to a Participant under or in connection with the
Plan shall be deemed to have been duly given when delivered personally to such
Participant or two (2) business days after deposit in the U.S. mail, addressed
to such Participant at the last address for such Participant provided in writing
to the Company.
19. SHAREHOLDER APPROVAL
Continuance of the Plan shall be subject to approval by the Company within
twelve (12) months before or after the date the Plan is adopted by the Board.
If such shareholder approval is obtained at a duly held shareholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present, or represented by proxy, at such
meeting and entitled to vote thereon.
20. CONDITIONS UPON ISSUANCE OF SHARES
(a) The Plan, the grant and exercise of options to purchase shares of
Common Stock under the Plan, and the Company's obligation to sell and deliver
shares upon the exercise of options to purchase shares shall be subject to all
applicable federal, state and foreign laws, rules and regulations, and to such
approvals by any regulatory or governmental agency as may, in the opinion of
counsel for the Company, be required. In addition, no option may be exercised
unless (i) a registration statement under the Securities Act of 1933, as
amended, shall at the time of exercise of the option be in effect with respect
to the shares issuable under exercise of the option, or (ii) in the opinion of
counsel to the Company, the shares issuable upon exercise of the option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of such act. As a condition to the exercise of an
option, the Company may require the Participant to satisfy any qualifications
that may be necessary or appropriate, to evidence compliance with any applicable
law or regulation, and to make any representations and warranties with respect
thereto as may be requested by the Company.
(b) The Company may make such provisions as it deems appropriate for
withholding by the Company pursuant to federal or state income tax laws of such
amounts as the Company determines it is required to withhold in connection with
the purchase or sale by a Participant of any Common Stock acquired pursuant to
the Plan. The Company may require a Participant to satisfy any relevant tax
requirements before authorizing any issuance of Common Stock to such
Participant.
21. EXPENSES OF THE PLAN
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All costs and expenses incurred in administering the Plan shall be paid by
the Company, except that any stamp duties or transfer taxes applicable to
participation in the Plan may be charged to the account of such Participant by
the Company. Any brokerage fees for the purchase or sale of shares by a
Participant shall be borne by the Participant.
22. NO EMPLOYMENT RIGHTS
The Plan does not, directly or indirectly, create any right for the benefit
of any employee or class of employees to purchase any shares under the Plan
except pursuant to the terms of the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company.
The Plan shall not be deemed to interfere in any way with the Company's right to
terminate, or otherwise modify, an employee's employment at any time.
23. EFFECT OF THE PLAN
The provisions of the Plan shall, in accordance with its terms, be binding
upon, and inure to the benefit of, all successors of each Participant,
including, without limitation, such Participant's estate and the executors,
administrators or trustees thereof, heirs and legatees, and any receiver,
trustee in bankruptcy or representative of creditors of such employee.
24. APPLICABLE LAW
The laws of the State of California shall govern all matters relating to
this Plan except to the extent (if any) superseded by the laws of the United
States.
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EXHIBIT 10.42
SEVERANCE AGREEMENT
THIS AGREEMENT made as of the ______ day of __________, 19__, by and
between Mylex Corporation, a Delaware corporation, and ____________________ (the
"Executive").
WHEREAS, the Board of Directors (the "Board") of the Company (as
hereinafter defined) recognizes that the possibility of a termination without
Cause (as hereinafter defined), and the possibility of a Change in Control (as
hereinafter defined), can create significant distractions for its key management
personnel because of the uncertainties inherent in such situations;
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of the
Executive, in general, and particularly in the event of a threat or the
occurrence of a Change in Control and to ensure his or her continued dedication
and efforts in such event without undue concern for his or her personal
financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company, in general, and particularly in the event of a threat or the occurrence
of a Change in Control, the Company desires to enter into this Agreement with
the Executive to provide the Executive with certain benefits in the event his or
her employment is terminated without Cause or as a result of, or in connection
with, a Change in Control and to provide the Executive with certain other
benefits whether or not the Executive's employment is terminated.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. TERM OF AGREEMENT. This Agreement shall commence as of _______ __,
19__, and shall continue in effect until _________ ___, 19__; PROVIDED, HOWEVER,
that commencing on __________, ___, 19__ and on each _____ ___ thereafter, the
term of this Agreement shall automatically be extended for one (1) year, unless
either the Company or the Executive shall have given written notice to the
other, at least ninety (90) days prior thereto, that the term of this Agreement
shall not be so extended; and PROVIDED, FURTHER, HOWEVER, that notwithstanding
any such notice by the Company not to extend, the term of this Agreement shall
not expire prior to the expiration of twenty-four (24) months after the
occurrence of a Change in Control which occurs during the term of this
Agreement.
2. DEFINITIONS.
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2.1 ACCRUED COMPENSATION. For purposes of this Agreement, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" (as hereinafter defined) but not paid as
of the Termination Date, including (i) base salary, (ii) reimbursement for
reasonable and necessary business expenses incurred by the Executive on behalf
of the Company, pursuant to the Company's expense reimbursement policy in effect
at such time, during the period ending on the Termination Date, (iii) vacation
pay, and (iv) bonuses and incentive compensation (other than the "Pro Rata
Bonus" (as hereinafter defined)).
2.2 BASE AMOUNT. For purposes of this Agreement, "Base Amount" shall mean
the greater of the Executive's annual base salary (a) at the rate in effect on
the Termination Date or (b) at the highest rate in effect at any time during the
ninety (90) day period prior to the Termination Date or a Change in Control, and
shall include all amounts of his or her base salary that are deferred under the
qualified and non-qualified employee benefit plans of the Company or any other
agreement or arrangement.
2.3 BONUS AMOUNT. For purposes of this Agreement, "Bonus Amount" shall
mean the greater of (x) the most recent annual bonus paid or payable to the
Executive, or, if greater, the annual bonus paid or payable for the full fiscal
year ended prior to the fiscal year during which a Termination Date or a Change
in Control occurred or (y) the average of the annual bonuses paid or payable
during the three full fiscal years ended prior to the Termination Date or, if
greater, the three full fiscal years ended prior to the Termination Date or
Change in Control (or, in each case, such lesser period for which annual bonuses
were paid or payable to the Executive).
2.4 CAUSE. For purposes of this Agreement, a termination of employment is
for "Cause" if the Executive has been convicted of a felony or the termination
is evidenced by a resolution adopted in good faith by two-thirds of the Board
that the Executive (a) intentionally and continually failed substantially to
perform his or her reasonably assigned duties with the Company (other than a
failure resulting from the Executive's incapacity due to physical or mental
illness or from the assignment of duties that would constitute "Good Reason" as
hereinafter defined), which failure continued for a period of at least thirty
(30) days after a written notice of demand for substantial performance has been
delivered to the Executive, specifying the manner in which the Executive has
failed substantially to perform, or (b) intentionally and continually failed
substantially to follow or perform the lawful directives of the President or any
other superior of the Executive (other than a failure resulting from the
Executive's incapacity due to physical or mental illness or from the
establishment of directives that would constitute "Good Reason" as hereinafter
defined), which failure continued for a period of at least thirty (30) days
after written notice of demand for compliance or substantial performance has
been delivered to the Executive, specifying the manner in which the Executive
has failed substantially to perform or comply; PROVIDED, HOWEVER, that no
termination of the Executive's employment
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shall be for Cause as set forth in clauses (a) or (b) above until (x) there
shall have been delivered to the Executive a copy of a written notice setting
forth that the Executive was guilty of the conduct set forth in clauses (a) or
(b) and specifying the particulars thereof in reasonable detail, and (y) the
Executive shall have been provided an opportunity to be heard in person by the
Board. No act, nor failure to act, on the Executive's part, shall be considered
"intentional," unless the Executive has acted, or failed to act, with a lack of
good faith or with a lack of reasonable belief that the Executive's action or
failure to act was in the best interest of the Company.
2.5 CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(a) An acquisition (other than directly from the Company) of any voting
securities of the Company (the "Voting Securities") by any "Person" (as the term
person is used for purposes of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "1934 Act")) immediately after which such Person
has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of thirty percent (30%) or more of the combined voting power of
the Company's then outstanding Voting Securities; PROVIDED, HOWEVER, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (1) an employee benefit plan (or a
trust forming a part thereof) maintained by (x) the Company or (y) any
corporation or other Person of which a majority of its voting power or its
equity securities or equity interest is owned directly or indirectly by the
Company (a "Subsidiary"), or (2) the Company or any Subsidiary.
(b) The individuals who, as of the date this Agreement is approved by the
Board, are members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the Board; PROVIDED, HOWEVER, that if the
election, or nomination for election by the Company's stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Agreement, be considered and
defined as a member of the Incumbent Board; PROVIDED, FURTHER, HOWEVER, that no
individual shall be considered a member of the Incumbent Board if such
individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
1934 Act) or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board (a "Proxy Contest"), including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) Approval by stockholders of the Company of:
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(1) A merger, consolidation or reorganization involving the Company,
unless
(i) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or
indirectly immediately following such merger, consolidation
or reorganization, at least eighty-five percent (85%) of the
combined voting power of the outstanding voting securities
of the corporation resulting from such merger or
consolidation or reorganization (the "Surviving
Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such
merger, consolidation or reorganization,
(ii) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization
constitute at least two-thirds of the members of the board
of directors of the Surviving Corporation, and
(iii) no Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation or any
Subsidiary) has Beneficial Ownership of twenty percent (20%)
or more of the combined voting power of the Surviving
Corporation's then outstanding voting securities,
a transaction described in clauses (i) through (iii) shall herein
be referred to as a "Non-Control Transaction"; or
(2) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person
(other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because a Person (the "Subject Person") gained Beneficial
Ownership of more than the permitted amount of the outstanding Voting
Securities as a result of the acquisition of Voting Securities by the Company
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur (but for the operation of
this sentence) as a result of the acquisition of Voting Securities by the
Company, and after such share acquisition by the Company, the Subject Person
becomes the Beneficial
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Owner of any additional Voting Securities which increases the percentage of
the then outstanding Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
(d) Notwithstanding anything contained in this Agreement to the contrary,
if the Executive's employment is terminated prior to a Change in Control and the
Executive reasonably demonstrates that such termination (i) was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in Control
(a "Third Party") or (ii) otherwise occurred in connection with, or in
anticipation of, a Change in Control which actually occurs, then for all
purposes of this Agreement, the date of a Change in Control with respect to the
Executive shall mean the date immediately prior to the date of such termination
of the Executive's employment.
2.6 COMPANY. For purposes of this Agreement, "Company" shall mean Mylex
Corporation and shall include its "Successors and Assigns" (as hereinafter
defined).
2.7 DISABILITY. For purposes of this Agreement, "Disability" shall mean a
physical or mental infirmity which impairs the Executive's ability to
substantially perform his or her duties with the Company for a period of one
hundred eighty (180) consecutive days, and the Executive has not returned to his
or her full time employment prior to the Termination Date as stated in the
"Notice of Termination" (as hereinafter defined).
2.8 GOOD REASON. (a) For purposes of this Agreement, "Good Reason" shall
mean the occurrence after a Change in Control of any of the events or conditions
described in subsections (1) through (8) hereof:
(1) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in
the Executive's reasonable judgment, represents an adverse change
from his or her status, title, position or responsibilities as in
effect at any time within ninety (90) days preceding the date of
a Change in Control or at any time thereafter; the assignment to
the Executive of any duties or responsibilities which, in the
Executive's reasonable judgment, are inconsistent with his or her
status, title, position or responsibilities as in effect at any
time within ninety (90) days preceding the date of a Change in
Control or at any time thereafter; or any removal of the
Executive from or failure to reappoint or reelect him or her to
any of such offices or positions, except in connection with the
termination of his or her employment for Disability, Cause, as a
result of his or her death or by the Executive other than for
Good Reason;
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(2) a reduction in the Executives base salary or any failure to pay
the Executive any compensation or benefits to which he or she is
entitled within five (5) days of the date due;
(3) the Company's requiring the Executive to be based at any place
outside a 30-mile radius from Fremont, California, except for
reasonably required travel on the Company's business which is not
materially greater than such travel generally required for such
Executive prior to the Change in Control;
(4) the failure by the Company to (A) continue in effect (without
reduction in benefit level, and/or reward opportunities) any
material compensation or employee benefit plan in which the
Executive was participating at any time within ninety (90) days
preceding the date of a Change in Control or at any time
thereafter, including, but not limited to, the plans listed on
Appendix A, unless such plan is replaced with a plan that
provides substantially equivalent compensation or benefits to the
Executive or (B) provide the Executive with compensation and
benefits, in the aggregate, at least equal (in terms of benefit
levels and/or reward opportunities) to those provided for under
each other employee benefit plan, program and practice in which
the Executive was participating at any time within ninety (90)
days preceding the date of a Change in Control or at any time
thereafter;
(5) the insolvency or the filing (by any party, including the
Company) of a petition for bankruptcy of the Company, which
petition is not dismissed within sixty (60) days;
(6) any material breach by the Company of any provision of this
Agreement;
(7) any purported termination of the Executive's employment for Cause
by the Company which does not comply with the terms of Section
2.4; or
(8) the failure of the Company to obtain an agreement, satisfactory
to the Executive, from any Successors and Assigns to assume and
agree to perform this Agreement, as contemplated in Section 6(c)
hereof.
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(b) Any event or condition described in this Section 2.8(a)(1) through (8)
which occurs prior to a Change in Control but which the Executive reasonably
demonstrates (1) was at the request of a Third Party, or (2) otherwise arose in
connection with, or in anticipation of, a Change in Control which actually
occurs, shall constitute Good Reason for purposes of this Agreement
notwithstanding that it occurred prior to the Change in Control.
(c) The Executive's right to terminate his or her employment pursuant to
this Section 2.8 shall not be affected by his or her incapacity due to physical
or mental illness.
2.9 NOTICE OF TERMINATION. For purposes of this Agreement, "Notice of
Termination" shall mean a written notice from the Company of termination of the
Executive's employment which indicates the specific termination provision in
this Agreement relied upon, if any, and which sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
2.10 PRO RATA BONUS. For purposes of this Agreement, "Pro Rata Bonus"
shall mean an amount equal to the greater of (i) the Bonus Amount or (ii) an
amount equal to the bonus objective or target established by the Board for the
Executive for the fiscal year in which the termination occurs multiplied by a
fraction the numerator of which is the number of days in the fiscal year through
the Termination Date and the denominator of which is 365.
2.11 SUCCESSORS AND ASSIGNS. For purposes of this Agreement, "Successors
and Assigns" shall mean a corporation or other entity acquiring all or
substantially all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
2.12 TERMINATION DATE. For purposes of this Agreement, "Termination Date"
shall mean in the case of the Executive's death, his or her date of death, in
the case of Good Reason, the last day of his or her employment, and in all other
cases, the date specified in the Notice of Termination; PROVIDED, HOWEVER, that
if the Executive's employment is terminated by the Company for Cause or due to
Disability, the date specified in the Notice of Termination shall be at least 30
days from the date the Notice of Termination is given to the Executive, provided
that in the case of Disability the Executive shall not have returned to the
full-time performance of his or her duties during such period of at least 30
days.
3. TERMINATION OF EMPLOYMENT.
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3.1 CHANGE OF CONTROL. If, during the term of this Agreement, the
Executive's employment with the Company shall be terminated within twenty-four
(24) months following a Change in Control or prior to a Change in Control but
for "Good Reason" as defined in Section 2.8(b), the Executive shall be entitled
to the following compensation and benefits:
(a) If the Executive's employment with the Company shall be terminated (1)
by the Company for Cause or Disability, (2) by reason of the Executive's death,
or (3) by the Executive other than for Good Reason, the Company shall pay to the
Executive the Accrued Compensation and, unless such termination is by the
Company for Cause, a Pro Rata Bonus.
(b) If the Executive's employment with the Company shall be terminated for
any reason other than as specified in Section 3.1(a), the Executive shall be
entitled to each and all of the following:
(i) The Company shall pay the Executive all Accrued Compensation and
a Pro-Rata Bonus.
(ii) The Company shall pay the Executive as severance pay and in lieu
of any further compensation for periods subsequent to the
Termination Date, in a single payment, an amount in cash equal to
one (1) plus one-quarter (1/4) for each year of service beyond
four years of service to the Company as an officer, up to a
maximum multiple of two (2), times the sum of (A) the Base Amount
and (B) the Bonus Amount.
(iii) For twenty-four (24) months after the Termination Date (the
"Section 3.1 Continuation Period"), the Company shall at its
expense continue on behalf of the Executive and his or her
dependents and beneficiaries the life insurance, disability,
medical, dental and hospitalization benefits provided (x) to the
Executive at any time during the ninety (90) day period prior to
the Change in Control or at any time thereafter or (y) to other
similarly situated executives who continue in the employ of the
Company during the Section 3.1 Continuation Period. The coverage
and benefits (including deductibles and costs) provided in this
Section 3.1(b)(iii) during the Section 3.1 Continuation Period
shall be no less favorable to the Executive, and his or her
dependents and beneficiaries, than the most favorable of such
coverages and benefits during any of the periods referred to in
clauses (x) and (y) above. The Company's obligation hereunder
with respect to the foregoing benefits shall be
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limited to the extent that the Executive obtains any such
benefits pursuant to a subsequent employer's benefit plans, in
which case the Company may reduce the coverage of any benefits it
is required to provide the Executive hereunder as long as the
aggregate coverages and benefits of the combined benefit plans is
no less favorable to the Executive than the coverages and
benefits required to be provided hereunder. This subsection
(iii) shall not be interpreted so as to limit any benefits to
which the Executive, his or her dependents or beneficiaries may
be entitled under any of the Company's employee benefit plans,
programs or practices following the Executive's termination of
employment, including, without limitation, retiree medical and
life insurance benefits.
(iv) The restrictions on any outstanding incentive awards (including
restricted stock and granted performance shares or units) granted
to the Executive under any Mylex Stock Option Plan or under any
other incentive plan or arrangement shall lapse and such
incentive award shall become 100% vested, all stock options and
stock appreciation rights granted to the Executive shall become
immediately exercisable and shall become 100% vested, and all
performance units granted to the Executive shall become 100%
vested.
(c) The amounts provided for in Sections 3.1(a) and 3.1(b)(i) and (ii)
shall be paid in a single lump sum cash payment within five (5) days after the
Executive's Termination Date (or earlier, if required by applicable law).
3.2 TERMINATION WITHOUT CAUSE. If, during the term of this Agreement, the
Executive's employment with the Company is terminated, other than (i) within
24 months following a Change of Control or (ii) prior to a Change of Control but
for "Good Reason" as defined in Section 2.8(b), the Executive shall be entitled
to the following compensation and benefits:
(a) If the Executive's employment with the Company shall be terminated (1)
by the Company for Cause or Disability, (2) by reason of the Executive's death,
or (3) by the Executive other than for Good Reason, the Company shall pay to the
Executive the Accrued Compensation and, unless such termination is by the
Company for Cause, a Pro Rata Bonus.
(b) If the Executive's employment with the Company shall be terminated for
any reason other than as specified in Sections 3.1 or 3.2 (a), the Executive
shall be entitled to each and all of the following:
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(i) The Company shall pay the Executive all Accrued Compensation and
a Pro Rata Bonus.
(ii) The Company shall pay the Executive as severance pay and in lieu
of any further compensation for periods subsequent to the
Termination Date, normal monthly payments of the Executive's Base
Amount in effect immediately prior to the Termination Date for
that number of months, not to exceed six (6) months, determined
by the following formula: two (2) months plus one (1) month if
the Executive served as an officer of the Company for at least
six (6) months prior to the Termination Date plus an additional
one (1) month for each full year prior to the Termination Date
that the Executive served as an officer of the Company.
(iii) For that number of months established by the formula set forth in
Section 3.2 (b)(ii) above, but not greater than six (6) months
(the "Section 3.2 Continuation Period"), the Company shall at its
expense continue on behalf of the Executive and his or her
beneficiaries the life insurance, disability, medical, dental and
hospitalization benefits provided (x) to the Executive at any
time during the ninety (90) day period prior to the Termination
Date or at any time thereafter or (y) to other similarly situated
Executives who continue in the employ of the Company during the
Section 3.2 Continuation Period. The coverage and benefits
(including deductibles and costs) provided in this
Section 3.2(b)(iii) during the Section 3.2 Continuation Period
shall be no less favorable to the Executive, and his or her
dependents and beneficiaries, than the most favorable of such
coverages and benefits during any of the periods referred to in
clauses (x) and (y) above. The Company's obligation hereunder
with respect to the foregoing benefits shall be limited to the
extent that the Executive obtains any such benefits pursuant to a
subsequent employer's benefit plans, in which case the Company
may reduce the coverage of any benefits it is required to provide
the Executive hereunder as long as the aggregate coverages and
benefits of the combined benefit plans is no less favorable to
the Executive than the coverages and benefits required to be
provided hereunder. This subsection (iii) shall not be
interpreted so as to limit any benefits to which the Executive,
his or her dependents or beneficiaries may be entitled under any
of the Company's employee benefit plans, programs or practices
following the Executive's termination of employment, including,
without limitation, retiree medical and life insurance benefits.
10
<PAGE>
3.3 The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to the Executive in any subsequent employment except as
provided in Sections 3.1(b)(iii) and 3.2(b)(iii).
3.4 The severance pay and benefits provided for in this Section 3 shall be
in lieu of any other severance or termination pay to which the Executive may be
entitled under any Company severance or termination plan, program, practice or
arrangement. The Executive's entitlement to any other compensation or benefits
shall be determined in accordance with the Company's employee benefit plans
(including, the plans listed on Appendix A) and other applicable programs,
policies and practices then in effect.
3.5 Notwithstanding any other provision of this Agreement to the contrary,
the termination of the Executive's employment with the Company in connection
with the sale, divestiture or other disposition of a Subsidiary or "Division"
(as hereinafter defined) (or part thereof) shall not be deemed to be a
termination of employment of the Executive for purposes of this Agreement
provided the Executive accepts employment offered by the purchaser or acquiror
of such Subsidiary or Division (or part thereof) and provided, in the event such
sale, divestiture or other disposition of a Subsidiary or Division occurs
subsequent to or in connection with a Change in Control, the Company obtains an
agreement from such purchaser or acquiror as contemplated in Section 6(c). The
Executive shall not be entitled to benefits from the Company under this
Agreement as a result of such sale, divestiture, or other disposition, or as a
result of any subsequent termination of employment. "Division" shall mean a
business unit or other substantial business operation within the Company that is
operated as a separate profit center, but that is not maintained by the Company
as a separate legal entity.
4. NOTICE OF TERMINATION. Any purported termination of the Executive's
employment by the Company and/or the Employer shall be communicated by Notice of
Termination to the Executive. For purposes of this Agreement, no-such purported
termination shall be effective without such Notice of Termination.
5. EXCISE TAX PAYMENTS
(a) Notwithstanding anything contained in this Agreement to the contrary,
to the extent that the payments and benefits provided under this Agreement and
benefits provided to, or for the benefit of, the Executive under any other
Company plan or agreement (such payments or benefits are collectively referred
to as the "Payments") would be subject to the excise tax (the "Excise Tax")
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Payments shall be
11
<PAGE>
reduced (but not below zero) if and to the extent necessary so that no Payment
to be made or benefit to be provided to the Executive shall be subject to the
Excise Tax (such reduced amount is hereinafter referred to as the "Limited
Payment Amount"). Unless the Executive shall have given prior written notice
specifying a different order to the Company to effectuate the Limited Payment
Amount, the Company shall reduce or eliminate the Payments, by first reducing or
eliminating those payments or benefits which are not payable in cash and then by
reducing or eliminating cash payments, in each case in reverse order beginning
with payments or benefits which are to be paid the farthest in time from the
"Determination" (as hereinafter defined). Any notice given by the Executive
pursuant to the preceding sentence shall take precedence over the provisions of
any other plan, arrangement or agreement governing the Executive's rights and
entitlements to any benefits or compensation.
(b) An initial determination as to whether the Payments shall be reduced
to the Limited Payment Amount pursuant to the Plan and the amount of such
Limited Payment Amount shall be made by an accounting firm at the Company's
expense selected by the Company which is designated as one of the six largest
accounting firms in the United States (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations and documentation, to the Company and the
Executive within five (5) days of the Termination Date, if applicable, or such
other time as requested by the Company or by the Executive (provided the
Executive reasonably believes that any of the Payments may be subject to the
Excise Tax), and if the Accounting Firm determines that no Excise Tax is payable
by the Executive with respect to a Payment or Payments, it shall furnish the
Executive with an opinion, at the Company's expense, reasonably acceptable to
the Executive that no Excise Tax will be imposed with respect to any such
Payment or Payments. Within ten (10) days of the delivery of the Determination
to the Executive, the Executive shall have the right to dispute the
Determination (the "Dispute"). If there is no Dispute, the Determination shall
be binding, final and conclusive upon the Company and the Executive subject to
the application of Section 5(c) below.
(c) As a result of the uncertainty in the application of Sections 4999 and
28OG of the Code, it is possible that the Payments to be made to, or provided
for the benefit of, the Executive either have been made or will not be made by
the Company which, in either case, will be inconsistent with the limitations
provided in Section 5(a) (hereinafter referred to as an "Excess Payment" or
"Underpayment", respectively). If it is established pursuant to a final
determination of a court, or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved, that an Excess Payment has
been made, such Excess Payment shall be deemed for all purposes to be a loan to
the Executive made on the date the Executive received the Excess Payment and the
Executive shall repay the Excess Payment to the Company, on demand (but not less
than thirty (30) days after written notice is received by the Executive),
together with
12
<PAGE>
interest on the Excess Payment at the "Applicable Federal Rate" (as defined in
Section 1274(d) of the Code) from the date of the Executive's receipt of such
Excess Payment until the date of such repayment. In the event that it is
determined by (i) the Accounting Firm, the Company (which shall include the
position taken by the Company, or together with its consolidated group, on its
federal income tax return) or the IRS, (ii) pursuant to a determination by a
court, or (iii) upon the resolution to the Executive's satisfaction of the
Dispute, that an Underpayment has occurred, the Company shall pay an amount
equal to the Underpayment to the Executive within thirty (30) days of such
determination or resolution, together with interest on such amount at the
Applicable Federal Rate from the date such amount would have been paid to the
Executive until the date of payment.
(d) Notwithstanding anything contained in this Agreement to the contrary,
in the event that, according to the Determination, an Excise Tax will be imposed
on any Payment or Payments, the Company shall pay to the applicable government
taxing authorities, as Excise Tax withholding, the amount of the Excise Tax that
the Company has actually withheld from the Payment or Payments.
6. SUCCESSORS: BINDING AGREEMENT.
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company, and its Successors and Assigns, and the Company shall require any
Successors and Assigns to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, his or her beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal representative.
(c) In the event that a Division (or part thereof) is sold, divested, or
otherwise disposed of by the Company subsequent to or in connection with a
Change in Control and the Executive is offered employment by the purchaser or
acquiror thereof, the Company shall require such purchaser or acquiror to
assume, and agree to perform, the Company's obligations under this Agreement, in
the same manner, and to the same extent, that the Company would be required to
perform if no such acquisition or purchase had taken place.
7. FEES AND EXPENSES. The Company shall pay all reasonable legal fees
and related expenses (including the costs of arbitrators, experts, evidence and
counsel) incurred by,the Executive as they become due as a result of (a) the
Executive's
13
<PAGE>
termination of employment (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination of employment), (b) the
Executive seeking to obtain or enforce any right or benefit provided by this
Agreement (including, but not limited to, any such fees and expenses incurred in
connection with the Dispute, and (c) the Executive's hearing before the Board as
contemplated in Section 2.4 of this Agreement; PROVIDED, HOWEVER, that the
circumstances set forth in clauses (a), (b) and (c) (other than as a result of
the Executive's termination of employment under circumstances described in
Section 2.5(d)) occurred on or after a Change in Control.
8. ARBITRATION. Any dispute, controversy or claim arising out of or
relating to this Agreement, or the breach, termination or invalidity hereof,
(collectively, a "Claim") shall be settled by arbitration pursuant to the rules
of the American Arbitration Association. Any such arbitration shall be
conducted by one arbitrator, with experience in the matters covered by this
Agreement, mutually acceptable to the parties. If the parties are unable to
agree on the arbitrator within thirty (30) days of one party giving the other
party written notice of intent to arbitrate a Claim, the American Arbitration
Association shall appoint an arbitrator with such qualifications to conduct such
arbitration. The decision of the arbitrator in any such arbitration shall be
conclusive and binding on the parties. Any such arbitration shall be conducted
in San Jose, California.
9. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the President and the Secretary of the
Company. All notices and communications shall be deemed to have been received
on the date of delivery thereof or on the third business day after the mailing
thereof, except that notice of change of address shall be effective only upon
receipt.
10. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company (except for any
severance or termination policies, plans, programs or practices) and for which
the Executive may qualify, nor shall anything herein limit or reduce such rights
as the Executive may have under any other agreements with the Company (except
for any severance or termination agreement). Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company shall be payable in accordance with such plan or program,
except as explicitly modified by this Agreement.
14
<PAGE>
11. SETTLEMENT OF CLAIMS. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
12. NO EMPLOYMENT RIGHT. This Agreement does not constitute, and shall
not be construed to provide, any assurance of continuing employment.
Executive's employment with the Company and of its Successors or Assigns is "at
will," and, subject to the terms and conditions of this Agreement, may be
terminated by Executive or the Company at any time.
13. MISCELLANEOUS. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing, specifying such modification, waiver or discharge, and signed by the
Executive and the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
14. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware without giving
effect to the conflict of laws principles thereof. Any action brought by any
party to this Agreement to enforce any decision of an arbitrator made as
contemplated in Section 8 above shall be brought and maintained in a court of
competent jurisdiction in State of Delaware or the State of California.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has executed this Agreement as of
the day and year first above written.
Mylex Corporation
15
<PAGE>
By:_______________________________________
Name:_____________________________________
Title:____________________________________
Executive:________________________________
16
<PAGE>
EXHIBIT 11.0
MYLEX CORPORATION AND SUBSIDIARY
Earnings (Loss) Per Share Computations
Years Ended December 27, 1997 and December 31, 1996 and 1995
The basis of computing net earnings (loss) per share is described in Note 9 of
the consolidated financial statements, beginning on Page 39 of the Company's
Annual Report for the year ended December 27, 1997.
The computation of basic and diluted earnings (loss) per share in as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Basic earnings (loss) per share:
Net Income (loss) ($5,939) $17,250 $13,308
-------- -------- --------
-------- -------- --------
Weighted average number of common shares
outstanding during the period 20,387 20,277 18,074
-------- -------- --------
-------- -------- --------
Basic earnings (loss) per share ($0.29) $0.85 $0.74
-------- -------- --------
-------- -------- --------
Diluted earnings (loss) per share:
Net Income (loss) ($5,939) $17,250 $13,308
-------- -------- --------
-------- -------- --------
Weighted average number of common shares
outstanding during the period 20,387 20,277 18,074
Effect of stock options (1) 1,082 1,356
Shares used in computation 20,387 21,359 19,430
-------- -------- --------
-------- -------- --------
Diluted earnings (loss) per share ($0.29) $0.81 $0.68
-------- -------- --------
-------- -------- --------
</TABLE>
(1) No effect given to stock options, as results would be antidilutive.
<PAGE>
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary Income Statement
Net Sales $123,550 $173,123 $127,455 $92,589 $69,474
Cost of Sales 88,392 106,103 77,172 56,159 48,509
- ---------------------------------------------------------------------------------------------------------------------
Gross Profit 35,158 67,020 50,283 36,430 20,965
Operating Expenses and Other income/Expense 44,585 39,640 29,810 24,452 23,042
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Tax (9,427) 27,380 20,473 11,978 (2,077)
Income Tax Expense (Benefit) (3,488) 10,130 7,165 3,165 847
- ---------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (5,939) $ 17,250 $ 13,308 $ 8,813 $(2,924)
Income (Loss) Per Share:
Basic $ (0.29) $ 0.85 $ 0.74 $ 0.53 $ (0.19)
Diluted $ (0.29) $ 0.81 $ 0.68 $ 0.49 $ (0.19)
Average Common Shares Outstanding:
Basic 20,387 20,277 18,074 16,532 15,348
Diluted 20,387 21,359 19,430 18,291 15,348
Consolidated Balance Sheet Data
Total Assets $ 104,483 $116,586 $ 94,620 $42,371 $26,952
Working Capital 83,759 97,931 72,967 25,551 11,240
Long-Term Obligations 0 66 203 493 910
Stockholders' Equity 92,295 104,172 75,897 25,943 11,610
</TABLE>
SUMMARY QUARTERLY INCOME STATEMENT
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------
DEC. 27, SEP. 27, JUN. 28, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1997 1997 1997 1996 1996 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $31,278 $29,432 $26,926 $35,914 $37,009 $42,206 $45,411 $48,497
Gross Profit 11,169 9,407 8,944 5,638 14,839 16,689 16,962 18,530
Income (Loss) From Operations (1,589) (2,053) (2,684) (4,772) 4,120 6,574 7,371 8,178
Net Income (Loss) $ (656) $(1,074) $(1,431) $(2,778) $ 3,006 $ 4,518 $ 4,601 $ 5,125
Net Income Per Share:
Basic $ (0.03) $ (0.05) $ (0.07) $ (0.13) $ 0.15 $ 0.22 $ 0.23 $ 0.26
Diluted $ (0.03) $ (0.05) $ (0.07) $ (0.13) $ 0.14 $ 0.21 $ 0.21 $ 0.24
Weighted Average Shares:
Basic 20,192 20,166 20,448 20,726 20,682 20,571 20,201 19,662
Diluted 20,192 20,166 20,448 20,726 21,267 21,279 21,479 21,296
</TABLE>
MYLEX 97 028
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
FISCAL YEAR ENDED DECEMBER 27, 1997,
COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 1996.
In 1997 the Company's financial results were disappointing. Revenue declines
from 1996 are attributable primarily to the loss of two major OEM customers,
HP and IBM. As a consequence of these two losses and in response to its 1997
financial performance, a number of steps have been taken to reposition the
Company for 1998 and beyond.
SALES AND GROSS PROFIT ----- Consolidated sales decreased by 29% to $123.6
million in 1997 from $173.1 million in 1996. Sales of the Company's disk
array controller products continued to be a significant portion of the
Company's 1997 total net revenue at 88%, slightly higher than 1996's 87% of
net revenues.
In addition to the loss of two major OEM customers, the Company's revenue
growth was hampered by delays in the introduction of both the DACPG and DACPJ
bus-based RAID controllers, difficult and time consuming custom integration
efforts involving the Company's DACSX external RAID controller and increased
competitive pressure. Product introductions of the DACPG and DACPJ products
were delayed for over a year due to the delayed introduction, by another
company, of a key component used in the products. Introduction of the
Company's products were further hampered by compatibility issues with this
key component. As a consequence of these delays, the DACPG was not available
during crucial design reviews at HP and IBM and, as a result, this product
was not designed into HP and IBM servers.
Sales of the Company's host bus adapter (HBA) products declined from $18.4
million in 1996 to $12.3 million in 1997. Despite an increase in HBA sales in
the third quarter of 1997, due primarily to the introduction of the Company's
RAIDPlus, a RAID enabled HBA, the overall 1997 HBA sales, on a year-over-year
basis, declined 33%. The Company's HBA products have historically competed on
performance and features. During 1997, the Company experienced competition
from low cost HBA providers. As a result of these new HBA suppliers, the
Company is now faced with the additional pressure of competitive pricing for
its HBA products.
While quarterly revenues have increased, quarter-over-quarter, in the
latter part of 1997, the delayed product introductions of the DACPG and the
DACPJ have delayed some customer qualification of these newer products. As a
consequence, the Company's customers have minimized their purchases of the
Company's older products. The Company believes that this product transition
will affect sales performance through the first quarter of 1998. In addition,
the recent economic developments in the Asia-Pacific region and a pattern of
slow order placement from the Company's U.S. distribution partners is likely
to adversely affect the Company's sales for at least its first quarter of
1998. Sales to Pacific Rim countries in 1997 were 21% of net revenues.
The Company continues its commitment to, and is dependent upon,
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 industry's continued use of its PCI and external RAID controller product
families and SCSI host bus adapters and their respective follow on products,
as well as the acceptance of its new products, such as the Network Power and
Light Division's thin-server 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 or sustain market
acceptance.
The Company depends heavily upon its suppliers to provide high-quality
materials on a timely basis and at a reasonable price. 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-source. 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. Furthermore, manufacturers of components on which
the Company relies may be unable to continue to make those components, or the
next generation of those components, available to the Company on a timely
basis and in adequate quantities.
The Company has no long-term supply contracts. There can be no assurance
that the Company will be able to obtain, on a timely basis, all the
components it requires. If the Company cannot obtain essential components as
required, the Company could be unable to meet demand for its products,
thereby adversely affecting its operating results and allowing competitors to
gain market share. In addition, scarcity of such components could result in
cost increases and adversely affect the Company's gross margin.
The Company's largest customer during 1997 was Digital Equipment
Corporation (DEC), which accounted for 23% of the Company's sales. The
Company's next two largest customers, Siemens and NEC, each accounted for 10%
and 8%, 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
029 MYLEX 97
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Company's customers in particular, could have a material adverse effect on
the Company's future results of operations. The Company has no long-term
purchase commitments from its customers, and customers generally may cancel
their orders on 30-days notice. Accordingly, there can be no assurance that
orders from existing customers, including the Company's principal customers,
will continue at their historical levels, or that the Company will be able to
obtain orders from new customers. Loss of one or more of the Company's
current customers, particularly a principal customer, or cancellation or
rescheduling of orders already placed, could materially and adversely affect
the Company's business and operating results.
Gross profit was $35.2 million or 29% of sales in 1997, compared to $67.0
million or 39% of sales in 1996. The decrease in gross margin percentage was
due primarily to a charge for inventory obsolescence taken in the first
quarter of 1997 and pricing pressures from large OEM customers on the
Company's older products. Although there can be no assurances as to the level
of the Company's gross margin percentage for 1998, gross margins during the
fourth quarter of 1997 were 36% due to new higher margin products accounting
for an increased percentage of revenue in the quarter.
Improvements of gross margins are dependent upon successful development
and market acceptance of the Company's new disk array controller products,
host bus adapters and the Company's new thin-server products and continued
manufacturing cost reductions. 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 faced
intense competition in the market for its disk array and HBA products during
1997 and anticipates that these competitive pressures will continue in 1998.
Additional intense competition could materially adversely affect revenues and
selling prices for its products in 1998, which would impact both gross
margins and operating results. As a response to this competition seen in
1997, the Company has accelerated certain key research and development
projects, enhanced its customer service and support organizations and
repositioned and strengthened its sales and marketing organizations.
RESEARCH AND DEVELOPMENT ----- Expenditures for research and development
increased by 19% to $19.8 million in 1997, as compared to $16.7 million in
1996. Research and development expenses increased as a percent of sales from
10% in 1996 to 16% in 1997 due to the Company's acceleration of several of
its research and development projects for RAID controllers and the additional
investment the Company made in its Network Power and Light Division to
capitalize on a new product line based on thin-server technology. The growth
in research and development expenses was primarily due to the recruitment and
addition of new technical staff and related compensation and benefits
increases and the cost of developing beta units of its new products. The
Company expects to continue to increase its investment in research and
development activities during 1998 in order to be in a position to meet its
commitment to introduce new and innovative products and to continue its
strategy of attempting to obtain and maintain technology leadership in the
markets in which it has positioned its products. However, there can be no
assurances that the Company will be able to introduce new and innovative
products or obtain or maintain its technological leadership in those markets
in which it has positioned its products.
SALES AND MARKETING ----- Sales and marketing expenses were $17.7 million or
14% of net sales in 1997, compared to $14.4 million or 8% of net sales in
1996. The 23% increase in sales and marketing expenses was primarily due to
the increase in the number of employees, and the related additional
compensation and benefit expense, in the sales and marketing organizations to
more aggressively attack the Company's markets on a world-wide basis. There
were also increases in trade show, advertising and public relation expenses
in 1997 as compared to 1996. Sales and marketing expenses, as a percentage of
net sales, increased substantially in 1997 due to the 23% increase in such
expenses and the reduction in net sales, year to year. In addition to the
repositioning of these organizations, the Company has opened sales offices in
Southern California, Atlanta, Georgia, Germany and Japan and has added
employees to manage and sell the Company's new thin-server products. The
Company expects that sales and marketing expenses will continue to increase
during 1998, particularly if the Company's anticipated sales growth in 1998,
coming from its new RAID and thin-server products, occurs. However, there can
be no assurance that such sales growth will occur.
GENERAL AND ADMINISTRATIVE ----- General and administrative expenses
decreased to $8.8 million or 7% of net sales in 1997 from $9.7 million or 6%
of net sales in 1996. 1996's higher general and administrative expenses were
due principally to the one time merger expenses incurred in the 1996 BusLogic
acquisition. Additionally, 1997 expenses were reduced as a result of no
executive bonuses being paid due to the Company's financial performance. The
Company anticipates that general and administrative expenses may increase
during 1998 due principally to increased activity in existing litigation
matters.
MYLEX 97 030
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
IMPACT OF INFLATION ----- The impact of inflation on the Company's business
was not material during the three years ended in 1997.
INTEREST INCOME/EXPENSES AND OTHER ----- Net interest income increased by
approximately 47% due to an increase in available cash for investments and a
slight improvement on short-term investment yields. Other expense reflects
principally business licenses fees and sales tax which were in line with the
prior year's expenses.
INCOME TAXES ----- The Company's combined federal and state effective income
tax provision rate was 37% in 1997, the same as 1996. The Company accrued a
tax benefit, in 1997, of $3.5 million, which may be carried back against
taxes paid in prior years.
YEAR ENDED DECEMBER 31, 1996,
COMPARED TO YEAR ENDED DECEMBER 31, 1995
In 1996 the Company increased its revenues over 1995, improved its gross
profits and significantly increased its working capital. Additionally, the
Company's cash flow was positive due to profitable operations.
SALES AND GROSS PROFIT ----- Net consolidated sales increased by 36% to
$173.1 million in 1996 from $127.5 million in 1995. Sales of the Company's
disk array controller products increased by 60% in 1996 over 1995 levels,
reflecting the increasing volumes of products with RAID functionality being
shipped by the Company's customers. The net sales growth in 1996 was
attributable to the continuing trend of the computer industry to expand its
use of RAID technology as a storage solution, especially in the overseas
markets. Sales from disk array products represented 87% of total sales in
1996, as compared to 75% in 1995. Conversely, net sales of the Company's HBA
products decreased by 32%, to 11% of total sales in 1996.
The Company's largest customer during 1996 was Digital Equipment
Corporation (DEC), which accounted for 17% of the Company's sales. The
Company's next two largest customers, Hewlett-Packard Company and IBM, each
accounted for an additional 14% of total sales.
Gross profit was $67.0 million or 39% of sales in 1996, compared to $50.3
million or 40% of sales in 1995. The increase in gross profits in fiscal 1996
was due to increased revenues. Gross margin percentage declined from the
prior year due to a decline in the percent of higher margin host bus adapter
products sold.
RESEARCH AND DEVELOPMENT ----- Expenditures for research and development
increased by 82% to $16.7 million in 1996, as compared to $9.2 million in
1995. Research and development expenses increased as a percent of sales from
7% to 10% in 1996 due to the Company's commitment to introduce follow-on
products to its successful existing products and to invest in new products
that may potentially increase the Company's future revenues. The growth in
research and development expenses were primarily due to the recruitment and
addition of new technical staff and related compensation and benefits
expenses and the cost of developing beta units on its new products.
SALES AND MARKETING ----- Sales and marketing expenses were $14.4 million or
8% of net sales in 1996, compared to $11.9 million or 9% of net sales in
1995. The 21% increase in sales and marketing expenses was primarily due to
the addition of employees, and related compensation and benefits increases,
to manage the increased volume and to higher commission, advertising, trade
show and travel related expenses.
GENERAL AND ADMINISTRATIVE ----- General and administrative expenses
increased to $9.7 million or 6% of net sales in 1996 from $9.1 million or 7%
of net sales in 1995. The increase in general and administrative expenses of
7% during 1996 was due primarily to merger expenses incurred during the
BusLogic acquisition.
INTEREST INCOME, EXPENSES AND OTHER ----- In 1996, the Company had net
interest income of $1.3 million, as compared to the prior year's net interest
income of $536 thousand. 1996's interest income was generated from the
Company's investing the net proceeds received from its follow-on offering of
Common Stock for the full year as compared to only part of the year in 1995.
Other income/expense reflects expenses such as business licenses fees and
sales tax and were in line with the prior year's expenses.
INCOME TAXES ----- The Company's combined federal and state effective income
tax provision rate was 37% in 1996 compare to 35% in 1995. The increase
related largely to non-deductible expenses incurred in connection with the
BusLogic acquisition in the first quarter of 1996.
031 MYLEX 97
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During 1997 the Company financed its operations primarily from existing cash
balances and cash generated from operations. Working capital of the Company
as of December 27, 1997, was $83.8 million, a decrease of $14.1 million from
the $97.9 million as of December 31, 1996. The reduction in working capital
was primarily attributable to the first quarter 1997 charge for excess and
obsolescent inventory and to the repurchase of the Company's common stock on
the open market. Cash balances improved by $5.7 million from $15.8 million to
$21.5 million as of December 27, 1997. Short term marketable investments
increased $4.6 million from $18.5 million at December 31, 1996 to $23.1
million at December 27, 1997. These increases in cash and cash equivalents
resulted primarily from the substantial decrease in accounts receivable
described below.
Net cash used in investment activities was $9.0 million due to the net
purchases of marketable investments of $4.4 million and $4.7 million in
capital expenditures and increases in other assets. In addition to the use of
cash in investment activities, $6.3 million of cash was used in financing
activities, primarily for $7.3 million to repurchase the Company's common
stock on the open market. The repurchase of stock was offset by $1.4 million
provided by the purchase of the Company's stock by its employees and
directors through the Company's employee stock purchase plan or stock option
plan. These uses of cash in investing and financing were offset by $21.0
million in cash resulting from operating activities.
The cash resources provided from operations were the result of a $12.9
million reduction in accounts receivable balances and a $15.8 million net
reduction of inventory balances. The cash provided from these accounts were
offset by an increase in prepaid expenses of $2.2 million, primarily due to
tax benefits. The decline in accounts receivable balances were due primarily
to the decline of revenues in 1997. Net inventories declined, in part to a
charge, in the first quarter of 1997, for excess and obsolescent inventory
and to an aggressive and focused effort to reduce overall inventory balances
and increase inventory turns.
At December 27, 1997, the Company's principal sources of liquidity
consisted of cash and cash equivalents, short-term marketable securities and
a $20 million line of credit. The Company's line of credit, which expires in
June, 1998, bears interest at the bank's base rate or the Eurodollar or Libor
option rate plus 1-3/4%. the applicable rate is determined by the Company at
the time of any advance under the line. The line of credit agreement contains
covenants that include the maintenance of specific financial ratios and
prohibitions on additional indebtedness without the prior consent of the bank.
The Company presently expects to finance near-term and long-term
operations and capital requirements through its short-term marketable
securities, cash provided by continuing operations, existing cash balances,
and borrowings under bank lines of credit. The Company expects to extend its
line of credit, for at least an additional year, in June, 1998. The company
believes that such capital resources will meet the Company's working capital
needs through at least the end of 1998.
The Company has reviewed its systems in an effort to determine whether it
is likely to be materially adversely affected by the so-called "Year 2000"
conversion. Based on that review, it does not presently believe that it will
be so affected. However, no assurances can be given that its systems review
uncovered every potential adverse affect of the "Year 2000" conversion, or
that the Company will not be materially adversely affected by systems
problems of its vendors, customers or other third parties related to the
"Year 2000" conversion.
"SAFE-HARBOR" STATEMENT UNDER PRIVATE
- -------------------------------------
SECURITIES LITIGATION REFORM ACT OF 1995:
- -----------------------------------------
The foregoing discussion and this report contain forward-looking information
with respect to plans, projections or future performance of the Company, the
occurrence of which involve certain risks and uncertainties that could cause
actual results to differ materially. These risks and uncertainties include,
without limitation, changes in customer order patterns, particularly those
resulting from fluctuations in actual or projected server shipments; demand
and competition for the Company's existing and new products, particularly its
RAID controller, SCSI host adapter and Network Power & Light's-TM-
thin-server products; timely availability of compatible components;
competitive pricing pressures; the ability of the Company to timely ship
ordered products; business conditions and growth in the computer industry and
general economy; instability in foreign economies, particularly in asia; the
capability of the Company to meet the rapidly changing needs of its markets
through product enhancements or new product introductions; the risk of
inventory obsolescence due to shifts in market demand; and other risks and
uncertainties detailed in the Company's filings with the Securities and
Exchange Commission, including its 10-Q filings for the periods ended March
31, 1997, June 28, 1997 and September 27, 1997. These forward-looking
statements speak only as of the date hereof, and the Company disclaims any
intent or obligation to update such statements.
MYLEX 97 032
<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 27, 1997 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.
<TABLE>
<CAPTION>
COMMON STOCK (MYLEX) HIGH BID LOW BID
- -------------------------------------------------------------------------------
<S> <C> <C>
1996
First Quarter 25 1/4 15 3/4
Second Quarter 27 3/8 15 5/8
Third Quarter 19 1/8 10
Fourth Quarter 17 1/2 10 3/8
1997
First Quarter 11 1/2 11 1/8
Second Quarter 9 13/16 9 1/2
Third Quarter 9 13/16 9 5/8
Fourth Quarter 8 3/4 8 5/8
</TABLE>
As of January 31, 1998, there were approximately 550 shareholders of record
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.
033 MYLEX 97
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,521 $ 15,849
Short-term marketable investments 23,062 18,538
Accounts receivable, net of allowance of
$190 and $436 in 1997 and 1996, respectively 14,881 27,732
Inventories 25,866 41,680
Prepaid expenses and other current assets 5,616 3,448
Deferred income taxes 5,001 3,032
- --------------------------------------------------------------------------------------
Total current assets 95,947 110,279
Property and equipment, net 8,325 6,124
Other assets 211 183
- --------------------------------------------------------------------------------------
$104,483 $116,586
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,700 $ 6,157
Accrued liabilities 6,488 6,073
Current portion of long-term capital
lease obligations -- 118
- --------------------------------------------------------------------------------------
Total current liabilities 12,188 12,348
Deferred income taxes -- 66
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value; 120,000,000
shares authorized; 20,943,300 and
20,693,000 shares issued and outstanding
in 1997 and 1996, respectively 209 207
Additional paid-in capital 65,396 63,789
Notes receivable from stockholders (720) (465)
Retained earnings 34,702 40,641
Treasury shares at cost; 732,500 and -0- shares
in 1997 and 1996, respectively (7,292) --
- --------------------------------------------------------------------------------------
Total stockholders' equity 92,295 104,172
- --------------------------------------------------------------------------------------
$104,483 $116,586
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
MYLEX 97 034
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------
DECEMBER 27, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $123,550 $173,123 $127,455
Cost of sales 88,392 106,103 77,172
- ---------------------------------------------------------------------------------------------------
Gross profit 35,158 67,020 50,283
Operating expenses:
Selling and marketing 17,657 14,391 11,935
Research and development 19,832 16,690 9,188
General and administrative 8,767 9,696 9,110
- ---------------------------------------------------------------------------------------------------
Operating (loss) income (11,098) 26,243 20,050
Other income (expense)
Interest income 1,828 1,293 715
Interest expense (3) (24) (179)
Other expense (154) (132) (113)
- ---------------------------------------------------------------------------------------------------
(Loss) income before income tax (benefit)
expense (9,427) 27,380 20,473
Income tax (benefit) expense (3,488) 10,130 7,165
- ---------------------------------------------------------------------------------------------------
Net (loss) income $ (5,939) $ 17,250 $ 13,308
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
(Loss) earnings per share:
Basic $ (0.29) $ 0.85 $ 0.74
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Diluted $ (0.29) $ 0.81 $ 0.68
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Weighted-average number of shares:
Basic 20,387 20,277 18,074
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Diluted 20,387 21,359 19,430
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
035 MYLEX 97
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTES
------------------- PAID-IN RECEIVABLE FROM RETAINED
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1994 17,235,000 $173 $17,865 $ -- $10,033
Common stock issued for cash
upon exercise of options
and warrants 355,000 3 1,105 -- --
Issuance of common stock,
net of expenses of $422 2,000,000 20 32,718 -- --
Tax benefit from disqualified
dispositions of stock options -- -- 622 -- --
Adjustment to conform
BusLogic, Inc. fiscal year-end -- -- -- -- 50
Net income -- -- -- -- 13,308
- ---------------------------------------------------------------------------------------------------------
Balances as of December 31, 1995 19,590,000 196 52,310 -- 23,391
Common stock issued for cash
and notes receivable upon
exercise of options 1,068,000 11 4,145 (465) --
Common stock issued under
employee stock
purchase plan 35,000 -- 465 -- --
Tax benefit from disqualifying
dispositions of stock options -- -- 6,869 -- --
Net income -- -- -- -- 17,250
- ---------------------------------------------------------------------------------------------------------
Balances as of December 31, 1996 20,693,000 207 63,789 (465) 40,641
Common stock issued for cash
and notes receivable upon
exercise of options 176,000 2 870 (255) --
Common stock issued under
employee stock purchase plan 89,000 -- 662 -- --
Common stock surrendered for
exercise of options (15,000) -- (163) -- --
Tax benefit from disqualifying
disposition of stock options -- -- 238 -- --
Purchase of treasury shares -- -- -- -- --
Net loss -- -- -- -- (5,939)
- ---------------------------------------------------------------------------------------------------------
Balances as of December 27, 1997 20,943,000 $209 $65,396 $(720) $34,702
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
TREASURY TOTAL
------------------- STOCKHOLDERS'
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNTS EQUITY
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances as of December 31, 1994 -- $ -- $ 28,071
Common stock issued for cash
upon exercise of options
and warrants -- -- 1,108
Issuance of common stock,
net of expenses of $422 -- -- 32,738
Tax benefit from disqualified
dispositions of stock options -- -- 622
Adjustment to conform
BusLogic, Inc. fiscal year-end -- -- 50
Net income -- -- 13,308
- -----------------------------------------------------------------------------
Balances as of December 31, 1995 -- -- 75,897
Common stock issued for cash
and notes receivable upon
exercise of options -- -- 3,691
Common stock issued under
employee stock
purchase plan -- -- 465
Tax benefit from disqualifying
dispositions of stock options -- -- 6,869
Net income -- -- 17,250
- -----------------------------------------------------------------------------
Balances as of December 31, 1996 -- -- 104,172
Common stock issued for cash
and notes receivable upon
exercise of options -- -- 617
Common stock issued under
employee stock purchase plan -- -- 662
Common stock surrendered for
exercise of options -- -- (163)
Tax benefit from disqualifying
disposition of stock options -- -- 238
Purchase of treasury shares (732,500) (7,292) (7,292)
Net loss -- -- (5,939)
- -----------------------------------------------------------------------------
Balances as of December 27, 1997 (732,500) $(7,292) $ 92,295
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
MYLEX 97 036
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------
DECEMBER 27, DECEMBER 31, DECEMBER 31,
(IN THOUSANDS) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(5,939) $17,250 $ 13,308
Adjustments to reconcile net (loss)
income to net cash provided by (used in)
operating activities:
Amortization of net discount on short-term
marketable investments (205) (249) --
Tax benefit related to disqualifying dispositions
of stock options 238 6,869 622
Depreciation and amortization 2,445 1,814 1,563
Deferred income taxes (2,035) (326) (1,319)
Changes in operating assets and liabilities:
Accounts receivable, net 12,851 (4,651) (8,366)
Inventories 15,814 (15,159) (12,750)
Prepaid expenses and other current assets (2,168) (1,787) (969)
Accounts payable (457) (6,086) 7,157
Accrued liabilities 415 104 15
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 20,959 (2,221) (739)
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (4,646) (4,917) (1,683)
Purchase of short-term marketable investments (27,353) (7,246) (25,708)
Increase in other assets (28) -- --
Sales and maturities of short-term investments 23,034 14,665 --
- ------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing
activities (8,993) 2,502 27,391
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Purchase of treasury stock (7,292) -- --
Proceeds from exercise of stock options
and warrants 454 3,691 1,108
Proceeds from employee stock purchase plan 662 465 --
Repayment of capital lease obligations (118) (321) (471)
Net proceeds from issuance of common stock -- -- 32,738
Repayment against line of credit, net of
borrowings -- -- (2,350)
- ------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing
activities (6,294) 3,835 31,025
- ------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 5,672 4,116 2,895
Adjustment to conform BusLogic, Inc.
fiscal year-end -- -- 50
Cash and cash equivalents at beginning of year 15,849 11,733 8,788
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $21,521 $15,849 $ 11,733
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest $ 3 $ 24 $ 178
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Income taxes $ 1,351 $ 5,656 $ 7,294
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Noncash financing and investing activities--
common stock issued for notes receivable
from stockholders $ (255) $ (465) $ --
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
037 MYLEX 97
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1997, and December 31, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PREPARATION ----- The accompanying consolidated
financial statements include the accounts of Mylex Corporation (the "Company"
or "Mylex") and its wholly-owned subsidiaries. All material intercompany
accounts have been eliminated in the consolidated financial statements.
During 1997, the Company changed to a 52-53 week fiscal year, ending on
the Saturday closest to December 31.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
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.
FINANCIAL INSTRUMENTS ----- Cash equivalents consist of highly liquid
investments, principally money market accounts, with a remaining maturity of
three months or less at the time of purchase.
The Company has classified its marketable investments as
"available-for-sale." Available-for-sale securities are carried at fair
market value, with the unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity. Gains and losses on securities
sold are based on the specific identification method. Through December 27,
1997, the difference between fair value and the amortized cost of
available-for-sale securities was not significant.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are primarily cash and cash equivalents,
short-term marketable investments, and accounts receivable. The Company's
cash equivalents and short-term marketable investments are primarily in money
market accounts, U.S. government obligations, and municipal notes and bonds
that have maturities ranging through 1998. The Company believes no
significant concentration of credit risk exists with respect to these
financial instruments.
The Company sells its products primarily to original equipment
manufacturers and distributors in the personal computer (PC) industry.
Generally, the Company requires no collateral on trade receivables, although
certain export sales are guaranteed by letters of credit. The Company
believes that any credit risks are substantially mitigated by its credit
evaluation process. The Company maintains reserves for potential credit
losses, but historically has not experienced significant losses related to
individual customers or groups of customers in any particular geographic area.
Included in cash as of December 27, 1997, is $1,200,000 restricted for
payment of officer bonuses, which had been earned in previous years.
INVENTORIES ----- Inventories are valued at the lower of cost (first in,
first out) or market. Appropriate consideration is given to obsolescence,
excessive levels, deterioration, and other factors in evaluating carrying
value.
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.
PREPAID ROYALTIES ----- Prepaid royalties related to the licensing of
existing technology for use in the Company's RAID products, will be amortized
to income ratably over the five-year term of the agreement, or based
upon revenue recognized from the sale of the products, whichever is greater.
IMPAIRMENT OF LONG-LIVED ASSETS ----- Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF. SFAS No. 121 requires the Company to review the
recoverability of the carrying amount of its long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an
asset might not be recoverable.
MYLEX 97 038
<PAGE>
In the event that facts and circumstances indicate that the carrying
amount of long-lived assets may be impaired, an evaluation of recoverability
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write down to fair value is
required. Such adoption did not have a material effect on the
Company's consolidated financial position or results of operations.
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.
Translation of Foreign Currencies and Foreign Currency Transactions ----- The
functional currency of the Company's foreign subsidiaries is the U.S. dollar.
Resulting foreign exchange gains and losses, which have been insignificant,
are included in the results of operations. The Company's export sales are
generally transacted in U.S. dollars and have not resulted in significant
foreign exchange gains and losses.
EARNINGS (LOSS) PER SHARE ----- Effective December 27, 1997, the Company
adopted the provisions of SFAS No. 128, EARNINGS PER SHARE, which requires
the presentation of basic and diluted earnings per share. Basic earnings
(loss) per share is based on the weighted-average number of outstanding
shares of common stock. Diluted earnings (loss) per share is based on the
weighted-average number of outstanding shares of common stock and the
potential dilution that could occur if common equivalent shares or
convertible securities were exercised or converted into common stock. Common
equivalent shares consist of shares issuable upon the exercise of stock
options and warrants, except where antidilutive, using the treasury stock
method. All periods presented have been restated in accordance with SFAS
No. 128.
STOCK OPTION PLAN ----- The Company accounts for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. As such, compensation expense would be recorded at the date
of grant only if the then current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted the
disclosure requirements of SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. Under SFAS No. 123, the Company must disclose pro forma net
income and pro forma earnings per share for employee stock option grants made
in 1995 and later years as if the fair value-based method defined in SFAS
No. 123 had been applied.
RECENT ACCOUNTING PRONOUNCEMENTS ----- In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME.
SFAS No. 130 establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial statements. It does
not, however, require a specific format for the statement, but requires the
Company to display an amount representing total comprehensive income for the
period in that financial statement. The Company is in the process of
determining its preferred format. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to stockholders. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997.
2. BUSINESS COMBINATION
- -----------------------
On February 9, 1996, the Company issued 2,710,738 shares of its common stock
for all of the outstanding stock of BusLogic, Inc. (BusLogic), a supplier of
storage input/output solutions for use in network file servers, personal
computers, and workstations. The transaction was accounted for as a pooling
of interests, and, accordingly, the Company's historical consolidated
financial statements have been restated to include the accounts and results
of operations of BusLogic.
039 MYLEX 97
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Separate results of the combining entities for the period prior to the
merger were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
- ------------------------------------------------
<S> <C>
Net revenues:
Mylex $100,420
BusLogic 27,035
- ------------------------------------------------
$127,455
- ------------------------------------------------
- ------------------------------------------------
Net income:
Mylex $ 13,122
BusLogic 186
- ------------------------------------------------
$ 13,308
- ------------------------------------------------
- ------------------------------------------------
</TABLE>
In connection with the merger, approximately $884,000 of merger expenses were
incurred and charged to general and administrative expense during the first
quarter of 1996. These expenses include investment banking fees of $504,000,
legal and accounting fees of $320,000, and other merger-related expenses of
$58,000.
Prior to the combination, BusLogic's fiscal year ended January 31.
Accordingly, BusLogic's financial statements for the 12 months ended December
31, 1995, were combined with Mylex's consolidated financial statements for
the same period, and BusLogic's financial statements for the year ended
January 31, 1995, were combined with Mylex's financial statements for the
year ended December 31, 1994. BusLogic's unaudited results of operations for
the one month ended January 31, 1995, included sales of $2,476,000 and net
loss of $50,000. An adjustment has been made to stockholders' equity as of
December 31, 1995, to eliminate the effect of including BusLogic's results of
operations for the one month ended January 31, 1995, in the year ended
December 31, 1995.
3. SHORT-TERM MARKETABLE INVESTMENTS
- ------------------------------------
Fair values of short-term marketable investments are based on quoted market
values as of December 27, 1997 and December 31, 1996. As of December 27, 1997
and December 31, 1996, the difference between the fair value and amortized
cost of short-term marketable investments was not significant.
As of December 27, 1997 and December 31, 1996, short-term marketable
investments consisted of $23,062,000 and $18,538,000, respectively, of U.S.
government securities due within one year or less.
4. INVENTORIES
- --------------
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Raw materials $14,976 $26,623
Work in process 3,428 6,885
Finished goods 7,462 8,172
- -----------------------------------------------------------------------------
$25,866 $41,680
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
5. PROPERTY AND EQUIPMENT
- -------------------------
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 5,751 $ 4,260
Furniture and fixtures 3,539 2,595
Computer equipment and software 7,637 5,426
- -----------------------------------------------------------------------------
16,927 12,281
Less accumulated depreciation
and amortization 8,602 6,157
- -----------------------------------------------------------------------------
$ 8,325 $ 6,124
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
As of December 31, 1996, equipment recorded under capital leases was
$1,318,000, and accumulated amortization thereon was $1,318,000. There were
no amounts recorded under capital leases as of December 27, 1997.
MYLEX 97 040
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. ACCRUED LIABILITIES
- ----------------------
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31,
1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation and benefits $2,858 $3,234
Other 3,630 2,839
- -----------------------------------------------------------------------------
$6,488 $6,073
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
7. LINE OF CREDIT
- -----------------
The Company has an available $20,000,000 line of credit, which expires in
June 1998, bearing interest at the bank's prime rate or Eurodollar or LIBOR
option rate plus 1-3/4% (8.5% as of December 27, 1997). There were no amounts
outstanding under the line of credit as of December 27, 1997. The agreement
with the Company contains covenants that include the maintenance of specific
financial ratios and prohibitions on additional indebtedness without the
prior consent of the bank. As of December 27, 1997, the Company was in
compliance with these covenants.
8. INCOME TAXES
- ---------------
Income taxes (benefit) were comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------
DECEMBER 27, DECEMBER 31, DECEMBER 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal $(1,694) $ 3,291 $6,596
State 3 296 1,266
- ----------------------------------------------------------------------------------------------
Total current (1,691) 3,587 7,862
- ----------------------------------------------------------------------------------------------
Deferred tax expense (benefit):
Federal (1,201) (351) (1,433)
State (834) 25 114
- ----------------------------------------------------------------------------------------------
Total deferred (2,035) (326) (1,319)
- ----------------------------------------------------------------------------------------------
Charge in lieu of taxes
attributable to employer
stock option plan 238 6,869 622
- ----------------------------------------------------------------------------------------------
Total tax expense (benefit) $(3,488) $10,130 $7,165
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
The reconciliation between the amount computed by applying the federal
statutory rate to income (loss) before income taxes and the actual income tax
expense (benefit) were as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------
DECEMBER 27, DECEMBER 31, DECEMBER 31,
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax at 37% $(3,299) $ 9,582 $ 7,165
State income tax, net of federal tax benefit (523) 1,093 1,174
Foreign sales corporation benefit -- (777) (228)
Change in the beginning of the year valuation
allowance -- -- (1,299)
Other, net 334 232 353
- ----------------------------------------------------------------------------------------------
Total tax expense (benefit) $(3,488) $10,130 $ 7,165
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities is presented below (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------
DECEMBER 27, DECEMBER 31,
1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable valuation reserves $ 72 $ 170
Lower of cost or market adjustments
to inventory and other tax related
adjustments 3,517 1,813
Reserves and accruals for reporting
purposes not taken for tax purposes 879 945
State tax benefit, including net operating
loss carryovers, net of federal
tax reduction 516 104
Depreciation and amortization 17 --
- -----------------------------------------------------------------------------
Total gross deferred tax assets 5,001 3,032
Deferred tax liabilities--depreciation
and amortization -- 66
- -----------------------------------------------------------------------------
Net deferred tax assets $5,001 $2,966
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
041 MYLEX 97
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has net operating loss carryforwards for state income tax
purposes of $1,725,000, which expire in 2003. Management believes that no
valuation allowance is required on deferred tax assets based on historical
and projected profitability.
9. STOCKHOLDERS' EQUITY
- -----------------------
In December 1995, the Company adopted the 1995 Employee Stock Purchase Plan,
which authorizes the issuance of up to 300,000 shares of its common stock.
The plan permits eligible employees to purchase common stock through payroll
deductions at a purchase price of the lower of 85% of the fair market value
of the Company's common stock at the beginning of each two-year offering
period and the end of each six-month exercise period within such offering
period. During 1997, 1996, and 1995, 89,000, 35,000 and -0- shares,
respectively, were issued to employees pursuant to the plan.
Under SFAS No. 123, compensation cost is recognized for the fair value of
the employees' purchase rights under the 1995 Employee Stock Purchase Plan,
which was estimated using the Black-Scholes model with the following
assumptions for 1997, 1996, and 1995: dividend yield of 0% for all years;
expected life of nine months for all years; expected volatility of 56%, 73%,
and 73%, respectively; and risk free interest rate of 5.75%, 5.12%, and
7.54%, respectively. The weighted-average fair value of those purchase rights
(including the 15% discount to the fair value of the Company's common stock)
granted in 1997, 1996, and 1995 was $2.61, $6.81, and $6.21, respectively.
Mylex's 1983 and 1993 incentive and nonqualified stock option plans
provide for the grant, by the Company's 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 vest ratably over 3 years 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 shares of common stock upon election
to the Board of Directors. The 1993 plan also provides for additional grants
of 50,000 shares upon the completion of vesting of the prior grant. A summary
of stock option transactions under the plans are as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS WEIGHTED-
SHARES ------------------------------- AVERAGE
AVAILABLE NUMBER RANGE OF EXERCISE
FOR GRANT OF SHARES EXERCISE PRICES PRICE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances as of December 31, 1994 283,000 2,361,000 $ 0.48-10.25 $ 4.13
Increases in number of shares available
for grant 700,000 -- -- --
Granted (784,000) 784,000 5.60-18.88 10.11
Exercised -- (298,000) 0.48- 5.75 3.69
Canceled 193,000 (193,000) 0.48-10.63 4.80
- ------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1995 392,000 2,654,000 0.48-18.88 6.16
Increases in number of shares available
for grant 850,000 -- -- --
Decrease in number of shares available for
grant under BusLogic Plan (63,000) -- -- --
Granted (1,416,000) 1,416,000 12.84-25.00 16.71
Exercised -- (1,068,000) 0.48-11.06 3.87
Canceled 772,000 (772,000) 3.88-25.00 15.19
- ------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1996 535,000 2,230,000 0.48-13.19 9.12
Increases in number of shares available
for grant 1,900,000 -- -- --
Granted (1,773,000) 1,773,000 8.81-10.50 9.83
Exercised -- (176,000) 1.49-10.63 5.19
Canceled 336,000 (336,000) 4.66-17.36 10.52
- ------------------------------------------------------------------------------------------------------------------
Balances as of December 27, 1997 998,000 3,491,000 $ 0.48-13.19 $ 9.57
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Exercisable as of December 27, 1997 905,660 $ 1.49-13.19 $ 7.82
----------------------------------------------
----------------------------------------------
</TABLE>
MYLEX 97 042
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding as
of December 27, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
AS OF REMAINING AVERAGE AS OF AVERAGE
DECEMBER 27 CONTRACTUAL EXERCISE DECEMBER 27, EXERCISE
RANGE OF EXERCISE PRICES 1997 LIFE (YEARS) PRICE 1997 PRICE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.48 to $ 5.00 496,323 5.28 $ 4.43 371,080 $ 4.37
5.01 to 10.00 1,065,227 8.94 8.51 123,793 5.95
10.01 to 12.85 1,313,298 8.29 10.80 281,180 10.86
12.86 to 13.19 616,216 7.82 12.90 129,607 12.91
-------------------------------------------------------------------------
0.48 to 13.19 3,491,064 7.98 9.57 905,660 7.82
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>
During October 1996, the Company offered option holders under its stock
option plans the opportunity to have outstanding options repriced to the then
current fair market value of the Company's common stock of $12.87 per share.
Vesting schedules for repriced options were extended six months. The other
terms of the options remained unchanged. Based on acceptance of its repricing
offer, on October 24, 1996, the Company canceled and reissued options to
acquire 516,591 shares of common stock for purposes of determining
compensation costs pursuant to SFAS No. 123.
The Company applies APB Opinion No. 25 in accounting for its stock option
plans, and, accordingly, no compensation cost has been recognized for its
stock options in the consolidated financial statements because at the date of
grant the exercise price per share equaled or exceeded the fair value of the
underlying common stock. Had the Company determined compensation cost based
on fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31, DECEMBER 31,
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $(5,939) $17,250 $13,308
Pro forma (8,860) 15,003 12,725
Earnings (loss) per share:
Basic:
As reported (0.29) 0.85 0.68
Pro forma (0.42) 0.74 0.65
Diluted:
As reported (0.29) 0.81 0.67
Pro forma (0.42) 0.70 0.64
</TABLE>
SFAS No. 123 is only applicable to options granted subsequent to January 1,
1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation cost is reflected over the
options' vesting period of three to four years, and compensation cost for
options granted prior to January 1, 1995, is not considered.
The per share weighted-average fair value of stock options granted during
1997, 1996, and 1995 was $5.51, $8.34, and $6.41, respectively, on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: 1997--expected dividend yield of 0%, risk free
interest rate of 6.32%, expected volatility of 69%, and expected life of 3.85
years; 1996--expected dividend yield of 0%, risk free interest rate of 5.3%,
expected volatility of 73%, and expected life of 4 years; 1995--expected
dividend yield of 0%, risk-free interest rate of 7.86%, expected volatility
of 73%, and a expected life of 3.25 years.
During July and September 1996, Mylex issued three notes to three
directors of the Company related to their exercise of options. A total of
119,984 shares were issued to these directors for cash and $465,000 in notes.
The notes are full recourse, bear interest at 6.5%, and are due on the
earlier of one year from issuance or 30 days after the date that the director
could first sell shares of Mylex stock if they cease to be a director of
Mylex. The term of each of these notes was extended for a year as of the
initial maturity date.
During March 1997, Mylex issued three notes to two members of executive
management of the Company related to their exercise of options. A total of
51,827 shares were issued to these members of executive management for
$255,000 in notes. The notes are full recourse, bear interest at 6.5%, and
are due on the earlier of one year from issuance or 30 days
043 MYLEX 97
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
after the holder could sell shares of Mylex stock if they cease to be an
employee of Mylex.
RIGHTS PLAN ----- On May 12, 1997, the Company's Board of Directors
authorized the distribution of one Common Stock Purchase Right (a Right) for
each outstanding share of common stock, $0.01 par value per share, of the
Company's common stock to stockholders of record on May 23, 1997, and for
shares of the Company's common stock that becomes outstanding thereafter. In
accordance with amendments subsequently adopted by the Board of Directors,
each Right entitles the holder to purchase from the Company one share of
common stock at a purchase price of $52.00 per share, subject to adjustment.
The rights initially trade with the shares of common stock and are not
exercisable. The Rights will separate from the common stock and become
exercisable 10 days after (i) a public announcement that a person or group
(an "acquiring person") has acquired beneficial ownership of 20% or more of
the outstanding shares of the Company's common stock, or (ii) the
commencement of a tender offer for 20% or more of the outstanding shares of
common stock. In the event that a person becomes an acquiring person (except
pursuant to an offer for outstanding shares of common stock which the
Continuing Directors determine to be fair to and otherwise in the best
interest of the Company and its stockholders), each holder of a Right (other
than the Rights beneficially owned by the acquiring person) will receive upon
exercise, and payment of the purchase price, that number of shares of common
stock (or in certain circumstances, cash, or other securities or property)
having a market value of two times the purchase price of the Right. In the
event that, after the Rights become exercisable, the Company is acquired in a
merger in which it is not the surviving corporation, or if 50% more of the
assets or earning power is sold or transferred, each holder of a Right (other
than the Rights previously voided) will receive, upon exercise of the Right,
that number of shares of the acquiring company having a market value equal to
two times the purchase price of the Right. The rights are nonvoting.
COMMON STOCK REPURCHASE PROGRAM ----- In April 1997, the Board of Directors
approved a plan to repurchase up to 3,000,000 shares of the Company's common
stock. Repurchases under this program in 1997 totaled 732,500 shares at a
cost of approximately $7,292,000.
EARNINGS (LOSS) PER SHARE ----- A reconciliation of the shares used in the
computation for basic and diluted earnings (loss) per share follows:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 31, DECEMBER 31,
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS--
weighted-average
number of outstanding
common shares 20,387,499 20,277,228 18,073,525
Effect of stock options -- 1,081,561 1,356,738
- --------------------------------------------------------------------------------------
Diluted EPS 20,387,499 21,358,789 19,430,263
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
As of December 27, 1997 and December 31, 1996 and 1995, there were 2,007,348,
116,146, and 26,304 options to acquire shares of common stock with
weighted-average exercise prices of $11.50, $22.12, and $16.86,.respectively,
which could potentially dilute basic earnings per share in the future but
which were not included in diluted earnings per share as their effect was
antidulitive in the periods presented.
10. EMPLOYEE SAVINGS PLANS
- --------------------------
In September 1994, the Company adopted the Mylex Corporation 401(k) Plan (the
401(k) Plan) which is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986, as amended. The 401(k) Plan
covers substantially all of the Company's employees. Participants may elect
to contribute a percentage of their compensation to this plan up to a
statutory maximum amount. The Company makes contributions to the 401(k)
plan at a rate determined by the Board of Directors, currently a 50%
matching contribution on 6% of participant compensation up to a maximum of
$2,250 per year. Matching contributions in 1997, 1996, and 1995 were
$466,000, $318,000, and $21,000, respectively.
MYLEX 97 044
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INDUSTRY INFORMATION AND CERTAIN CONCENTRATIONS
- ---------------------------------------------------
The Company operates in one industry and is engaged in the design,
manufacture, marketing, and support of high-performance storage management
electronics products for PC and non-PC servers and workstations. The Company
sells its products primarily to original equipment manufacturers and
distributors in the PC industry.
Sales to major customers for 1997, 1996 and 1995, as a percentage of net
sales, and the amount receivable (in thousands) as of December 27, 1997, from
such customers were as follows:
<TABLE>
<CAPTION>
GROSS
AMOUNT
CUSTOMER 1997 1996 1995 RECEIVABLE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Digital Equipment Corporation 23% 17% 12% $2,141
Siemens Nixdorf 10 5 2 1,942
NEC 8 6 7 1,504
IBM 4 14 20 44
Hewlett-Packard 2 14 14 --
</TABLE>
Export sales, principally to Europe and Japan, comprised 73%, 65%, and 36% of
net sales in 1997, 1996, and 1995, respectively. Sales of the Company's RAID
controller products comprised 88%, 87%, and 75% of net sales in 1997, 1996,
and 1995, respectively.
Although many of the components of the Company's products are available
from numerous sources, several of the most critical components, including
microprocessors, SCSI I/O processors, and custom designed integrated
circuits, are presently available to the Company from only one source. If the
Company cannot obtain essential components as required,.the Company could be
unable to meet demand for its products, thereby adversely affecting its
operating results. In addition, scarcity of such components could result in
cost increases and adversely affect the Company's gross margin.
12. COMMITMENTS AND CONTINGENCIES
- ---------------------------------
Future minimum payments under leases as of December 27, 1997, will be as
follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
- -----------------------------------------------------
<S> <C>
Fiscal year ending
1998 $1,368
1999 1,379
2000 1,399
2001 798
2002 616
Thereafter 371
- -----------------------------------------------------
Total future minimum lease payments $5,931
- -----------------------------------------------------
- -----------------------------------------------------
</TABLE>
The Company Leases its facilities in Fremont, California, and Boulder, Colorado,
under noncancelable operating lease agreements that expire in 2003 and provides
for renewal options. Under these leases, Mylex is required to pay property
taxes, insurance, and normal maintenance costs.
Rent expense was $1,692,000, $1,578,000, and $1,125,000 in 1997, 1996, and
1995, respectively.
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 $5,000,000. The Company believes it has meritorious defenses and will
vigorously defend against this action. The results of legal proceedings cannot
be predicted with certainty; however, it is the present opinion of management
that the company does not have a potential liability in connection with this
proceeding that would have a material adverse effect on the Company. However, if
the plaintiff were to prevail in this proceeding, the amount of damages that
might be awarded may be material to the Company.
In April 1996, another former officer of the Company filed a complaint
against the company and its president alleging breach of contract and violation
of the fair housing and employment act. This claim was settled in 1997.
045 MYLEX 97
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS, MYLEX CORPORATION:
- -----------------------------------------------------------
We have audited the accompanying consolidated balance sheets of Mylex
Corporation and subsidiaries as of December 27, 1997 and December 31, 1996,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
27, 1997. 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 subsidiaries as of December 27, 1997 and December 31, 1996,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 27, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Mountain View, California
January 28, 1998
MYLEX 97 046
<PAGE>
Exhibit 23.1
Independent Auditors' Report and Consent
The Board of Directors and Stockholders
Mylex Corporation:
Under date of January 28, 1998, we reported on the consolidated balance
sheets of Mylex Corporation and subsidiaries as of December 27, 1997 and
December 31, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 27, 1997, as contained in the 1997 annual report to
stockholders. These consolidated financial statements and our report thereon
are incorporated by reference into the annual report on Form 10-K for the
year ended December 27, 1997. 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 the 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 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, present fairly, in all material respects, the
information set forth therein.
We consent to incorporation by reference in the registration statement (No.
33-31283) on Form S-8 of Mylex Corporation of our report dated January 28,
1998, relating to the consolidated balance sheet of Mylex Corporation and
subsidiaries as of December 27, 1997 and December 31, 1996 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, 1997 and
our report on the related schedule, which reports are incorporated by
reference into the December 27, 1997 annual report on Form 10-K of Mylex
Corporation.
/s/ KPMG Peat Marwick LLP
Mountain View, California
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-27-1997
<CASH> 21,521
<SECURITIES> 23,062
<RECEIVABLES> 15,071
<ALLOWANCES> 190
<INVENTORY> 25,866
<CURRENT-ASSETS> 95,947
<PP&E> 16,927
<DEPRECIATION> (8,602)
<TOTAL-ASSETS> 104,483
<CURRENT-LIABILITIES> 12,188
<BONDS> 0
0
0
<COMMON> 202
<OTHER-SE> 92,295
<TOTAL-LIABILITY-AND-EQUITY> 104,483
<SALES> 123,550
<TOTAL-REVENUES> 128,245
<CGS> 88,392
<TOTAL-COSTS> 134,648
<OTHER-EXPENSES> 154
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> (1,825)
<INCOME-PRETAX> (9,427)
<INCOME-TAX> (3,488)
<INCOME-CONTINUING> (5,939)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,939)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
<FN>
<F1>INTEREST INCOME
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-27-1997 DEC-27-1997 DEC-27-1997
<PERIOD-START> JUN-29-1997 APR-01-1997 JAN-01-1997
<PERIOD-END> SEP-27-1997 JUN-28-1997 MAR-31-1997
<CASH> 13,645 17,139 23,922
<SECURITIES> 21,918 14,327 19,286
<RECEIVABLES> 15,630 17,539 26,937
<ALLOWANCES> 317 (320) (425)
<INVENTORY> 33,292 39,515 37,430
<CURRENT-ASSETS> 91,016 94,705 113,658
<PP&E> 16,129 15,136 13,817
<DEPRECIATION> (7,967) (7,218) (6,694)
<TOTAL-ASSETS> 99,376 102,743 120,973
<CURRENT-LIABILITIES> 6,581 9,003 19,338
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 202 208 208
<OTHER-SE> 92,527 93,466 101,361
<TOTAL-LIABILITY-AND-EQUITY> 99,376 102,743 120,873
<SALES> 29,432 26,926 35,914
<TOTAL-REVENUES> 30,098 28,307 37,595
<CGS> 20,025 17,982 30,276
<TOTAL-COSTS> 31,485 29,610 40,486
<OTHER-EXPENSES> 29 38 19
<LOSS-PROVISION> 0<F1> 0<F1> 0<F1>
<INTEREST-EXPENSE> (378) (451) (382)
<INCOME-PRETAX> (1,704) (2,271) (4,409)
<INCOME-TAX> (630) (840) (1,631)
<INCOME-CONTINUING> (1,074) (1,431) (2,778)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (1,074) (1,431) (2,778)
<EPS-PRIMARY> (0.05) (0.07) (0.13)
<EPS-DILUTED> (0.05) (0.07) (0.13)
<FN>
<F1>INTEREST INCOME
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JUL-01-1996 APR-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<CASH> 15,849 14,840 4,835 10,413
<SECURITIES> 18,538 11,156 23,175 25,750
<RECEIVABLES> 28,168 27,775 31,601 29,534
<ALLOWANCES> (436) (486) (741) (959)
<INVENTORY> 41,680 49,959 53,831 41,982
<CURRENT-ASSETS> 110,279 110,835 119,727 111,178
<PP&E> 12,281 10,780 9,692 8,570
<DEPRECIATION> (6,157) (5,706) (5,289) (4,801)
<TOTAL-ASSETS> 116,586 116,080 124,264 115,081
<CURRENT-LIABILITIES> 12,348 16,105 29,471 33,142
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 207 206 204 198
<OTHER-SE> 104,172 99,697 94,721 81,867
<TOTAL-LIABILITY-AND-EQUITY> 116,586 116,080 124,264 115,081
<SALES> 173,123 42,206 45,411 48,497
<TOTAL-REVENUES> 176,120 42,753 46,733 49,667
<CGS> 106,103 25,517 28,447 29,967
<TOTAL-COSTS> 146,880 35,632 38,038 40,319
<OTHER-EXPENSES> 132 83 16 60
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> (1,269)<F1> (269)<F1> (317)<F1> (424)<F1>
<INCOME-PRETAX> 27,380 6,760 7,674 8,542
<INCOME-TAX> 10,130 2,242 3,073 3,417
<INCOME-CONTINUING> 17,250 4,518 4,601 5,125
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 17,250 4,518 4,601 5,125
<EPS-PRIMARY> 0.85 0.22 0.23 0.26
<EPS-DILUTED> 0.81 0.21 0.21 0.24
<FN>
<F1>INTEREST INCOME
</FN>
</TABLE>
