<PAGE>
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934, for the fiscal year ended December 26, 1998
[ ] 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
----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2291597
- ------------------------------- ----------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
34551 Ardenwood Boulevard
Fremont, California 94555
- ------------------------------------- --------------------------
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: 510-796-6100
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, $.01 par value
1
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
As of February 12, 1999, registrant had 19,944,393 outstanding shares of
Common Stock. 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 February 12, 1999, as reported by NASDAQ, was
$89,423,021. 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
Stockholders for the year ended December 26, 1998. Part III incorporates
information by reference from the definitive proxy statement for the 1999 Annual
Meeting of Stockholders to be held May 17, 1999, which proxy statement will be
filed in April 1999.
2
<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
-----
<S> <C> <C>
Item 1. Business 5
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a
Vote of Security Holders 15
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 7a. Quantitative and Qualitative Disclosure about
Market Risk 17
Item 8. Consolidated Financial Statements and
Supplementary Data 17
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers
of the Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain
Beneficial Owners and Management 19
3
<PAGE>
Item 13. Certain Relationships and Related
Transactions 19
PART IV
Item 14. Exhibits, Consolidated Financial Statements,
Financial Statement Schedules, and
Reports on Form 8-K 20
</TABLE>
4
<PAGE>
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 1998, more than twenty leading network file server and
storage subsystem OEMs, including Digital/Compaq, Siemens, NEC, Fujitsu, and
MTI had designed Mylex RAID controllers into their server and storage
subsystem products. The Company is incorporated under the laws of the State
of Delaware.
In the early 1990s, Mylex responded to changes in the computer industry by
undertaking a series of product development initiatives designed 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 95% of the Company's net sales during 1998.
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 the Internet, E-commerce, multimedia and
video-on-demand are further driving the demands for speed, capacity and
reliability in network storage devices.
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
5
<PAGE>
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
both PCI and independent bus types, and the Company endeavors to rapidly
develop products for new bus technologies, operating systems, and platform
standards as they are defined. 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 80% of
the Company's revenues in 1998, the Company offers external RAID controllers,
including several fibre versions and host bus adapters (HBA). Both the
external RAID controllers and HBA products are highly suited to applications
that demand high data throughput and low CPU utilization. Consequently, the
Company has 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 95% of the
Company's net sales in 1998 and 88% of net sales in 1997. Conversely, the
Company's net sales of its host bus adapters (HBA's) were 3% in 1998 and 10%
in 1997. The Company's RAID controller products are used principally in
personal computer network applications and Unix-based work stations. The use
of RAID technology in the personal computer network market has become
established over the last 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 volumes, or
with similar gross margins. The Company expects gross margins to be lower
than 1998 due to intense competition in the market place and the added
expense of the license agreement with EMC Corporation signed in December
1998.
In addition, in order to be able to compete successfully in the RAID
controller market, the Company will have to develop and market new RAID
controllers. There can be no assurance that the Company will be able to
develop and introduce new RAID controller products in a timely manner or that
any such products will gain or sustain market acceptance.
The Company's 1998 revenue depended on a customer base that was concentrated.
The Company's four largest customers, Digital/Compaq, Siemens, NEC and
Fujitsu collectively accounted for 54% of the Company's net sales in 1998.
Sales to Digital/Compaq alone represented 25% of the Company's net sales
during 1998. Sales to Siemens, NEC and Fujitsu accounted for 16%, 8% and 5%
of net sales, respectively. The Company has no long-term purchase
commitments from its customers, and
6
<PAGE>
customers generally may cancel their orders on 30-days notice. Due to
Compaq's acquisition of DEC in February 1998, there has been product
consolidation between the two companies that has had and may continue to have
an impact on the Company's revenues. Although the full impact of these
product line consolidations is not known at this time, the Company estimates
that its net sales to Digital/Compaq in 1999 will be approximately 30% to 40%
less than 1998 net sales to that customer. Furthermore, there can be no
assurance that orders from other existing customers, including the Company's
other 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 that could
be substituted for, and thus reduce or eliminate their purchases of the
Company's RAID controller products. Most of 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, DPT, Infotrend, ICP Vortex and Adaptec, which also has been the
Company's principal HBA competitor. The Company's share of the HBA market is
relatively small, particularly when compared to Adaptec's share, and Adaptec
has significantly greater financial, manufacturing and marketing resources
than the Company. In response to the competition that Adaptec has offered
against the Company's HBA products, the Company introduced in the latter half
of 1998 a low cost RAID solution to both its OEM customers and distribution
channels. As the price point for RAID becomes low enough to supplant
high-end HBA products, the overall market place demand for HBA products,
including the Company's products, will continue to decline.
7
<PAGE>
Some OEMs, such as Compaq and IBM, have developed their own RAID controllers.
As noted, those 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 markets
depends upon its ability to continue to develop products, which are proven to
be reliable and obtain market acceptance, and which can be sold at
competitive prices, while maintaining adequate gross margin levels. Although
the Company believes that its RAID controller 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. Additionally the Company is dependent upon the success of its
major OEM's products which incorporate the Company's RAID controllers.
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. 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 or Fibre based 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 or StrongARM-Registered Trademark- family of processors. If another
company develops a processor for RAID applications which renders the Intel's
embedded processors noncompetitive, whether as
8
<PAGE>
a result of cost, specifications or other advantages of the new processor, or
if Intel ceases to produce either the i960 or StrongARM-Registered Trademark-
processors or support the Company's efforts to develop products based on the
i960 or StrongARM-Registered Trademark-processors, 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
Most of the Company's bus-based 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 three 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 4 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, eXtremeRAID and AcceleRAID
provide high performance, fault tolerant data storage solutions for the PCI
bus platforms. The Mylex external disk array controllers, DAC960SF,
DAC960FL, DACFF 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 the
Internet, multimedia and video imaging, PCI-to-Fibre based controller 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.
The markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards and relatively short product life
cycles. The 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, 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.
9
<PAGE>
PRODUCT MANUFACTURE AND SUPPLIERS
Manufacturing of the Company's products entails placing semiconductors and
other electronic components on printed circuit boards and soldering them in
place through an automated process. The Company signed a manufacturing
agreement in February 1999 with Dovatron International, Inc. (Dovatron), a
wholly-owned subsidiary of the DII Group of Colorado, which is an ISO 9000
certified manufacturer that specializes in turnkey manufacturing. Dovatron
will be providing all of the Company's manufacturing needs pursuant to the
terms and conditions of the agreement. The Company anticipates that the
agreement will be fully implemented in the second quarter of 1999. In this
arrangement, Dovatron will become the Company's sole turnkey manufacturer,
procuring the Company's raw materials and assembling, testing, configuring
and shipping all of its products. The anticipated benefits from this
relationship are a focused supplier that should consistently deliver high
quality products on a timely basis, that will leverage its purchasing power
for the benefit of the Company and that will be able to better deliver
state-of-the-art assembly and testing capabilities. Despite its arrangements
with Dovatron, however, there can be no assurance that the Company's
manufacturing resources will always be adequate to meet product demand.
Furthermore, as Dovatron will be the sole provider of purchasing and
manufacturing for the Company, it will have reduced ability to bring other
purchasing and manufacturing services providers on stream in the event that
Dovatron were unable to perform those functions on a timely basis.
As part of the Company's arrangement with Dovatron, the Company has agreed to
sublease to Dovatron approximately 32,000 square feet of manufacturing and
related space in one of its Fremont buildings. In addition Dovatron has
hired 33 employees of the Company included in its manufacturing operations.
These employees were involved in activities that Dovatron has contracted to
perform for the Company.
Mylex, through its turnkey manufacturing arrangement, performs quality
control and inspection procedures throughout the production process to ensure
that products meet industry standards. The Company's turnkey manufacturer
subjects all products to 100% in-circuit and functional tests.
The Company's most critical components are the Intel i960 and
StrongARM-Registered Trademark- RISC processors, the Company's applications
specific integrated circuits or "ASIC", SCSI chips and the SIMM memory
module. The Company or its turnkey manufacturer procures the Intel processors
through local distributors and its ASIC, SCSI chips and SIMM modules from
Toshiba, LSI Logic, Atmel and Southland Corporation, respectively. Other
components are available from several sources at competitive prices.
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. In the event a sole source supplier is unable or
unwilling to provide a component, there could be substantial delays in the
Company obtaining a new supplier for such components and the
10
<PAGE>
replacement supplier may charge materially more for such components. If the
Company cannot obtain components, and particularly 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 also 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 26, 1998, the Company employed 90 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 1999, particularly if the rate of sales grows.
However, there can be no assurance that such sales growth will occur.
Sales to Digital/Compaq accounted for 25% of net sales in 1998 and 23% of net
sales in 1997. Sales to the next two largest customers, Siemens and NEC,
each accounted for an additional 16% and 8% of net sales, respectively, in
1998 and 10% and 8%, respectively, in 1997. The majority of the Company's
sales are with OEM customers, and sales continue to remain concentrated in a
small group of OEM customers. In addition in 1998, the export portion of the
Company sales has remained at 75%, the percentage in 1997. 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 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 to other than 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) throughout the world. Mylex also uses the services of
manufacturer representatives in the United States in this sales channel.
11
<PAGE>
The Company has distribution agreements with its distributors, including
companies such as Tech Data and Ingram Micro. 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 10 trade shows annually.
INTERNATIONAL SALES
Sales to customers outside the United States accounted for approximately 75%
of the Company's revenue in 1998. Sales to foreign affiliates of U.S.
customers are treated as foreign sales. Of the total international sales,
21% of these sales were destined to Pacific Rim customers. 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 1999
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 occurred in 1998, 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 26, 1998, totaled $15.2 million, as
compared to $5.4 million as of December 27, 1997. The increase in the
backlog was attributable to the market acceptance of the Company's external
RAID product and the strong demand for this product line demonstrated in the
fourth quarter of 1998. 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 customer. Of the
total $15.2 million backlog at December 26, 1998, all but a small percentage
of the orders would have delivered within the three months ended March 27,
1998, unless the orders were canceled or rescheduled by the respective
customer.
YEAR 2000
12
<PAGE>
For a discussion of the impact on the Company of various matters with respect
to Year 2000 compliance issues, please refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Company's
Annual Report on Form 10-K for its year ended December 26, 1998.
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, and rigorous design
verification and compatibility testing. The Company also maintains an
engineering support group to provide follow up with its customers. The
Company has continued to expand its development activities, and now has two
engineering groups, one located in Fremont, California and the other 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 NGIO Forum, Fibre Channel Loop Community
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 timely 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 26, 1998, the Company employed 345 people. Those employees
included 134 engineering and product development employees, 48 finance and
administration employees, 90 employees in the sales, marketing and technical
and customer support areas, and 73 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.
13
<PAGE>
INTELLECTUAL PROPERTY
The Company holds four patents with respect to its RAID controller products.
It also has several other patent applications, applicable to its RAID
controller products, in different phases of review. Otherwise the Company
relies on a combination of trade secret, 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 industry segments in which the Company operates. The Company has
obtained such licenses to certain technology protected by patents and
copyrights as the Company believes are necessary for the operation of its
business as presently conducted. In December 1998, the Company signed a
cross license agreement with EMC, requiring an up-front payment against
future royalties. This cross license agreement covers all of the Company's
RAID products sold to its customers that do not currently have RAID license
agreements with EMC. The agreement provides for a certain rate for
approximately one year after which, the Company will be obligated to pay
royalties, at a relatively lower rate, for as long as the Company's products
are covered by the EMC patents. The Company expects that its payments to EMC
will have an adverse impact on its gross margins in the foreseeable 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 intellectual
property 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 buildings, with a combined square footage of 133,182, in
Fremont, California. The Company also has an engineering facility with
approximately 25,000 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.
14
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In January 1999, the Company settled an action brought against the Company
and its outside directors in 1994 by a former Chief Executive Officer. In
the settlement, the Company agreed to pay $2 million in cash and issue
warrants to purchase 400,000 shares of its Common Stock (estimated fair value
of $2.2 million). In return for a complete release of all claims the
plaintiff might have against the defendants.
In July 1998, a complaint against the Company, for breach of contract and
open book account, was filed in the Superior Court of the State of California
for the County of Santa Clara by Pioneer-Standard of Maryland, Inc. Pioneer
alleges the breach of a purchase agreement for failure of the Company to
repurchase excess inventory at the conclusion of the contract. Pioneer's
complaint sought damages in the sum of approximately $1,150,000 plus
interest. Recent submissions by Pioneer, however, suggest that it has
reduced its damages claim to approximately $964,000 plus interest. In August
1998, the Court denied Pioneer's motion for a writ of attachment. The
Company has filed an answer denying Pioneer's claims and has filed a
cross-complaint alleging overcharging by Pioneer. The case currently is in
the discovery phase.
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 in this annual report on Form 10-K contains
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 and SCSI host adapter
products; component availability; pricing pressures; the ability of the
Company to ship ordered product in a timely manner; 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; unanticipated costs and
risks of litigation; the Company's ability to generate sufficient future
taxable income
15
<PAGE>
to utilize its recognized deferred tax assets; the risk that any of its
systems or products, or vendors, suppliers or customers may not be Year 2000
compliant, and other risks and uncertainties detailed in the Company's
filings with the Securities and Exchange Commission, including this Form 10-K
and Form 10-Q filings for the period ended March 28, 1998, June 27, 1998 and
September 26, 1998. 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 7 of the Consolidated Financial Statements contained within
the Annual Report to Stockholders for the year ended December 26, 1998.
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 IFC of the
Consolidated Financial Statements contained within the Annual Report to
Stockholders for the year ended December 26, 1998.
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 1 through 6 of the
Consolidated Financial Statements contained within the Annual Report to
Stockholders for the year ended December 26, 1998.
ITEM 7a. QUANTITATIVE AND QUALITATITVE DISCLOSURE ABOUT MARKET RISK
At December 26, 1998 the Company had a non-trading investment portfolio of
fixed income securities, excluding those classified as cash and cash
equivalents of $34.7 million (see note 4 of the Company's Consolidated
Financial Statements). These securities, like all fixed income instruments,
are subject to interest rate risk and will fall in value if market interest
rates increase. If market interest rates were to increase immediately and
uniformly by 100 basis points from level as of December 26, 1998, the fair
market value of the portfolio would decline by approximately $124,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of Mylex Corporation at December 26, 1998
and December 27, 1997 and for each of the years in the three-year period
ended December
17
<PAGE>
26, 1998 and the Independent Auditor's Report thereon are incorporated by
reference from pages 8 through 21 of the Consolidated Financial Statements
contained within the Annual Report to Stockholders for the year ended
December 26, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
18
<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 1999 Annual Meeting of
Stockholders.
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 1999 Annual Meeting of Stockholders.
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 1999 Annual Meeting of
Stockholders.
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 1999 Annual Meeting of Stockholders.
19
<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 Stockholders for
the year ended December 26, 1998.
(a) (1) Financial Statements
<TABLE>
<CAPTION>
Page in
Consolidated Financial
Statements contained in
the Annual Report
----------------------
<S> <C>
Consolidated Statements of Operations - Years ended December,
1998, 1997 and 1996 9
Consolidated Balance Sheets at December, 1998 and 1997 8
Consolidated Statements of Cash Flows - Years ended December, 11
1998, 1997 and 1996
Consolidated Statements of Shareholder' Equity - Years ended 10
December, 1998, 1997 and 1996
Notes to Consolidated Financial Statements 12-20
Independent Auditor's Report 21
</TABLE>
(2) The following financial statement schedule and report are submitted
herewith:
<TABLE>
<CAPTION>
Page in
this Report
-----------
<S> <C>
Schedule I - Independent Auditors' Report 25
Schedule II - Valuation and Qualifying Accounts 26
</TABLE>
20
<PAGE>
(3) Exhibits included herein:
<TABLE>
<CAPTION>
Exhibit No. Exhibit
<S> <C>
3.1 (h) Certificate of Incorporation, Articles of Merger and
Agreement and Plan of Merger.
3.1.1 (a) Certificate of Amendment of Certificate of Incorporation.
3.2 (i) By-laws.
10.10 (c) 1983 Incentive Stock Option Plan, as amended and restated.
10.11 (k) 1993 Stock Option Plan, as amended.
10.13 (i) 1995 Employee Stock Purchase Plan, as amended and restated.
10.14 (a) 1998 Employee Stock Purchase Plan.
10.20 (b) Lease Agreement of premises at 34551 Ardenwood Boulevard,
dated March 6, 1991.
10.20.1 (g) Amendment to Lease Agreement of premises at 34551 Ardenwood
Boulevard, dated February 26, 1996.
10.21 (f) Security and Loan Agreement, dated June 28,1996, with
Comerica Bank
10.21.1 (l) Second Amendment to Revolving Credit Loan Agreement, dated
April 29, 1998, with Comerica Bank.
10.22 (g) Lease Agreement of premises at 6607 Kaiser Drive, dated
December 9, 1995.
10.23 (a) Sublease Agreement between Mylex Corporation (sublandlord)
and Dovatron International, Inc. (subtenant) of portion of
premises at 34551 Ardenwood Boulevard, dated February 1,
1999.
10.25 (d) Digital Equipment Corporation Basic Order Agreement.
10.40 (e) 401(k) Plan; Target Investment Advisory Agreement and
Standardized Adoption Agreement.
21
<PAGE>
10.41 (a) Employment Agreement, dated as of January 1, 1999, with Al
Montross.
10.42 (i) Form of Severance Agreement with Executive Officers.
10.43 (j) Stockholder Rights Plan, as amended and restated.
10.44 (a) Manufacturing Agreement with Dovatron International, Inc.,
dated as of January 29, 1999.
10.45 (a) License Agreement with EMC Corporation, dated as of December
24, 1998.
13.1 (a) Selected Five Year Consolidated Financial Data, MD&A, Market
for Registrant's Common Equity and Related Stockholder
Matters, Consolidated Financial Statements, Notes to
Consolidated Financial Statements and the Independent
Auditors' Report sections from the Annual Report to
Stockholders for the fiscal year ended December 26, 1998.
23.1 (a) Consent of Independent Auditor, KPMG LLP.
27.0 (a) Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K, none.
- ---------------------
(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 Annual Report on Form 10-K, for the
year ended December 31, 1994, and incorporated herein by reference.
22
<PAGE>
(f) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q, for
period ended June 30, 1996, and incorporated herein by reference.
(g) Filed as an exhibit to Registrant's Annual Report on Form 10-K, for period
ended December 31, 1995, and incorporated herein by reference.
(h) Filed as an exhibit to Registrant's Annual Report on Form 10-K, for period
ended December 31, 1996, and incorporated herein by reference.
(i) Filed as an exhibit to Registrant's Annual Report on Form 10-K, for period
ended December 27, 1997, and incorporated herein by reference.
(j Filed as an exhibit to Registrant's Registration Statement on Form 8-A/A,
No. 34-13381, on March 22, 1999, and incorporated herein 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.
(l) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q, for
period ended March 28, 1998, and incorporated herein by reference.
23
<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 25, 1999 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 25, 1999, by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Ismael Dudhia Chairman of the Board of Directors
- -----------------------------
Mr. Ismael Dudhia
/s/ M. Yaqub Mirza 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 and Secretary
Ms. Colleen Gray (Principal Accounting Officer)
</TABLE>
24
<PAGE>
MYLEX CORPORATION AND SUBSIDIARIES
SCHEDULE I
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Mylex Corporation:
Under date of January 26, 1999, we reported on the consolidated balance
sheets of Mylex Corporation and subsidiaries (the Company) as of December 26,
1998 and December 27, 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 26, 1998, as contained in the 1998 Annual
Report to Shareholders. These consolidated financial statements and our
report thereon are incorporated by reference in the December 26, 1998 annual
report on Form 10-K of Mylex Corporation. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule. The financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, the financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Mountain View, California
January 26, 1999
25
<PAGE>
MYLEX CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 26, 1998, DECEMBER 27, 1997 and DECEMBER 31, 1996
<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 26, 1998
Allowance for doubtful
accounts - accounts receivable $ 190,000 - - (31,000) 159,000
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
</TABLE>
(a) Doubtful accounts written off, less recoveries.
26
<PAGE>
EXHIBIT 3.1.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MYLEX CORPORATION
MYLEX CORPORATION, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
The Board of Directors of the Corporation, by written
consent executed in lieu of a meeting of all directors, adopted a resolution
setting forth a proposed amendment to the Certificate of Incorporation of the
Corporation, and having declared it advisable, submitted the proposed
amendment to the stockholders of the Corporation for their consideration and
approval at the 1997 Annual Meeting of Stockholders. The resolution setting
forth the proposed amendment is as follows:
RESOLVED, that the Corporation shall amend Article
Fourth of its Certificate of Incorporation in its entirety to
read as follows:
"FOURTH: The Corporation shall be authorized to
issue One Hundred Twenty Million (120,000,000) shares of
common stock, $.01 par value per share."
By the affirmative vote of a majority of the outstanding
common stock of the Corporation, the stockholders of the Corporation approved
the amendment on July 17, 1997.
The Corporation duly adopted the amendment in accordance
with the provisions of Section 242 of the General Corporation Law of the
State of Delaware.
<PAGE>
The Corporation has caused this Certificate to be executed by Al
Montross, its President, and by Colleen Gray, its Secretary, as of March 23,
1999.
MYLEX CORPORATION
By /s/ Al Montross
----------------------
Al Montross, President
ATTEST:
/s/ Colleen Gray
- -----------------------
Colleen Gray, Secretary
-2-
<PAGE>
STATE OF CALIFORNIA)
)
County of Alameda )
The foregoing instrument was acknowledged before me this ____ day of
March, 1999, by Al Montross, the President of Mylex Corporation, a Delaware
corporation, as the act and deed of the Corporation, and he acknowledged that
the facts stated in the foregoing certificate are true.
-------------------------
Notary Public
My Commission Expires:
STATE OF CALIFORNIA)
)
County of Alameda )
The foregoing instrument was acknowledged before me this ____ day of
March, 1999, by Colleen Gray, the Secretary of Mylex Corporation, a Delaware
corporation, as the act and deed of the Corporation, and she acknowledged that
the facts stated in the foregoing certificate are true.
--------------------------
Notary Public
My Commission Expires:
-3-
<PAGE>
EXHIBIT 10.14
MYLEX CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
The Mylex Corporation 1998 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;
(v) any amounts paid by the Company or a Participating
Subsidiary for other 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;
<PAGE>
(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 December 16, 1998, for the first Offering
Period under the Plan and, thereafter, the first day of each Offering Period.
(k) "EXERCISE DATE" means the last Trading Day of each Offering Period.
(l) "EXERCISE PRICE" means the price per share of shares offered in a
given Offering Period determined as provided in Section 10 below.
(m) "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.
(n) "NASDAQ-NMS" means the National Association of Securities Dealers,
Inc. Automated Quotation National Market System.
(o) "OFFERING PERIOD" means the period during which an option granted
pursuant to the Plan may be exercised. Except as modified in accordance with the
provisions of Section 6 below, each offering period shall be approximately six
(6) months in duration. A new Offering Period shall begin on the first Trading
Day on or after each June 1 and December 1 (December 16, 1998, for the first
Offering Period) and ending on the last Trading Day in the period on or before
November 30 or May 31.
(p) "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.
(q) "PARTICIPATING SUBSIDIARY" means any Subsidiary other than a
Subsidiary excluded from participating in the Plan by the Committee, in its sole
discretion.
(r) "PLAN" means this Mylex Corporation 1998 Employee Stock Purchase
Plan.
(s) "SUBSIDIARY" means any corporation, domestic or foreign, of which
the Company owns,
2
<PAGE>
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.
(t) "Trading Day" shall mean a day on which national stock exchanges
and the NASDAQ System are open for trading.
(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 500,000 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. The Committee shall have authority to interpret the Plan,
to prescribe, amend and rescind rules and regulations relating to the Plan, and
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.
3
<PAGE>
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 the first Offering Period commencing on
December 16, 1998, and, thereafter, with a new Offering Period commencing on
each June 1 and December 1 during the term of the Plan, 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.
(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 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 Offering
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
4
<PAGE>
(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 Offering Period 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 Offering Period and
may recommence payroll deductions, effective the first date of any subsequent
Offering Period, by completing and filing with the Company such change notice.
Any such increase or 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.
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 the Exercise Date of each 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 Offering
Period ending on such Exercise Date by the Exercise Price (as determined in
accordance with Section 10 below); provided that the number of shares subject to
the option for each Offering Period shall not exceed 1,250 (subject to the
adjustment as provided in Section 15 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.
5
<PAGE>
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 the 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 returned
to the Participant within fifteen (15) days after such 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 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.
13. TRANSFERABILITY
6
<PAGE>
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.
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 Period 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
(a) 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. To the extent
necessary to comply with Section 423 of the Code (or any other applicable law,
regulation or stock exchange rule), the Company shall obtain shareholder
approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
Participant rights may be considered to have been "adversely affected," the
Board (or its Committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a Participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable
7
<PAGE>
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
Participant properly correspond with amounts withheld from the Participant's
compensation, and establish such other limitations or procedures as the Board
(or its Committee) determines in its sole discretion to be advisable and
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of the
Plan may result in an unfavorable financial accounting consequence, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence, including,
but not limited to:
(1) altering the Purchase Price for any Offering Period,
including, without limitation, an Offering Period underway at the time of the
change in Purchase Price;
(2) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the
time of such action; and
(3) allocating less than all of the shares of Common Stock
purchased during an Offering Period among the Participants in such Offering
Period.
Such modifications or amendments shall not require shareholder
approval or the consent of any Plan participants.
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, 2008, 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.
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
8
<PAGE>
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
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
9
<PAGE>
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.
10
<PAGE>
Exhibit 10.23
SUBLEASE AGREEMENT
BETWEEN
MYLEX CORPORATION
SUBLANDLORD
AND
DOVATRON INTERNATIONAL, INC.
SUBTENANT
Dated as of
February 1, 1999
<PAGE>
SUBLEASE AGREEMENT
This Sublease Agreement (the "Sublease"), dated February 1, 1999 for
reference, is entered into between MYLEX CORPORATION, a Delaware corporation
("Sublandlord"), and DOVATRON INTERNATIONAL, INC., a Delaware corporation
("Subtenant").
RECITALS
A. Sublandlord is the tenant of premises located at 34551 Ardenwood
Boulevard, Fremont, California ("Master Premises") pursuant to the terms of that
certain Industrial Lease, dated April 15, 1991, between Metropolitan Life
Insurance Company, as landlord, and Sublandlord ("Original Lease"), as amended
by that certain Lease Agreement - Building D, Ardenwood Corporate Park, dated
December 9, 1995, between Logitech, Inc., as successor in interest to
Metropolitan Life Insurance Company, and Sublandlord ("First Amendment"), and by
Amendment to Industrial Lease, dated February 26, 1996, between Logitech, Inc.
and Sublandlord ("Second Amendment") (collectively, the "Master Lease").
B. AMB Property, L.P., a Delaware limited partnership ("Landlord"), is
the successor in interest in the Master Lease to Logitech, having acquired its
interest by MESNE assignments from The Martin Group of Companies, Inc. and APT
Ardenwood, Inc., a Delaware corporation.
C. Sublandlord and Subtenant are, concurrently herewith, entering into
that certain Mylex/Dovatron Manufacturing Agreement, dated February 1, 1999 (the
"Manufacturing Agreement"), pursuant to which Subtenant is to produce, assemble
and distribute certain products for Sublandlord.
D. To effectuate the purposes of the Manufacturing Agreement, Subtenant
desires to sublease from Sublandlord, and Sublandlord is willing to sublease to
Subtenant, a portion of the Master Premises pursuant to this Sublease.
AGREEMENT
1. SUBLEASE. On and subject to the terms and conditions of this Sublease,
Sublandlord hereby subleases to Subtenant, and Subtenant hereby subleases from
Sublandlord, that portion of the Master Premises outlined on EXHIBIT A attached
hereto, containing approximately 31,980 rentable square feet (the "Subleased
Premises") and having an address of 6397 Kaiser Drive, Fremont, California.
1.1 SHARED FACILITIES. Subtenant shall have the right to use the
kitchen/cafeteria and restroom areas within the portion of the Master Premises
retained by Sublandlord, as marked on EXHIBIT A. Such usage shall be subject to
Sublandlord's reasonable rules and regulations to promote cleanliness, avoid
waste and maintain security. Neither party shall post company information within
these areas. The preceding restriction shall not prohibit the posting of such
notices as may be required by law.
Page 1 of 16
<PAGE>
1.2 SHARED ACCESS. Each of Sublandlord and Subtenant acknowledges
that access to each other's respective portion of the Master Premises will be
required from time to time in order for such party to discharge its
responsibilities under the Manufacturing Agreement and this Sublease.
Accordingly, each party shall appoint an executive officer (the "Facility
Executive") who shall be responsible for designating those employees who have
shall have shared access rights. Employees having shared access rights shall be
provided with the requisite pass-keys and/or security codes necessary to perform
their respective responsibilities within the other party's premises. Each party
shall have the right to establish reasonable rules for the purposes of
maintaining security, safety and good manufacturing practices within its
premises, and to revoke the access rights of any of the other party's employees
who fails to observe such rules. Nothing herein shall limit Subtenant's access
to the kitchen/cafeteria and restroom areas pursuant to section 1.1 above, or
Sublandlord's access to the Subleased Premises pursuant to the provisions of
this Sublease and of the Master Lease incorporated herein.
1.3 EXPANSION PREMISES. Sublandlord grants to Subtenant a first right
of negotiation with respect to the "RMA Area" shown on EXHIBIT A and containing
approximately 3,700 rentable square feet (the "Expansion Premises"). In the
event that Sublandlord determines, in its sole discretion, that it no longer
requires such area for its operations, Sublandlord shall give Subtenant written
notice offering to sublease the Expansion Premises to Subtenant and specifying
the economic and other terms on which such sublease is to be made. Subtenant
shall have five business days after receipt of Sublandlord's notice to notify
Sublandlord of its interest in subleasing such space. If Subtenant timely
notifies Sublandlord of its desire to sublease the Expansion Premises,
Sublandlord and Subtenant shall negotiate in good faith the terms of such
sublease which shall be the terms set forth in Sublandlord's notice offering the
Expansion Premises to Subtenant (subject to further negotiation) and otherwise
the terms of this Sublease. If, within 30 days after Sublandlord's notice
offering the Expansion Premises to Subtenant, the parties reach agreement on the
terms by which Subtenant shall sublease the Expansion Premises, then Sublandlord
and Subtenant shall execute an amendment to this Sublease evidencing such
agreement. If, however, the parties fail to reach agreement within such 30 day
period, then this first right of negotiation shall terminate and Sublandlord
shall be free to re-occupy or sublease the Expansion Premises on any terms it
may desire. This first right of negotiation is personal to Subtenant and may not
be transferred to any person or entity, whether voluntarily or by operation of
law, without Sublandlord's prior written consent. Sublandlord may grant or deny
its consent to any such transfer in its sole discretion. This first right of
negotiation shall be void if Subtenant is in default under this Sublease at any
time during or after the 30 day negotiation period and prior to the date on
which the Expansion Premises is to be incorporated into the Subleased Premises.
1.4 PARKING. Subtenant shall have the right to use, on a non-
exclusive basis, Subtenant's Percentage Share of the number of vehicle parking
spaces made available by Landlord for parking by Sublandlord within the Common
Areas (as defined in the Master Lease). Subject to Landlord's consent, Subtenant
shall have the right to designate up to four of such spaces located immediately
adjacent to the entrance of the Subleased Premises for "visitor parking". Use of
the parking areas shall be subject to such reasonable rules and regulations as
Sublandlord may require.
Page 2 of 16
<PAGE>
1.5 SUBLANDLORD'S RESERVED RIGHTS. Sublandlord reserves the right to
use the exterior walls (other than the Kaiser Drive frontage of the Premises),
floor, foundation and roof in, above and below the Subleased Premises, and
retains the right to install, maintain, use, repair and replace structural
elements and utility equipment, including, but not limited to, pipes, ducts,
conduits, wires and appurtenant fixtures in, under, over and through the
Subleased Premises, in locations that will not materially interfere with
Subtenant's use of the Subleased Premises and to relocate any pipes, ducts,
conduits, wires and appurtenant meters and equipment located within or adjacent
to the Subleased Premises and to alter or relocate any shared or common areas or
facilities. No easement for air, light or view is granted by this Sublease.
Subtenant is prohibited from having access to or using the roof of the Subleased
Premises for any purpose.
2. TERM. The term of this Sublease ("Term") shall commence on February
1, 1999 (the "Commencement Date"), and shall expire on April 14, 2001 (the
"Expiration Date"), unless sooner terminated in accordance with the terms of
this Sublease.
2.1 FAILURE TO DELIVER POSSESSION. If, for any reason beyond
Sublandlord's reasonable control, Sublandlord fails to deliver possession of the
Subleased Premises to Subtenant on the Commencement Date, then (a) the Term
shall commence on a revised Commencement Date occurring on the date that
Sublandlord delivers possession of the Subleased Premises to Subtenant, (b)
Subtenant shall have no obligation to pay rent prior to such revised
Commencement Date, (c) the Term shall not be extended as a result of such delay,
(d) this Sublease shall otherwise remain valid and enforceable in accordance
with its terms, and (e) Sublandlord shall have no liability whatsoever for such
failure to deliver the Subleased Premises on the originally scheduled
Commencement Date.
2.2 EARLY ENTRY. If Subtenant is given permission to enter the
Subleased Premises prior to the Commencement Date, such entry shall be on all
the terms of this Sublease except that no rent shall be payable by Subtenant
during such period of entry (other than reimbursement of expenses actually
incurred by Sublandlord and payment of damages or other liability for which
Subtenant becomes liable under this Sublease as a result of such entry).
2.3 EXTENSION OF TERM; RENEWAL. Subtenant acknowledges that
Sublandlord has no obligation to extend the term of the Master Lease beyond its
expiration date of April 14, 2001. However, in the event that Sublandlord, in
its sole discretion and without any obligation to Subtenant to do so, either
extends the term of the Master Lease or enters into a new lease for the Master
Premises including the Subleased Premises, Sublandlord agrees to give to
Subtenant written notice of such extension or new lease as soon thereafter as
practicable. Sublandlord and Subtenant shall thereafter negotiate in good faith
for the extension of this Sublease (including adjustments to the rent and other
economic terms) or a new sublease for the Subleased Premises, subject to
Landlord's consent. If Sublandlord and Subtenant fail to reach agreement on the
terms of such Sublease extension or new sublease within 30 days after
Sublandlord's notice to Subtenant, then the first right of negotiation granted
to Subtenant hereunder shall terminate automatically and this Sublease shall
expire in accordance with its terms. This first right of negotiation is personal
to Subtenant and may not be transferred to any person or entity, whether
voluntarily or by operation of law, without Sublandlord's prior written consent.
Sublandlord may
Page 3 of 16
<PAGE>
grant or deny its consent to any such transfer in its sole discretion. This
first right of negotiation shall be void if Subtenant is in default under this
Sublease at any time during or after the 30 day negotiation period and prior to
the commencement date of any such extended or new Sublease term. If Sublandlord
elects not to extend the term of the Master Lease or to enter into a new lease
for the Master Premises (including the Subleased Premises), Subtenant shall be
entitled to negotiate a direct lease of the Subleased Premises from Landlord.
3. RENT.
3.1 BASE RENT. During the Term, Subtenant shall pay to Sublandlord
monthly installments of Rent as follows:
<TABLE>
<CAPTION>
Period Monthly Rent Per Sq. Foot
---------------------------- ------------ ------------
<S> <C> <C>
Commencement Date - 04/14/99 $23,057.58 $.721
04/15/99 - 04/14/00 $23,761.14 $.743
04/15/00 - 04/14/01 $24,464.70 $.765
</TABLE>
the monthly installments of Rent shall be paid on or before the first day of
each calendar month during the Term in accordance with section 3 of the Master
Lease.
3.2 ADDITIONAL RENT. In addition to the monthly installments of
Rent, Subtenant shall be responsible for payment of certain expenses, as
provided below:
(a) SUBTENANT'S PERCENTAGE SHARE. As used in this Sublease, the
term "Subtenant's Percentage Share" shall mean 43.3%, notwithstanding any
different result that may be obtained by a re-measurement of the Subleased
Premises in its configuration as existing on the date of this Sublease.
(b) TAXES AND COMMON EXPENSES. Subtenant shall pay Subtenant's
Percentage Share of all Taxes and Common Expenses charged to Sublandlord by
Landlord for the Master Premises. Payment shall be made on or before the first
day of each calendar month during the Term in accordance with section 4 of the
Master Lease. Sublandlord shall furnish Subtenant with a copy of Landlord's
estimate of Taxes and Common Expenses and an annual statement showing
Subtenant's Percentage Share of the actual Taxes and Common Expenses charged by
Landlord to Sublandlord during the preceding Computation Year. Such estimate and
annual statement shall be provided promptly upon Sublandlord's receipt of
Landlord's Tax Statement and Landlord's Expense Statement. The annual statement
shall also disclose any underpayment or overpayment by Subtenant which shall be
paid by Subtenant or credited or remitted to Subtenant as provided in the
applicable provisions of section 4 of th Master Lease.
(c) BUILDING EXPENSES. Subtenant shall pay Subtenant's
Percentage Share of all expenses incurred by Sublandlord in the general
operation, maintenance, repair and replacement of the Master Premises (the
"Building Expenses").
Page 4 of 16
<PAGE>
(i) BUILDING EXPENSES DEFINED. Building Expenses shall
include, without limitation, expenses incurred for gas, water and electric
utilities to the extent not separately metered to the Subleased Premises;
casualty insurance maintained by Sublandlord on the Master Premises; repair,
maintenance and replacement expenses of the Master Premises and its fixtures
(including, for example, HVAC) which are incurred, in Sublandlord's reasonable
judgment, in the discharge of Sublandlord's obligations under the Master Lease;
salaries, fringe benefits and payroll taxes for Sublandlord's facilities staff;
and janitorial, refuse disposal and security services (to the extent provided by
Sublandlord). Building Expenses shall not include (a) expenses to the extent
reimbursable to Sublandlord by insurance or warranty; (b) expenses, penalties or
fines incurred or imposed due to Sublandlord's violation of the Master Lease,
this Sublease or the provisions of applicable law; or (c) expenses otherwise
included in the definition of Taxes or Common Expenses. If Subtenant's use of
utilities or other services rendered by Sublandlord exceeds Sublandlord's
historical experience or if such use or demand is reasonably determined and
demonstrated by Sublandlord to be disproportionate to Subtenant's Percentage
Share, then Sublandlord shall have the right to reallocate such expenses,
install submeters or, if practicable, require Subtenant to contract for such
services directly, in order to allocate such expenses more consistent with the
parties' respective requirements and use thereof. Notwithstanding anything
herein to the contrary, Subtenant's Percentage Share of Building Expenses shall
be deemed to include 100% of all submetered utility services serving the
Subleased Premises exclusively and billed to Sublandlord by the service
provider.
(ii) PAYMENT. Within five business days after the beginning
of each calendar quarter, Sublandlord will provide Subtenant with its estimate
of Subtenant's Percentage Share of Building Expenses for the ensuing calendar
quarter. Subtenant shall pay Subtenant's Percentage Share of Building Expenses
in advance, in equal monthly installments (i.e., one-third of the quarterly
estimate) on or before the 10th day of each calendar month during the Term. If
Sublandlord is delayed in furnishing its estimate, Subtenant shall continue to
pay, in monthly installments, the amount of Subtenant's Percentage Share of
Building Expenses based on the most recent estimate received by Subtenant until
a revised estimate is furnished by Sublandlord. Each revised estimate issued by
Sublandlord more than five business days after the beginning of a calendar
quarter shall become effective at the beginning of the next following calendar
quarter. Within a reasonable time after the end of each calendar quarter,
Sublandlord will provide to Subtenant a statement (the "Reconciliation
Statement") comparing Subtenant's Percentage Share of Building Expenses actually
incurred against the estimated payments theretofore received by Sublandlord from
Subtenant for the period covered by the Reconciliation Statement. The
Reconciliation Statement may include actual Building Expenses incurred for any
prior calendar quarter provided that such expenses have not been included in any
prior Reconciliation Statement. If the Reconciliation Statement shows an
overpayment by Subtenant of Subtenant's Percentage Share of Building Expenses,
the amount of such overpayment shall be credited against the next payment of
such expenses that becomes due. If the Reconciliation Statement shows an
underpayment by Subtenant of Subtenant's Percentage Share of Building Expenses,
the amount of such underpayment shall be paid by Subtenant within 30 days after
presentation of the Reconciliation Statement. Subtenant shall have the right, on
reasonable advance notice, to review Sublandlord's records and invoices used in
determining the payment due from Subtenant. Each Reconciliation Statement shall
be deemed final and binding on
Page 5 of 16
<PAGE>
Subtenant 30 days after presentation unless prior thereto Subtenant notifies
Sublandlord of any objections it has. Subtenant's Percentage Share of Building
Expenses for any partial calendar month during the Term shall be subject to
proration based on the actual number of days in such partial month.
3.3 SPECIAL SERVICES. All other services required by Subtenant and
not expressly provided by Sublandlord under this Sublease (e.g., telephone
service, additional janitorial services) shall be contracted and paid by
Subtenant directly with and to the provider of such service. With respect to any
services required by Subtenant that require access to or modification of the
Subleased Premises, any building systems or utilities or areas adjacent to the
Subleased Premises, Subtenant shall give reasonable advance notice to
Sublandlord. All work or services required by Subtenant and not provided by
Sublandlord shall be performed by properly licensed contractors who have been
reasonably approved by Sublandlord. Special services provided by Sublandlord's
facilities maintenance department, at the request and with the approval of
Subtenant's Facility Executive, shall be charged at an hourly rate set by
Sublandlord from time to time.
3.4 ADDITIONAL RENT. All payments of monthly Rent, Tenant's
Percentage Share of Taxes, Common Expenses and Building Expenses, interest, late
charges and all other sums of money payable by Subtenant to Sublandlord under
this Sublease shall constitute "rent" under this Sublease. The obligation of
Subtenant to pay rent is an independent covenant.
4. PERMITTED USE. Subtenant shall use the Subleased Premises solely for
the design, testing, light assembly and distribution of electronic components,
and related administrative and office uses, and for no other purpose without the
prior written consent of Sublandlord, which consent Sublandlord may not withhold
unreasonably.
5. CONDITION OF SUBLEASED PREMISES.
5.1 ACCEPTANCE. Subtenant acknowledges that it has inspected the
Subleased Premises and accepts it in its existing "AS IS" condition. Neither
Sublandlord nor anyone acting on its behalf has made any representation or
warranty concerning the condition, operation or suitability of the Subleased
Premises that is not expressly set forth in this Sublease. Sublandlord warrants
that, to Sublandlord's knowledge, the Master Premises is in compliance with
applicable law and Sublandlord has received no notice from any governmental
authority having jurisdiction that the Master Premises or any part thereof does
not comply with applicable law or which otherwise requires any work to be done
on or about the Master Premises. As used herein, the term "Sublandlord's
knowledge" means the actual knowledge of Sublandlord's Senior Facilities Manager
at the date of this Sublease, without any investigation or inquiry. Subtenant
shall have no liability under this Sublease for any alteration required by any
governmental authority to be made to the Subleased Premises to bring it into
compliance with applicable law unless the requirement for such alteration is
imposed in response to or as a result of any use, alteration or improvement of
the Subleased Premises by Subtenant. Sublandlord's warranty in this paragraph
does not apply to any non-compliance or damage caused by (or need for repairs,
alterations,
Page 6 of 16
<PAGE>
modifications or improvements resulting from) any activities of Subtenant, its
employees, agents, contractors or invitees in, on or about the Subleased
Premises.
5.2 MODIFICATIONS BY SUBLANDLORD. Sublandlord shall have no
obligation to make any repair, alteration or modification to the Subleased
Premises except as expressly set forth in this Sublease. Sublandlord agrees, at
its expense, to: (a) re-key all mechanical locks and re-program all electronic
locks serving the Subleased Premises; (b) provide four keys per lockable door in
the Subleased Premises and one electronic access card per Subtenant employee,
and (c) install one additional controller and additional card readers pursuant
to a schedule that is mutually acceptable to Sublandlord and Subtenant.
Sublandlord may impose a reasonable charge to replace any lost keys or access
cards. Except as provided above, Sublandlord agrees not to modify, remove,
disable or replace the mechanical or electronic locks or access devices without
providing reasonable advance notice to Subtenant.
5.3 ALTERATIONS BY SUBTENANT. All alterations required by Subtenant
to be made to the Subleased Premises shall be made at Subtenant's expense. Such
alterations shall be made in accordance with the applicable provisions of the
Master Lease and shall be subject to the prior written consent of Sublandlord
and Landlord. Subtenant shall have the right to participate in Sublandlord's
effort to obtain the consent of Landlord to any such alteration requested by
Subtenant.
5.4 REPAIR AND MAINTENANCE. Sublandlord shall maintain and repair (or
use reasonable efforts to cause Landlord to maintain and repair, to the extent
required of Landlord under the Master Lease) the shared access kitchen/cafeteria
and bathroom areas, exterior doors and windows, and all utility and life-safety
systems serving the Subleased Premises, including, without limitation, the HVAC
systems and lighting fixtures, and shall provide janitorial service to the
Subleased Premises. The level of all such services shall be commensurate with
the level of such services provided by Sublandlord for its retained portion of
the Master Premises. Expenses incurred by Sublandlord hereunder shall constitute
a Building Expense that is reimbursable by Subtenant under section 3.2 of this
Sublease. Notwithstanding anything in this Sublease to the contrary, Subtenant
shall reimburse Sublandlord, within 15 days after presentation of an invoice,
for all costs incurred by Sublandlord to repair damage caused by the negligent
or willful act or omission of Subtenant or any of its employees, agents,
contractors or invitees. Under no circumstances shall Subtenant make any repairs
or modifications to the Master Premises structure or to the mechanical,
electrical or heating, ventilating or air conditioning systems of the Master
Premises or Subleased Premises unless such repairs or modifications are
previously approved in writing by Sublandlord. Sublandlord reserves the sole
right to make repairs and modifications to such systems. Sublandlord agrees to
give Subtenant reasonable advance notice of any work by Sublandlord or its
contractors to the Master Premises which is reasonably anticipated to cause an
interruption to the utility services to the Subleased Premises or which is
reasonably anticipated to interfere with the conduct of Subtenant's business in
the Subleased Premises. Sublandlord will use reasonable efforts to coordinate
such work with Subtenant's Facility Executive in order to minimize any
interference with the conduct of Subtenant's business in the Subleased Premises.
There shall be no abatement of rent with respect to, and Sublandlord shall not
be liable for, any injury to or interference with Subtenant's business or its
leasehold interest arising from any repair,
Page 7 of 16
<PAGE>
maintenance, alteration or improvement in or to any portion of the Subleased
Premises, Master Premises or Common Area, or in or to the fixtures,
appurtenances and equipment therein.
5.5 SURRENDER. Upon the expiration or sooner termination of this
Sublease, Subtenant shall vacate and surrender the Subleased Premises in the
same condition as received, except for normal wear and tear, damage by casualty
or condemnation, and approved alterations, if any. Subtenant shall remove or
cause to be removed from the Subleased Premises and Master Premises, prior to
the termination date and at Subtenant's expense, all of Subtenant's personal
property, trade fixtures, signs and any alterations, additions or improvements
made to the Subleased Premises by Subtenant for which Sublandlord's consent was
not obtained. Subtenant shall repair all damage to the Subleased Premises and
the Master Premises caused by or in connection with the removal of such
articles, including, without limitation, repairing the floor and patching and
painting the walls where required by Sublandlord to Sublandlord's reasonable
satisfaction, and shall deliver the Subleased Premises to Sublandlord broom
clean and free of debris. Subtenant shall indemnify Sublandlord against any loss
or liability resulting from delay by Subtenant in so surrendering the Subleased
Premises, including, without limitation, any claims made by any succeeding
tenant founded on such delay and the costs of removing, storing and disposing of
any property remaining at the Subleased Premises at the termination date of this
Sublease. Any property so remaining at the Subleased Premises shall be deemed to
have been abandoned by Subtenant and become the property of Sublandlord which
Sublandlord may dispose of in any manner without any liability to Subtenant
whatsoever. Sublandlord may retain any proceeds it may receive from the sale or
disposal of such property.
6. SECURITY. In addition to the mechanical locks and electronic access
devices which are a part of the Subleased Premises, Sublandlord has contracted
with an independent security guard service to provide general security for the
Master Premises. The security guard or guards shall have access to the Subleased
Premises. Sublandlord makes no representation that such security guard service
is adequate for the protection of Subtenant or its employees, agents,
contractors or invitees, and may alter, replace or terminate the security guard
service contract at any time in its discretion. By providing such security guard
service, Sublandlord is not assuming any liability or responsibility for any
property damage or personal injury suffered by Subtenant or any of its
employees, agents, contractors or invitees regardless of the cause, and
Subtenant hereby releases and agrees to hold Sublandlord harmless from all such
losses, liability, damages, injuries and expenses. Unless expressly agreed in
writing, Sublandlord shall have no obligation to provide security guards
stationed within the Subleased Premises or other security systems other than as
described above. Subtenant is responsible for ensuring that all exterior doors
to the Subleased Premises are locked and secure at the close of each business
day and for all other security measures within the Subleased Premises.
7. SIGNAGE. Subject to Landlord's consent, Subtenant shall have the
right to install, at Subtenant's expense, its identifying sign on the exterior
of the Subleased Premises facing Kaiser Drive, on the entrance door to the
Subleased Premises and on the rear doors and loading dock serving the Subleased
Premises. The size, materials, location and method of attachment shall be
subject to Sublandlord's prior approval. All such signage shall comply with
applicable law. Upon
Page 8 of 16
<PAGE>
the expiration or sooner termination of this Sublease, Subtenant shall remove
such signs and repair all damage caused thereby.
8. ASSIGNMENT AND SUBLETTING. Subtenant acknowledges that a material
consideration for Sublandlord's willingness to enter into this Sublease is
Subtenant's role as a contract supplier for Sublandlord's products and the
proximity of Subtenant's production facility at the Subleased Premises to
Sublandlord's nearby facilities. Accordingly, in the event Subtenant desires to
assign this Sublease or sublet all or any portion of the Subleased Premises,
Sublandlord shall have the right to exercise any of its rights under section
15.3 of the Master Lease in its sole discretion.
9. MASTER LEASE AND SUBLEASE TERMS. Subtenant acknowledges that it has
read and is familiar with the all of the terms and conditions of the Master
Lease to the extent applicable to the Subleased Premises.
9.1 SUBORDINATION TO MASTER LEASE. This Sublease is, and shall at all
times be, subject and subordinate to the Master Lease. Nothing herein shall be
construed to grant Subtenant any greater rights in and to the Subleased Premises
than Sublandlord holds in the Master Premises under the Master Lease.
9.2 INCORPORATION OF MASTER LEASE PROVISIONS.
(a) The terms, conditions, and respective rights and obligations
of Sublandlord and Subtenant to each other under this Sublease shall be the
terms, conditions and respective rights and obligations of Landlord and Tenant
under the Master Lease except to the extent that those provisions of the Master
Lease are directly contradicted or expressly excluded by this Sublease. In the
event of any conflict between the provisions of the Master Lease and the
provisions of this Sublease, the provisions of this Sublease shall control.
Subtenant assumes and agrees to perform the obligations of Tenant under the
Master Lease incorporated into this Sublease and applicable to the Subleased
Premises.
(b) For purposes of this Sublease, the following terms appearing
in the Master Lease shall have the meanings indicated below: (a) "Landlord"
shall mean "Sublandlord"; (b) "Tenant" shall mean "Subtenant"; (c) "Premises"
shall mean "Subleased Premises"; (d) "Tenant's Share" shall mean "Subtenant's
Percentage Share"; and (e) "Term" shall mean the "Term" defined herein.
Capitalized terms used in this Sublease without definition have the same
meanings as are ascribed to such terms in the Master Lease, as such terms are
applicable to the Subleased Premises.
(c) The time limits in the Master Lease for giving notices,
making demands or performing any act, condition or covenant, or for the exercise
of any right or remedy, on the part of the Tenant are, for purposes of this
Sublease, reduced by three days; provided, however, in no event shall Subtenant
have fewer than five days or the time period specified in the Master Lease,
whichever is less, for such purposes. The time limits in the Master Lease for
giving notices, making demands or performing any act, condition or covenant, or
for the exercise of any
Page 9 of 16
<PAGE>
right or remedy, on the part of the Landlord are, for purposes of this Sublease,
increased by ten days.
(d) Any non-liability, release, indemnity or hold harmless
provision in the Master Lease for the benefit of Landlord shall, to the extent
incorporated herein, inure to the benefit of Sublandlord, Landlord and any other
person intended to be benefitted by such provision. Any right of Landlord under
the Master Lease of access or inspection, any right of Landlord under the Master
Lease to do work in the Master Premises, and any right of Landlord in respect of
rules and regulations, shall, to the extent incorporated herein, inure to the
benefit of Sublandlord, Landlord and any other person intended to be benefitted
by such provision.
9.3 MODIFICATION OF CERTAIN MASTER LEASE PROVISIONS. For purposes of
incorporation into this Sublease, the terms of the Master Lease are subject to
the following additional modifications:
(a) All provisions of the Master Lease requiring the consent or
approval of Landlord shall be deemed to require the consent or approval of
Landlord and Sublandlord. Any provision of this Sublease requiring the consent
or approval of Sublandlord shall also require the consent or approval of the
Landlord to the extent such consent is a requirement under the Master Lease. Any
act of Subtenant that, if proposed to be undertaken by Sublandlord under the
Master Lease would require the consent or approval of Landlord, shall be subject
to the consent or approval of the Landlord. In any instance when Sublandlord's
consent or approval is required under this Sublease and such consent or approval
may not be withheld or denied unreasonably, Sublandlord's refusal to render its
consent or approval shall be deemed reasonable if, among other considerations,
the consent or approval of Landlord is required but has not been obtained
despite Sublandlord's efforts to do so.
(b) All provisions of the Master Lease that require the Tenant
to submit, exhibit to, supply or provide documents, instruments, certificates,
financial statements, evidence, information or other items shall be deemed to
require Subtenant to furnish such items to Landlord and Sublandlord. Sublandlord
shall determine the sufficiency of the items so furnished.
(c) Sublandlord shall have no obligation to restore, repair or
rebuild the Subleased Premises or Master Premises or any portion thereof, or to
apply any insurance proceeds or condemnation awards it might receive, after any
casualty damage or taking by eminent domain.
(d) All provisions of the Master Lease requiring Tenant to
designate Landlord as an additional insured on its insurance policy(ies), shall
require Subtenant to so designate Landlord and Sublandlord on its insurance
policy(ies).
9.4 EXCLUDED MASTER LEASE PROVISIONS. The following provisions of the
Master Lease are expressly excluded from this Sublease and Subtenant shall have
no rights or obligations under such provisions: ORIGINAL LEASE: Basic Lease
Information; Sections 1.3 [parking], 2 [term], and 5 [construction]; Exhibit B1
and Exhibit B2 [floor plans]; Sections 1 through 9 of Exhibit C [work letter];
Rider No. 1 [option to extend]; Rider No. 2, Sections 6 [alterations],10
Page 10 of 16
<PAGE>
[permitted transfers],14 [first refusal right], 15 [purchase of equipment], 18
[access to roof], and 19 [rent]. FIRST AMENDMENT: each provision which, by its
terms, applies solely to the "Building D Premises" located at 6607 Kaiser Drive,
as described in the First Amendment. SECOND AMENDMENT: Sections 2(b) [option to
extend], 2(c) [monthly rent], and 3 [credit or payment].
9.5 COMPLIANCE WITH MASTER LEASE.
(a) During the Term and for all periods thereafter with respect
to obligations which arise prior to the termination of this Sublease, Subtenant
shall perform and comply with, for the benefit of Sublandlord and Landlord, the
obligations of Tenant under the Master Lease which pertain to the Subleased
Premises and/or this Sublease. Without limiting the generality of the foregoing
statement, Subtenant shall occupy and use the Subleased Premises in compliance
with the terms of the Master Lease applicable to the Subleased Premises, and
will not do or permit any act or omission which may result in a violation of or
a default under any of the terms and conditions of the Master Lease, or render
Sublandlord liable for any damage, charge, lien, penalty or expense thereunder.
(b) Subtenant agrees that Sublandlord shall not be required to
perform any of the obligations, agreements or undertakings of Landlord under the
Master Lease. Insofar as any of the obligations, agreements or undertakings of
Sublandlord under this Sublease are required to be performed under the Master
Lease by Landlord, Sublandlord shall use reasonable efforts to seek and obtain
Landlord's performance thereof and shall otherwise have no duty, obligation or
liability with respect to Landlord's failure to do so. Any condition resulting
from a default by Landlord shall not constitute, as between Sublandlord and
Subtenant, an actual or constructive eviction of Subtenant. No such default
shall excuse Subtenant from the performance or observance of any of its
obligations to be performed or observed under this Sublease, or entitle
Subtenant to receive any reduction in or abatement of the rent provided for in
this Sublease. In furtherance of the foregoing, Subtenant hereby waives any
cause of action and any right to bring any action against Sublandlord by reason
of any act or omission of Landlord under the Master Lease.
9.6 TERMINATION OF MASTER LEASE. If the Master Lease terminates, this
Sublease shall terminate and the parties shall be relieved of any further
liability or obligation under this Sublease excluding those which accrued prior
to such termination and those which by their terms survive the termination of
this Sublease; provided, however, that if the Master Lease terminates as a
result of a default or breach by Subtenant under this Sublease, then Subtenant
shall be liable to Sublandlord for all damages suffered as a result of such
termination. Notwithstanding any implication herein to the contrary, if the
Master Lease gives Sublandlord any right to terminate the Master Lease in the
event of the partial or total damage, destruction or condemnation of the Master
Premises, then the exercise of such right by Sublandlord shall not constitute a
default or breach by Sublandlord under this Sublease. Sublandlord shall have no
liability to Subtenant for any failure of Landlord to apply insurance proceeds
or any condemnation award toward the repair or restoration of the Subleased
Premises or Master Premises.
Page 11 of 16
<PAGE>
9.7 CONSENT OF LANDLORD. This Sublease is expressly conditioned on
Sublandlord having received the prior written consent of Landlord to the terms
of this Sublease on or before the Commencement Date. Subtenant agrees to provide
such information concerning Subtenant (including, without limitation, financial
statements, business history and plans, and intended use of the Subleased
Premises) as may be reasonably requested by Landlord, and to execute and deliver
such certifications and agreements as Landlord may reasonably request, as a
condition to Landlord granting its consent to this Sublease.
10. DEFAULT.
10.1 BY SUBTENANT. In addition to the events of default set forth in
the Master Lease, a default by Subtenant under the Manufacturing Agreement
shall, upon the expiration of any available cure period set forth therein,
automatically and without further notice, constitute a non-curable default under
this Sublease.
10.2 BY SUBLANDLORD; NOTICE AND RIGHT TO CURE. Sublandlord agrees to
give to Subtenant, promptly upon receipt by Sublandlord, a copy of any written
notice of default received by Sublandlord from Landlord under the Master Lease.
If Sublandlord elects not to cure or fails to cure such default timely and
Subtenant thereafter effects a cure which is accepted by Landlord, Subtenant
shall be entitled to deduct the actual, direct cost of such cure from the rent
payable by Subtenant under this Sublease until Subtenant has fully recovered
such cost of cure.
11. INDEMNITY.
11.1 BY SUBTENANT. Subtenant shall indemnify, defend and hold
harmless Sublandlord from and against all losses, costs, damages, expenses and
liabilities, including, without limitation, reasonable attorneys' fees and
costs, which Sublandlord may incur or pay out by reason of (a) any personal
injury, death or property damage occurring in or on the Subleased Premises
(except to the extent caused by or resulting from the negligence or willful
misconduct of Sublandlord, Landlord or their respective agents, employees,
contractors or invitees); (b) any breach or default by Subtenant under this
Sublease; (c) any act or omission of Subtenant which results in a breach or
default by Sublandlord under the Master Lease; (d) any failure by Subtenant to
surrender the Subleased Premises upon the expiration or earlier termination of
this Sublease in the condition required hereby; or (e) any negligent act or
omission or any intentional wrongdoing by Subtenant or any of its agents,
employees, contractors or invitees.
11.2 BY SUBLANDLORD. Sublandlord shall indemnify, defend and hold
harmless Subtenant from and against all losses, costs, damages, expenses and
liabilities, including, without limitation, reasonable attorneys' fees and
costs, which Subtenant may incur or pay out by reason of (a) any personal
injury, death or property damage caused by or resulting from the negligence or
willful misconduct of Sublandlord or its agents, employees, contractors or
invitees (except to the extent caused by or resulting from the negligence or
willful misconduct of Subtenant or its agents, employees, contractors or
invitees); (b) any breach or default by Sublandlord under this Sublease; or (c)
any termination of this Sublease occurring prior to the Expiration Date which
results from the breach or default by Sublandlord under the Master Lease.
Page 12 of 16
<PAGE>
11.3 LIMITATION OF LIABILITY. Notwithstanding anything in this
Sublease to the contrary, except as set forth in the next sentence, neither
Sublandlord nor Subtenant shall be liable to the other under this Sublease for
any incidental, consequential or special damages of any kind that it may cause
even if it has been notified by the damaged party of the possible occurrence of
any such damage. The foregoing liability limitation shall not apply to any
liability that may be imposed on Sublandlord by Landlord for damages to the
extent caused by or resulting from the breach, act, neglect, omission or
intentional wrongdoing of Subtenant or any of its agents, employees, contractors
or invitees, whether or not such damages are direct, indirect, incidental,
consequential or special.
12. BROKERS. Each party represents and warrants to the other party that
it has not retained the services of any broker, real estate licensee or finder,
and that no person or entity is entitled to any broker's or finder's fee or
commission of any kind in connection with the transaction evidenced by this
Sublease. Each party shall indemnify, defend and hold harmless the other party
from and against all claims, demands, costs, expenses and liabilities,
including, without limitation, reasonable attorneys' fees and costs, incurred as
a result of any broker's or finder's fee, commission or payment of any kind
asserted by any person or entity claiming to have represented such party in
connection with this Sublease.
13. SUBLANDLORD'S REPRESENTATIONS. Sublandlord represents and warrants
to Subtenant as follows:
13.1 Sublandlord has provided to Subtenant a complete and accurate
copy of the Master Lease, including all amendments thereto, but omitting only
certain economic terms having no relevance to this Sublease and for which
Subtenant shall have no liability or obligation.
13.2 The Master Lease is in full force and effect; Sublandlord has
received no notice of default from Landlord that has not been cured prior to the
date of this Sublease and, to Sublandlord's actual knowledge (but without
investigation), there exists no default or failure of a condition under the
Master Lease, and no event or condition exists which, with notice or passage of
time, or both, would constitute a default or failure of condition thereunder.
14. SUBTENANT'S REPRESENTATIONS. Subtenant represents and warrants to
Sublandlord as follows:
14.1 The execution, delivery and performance of this Sublease by
Subtenant has been authorized by all necessary corporate action. When executed
and delivered by Subtenant and Sublandlord, this Sublease shall be binding and
enforceable against Subtenant in accordance with its terms, subject only to
obtaining the consent of Landlord, the execution and delivery of the
Manufacturing Agreement, and the application of equitable principles or
bankruptcy rules and regulations which may limit certain rights or remedies of
the parties under certain circumstances; and no consent, approval, permit or
authorization of any other person, entity or governmental agency is required as
a condition to the validity or enforceability of this Sublease in accordance
with its terms.
Page 13 of 16
<PAGE>
14.2 No litigation, arbitration or other adversarial or governmental
proceeding is pending or, to Subtenant's knowledge, threatened which could
impair the enforceability of the Sublease against Subtenant, or terminate the
Master Lease or Subtenant's interest in the Subleased Premises.
15. GENERAL PROVISIONS.
15.1 NOTICES. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed sufficiently given if personally
delivered to the addressee (by personal service or by delivery via a recognized
courier service which obtains the signature of the recipient or its agent as
evidence of delivery) or if sent by registered or certified mail, return receipt
requested, with postage pre-paid and addressed as herein required. Notices so
sent shall be deemed to have been received on the earlier of actual receipt or
on the third business day following deposit in the U.S. mail. All notices to
Subtenant shall be addressed to Subtenant at the Subleased Premises. All notices
to Sublandlord shall be addressed to Sublandlord at its office in the Master
Premises, or to such other person or place as Sublandlord may from time to time
designate in a notice to Subtenant.
15.2 ENTIRE AGREEMENT; EXHIBITS. This Sublease, including all
exhibits, agreements and addenda attached hereto or referenced herein, is the
entire agreement between Sublandlord and Subtenant and supersedes all prior or
contemporaneous oral or prior written instruments, negotiations or
understandings between the parties concerning the sublease of the Subleased
Premises.
15.3 AMENDMENTS. No amendment of this Sublease shall be effective
unless set forth in a writing which specifies such amendment and is signed by
Sublandlord and Subtenant.
15.4 ACCORD AND SATISFACTION. No payment by Subtenant or receipt by
Sublandlord of a lesser amount than the rent payment herein stipulated shall be
deemed to be other than on account of the rent. No endorsement or statement on
any check or any letter accompanying any check or payment as rent shall be
deemed an accord and satisfaction. Sublandlord may accept such check or payment
without prejudice to Sublandlord's right to recover the balance of such rent or
pursue any other remedy provided in this Sublease.
15.5 CAPTIONS AND HEADINGS. The captions and headings used in this
Sublease to reference articles, sections, paragraphs and terms are provided
solely for convenience of reference and shall not be deemed to be relevant in
resolving any question of interpretation of any provision of this Sublease.
15.6 APPLICABLE LAW. This Sublease, and the rights and obligations of
the parties hereto, shall be construed and enforced in accordance with the laws
of the State of California applicable to contracts made and to be performed
wholly in such state.
Page 14 of 16
<PAGE>
15.7 EXAMINATION OF SUBLEASE; CONTINGENCIES. Submission of this
Sublease for examination or signature by Subtenant does not constitute a
reservation of or option to lease. This document is not effective as a lease or
otherwise unless and until it and the Manufacturing Agreement are executed and
delivered by both Sublandlord and Subtenant and the consent of the Landlord to
this Sublease is obtained.
The parties hereto have executed this Sublease on the dates specified
immediately below their respective signatures hereto.
SUBTENANT: SUBLANDLORD:
DOVATRON INTERNATIONAL, INC., MYLEX CORPORATION,
a Delaware corporation a Delaware corporation
By: /s/ Steve Howard By: /s/ Colleen Gray
----------------------------- ----------------------------
Name: Steve Howard Name: Colleen Gray
Title: VP/GM Title: VP Finance & CEO
By: /s/ William J. Butler By:
----------------------------- ----------------------------
Name: William Butler Name:
Title: Title:
Date: February 15, 1999 Date: February 15, 1999
Page 15 of 16
<PAGE>
Exhibit 10.41
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of this 1st day of January 1999 by and between
Mylex Corporation, a Delaware corporation having its principal office at
34551 Ardenwood Boulevard, Fremont, California 94537-5035 (the "Company"),
and Albert E. Montross, whose address is 1015 Forest Court, Palo Alto,
California 94301 (the "Employee").
RECITAL
The Company desires to employ the Employee in an executive capacity as
President and Chief Executive Officer on the terms and conditions set forth
herein, and the Employee is willing to accept and undertake such employment.
THE PARTIES agree as follows:
1. EMPLOYMENT.
The Company agrees to and does hereby employ the Employee, and the
Employee agrees to and does hereby accept employment by the Company, as
President and Chief Executive Officer, for a period beginning January 1, 1999
and ending January 31, 2003 (the "Employment Period").
2. DUTIES; FULL-TIME SERVICES.
2.1 DUTIES. Employee's responsibilities and duties shall be those
which are ordinarily possessed by presidents and chief executive officers of
public companies comparable in size and nature of business to the Company,
including, without limitation, the right to manage and conduct all of the
business of the Company, subject only to the directives of, and policies set
by, the Board of Directors of the Company (the "Board of Directors").
Employee shall perform such other reasonable and appropriate duties as are
assigned to him from time to time by the Board of Directors, provided that
such other duties shall not diminish the normal responsibilities and duties
of Employee's position.
2.2 FULL-TIME SERVICES. The Employee agrees that during the
Employment Period he will devote all normal working time and energies to his
responsibilities and duties for the Company, and will faithfully, and to the
best of his ability, discharge those responsibilities and duties to the
reasonable satisfaction of the Board of Directors. During the Employment
Period the Employee will not accept other gainful employment or consulting
appointments or become or remain an employee, officer or director of, or
consultant to, any other corporation except with the approval of the Board of
Directors.
1
<PAGE>
3. COMPENSATION.
3.1 SPECIAL BONUS; SALARY. For all services performed by the
Employee for the Company during the Employment Period, the Employee will be
compensated as follows:
a. SPECIAL BONUS. The Employee will be paid a special bonus
of $125,000 on January 1, 1999, in recognition of his contributions to the
Company during the year of 1998. The Board of Directors also shall consider
annually paying Employee a special bonus if, in its sole opinion and
discretion, the Company's performance and financial condition and Employee's
performance so warrant. The bonuses payable under this Section 3.1(a) shall
be paid in cash, and except with respect to the bonus payable on January 1,
1999, shall be payable within 30 days after completion of the Company's
annual audit for the respective year.
b. SALARY. During the Employment Period Employee's annual
salary will be $333,000. Such salary shall be paid bimonthly on the same
days on which the other officers of the Company are paid salary. The Board
of Directors shall consider annually increasing Employee's annual salary if,
in its sole opinion and discretion, the Company's performance and financial
condition and Employee's performance so warrant.
3.2 OPERATING INCOME BONUSES. As set forth below, the Employee
will be entitled to receive Operating Income bonuses each calendar year. The
bonuses, based upon the Company's Operating Income as a percentage of Net
Sales (all as shown in the Company's audited financial statements for the
applicable year), shall in turn be a percentage of Operating Income:
<TABLE>
<CAPTION>
OPERATING INCOME PERCENTAGE BONUS PERCENTAGE
<S> <C>
Under six percent None
Six through nine percent Two percent
Ten percent or more Two and one-half percent
</TABLE>
For example, if the Company has Operating Income of $7 million, representing
ten percent of Net Sales, Employee's bonus would be $175,000. The bonus
shall be paid within 30 days after completion of the Company's annual audit
for the respective year. If the Operating Income bonus is payable pursuant
to a specific provision of this Agreement for a calendar year during which
Employee is not entitled to payments of Operating Income bonus for the entire
year, the amount of such Operating Income bonus shall be prorated, based on
the number of days during such year that Employee is entitled to such
Operating Income bonus, and paid as provided above.
Notwithstanding the foregoing, in the event that no Operating Income bonus
is payable with respect to 1999, but the Company achieves both Net Sales and
Operating Income for 1999 (as shown in the Company's audited financial
statements for 1999) equal to or in excess of the Net Sales and Operating Income
in the Company's 1999 budget submitted to the Company's Directors at its January
27, 1999 Board of Directors meeting, the Employee shall be entitled to
2
<PAGE>
receive a bonus with respect to 1999 equal to one and one-half percent of the
Operating Income for 1999.
3.3 NONQUALIFIED DEFERRED COMPENSATION PLAN. The Company shall
establish and maintain for the benefit of Employee a nonqualified deferred
compensation plan (the "Plan") under which Employee is permitted to elect to
defer payment of all or any part of the compensation otherwise payable to
Employee under this Agreement. Such election(s) under the Plan shall be made
on or before the times specified in the Plan. The Company shall also
establish a trust (the "Trust") and contribute to the Trust all of the
amounts deferred by Employee under the Plan. The parties intend that the
Trust shall constitute an unfunded arrangement and shall not affect the
status of the Plan as an unfunded plan maintained for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees for purposes of Title I of the Employee Retirement
Income Security Act of 1974. The Plan and Trust shall be in forms mutually
agreed to by the parties.
3.4 OTHER BENEFITS. Employee will be entitled to receive such
health, life, workmen's compensation, disability and other insurance
benefits, and to participate in such retirement and other plans, as are
generally made available to other employees and executive officers of the
Company, from time to time, subject to the terms and conditions of such
benefits and plans. The level of Employee's participation, or the amount of
his benefits, shall be commensurate with Employee's position as President and
Chief Executive officer to the extent not prohibited by applicable law. In
addition, the Company shall obtain, at no cost to Employee, keyman life
insurance on Employee's life for each year of this contract in an amount of
$1 million. Employee shall submit to such insurance physical and tests as
may be reasonably required to obtain such insurance. A portion of the
proceeds of such policy shall be payable to beneficiaries designated by
Employee as follows:
<TABLE>
<CAPTION>
YEAR PROCEEDS PAYABLE PERCENTAGE OF PROCEEDS
<S> <C>
1999 through 2002 50%
</TABLE>
4. STOCK OPTIONS.
4.1 THE GRANT. On January 27, 1999, the Company granted to the
Employee an option (the "Option") to purchase 400,000 shares of the Company's
Common Stock ("Shares") under the Company's 1998 Stock Option Plan (the
"Option Plan").
The Option will vest at the rate of 25 percent of the Shares
subject to such Option on each anniversary date of this grant. The Option
will be an incentive option to the extent it qualifies as an incentive
option; otherwise, it will be a non-qualified option. For example, the first
100,000 Shares of the Option will vest on January 27, 2000. An additional
100,000 Shares of the Option will vest on each succeeding January 27. If the
Shares which are the subject of the Option described in this Section are not
registered, the Company shall use its best efforts to register such Shares by
the filing of a Form S-3, or such other method as is most appropriate in the
circumstances to enable Employee to sell such Shares. Except to the extent
3
<PAGE>
modified by this Agreement, the Option shall have such terms and conditions
as are provided in the Company's form of Stock Option Agreement under the
Option Plan.
4.2 TRANSFER UPON DEATH OR DISABILITY. Upon the Employee's death
or a disability which reasonably prevents Employee from performing his duties
and responsibilities under Section 2.1 hereof, all Options which have not
vested prior to such death or disability will be deemed to have accelerated
and vested immediately prior to such death or disability, and, in the event
of Employee's death, all rights with respect to Options provided for under
this Agreement will transfer to the Employee's representative or beneficiary.
All Options will be canceled one year after both of the following have
occurred: (a) the Employee dies or becomes disabled as provided above, and
(b) the Shares have been registered so that they can be sold by the Employee
or his representative.
5. DISCHARGE OF EMPLOYEE; RELEASE FROM DUTIES; RESIGNATION.
5.1 TERMINATION FOR CAUSE - CRIMINAL ACT. The Company may
discharge the Employee immediately and without notice, if the Employee is
convicted of a felony or any criminal act affecting the Company. If the
Employee is discharged under this Section 5.1, this Agreement will terminate
as of the date of discharge, and the Employee will have no further right to
compensation or benefits under Section 3.1, 3.2 or 3.4 hereof, except for
salary already earned but not yet paid, and all of the Employee's unvested
Options granted under Section 4.1 of this Agreement shall be canceled as of
the date of such discharge.
5.2 TERMINATION FOR CAUSE - OTHER EVENTS. The Company may
discharge the Employee, upon giving the Employee ten days written notice of
its intention to do so, upon the occurrence of any of the following events:
a. Failure by the Employee to comply in any material respect
with any written agreement between the Employee and the Company, including,
without limitation, this Agreement, or written policies of the Company
adopted by the Board of Directors, which failure is not corrected within
thirty days after written notice setting forth in reasonable detail the
nature of such failure is received by the Employee; provided, however, if
such failure is corrected within such thirty day period or is not capable of
being corrected, such failure shall not constitute cause unless and until
such failure is repeated, at which time such second failure shall constitute
cause for termination without any further notice from the Company or
opportunity for Employee to correct;
b. Fraud or misappropriation by the Employee with respect to
the business of the Company; and
c. Knowing failure by the Employee to perform any of his
responsibilities and duties under this Agreement or habitual neglect in the
performance of any of such responsibilities or duties, which failure is not
corrected, in all material respects, within thirty days after written notice
setting forth in reasonable detail the nature of such failure is received by
the Employee, provided, however, if such failure is corrected within such
thirty
4
<PAGE>
day period or is not capable of being corrected, such failure shall not
constitute cause unless and until such failure is repeated, at which time
such second failure shall constitute cause for termination without any
further notice from the Company or opportunity for Employee to correct;
If the Company discharges the Employee for any of the reasons set
forth in this Section 5.2, this Agreement will terminate as of the date of
discharge and all of the Employee's unvested Options granted under Section
4.1 hereof shall be canceled as of the date of such discharge, but the
Company will pay to the Employee the remaining salary payments due the
Employee for the remainder of the Employment Period, or an amount equal to
one year of such salary payments at Employee's base rate of pay upon date of
discharge, whichever is less, plus the portion of the Operating Income bonus
payable pursuant to Section 3.2 hereof through Employee's date of discharge.
The Employee shall be paid the foregoing amounts periodically, as though he
were still on the Company's payroll. In addition, the Company will provide
the Employee life and health insurance and such other similar benefits as the
Employee is receiving upon the date of discharge for the same term that it is
making salary payments pursuant to this Section 5.2.
5.3 RELEASE FROM DUTIES. The Employee and the Company expressly
agree that nothing in this Agreement shall prohibit the Company from
relieving the Employee of his duties as President and Chief Executive officer
for any reason, and that any such action ("Action") will not constitute a
breach of this Agreement. If the Company takes such Action for any reason
other than as set forth in Section 5.1 or 5.2 hereof, the Company will pay to
the Employee the greater of the remaining salary payments due the Employee
for the remainder of the Employment Period, or an amount equal to one year's
salary payments at Employee's base rate of pay upon date of such Action, plus
the portion of the Operating Income Bonus payable pursuant to Section 3.2
hereof through the date of such Action. The Employee shall be paid the
foregoing salary bimonthly. In addition, the Company will provide Employee
life and health insurance and such other similar benefits as Employee is
receiving upon the date of discharge for the remaining term of the Employment
Period or one year, whichever is longer. Employee shall be deemed to have
"Continuing Status as an Employee" for all purposes under the Stock Option
Plan for the duration of the period in which Employee is entitled to receive
salary payments under this Section 5.3. As a consequence, Options unvested as
of the date of such Action will continue to vest during said period.
5.4 CONSULTATION; NONCOMPETE.
a. CONSULTATION. If the Employee is terminated under
Section 5.2 or relieved of his duties under Section 5.3 of this Agreement,
the Employee agrees that, during the period of salary continuation provided
for under such section, he will make himself available for consultation to
the Company. Such periods of consultation shall be upon reasonable advance
notice to Employee, shall be reasonable in number and duration, and shall in
no event impede Employee's rights to obtain alternative employment.
5
<PAGE>
b. NONCOMPETE. During the period of salary continuation,
Employee also agrees that he will not compete, either directly or indirectly,
by providing consultation services to, or becoming an employee of, any entity
whose business is in competition with that of the Company.
5.5 RESIGNATION. If the Employee resigns during the Employment
Period, this Agreement will terminate and the Employee's unvested options
will be canceled as of the date of resignation. The Employee's vested
Options under this Agreement will be canceled unless exercised within one
year after the date such Shares are registered so that they can be sold by
the Employee. Upon resignation, except as provided in this Section 5.5, the
Employee will have no further right to compensation under Section 3.1, 3.2 or
3.4 hereof, except for salary already earned but not yet paid.
5.6 CHANGE OF CONTROL. If there is a Change of Control (as
defined below), and Employee's employment with the Company is terminated by
the Company within one year after such Change of Control for reasons other
than as provided in Section 5.1 or 5.2 hereof, then Employee shall be paid,
IN ADDITION to those amounts provided in Section 5.3 hereof, an amount equal
to twelve month's salary at Employee's rate of pay (pursuant to Section
3.1(b) hereof) upon the date of discharge. A Change of Control shall be
deemed to have occurred at such time as any person purchases, in one
transaction or a series of related transactions, for a price of less than $20
per share the "beneficial ownership" (as defined in rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of 30% or more of
the combined voting power of voting securities then ordinarily having the
right to vote for directors of the Company. In the event of a change of
control as described above or should Mylex be acquired or merge with another
corporation, this also will be deemed as a change of control and all options
described herein will be deemed to have accelerated and fully vested prior to
the closing date of such acquisition or merger or the occurrence of such
other change of control.
5.7 RETURN OF PERSONAL PROPERTY. Upon the termination of this
Agreement, or Employee's release from duties under Section 5.3 hereof,
Employee shall immediately deliver to the Company all personal property in
his possession owned by the Company, including, without limitation, any
computer or other equipment, written materials, software or database, and
automobile.
6. CONFIDENTIALITY.
6.1 CONFIDENTIAL INFORMATION. As used in this Agreement,
"Confidential Information" means trade secrets and any other proprietary or
confidential information that derives independent economic value to the
Company from not being generally known to the public or to other persons who
can obtain economic value from its disclosure or use and that is the subject
of efforts by the Company that are reasonable under the circumstances to
maintain its secrecy. Confidential Information may include, but not be
limited to, inventions, disclosures, processes, systems, know-how, methods,
techniques, drawings, applications, solutions, materials, devices, research
activities and plans, scientific data, specifications, costs
6
<PAGE>
of production, prices, promotional methods, financial information, marketing
plans or customer and supplier information.
The Employee agrees that any Confidential Information which
Employee may acquire in the course of employment with the Company, shall be
regarded as held by him in a fiduciary capacity solely for the benefit of the
Company, and shall not at any time, either during the term of this Agreement
or thereafter, be disclosed, divulged, furnished or made available to any
third party or be otherwise used by Employee other than in the regular course
of business of the Company. Information or collections of information shall
be considered covered by the preceding sentence if not known by the public
generally, even though portions of such information may be publicly available
or may be available to certain third parties pursuant to arrangements with
the Company.
6.2 RETURN TO COMPANY. Upon termination of his employment with
the Company, the Employee will deliver to the Company all writings relating
to or containing Confidential Information, including, without limitation,
notes, memoranda, letters, drawings, diagrams, printouts, computer tapes,
computer discs, and any other form of recorded information.
6.3 CONFLICT. In the event there is any conflict between any
provision of this Section 6 and any provision of the Company's then standard
form of confidential agreement and intellectual property assignment executed
by the Employee, the provision in such standard form shall govern.
7. DEVELOPMENTS.
Employee agrees promptly to disclose to the Company all inventions,
improvements, enhancements, discoveries and developments which are within the
scope of the Company's business during the Employment Period and which are
made, developed, or conceived by him, either solely or jointly with others,
during the Employment Period. All such inventions, improvements,
enhancements, discoveries and developments shall become and remain the
property of the Company, whether or not patent or copyright applications are
filed thereon or with respect thereto, and the Employee, in consideration for
the execution of this Agreement and his employment by the Company, hereby
sells, assigns and transfers to the Company all right, title and interest in
an to such inventions, improvements, enhancements, discoveries and
developments and further agrees that he will cooperate fully and
unconditionally in all reasonable requests by the Company in furtherance of
protecting, developing or exploiting commercially any inventions,
improvements, enhancements, discoveries and developments disclosed pursuant
to this Section 7. Further, Employee agrees that he will promptly execute all
necessary documents requested of him by the Company incidental to any patent
or copyright applications, assignments, powers of attorney and all other
documents and do such other things as, in the opinion of counsel for Company,
may be necessary or useful for the full enjoyment thereof throughout the
world by the Company and its designees.
8. ABILITY TO PERFORM.
7
<PAGE>
The Employee hereby represents and warrants to the Company that he is
under no legal disability and has entered into no agreements which in any way
limit or render the Employee incapable of performing his obligations under
this Agreement or his fiduciary duties as the President and Chief Executive
Officer of the Company. The Employee further covenants that he will not
impair his ability to carry out his obligations under this Agreement or his
fiduciary duties as President and Chief Executive Officer of the Company by
entering into any agreement or in any way assisting others, directly or
indirectly, to enter into any agreement which will violate the nondisclosure
and confidentiality provisions of this Agreement.
9. INDEMNIFICATION.
The Company shall include Employee in the coverage provided by its
indemnity insurance, in place from time to time, which insures directors and
officers against any liability arising out of their employment by the
Company. In addition, the Company shall indemnify Employee to the fullest
extent permitted by Delaware law, consistent with the Company's Certificate
of Incorporation and By-Laws. Without limiting the foregoing, but to the
maximum extent permitted by applicable law, the Company specifically agrees
to indemnify and hold harmless the Employee from and against any and all
claims, losses or damages and expenses (including reasonable attorneys'
fees), judgments, fines, settlements and other amounts actually incurred in
connection with any proceeding arising by reason of Employee's employment by
the Company, including any employment prior to the date of this Agreement.
The Company shall advance to Employee any expenses incurred in defending any
such proceeding to the maximum extent permitted by law.
10. SURVIVAL OF OBLIGATIONS.
The covenants and agreements set forth in this Agreement shall survive
any termination of this Agreement and remain in full force and effect
regardless of the cause of the termination to the full extent necessary to
protect the interest: of the party in whose favor they run; provided,
however, upon such termination, the Employee shall cease to have any rights
under Sections 1 or 2 hereof and the Employee's sole rights to compensation,
stock options and benefits from the Company, after such termination, shall be
as provided in Section 5 hereof.
11. ASSIGNABILITY OF AGREEMENT.
11.1 BY EMPLOYEE. Except as otherwise provided in this Agreement,
the Employee shall not be entitled to assign (voluntarily or involuntarily,
by operation of law or otherwise) any of his rights under this Agreement, nor
delegate any of his duties or obligations under this Agreement, without the
prior written consent of the Company.
11.2 BY THE COMPANY. The benefits hereunder with respect to the
rights of the Company to the services of the Employee may be assigned by the
Company, with the consent of the Employee, to any other Company or other
business entity which succeeds to all or substantially all of the business of
the Company through merger, consolidation, corporate
8
<PAGE>
reorganization or by acquisition of all or substantially all of the assets of
the Company or to a company controlled by it, or controlling it, or under
common control with it; provided, however, that the obligations and
liabilities of the Company under this Agreement shall be binding upon any
such successors in interest or transferees so long as this Agreement is in
effect.
12. NOTICES.
All notices, consents, waivers or demands of any kind which either party
to this Agreement may be required or may desire to serve on the other party
in connection with this Agreement, shall be in writing and may be delivered
by personal service or sent by facsimile, telegraph or cable or sent by
registered or certified mail, return receipt requested, with postage thereon
fully prepaid. All such communications shall be addressed as follows:
Company: Mylex Corporation
34551 Ardenwood Boulevard
P.O.Box 5035
Fremont, California 94537-5035
Attn: Chairman and Chief Financial Officer
Employee: Albert E. Montross
1015 Forest Court
Palo Alto, California 94301
With a copy to: J. Ronald Hershberger, Esq.
Thoits, Love, Hershberger & McLean
525 University Avenue, Suite 1200
Palo Alto, California 94301
If sent by fax, telegraph, or cable, a confirmed copy of such fax,
telegraphic, or cable notice shall promptly be sent by mail (in the manner
provided above) to the applicable address. Service of any such communication
made only by mail shall be deemed complete on the date of actual delivery as
shown by the addressee's registry or certification receipt or at the
expiration of the third (3rd) business day after the date of mailing,
whichever is earlier in time. Either party thereto may from time to time, by
notice in writing served upon the other as aforesaid, designate a different
mailing address or a different person to which such notices or demands are
thereafter to be addressed or delivered. Nothing contained in this Agreement
shall excuse either party from giving oral notice to the other when prompt
notification is appropriate, but any oral notice given shall not satisfy the
requirement of written notice as provided in this Section.
13. SUPERSEDES OTHER AGREEMENTS.
9
<PAGE>
This Agreement supersedes and replaces all prior negotiations, proposed
agreements and agreements, written or oral, between the parties with respect
to the Employee's employment by the Company.
14. GOVERNING LAW.
This Agreement shall be interpreted and enforced according to the laws
of the State of Delaware (regardless of that jurisdiction's or any other
jurisdiction's choice of law principles).
15. SEVERABILITY.
If any provision of this Agreement is or becomes or is deemed invalid,
illegal, or unenforceable in any jurisdiction, (a) such provision will be
deemed amended to conform to applicable laws of such jurisdiction so as to be
valid, legal and enforceable, or, if it cannot be so amended without
materially altering the intention of the parties, it will be stricken, (b)
the validity, legality and enforceability of such provision will not in any
way be affected or impaired thereby in any other jurisdiction, and (c) the
remainder of this Agreement will remain in full force and effect.
16. ATTORNEYS' FEES.
If any party brings any suit, action or claim to enforce the provisions
of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees and litigation expenses, in addition to court costs with
respect to such enforcement.
17. COUNTERPARTS.
This Agreement may be executed in two original counterparts. Both
counterparts shall constitute one and the same Agreement.
18. WAIVER.
The failure by a party to insist on the strict performance of any
provision of this Agreement, or to exercise any right, power or remedy upon a
breach hereof, shall not constitute a waiver of any provision of this
Agreement or limit the party's right thereafter to enforce any provision or
exercise any right. No waiver of any right or obligation under this
Agreement shall be enforceable unless it is in writing, specifying such
waiver, and duly executed by the party against which such waiver is being
enforced. No waiver of any such right or obligation on one occasion shall
constitute a further or future waiver of such right or obligation or of any
other right or obligation.
19. MODIFICATION.
No modification of this Agreement shall be valid unless made in writing,
specifying such modification, and duly executed by the parties.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into the above
Agreement as of the 1st day of January, 1999.
/s/ Albert E. Montross
----------------------------------------
Albert E. Montross, Employee
MYLEX CORPORATION
By: /s/ Ismael Dudhia
-----------------------------------
Name: Ismael Dudhia
Title: Chairman of the Board of Directors, and
Chairman of the Compensation Committee
11
<PAGE>
EXHIBIT 10.44
MANUFACTURING AGREEMENT
This Manufacturing Agreement ("Agreement") is made and entered into as of
January 29, 1999, by and between Mylex Corporation ("Mylex"), having its place
of business at 34551 Ardenwood Boulevard, Fremont, California 94555-3607, and
Dovatron International, Inc. ("Dovatron"), having its place of business at 5405
Spine Road, Boulder, Colorado 80301.
RECITAL
Mylex and Dovatron wish to enter into an agreement pursuant to which
Dovatron will provide worldwide manufacturing services for Mylex products and
testing and delivery of such products to the customers of Mylex.
AGREEMENT
SECTION 1.0 AGREEMENT TO MANUFACTURE
1.1 SCOPE OF WORK. During the term of and subject to this Agreement,
Dovatron shall manufacture, configure and test and deliver to Mylex's
customers, and Mylex shall purchase from Dovatron, and Dovatron shall
sell to Mylex, such quantities of units of the products described on
Exhibit A to this Agreement (the "Products") as Mylex may order from
time-to-time, at the quoted prices set forth on Exhibit A. Dovatron's
obligations to manufacture, configure and test Products pursuant to
this Agreement shall not commence until March 1, 1999. Each Product
shall be manufactured, configured and tested according to Mylex's
specifications for such Product, which are or will be (prior to or at
the time of order) agreed to, in writing, by Mylex and Dovatron (the
"Specifications"), and, as necessary, debugged pursuant to Section
6.0B below in an effort to ensure that such Product meets the
Specifications. Mylex shall, upon the effective date of this
Agreement and weekly thereafter during the term of this Agreement,
give Dovatron a written forecast of the generic Products, by type,
quantity and expected delivery date, (the "Forecast") for which it
expects to receive delivery during the immediately succeeding ninety
(90) day period. A Forecast will be deemed to constitute a binding
purchase order with respect to generic Products, subject to the
provisions of this Agreement. In addition, Mylex shall, from
time-to-time, issue to Dovatron a purchase order, in the form attached
to this Agreement as Exhibit B, for configured Products, by type,
quantity and delivery date, as and when it desires to order configured
Products pursuant to this Agreement.
1.2 CONSIGNED COMPONENTS.
A. Upon request from Dovatron, Mylex may, at its election, consign
components of Products to Dovatron. All consigned components will
be delivered to Dovatron in a mutually agreed package type, and in
sufficient time and in sufficient quantities to allow Dovatron to
meet scheduled delivery dates for the applicable Products. All
consigned components shall be in good condition. Mylex assumes
complete liability for the quality of all consigned components and
Dovatron shall not be responsible for any defects therein or
<PAGE>
failures thereof. Dovatron shall be responsible for inventory
shrinkage of consigned components after its receipt of such
components and for ensuring that appropriate physical controls of
such components are in place and properly administered.
B. Notwithstanding any implication to the contrary in subparagraph A
above, Dovatron shall be obligated to account for all of the
components, specifically identified by the parties at or prior to
any consignment, that are consigned to Dovatron. Accordingly, if
any such component is damaged, lost or destroyed in the
manufacturing, configuration or testing process, Dovatron shall be
responsible, at Mylex's election, for replacing such component at
its own expense or paying Mylex an amount for such component to be
agreed upon by Mylex and Dovatron; provided, however, Dovatron
shall have no responsibility for any such yield losses for any
class of component up to the amounts agreed upon by the parties.
No consigned component shall be deemed to be defective or to have
failed unless Dovatron has reasonable proof that it was defective
or failed.
1.3 USE OF EXISTING INVENTORY. As soon as practicable after the
effectiveness of this Agreement, Mylex will provide to Dovatron on-line
access to its inventory of components available for use in Products, all
of which will be stored at a Mylex facility. To the extent any such
components are available for use in Products ordered by Mylex, Dovatron
will use Mylex's inventory of such components in such Products rather
than purchase such components. Dovatron shall pay to Mylex Dovatron's
then quoted purchase price, as set forth on Exhibit A hereto or any
amendment thereto, for any such components Dovatron uses within thirty
(30) days of its receipt of such components; provided, however, Mylex may
credit against any portion of its purchase price for Products any unpaid
amounts Dovatron is obligated to pay Mylex for its components.
SECTION 2.0 PURCHASING AND OTHER MATTERS
2.1 PURCHASE ORDERS. Purchase orders for configured Products (and Forecasts
for generic Products) may be delivered to Dovatron by any reasonable
means, including but not limited to postal delivery, courier delivery,
facsimile transmission, and electronic mail. Receipt of each purchase
order will be promptly confirmed by Dovatron. Dovatron shall not be
bound by any term or condition on a purchase order that is inconsistent
with this Agreement or any of its exhibits except to the extent mutually
agreed by the parties. If Dovatron believes it will be unable to meet
the delivery dates set forth in any purchase order and notifies Mylex of
that concern and suggested alternative delivery dates within two business
days of its receipt of such purchase order, Dovatron and Mylex will
negotiate in good faith to agree upon an acceptable delivery date.
Dovatron shall, within two business days of its receipt of a purchase
order, accept or reject such purchase order; provided, however, except as
provided above, Dovatron shall be obligated to accept all purchase orders
for Products with respect to which a price has been mutually agreed by
the parties. The parties shall hold weekly meetings (in person at
Mylex's facility or by conference phone call) for the purpose of
discussing Mylex's existing and contemplated Forecasts and order
requirements; provided, however, only written Forecasts and purchase
orders, or written modifications thereto, shall bind Mylex pursuant to
the terms of this Agreement or otherwise. The parties, as business
requirements dictate, may mutually agree upon the use of blanket purchase
orders for specific sub-assemblies or components, subject to the terms of
this Agreement.
2
<PAGE>
2.2 PURCHASE ORDER RELEASES. Dovatron may make purchase commitments to
suppliers based upon the Forecasts and purchase orders received from
Mylex; provided, however, notwithstanding any such commitments, Mylex
shall only have such obligation to purchase units of Products or
components or sub-assemblies thereof as is specifically set forth in
this Agreement. Mylex shall only be obligated to Dovatron for
components and sub-assemblies ordered by Dovatron, as specifically
provided in this Agreement, including, without limitation,
non-cancelable or non-returnable components or sub-assemblies, in
quantities essential to meet a then projected delivery date for the
related Product in the then most recent Forecast ("Permitted
Components"). Dovatron will give Mylex written notice, from time to
time, of the necessary advance order period for any component or
sub-assembly that must be ordered more than ninety (90) days prior to
receipt thereof by Dovatron and any material change in such advance
order period.
2.3 PURCHASE ORDER CONTENTS. Each purchase order shall contain the following
information:
A. Quantity and type of units of Product to be shipped.
B. Product unit price.
C. Product unit revision level.
D. Delivery schedule, by date, Product unit and quantity.
E. Packaging process and method.
F. Destination, carrier and other specific instructions.
2.4 RESCHEDULING OF RELEASED ORDERS. Mylex may reschedule delivery of units
of Products by sending Dovatron a written change order. Deliveries may
be rescheduled in accordance with the schedule shown below. Expediting
of delivery of a Product beyond the limitations specified in the schedule
below may only be made with the approval of each of the parties. Any
fees for such expediting, including resulting premium costs associated
with materials, labor or handling, must also be mutually agreed upon, in
writing, by the parties. Mylex may reschedule the delivery of any
Product unit only one time without Dovatron's agreement.
<TABLE>
<CAPTION>
Number of Business Generic % Number of Business Configuration %
Days Advance Notice Reschedule Days Advance Notice Reschedule
------------------- ----------- ------------------- --------------
<S> <C> <C> <C>
0 - 15 None 1 - 5 None
16 - 30 20% or less 6 - 10 20% or less
31 - 45 40% or less 11 - 20 40% or less
46 - 60 75% or less 21 - 25 75% or less
61 and up 100% or less 26 and up 100% or less
</TABLE>
The rescheduling rights for configured Product provided above assumes
that Mylex has entered into a SIMM supply contract that is reasonably
acceptable to Dovatron.
2.5 IMPACT OF RESCHEDULING. With respect to any Products, and related
components, the rescheduling of which is beyond the limits specified in
Section 2.4, Mylex shall be responsible for (a) Dovatron's fully burdened
cost, as defined below and as quoted by Dovatron in Exhibit A hereto or
any amendments thereto, (b) work-in-progress in an amount to be
negotiated by the parties (not
3
<PAGE>
to exceed the quoted price of the finished Product), and (c) finished
Products at the quoted price in Exhibit A hereto or any amendments
thereto. Mylex's responsibility for Dovatron's inventory of
non-cancelable or non-returnable components for Products shall be as
provided in Section 2.8 below. After forty-five (45) days from
Dovatron's receipt of a generic Product at its Fremont, California
facility, but not earlier than the date by which a Product must be
completed to meet the delivery requirements of the applicable Forecast
(the "Required Completion Date"), inventory not ordered by Mylex will
be moved to an internal secured consigned inventory location and
billed to Mylex at prices or a formula to be agreed to by each of the
parties, each as set forth in Exhibit A hereto or any amendments
thereto, with payment terms as provided in 3.1. Dovatron shall give
Mylex prompt written notice of its receipt of a generic Product.
Inventory not consumed after forty-five (45) days in the consigned
inventory location will be the responsibility of Mylex and, five (5)
days after the end of such 45-day period, will be shipped from the
Dovatron location to the non-Dovatron location designated by Mylex, at
the expense of Mylex. Mylex will be billed the fully burdened cost,
as defined below and as quoted by Dovatron in Exhibit A hereto or any
amendment thereto, minus the amount billed (and paid) with respect to
the initial transfer of such inventory to the consigned inventory
location, with payment terms as provided in 3.1. Notwithstanding the
foregoing, Mylex, at its election, may choose, by written notice to
Dovatron, to have Dovatron hold any such inventory for up to an
additional forty-five (45) days upon the parties reaching a mutually
acceptable agreement with respect to an additional fee for Dovatron
providing such service. Dovatron's fully burdened cost for any
component or sub-assembly shall be its out-of-pocket cost to acquire
such item, plus XXX%, and its labor cost for the related Product as
quoted by Dovatron. Dovatron's fully burdened cost for any completed
or partially completed Products shall be its fully burdened cost for
the components and/or sub-assemblies actually used in such Product
plus Dovatron's labor costs directly attributable to the manufacture
of such Product. Such labor costs shall be calculated by Dovatron,
utilizing normal manufacturing industry practice for such
calculations. Dovatron shall provide Mylex with its written
calculation, in reasonable detail, of its fully burdened cost, in each
instance, and such calculation must be reasonably acceptable to Mylex.
2.6 ENGINEERING DESIGN CHANGES. If Mylex should request any engineering
change order for any Product, Dovatron will give Mylex written notice,
within three business days of receiving written notice at such request,
of the date by which, and at what cost, such engineering change order
could be implemented. Mylex shall be responsible for any increase in
such costs (net of any savings of costs), due to an engineering change
order, to which it agrees in writing.
2.7 QUALITY PROGRAM. Each of the parties shall comply with the quality
program requirements described in Exhibit C hereto.
2.8 CANCELLATIONS. In the event that Mylex wishes to cancel some quantity of
units of Products ordered pursuant to this Agreement, Dovatron, upon
receipt of such written notice of such cancellation, shall stop work on
such units of Products to the extent specified therein. Mylex's
termination liability for a cancellation shall be limited to the
following.
A. Payment for all units of Products delivered to Mylex, or in the
process of being delivered at the time, plus finished units of
Products in inventory prior to, and including, the
4
<PAGE>
effective date of cancellation, at then applicable unit prices
for such Products;
B. Payment for all work-in-process on units of Products based upon
percentage of completion, as reasonably determined by Dovatron and
written notice, in reasonable detail, of which is given to Mylex
within two business days of the effective date of cancellation,
multiplied by the then applicable unit price of such Products,
including units of Products which were in process prior to receipt
of notice of cancellation and that could not be completed by the
cancellation date. Mylex has the right to require Dovatron to
complete any such units on a reasonable schedule acceptable to
both of the parties.
C. Payment, at Dovatron's fully burdened cost (as defined above), for
components in-house and on order which cannot be canceled or
returned, provided that such components are Permitted Components.
D. Payment of any restocking charges, "bill-backs" and cancellations
charges received by Dovatron from suppliers for Permitted
Components and approved by Mylex.
Dovatron shall use its best efforts to minimize cancellations charges by
returning components for credit (with Mylex's approval), canceling
components on order and applying components to other Dovatron projects
(when possible, at the sole discretion of Dovatron) and minimizing all
work-in-process and finished goods in support of the final production
schedule. Upon payment of the cancellation charges for any completed
Products, work-in-process, or Permitted Components in-house or on order,
such items shall become the property of Mylex, F.O.B. Dovatron (at the
applicable Dovatron facility), and, at Mylex's election and expense,
shall be delivered to a location identified to Dovatron by Mylex or, at
Mylex's direction, disposed of by Dovatron.
2.9 NEW PRODUCTS/COST PERFORMANCE.
A. Quotations by Dovatron for new products will be developed by use
of the mutually agreed upon pricing model set forth on Exhibit A
hereto. Each such quotation requested by Mylex shall be provided
to Mylex on an expeditious basis. Each of the parties shall
jointly develop a mutually agreeable quality program for each new
product.
B. During each calendar quarter, beginning with the second quarter of
1999, the parties will jointly review overall cost and volume
performance of Dovatron and Mylex, respectively, and other
performance parameters to be mutually agreed upon by the parties.
The pricing model referenced in subparagraph A above shall be
jointly reviewed by the parties at an agreed upon frequency and
may be modified with the mutual agreement of the parties.
2.10 APPROVAL OF LOCATION. Mylex shall have the right to approve each
location at which Dovatron is providing any of its services hereunder.
5
<PAGE>
SECTION 3.0 PAYMENT AND SHIPPING TERMS
3.1 INVOICES AND PAYMENT.
A. Dovatron shall invoice Mylex upon shipment of configured Product.
Payment for such Product is due net thirty (30) days from date of
shipment and may be made by check or wire transfer. Should Mylex
fail to make payment within thirty (30) days after date of
invoice, Dovatron may, at its option, if it gives Mylex written
notice, in reasonable detail, of such failure and Mylex does not
cure such failure within five (5) business days of its receipt of
such notice, (i) cease shipments to Mylex and/or (ii) make some or
all future shipments C.O.D. Daily interest at the rate of 1.5%
per month shall accrue and be charged, until paid, on all payments
not received by Dovatron within such thirty (30) day period.
B. Each of the parties will meet weekly to resolve any outstanding
shipment or payment disputes in order to ensure timely resolution
of such disputes. Any party disputing a shipment or payment shall
promptly describe such dispute in writing, in reasonable detail,
and provide such description to the other party.
C. Products that have been in inventory in excess of forty-five (45)
days after the Required Completion Date shall be paid for as
provided in this paragraph. Dovatron will provide Mylex with a
written listing, in reasonable detail, of all such Products,
including its applicable purchase price. Mylex shall pay Dovatron
for such Products within ten (10) days of its receipt of the
listing for such Products; provided, however, Mylex may, to the
extent applicable, set off any such payment against amounts owed
to Mylex by Dovatron pursuant to this Agreement.
3.2 PACKAGING AND SHIPPING. Dovatron shall package each unit of Product to
Mylex's specifications, or, if not specified by Mylex, to good commercial
standards. All shipments made by Dovatron to Mylex or a customer of
Mylex shall be F.O.B. Dovatron shipping point. Title and risk of loss or
damage to a Product shall pass from Dovatron to Mylex upon delivery of
such Product to the F.O.B. shipping point. Shipments to Mylex or its
customer will be made in accordance with Mylex's specific routing
instructions, including method of carrier to be used.
3.3 SECURITY INTEREST. Dovatron reserves a purchase money security interest
in each unit of the Products produced pursuant to this Agreement in the
amount of the purchase price therefor. This interest will be satisfied
by payment in full for such units of the Products. Mylex agrees to
execute, and to allow Dovatron to file, any and all documents, including,
without limitation UCC documents, as may be reasonably necessary to
perfect such purchase money security interest.
6
<PAGE>
SECTION 4.0 WARRANTY
4.1 WARRANTY. Dovatron warrants to Mylex that each of the Products
manufactured, configured or tested by Dovatron will have been
manufactured, configured and tested in conformance with the
Specifications therefor and be free from defects in workmanship under
normal use and service for a period of one-hundred eighty (180) days
after shipment by Dovatron. Dovatron shall be responsible for
procurement of components, incoming inspection, and safe handling of
the components while in-house at Dovatron. Mylex shall be responsible
for the selection of all components, as well as ensuring the quality
of the vendors and the compatibility of the components. Mylex is also
responsible for designing a product which does not unduly stress the
components being used. Dovatron's obligation under this warranty is
limited to replacing, repairing, or issuing credit for any Products
that do not meet such Specifications or are defective in workmanship.
Dovatron shall repair or replace any such Product, and deliver the
repaired or replacement unit to Mylex, within twenty (20) days of
Dovatron's receipt of such Product. No units of Products for which
action may be required under this warranty shall be returned to
Dovatron's manufacturing facility, F.O.B. Mylex, without an
accompanying Dovatron supplied Returned Materials Authorization
number, which Dovatron shall grant on request and Mylex showing a
reasonable basis for such return. In the event a returned unit of a
Product is found not to meet such Specifications or to be defective in
workmanship, Dovatron shall be responsible for the cost of shipping
such unit of Product to Dovatron and back to Mylex or its customer.
If a returned unit of Product is not so found, Mylex shall be
responsible for such costs of shipping. Mylex will cooperate with
Dovatron in its efforts to determine whether a defect in a unit of
Product exists and to repair any defective unit of Product. Dovatron
shall assign to Mylex any warranties for components or sub-assemblies
it purchases under this Agreement and cooperate with Mylex in its
efforts to exercise its rights under such warranties.
THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES WHETHER STATUTORY,
EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR PARTICULAR PURPOSE AND FOR ALL OTHER OBLIGATIONS OR
LIABILITIES ON DOVATRON'S PART.
DOVATRON NEITHER ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME FOR
DOVATRON ANY OTHER LIABILITY IN CONNECTION WITH THE SALE OF PRODUCTS TO
MYLEX OR ITS CUSTOMERS. THIS WARRANTY SHALL NOT APPLY TO ANY UNITS OF
PRODUCTS WHICH SHALL HAVE BEEN REPAIRED OR ALTERED OTHER THAN BY DOVATRON
OR WHICH SHALL HAVE BEEN SUBJECT TO MISUSE, NEGLIGENCE, OR ACCIDENT.
DOVATRON IS NOT LIABLE FOR PERSONAL INJURY RESULTING DIRECTLY OR
INDIRECTLY FROM THE DESIGN, MATERIAL, OPERATION OR INSTALLATION OF ANY
UNITS OF PRODUCTS, OTHER THAN FOR PERSONAL INJURY RESULTING SOLELY FROM
WORKMANSHIP.
NEITHER PARTY IS LIABLE FOR ANY INCIDENTIAL, CONSEQUENTIAL OR SPECIAL
DAMAGE OF ANY KIND WHATSOEVER IT MAY CAUSE, EVEN IF IT IS MADE AWARE OF
THE POSSIBLE OCCURRENCE OF ANY SUCH DAMAGE.
7
<PAGE>
SECTION 5.0 RESPONSIBILITY FOR ADDITIONAL COSTS AND EXCESS INVENTORY
5.1 EXCESS INVENTORY. In the event that Dovatron purchases or orders
non-cancelable or non-returnable components in order to meet Mylex's
requirements as set forth in any Forecast or purchase order, Mylex
shall be required to purchase the unused portion of such components
from Dovatron upon demand if (i) Mylex fails to purchase units of
Products, including such components, in accordance with such Forecast
or purchase order, and (ii) Dovatron cannot otherwise use such
components at no cost to it, other than the purchase price therefor.
Mylex will pay for such inventory in the amounts and at the times
contemplated by Section 2.5.
5.2 COST ADJUSTMENTS. Product pricing shall remain firm for units of
Products on Mylex purchase orders received by Dovatron, except as
follows:
A. The quoted cost of all components and sub-assemblies in each
Product subject to this Agreement is or will be set forth on
Exhibit A or an amendment thereto. In the event there is an
increase or decrease in the cost of a component or
sub-assembly, or the labor content (as normally defined in the
manufacturing industry), of a Product (which has not been
ordered as of such increase or decrease) which affects the
purchase price of such Product, Dovatron shall document such
increase or decrease in costs and provide such information to
Mylex in writing, in reasonable detail, within five (5)
business days of Dovatron becoming aware of such increase or
decrease. In the case of an increase, both parties may
mutually pursue alternative pricing in order to retain the
original cost. If such an alternative cannot be attained
within a reasonable period of time, the purchase prices in
Exhibit A for units of the affected Product shall be adjusted
to reflect the actual amount of such increase. No increase or
decrease in such costs for a Product shall be passed on to
Mylex unless and until the aggregate changed costs for such
Product, after taking into account all increases and decreases
in such costs not previously made, exceeds one percent of the
then purchase price of such Product. As appropriate in the
circumstances, as determined by Mylex in its sole discretion,
Mylex will commit such engineering resources as may be
necessary to qualify an alternative source component if its
preliminary review of the engineering specifications for such
alternative source component shows that it provides enhanced
management of supply or cost improvements or adequately
addresses any end-of-life issues for a then utilized component.
B. Mylex will be responsible for costs and expenses of Dovatron
specified below not included in the purchase price for a Product,
and shall pay for such costs and expenses within thirty (30) days
of receiving an invoice therefor, where the cause is due to any of
the following actions by Mylex:
1. Overtime charges and other actual out-of-pocket expenses
approved by Mylex and incurred as a result of material
delays in the normal production or material interruption in
the work flow process where such delays or interruptions
are caused by: (a) Mylex changes in specifications or
product test which impact a build in progress; or (b)
Mylex's failure to provide sufficient quantities or a
reasonable quality level of consigned components where
necessary to sustain the
8
<PAGE>
required production schedule.
2. Any Permitted Component that is rendered obsolete as a
result of a Mylex engineering, field, manufacturing,
design, test, or other change. Such obsolete inventory
shall be invoiced to Mylex at its fully burdened cost, as
defined above. Each such component shall be packaged and
delivered to Mylex by Dovatron, F.O.B. Dovatron shipping
point, within thirty (30) days of the change effective date
and invoiced as of the shipment date thereafter.
3. Out-of-pocket expenses incurred due to extraordinary
packaging requirements imposed by Mylex.
4. Any expedite fees referenced in Section 2.4 above.
SECTION 6.0 FUNCTIONAL TEST
A. Mylex will provide to Dovatron, for its use and at Mylex's
expense, appropriate functional test equipment, as may be mutually
agreed upon by Mylex and Dovatron from time to time, reasonably
necessary to allow Dovatron to meet all product and production
commitments of Dovatron under this Agreement. Mylex will also
provide, at its expense, the technical support and maintenance to
ensure all such functional test equipment is kept in proper
working order. Dovatron will ensure that adequate physical asset
controls for such equipment are continually maintained and the
equipment is used for the purposes contemplated by this Agreement
and in compliance with the manufacturer's specifications for such
usage. If Dovatron is negligent in the use or care of any of such
equipment, or breaches any of its obligations with respect to such
equipment, it will be responsible for the cost of repair or
replacement of such equipment.
B. Mylex will be responsible to pay the fully burdened cost, as
defined above, of each generic Product that does not pass
functional or configuration testing but passes in-circuit testing
and complies with all Mylex and IPC 610 class 2 specific
requirements. Dovatron will engage in best efforts to debug any
failed Product and will run the failed Product through its process
(i.e., rework/test) three times in a thirty (30) day period.
Mylex will be promptly notified of the results of each such
rework/test. Each Product(s) that fails to pass such testing,
after such three rework/tests, will be delivered to Mylex and
billed to Mylex pursuant to the terms of this Agreement. If
subsequent analysis by Mylex shows that the failure of a Product
was a result of Dovatron's manufacturing, including without
limitation, configuration process, Dovatron will release an RMA
for such Product(s) and promptly refund to Mylex its payment for
such Product upon its receipt of such Product(s) from Mylex.
9
<PAGE>
SECTION 7.0 TERM AND TERMINATION
7.1 TERM AND TERMINATION. The initial term of this Agreement shall commence
on the effective date hereof and extend for five (5) years thereafter,
with automatic one year renewals unless terminated according to one or
more of the following provisions:
A. At any time upon the mutual written agreement of both parties;
B. At the end of the first one-year term hereof, or any subsequent
one-year term, by either party upon written notice of termination
to the other party received not less than sixty (60) days prior to
the expiration of any such term;
C. By either party, following a material breach of this Agreement by
the other party and the breaching party's failure to cure such
breach within thirty (30) days of it receiving written notice of
such breach; and
D. By either party upon the other party seeking an order for relief
under the bankruptcy laws of the United States or similar laws of
any other jurisdiction, a composition with or assignment for the
benefit of creditors, or dissolution or liquidation.
Notwithstanding any possible implication to the contrary herein or as a
result of the course of conduct or past relationship of the parties,
either party may terminate this Agreement pursuant to subparagraph B
above with or without cause and neither party presently has a right to
have this Agreement continue in effect for any period other than as
specified in subparagraph B above, subject to subparagraphs C and D
above.
7.2 EFFECT OF TERMINATION. Upon any such termination by Dovatron or any such
termination by Mylex pursuant to subsection A or B above, Mylex shall be
liable for any cancellation according to Section 2.8 above. Furthermore,
in the event Mylex terminates this Agreement pursuant to subsection C
above as a result of a material breach by Dovatron of any of its
obligations hereunder with respect to Products subject to a Purchase
Order, Mylex shall be liable for any cancellation according to Section
2.8 above other than with respect to such Purchase Order, any units of
any of the Products covered by such Purchase Order (whether or not
subject to such Purchase Order), and any work-in-process with respect to
any of such Products that meets acceptable quality standards.
10
<PAGE>
SECTION 8.0 INDEMNIFICATION
8.1 PRODUCT INDEMNIFICATION. Mylex agrees that it will indemnify Dovatron
against any and all claims, liabilities, damages or causes of action
(collectively, a "Claim") hereafter brought or asserted by any person or
entity arising out of the design, installation or use of any units of
Product(s) manufactured by Dovatron under this Agreement, except to the
extent such Claim results from such units of Product(s) not meeting their
specifications or being defective in workmanship. Such indemnification
obligation is conditioned upon Dovatron promptly notifying Mylex of any
such claim. Such indemnification shall include reasonable attorneys'
fees and other costs incurred by Dovatron in the defense of any Claim;
provided, however, Mylex shall have the right to defend any Claim with
its own counsel, which is reasonably acceptable to Dovatron.
8.2 PATENTS, COPYRIGHT, TRADE SECRET AND OTHER PROPRIETARY RIGHTS. Mylex
agrees to defend at its expense any suit brought against Dovatron based
upon a claim that finished Product(s) manufactured by Dovatron pursuant
to the terms and conditions of this Agreement infringes a patent,
copyright, trade secret or other proprietary right, foreign or domestic,
and to pay the amount of any settlement, or the costs and damages finally
awarded, with respect to such Claim, provided that Dovatron promptly
notifies Mylex of, and provides Mylex with reasonable assistance in the
defense of, any such Claim.
8.3 EMPLOYEE AND CONTRACTOR INDEMNIFICATION. Each of the parties agrees that
it will indemnify the other party against any and all Claims hereafter
brought or asserted by any person against the other party (a) relating to
any alleged or actual action or omission to act by the indemnifying party
arising from, or in connection with, such person's status as an employee
or independent contractor of the indemnifying person or the termination
of such status, (b) relating to any physical or other bodily injury
arising from, or in connection with, any alleged or actual act or
omission to act of the indemnifying party or any of its employees or
independent contractors, or (c) relating to any workers' compensation
claim made by an employee or independent contractor of the indemnifying
party resulting from any injury sustained by such person while employed
or retained by the indemnifying party.
SECTION 9.0 STAFFING, FACILITIES AND ASSETS
9.1 STAFFING. Certain Mylex employees, listed on Exhibit D hereto, will be
offered the opportunity to resign from Mylex and, upon such resignation,
will be hired by Dovatron in connection with this Agreement. Dovatron
expressly does not assume any existing employment contracts or
obligations with Mylex personnel. Mylex warrants that it has, or will,
satisfy all obligations to Mylex personnel terminated in connection with
this Agreement, at or prior to such termination. Except as provided
above in this section, each of the parties agrees not to solicit any
employees of the other party that are directly involved in the activities
of the other party in connection with this Agreement during the period
such employees are employed by the other party and for a period of one
hundred and eighty (180) days after the date of such employee's
termination of employment from the other party.
9.2 FACILITY. Contemporaneous with the effectiveness of this Agreement, the
parties have entered into
11
<PAGE>
a Sublease of a portion of the premises presently leased by Mylex in
Fremont, California, from Mylex to Dovatron (the "Sublease"), a copy
of each of which is attached hereto as Exhibit E.
9.3 ASSETS. Dovatron may purchase from Mylex, on or before sixty (60) days
after the effective date of this Agreement, certain assets of Mylex (the
"Assets") pursuant to the terms of a Sale Agreement between the parties,
in form and content acceptable to the parties (the "Sale Agreement"). A
list of the Assets is set forth on Exhibit F hereto. Prior to any such
sale, Dovatron, which shall have the right to use the Assets through such
date, shall be responsible for the loss of, or any damage to (reasonable
wear and tear excepted), the Assets. If such sale is not consummated by
such date, Mylex shall have the right to immediately recover the
possession of, and sell, the Assets. Upon the expiration or termination
of this Agreement, Mylex shall have the right, but not the obligation, to
purchase from Dovatron all of the Assets then being used by Dovatron in
the performance of its obligations under this Agreement. The repurchase
price for such Assets, and the repurchase terms and conditions, will be
specified in the Sale Agreement.
SECTION 10.0 MISCELLANEOUS
10.1 ENTIRE AGREEMENT. This Agreement shall constitute the entire agreement
between the parties with respect to the transactions contemplated hereby
and supersedes all prior agreements and understandings between the
parties relating to such transactions. The exhibits attached hereto are
considered to be a part of this Agreement; provided, however, to the
extent there is a conflict between any term of this Agreement and any
term on the face of a purchase order or any other document utilized by
Mylex to order Products hereunder, such term of this Agreement shall
govern.
10.2 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and permitted
assigns. Neither party hereto shall in any way sell, transfer, assign,
or otherwise dispose of any of the rights, privileges, duties and
obligations granted or imposed upon it under this Agreement; provided,
however, that Dovatron shall have the right to assign its rights, duties
and responsibilities under this Agreement to an affiliate of Dovatron;
provided further, however, Dovatron shall remain obligated under this
Agreement and Mylex shall have the right to approve any change of the
manufacturing facility for any Product. An affiliate of Dovatron means
any corporation, partnership or other business entity which controls, is
controlled by, or is under common control with Dovatron.
10.3 SEVERABILITY. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, except in those instances where removal or
elimination of such invalid, illegal, or unenforceable provision or
provisions would result in a failure of consideration under this
Agreement, such invalidity, illegality or unenforceability shall not
affect any other provision hereof, and this Agreement shall be construed
as if such invalid, illegal or unenforceable provision had never been
contained herein.
10.4 FORCE MAJEURE. Neither party shall be liable to the other for any delay
in performance or failure to perform, in whole or in part, due to labor
dispute, strike, war or act of war (whether an actual declaration is made
or not), insurrection, riot, civil commotion, act of public enemy,
accident, fire,
12
<PAGE>
flood, or other act of God, act of any governmental authority,
judicial action or similar causes beyond the reasonable control of
such party. If any event of force majeure occurs, the party affected
by such event shall promptly notify the other party of such event and
take all reasonable actions to avoid the effect of such event.
10.5 INDEPENDENT CONTRACTOR. Dovatron and Mylex are and shall be independent
contractors to one another, and nothing herein shall be deemed to cause
this Agreement to create an agency, partnership, or joint venture between
the parties.
10.6 DISPUTES. All disputes and controversies of every kind and nature
between the parties arising out of or in connection with the
existence, construction, validity, interpretation, or meaning,
performance, non-performance, enforcement, operation, breach,
continuance, or termination of this Agreement shall be submitted to
binding arbitration, pursuant to the Rules of the American Arbitration
Association, before a single arbitrator in Alameda County, California.
In the event the parties cannot agree on the arbitrator, then an
administrator of the American Arbitration Association shall select an
appropriate arbitrator from among arbitrators of the Association with
experience in manufacturing disputes for technology products.
10.7 JURISPRUDENCE. This Agreement will be governed by and construed in
accordance with the laws of California.
10.8 EXHIBITS. Each exhibit hereto is incorporated herein by this reference.
The parties may amend any exhibit from time-to-time by entering into a
separate written agreement, referencing such exhibit and specifying the
amendment thereto, signed by an authorized employee of each of the
parties.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
Dovatron International, Inc. Mylex Corporation
By: /s/ Dermot O'Flanagan By: /s/ Colleen Gray
--------------------------------- ------------------------------
Dermott O'Flanagan Colleen Gray
--------------------------------- ------------------------------
Name (type or print) Name (type or print)
President Dovatron Intl. Vice President Finance & CEO
--------------------------------- ------------------------------
Title Title
Date: February 9, 1999 Date: February 5, 1999
--------------------------------- ------------------------------
13
<PAGE>
Exhibit A
DOVATRON MANUFACTURING COLORADO
MYLEX QUOTE SUMMARY
27-JAN-99
Exhibit A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ORIGINAL
QUOTED QUOTED RAW MATERIAL MATERIAL MATERIAL
PART NUMBER DESCRIPTION VOLUME VOLUMES COST MARK-UP MARK-UP%
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
52-550131-08 PG 1 chnl XXX XXX $XXX $XXX XXX
52-550131-09 PG 2 chnl XXX XXX $XXX $XXX XXX
52-550131-10 PG 3 chnl XXX XXX $XXX $XXX XXX
52-550134-03 PR XXX XXX $XXX $XXX XXX
52-550134-05 Jaguar XXX XXX $XXX $XXX XXX
52-550136-01 Apple BBU XXX XXX $XXX $XXX XXX
52-550136-02 Apple BBU XXX XXX $XXX $XXX XXX
52-550136-04 Apple BBU XXX XXX $XXX $XXX XXX
52-550136-06 Apple BBU XXX XXX $XXX $XXX XXX
52-550137-01 Little Apple 1 XXX XXX $XXX $XXX XXX
52-550137-02 Little Apple 2 XXX XXX $XXX $XXX XXX
52-550137-03 Little Apple 3 XXX XXX $XXX $XXX XXX
52-550138-01 Jaguar plus XXX XXX $XXX $XXX XXX
52-550142-01 Tomcat XXX XXX $XXX $XXX XXX
D040395 PDU 1 chnl XXX XXX $XXX $XXX XXX
D040396 PDU 2 chnl XXX XXX $XXX $XXX XXX
D040397 PDU 3 chnl XXX XXX $XXX $XXX XXX
D040413 PJ-1 XXX XXX $XXX $XXX XXX
D040414 PJ-2 XXX XXX $XXX $XXX XXX
D040415 PJ-3 XXX XXX $XXX $XXX XXX
D040420 PG-1 XXX XXX $XXX $XXX XXX
D040421 PG-2 XXX XXX $XXX $XXX XXX
$XXX $XXX XXX
<CAPTION>
- -------------------------------------------------------------------------------------------
TOTAL BOM
PART NUMBER COST ASSEMBLY COST ICT COST SELLING PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
52-550131-08 $XXX $XXX $XXX $XXX
52-550131-09 $XXX $XXX $XXX $XXX
52-550131-10 $XXX $XXX $XXX $XXX
52-550134-03 $XXX $XXX $XXX $XXX
52-550134-05 $XXX $XXX $XXX $XXX
52-550136-01 $XXX $XXX $XXX $XXX
52-550136-02 $XXX $XXX $XXX $XXX
52-550136-04 $XXX $XXX $XXX $XXX
52-550136-06 $XXX $XXX $XXX $XXX
52-550137-01 $XXX $XXX $XXX $XXX
52-550137-02 $XXX $XXX $XXX $XXX
52-550137-03 $XXX $XXX $XXX $XXX
52-550138-01 $XXX $XXX $XXX $XXX
52-550142-01 $XXX $XXX $XXX $XXX
D040395 $XXX $XXX $XXX $XXX
D040396 $XXX $XXX $XXX $XXX
D040397 $XXX $XXX $XXX $XXX
D040413 $XXX $XXX $XXX $XXX
D040414 $XXX $XXX $XXX $XXX
D040415 $XXX $XXX $XXX $XXX
D040420 $XXX $XXX $XXX $XXX
D040421 $XXX $XXX $XXX $XXX
$XXX $XXX $XXX $XXX
</TABLE>
PRICING WITH 30 DAY PAYMENT TERMS.
EXCLUDES FREMONT CONFIGURATION COSTS
PRICING BASED ON INDICATED VOLUMES AND SUBJECT TO CHANGE WITH CHANGES IN VOLUME
VOLUMES BASED ON CURRENT FORECASTED VOLUMES FROM MYLEX
PRICING TO BE EFFECTIVE NO EARLIER THAN Q-2
<PAGE>
DOVATRON INTERNATIONAL
Mylex Configuration Quote Matrix
27-Jan-99
Assumptions:
Pricing based on 30 day payment terms.
Pricing based on Mylex supplied volumes and subject to change with volume
changes. Cycle times supplied by Mylex.
SIMM pricing provided by Mylex.
Overhead reflects facility related costs provided by Mylex.
Labor rates reflect actual wages, as supplied by Mylex, for employees
transferring to Dovatron. Mark-ups include XXX% on payroll related and XXX% on
other, excluding lease costs, which have no mark-up.
Assumption of Mylex capital assets not to exceed $300,000.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
GENERIC CONFIG TOTAL
FAMILY NAME VOLUME BOARD TEST SOLDER LABEL PKG TIME INSPECTION LABOR OVERHEAD
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LITTLE APPLE XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
PT,PR,PTL,TC XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
ALL BBU XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PG & PJ XXX XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PU XXX XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
S XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------- ---------
PKG CONFIGURATION
FAMILY NAME SIMM PRICE BURDEN OPTION PRICE
- --------------------------------------------- ---------
<S> <C> <C> <C> <C> <C>
LITTLE APPLE N/A XXX $XXX XXX $XXX
- --------------------------------------------- ---------
PT,PR,PTL,TC 100045-60 4M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
10046-60 8M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100051-60 16M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100052-60 32M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100085-60 4M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
ALL BBU N/A $XXX XXX $XXX
- --------------------------------------------- ---------
- --------------------------------------------- ---------
PG & PJ 100045-60 4M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100046-60 8M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100051-60 16M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100052-60 32M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100067-60 64M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100068-60 128M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
PU 100024-60 4M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100026-60 8M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100030 4M EDRAM XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100031 8M EDRAM XXX $XXX XXX $XXX
- --------------------------------------------- ---------
S 100024-60 4M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100026-60 8M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUI XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SX XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SXI XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SF XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SFI XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
FL XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SS XXX XXX XXX XXX XXX XXX XXX
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------- ---------
<S> <C> <C> <C> <C> <C>
SUI 100024-60 4M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100026-60 8M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
SX 100047-60 16M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100048-60 32M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100049-60 64M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100050-60 8M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100063-60 8M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
SXI 100047-60 16M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100048-60 32M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100049-60 64M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100050-60 8M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100063-60 8M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
SF 100080-60 16M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100081-60 32M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100082-60 64M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100083-60 128M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
SFI 100072-60 64M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
FL 100080-60 16M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100081-60 32M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100082-60 64M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100083-60 128M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
SS 100080-60 16M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100081-60 32M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100082-60 64M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
100083-80 128M XXX $XXX XXX $XXX
- --------------------------------------------- ---------
</TABLE>
<PAGE>
EXHIBIT F
MYLEX - MOVING DATA -> SMARTER
LISTS OF ASSETS AS OF 12/02/98
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
QTY DESCRIPTION LOCATION TAG # FMV/EACH TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
14 CUBICLES CUBICLE NONE 1,200.00 16,800.00
1 PC SYSTEMS (100 MHZ) SUDHA CUBICLE 2588, 2588A 500.00 500.00
1 PC SYSTEMS (100 MHZ) TIEN / LINDA CUBICLE 1246, 1246A 500.00 500.00
1 PC SYSTEMS (100 MHZ) SONNY CUBICLE 2593, 2593A 500.00 500.00
1 PC SYSTEMS (100 MHZ) LORETTA CUBICLE 2594, 2594A 500.00 500.00
1 PC SYSTEMS (100 MHZ) LINDA CUBICLE 2595, 2595A 500.00 500.00
1 PC SYSTEMS (100 MHZ) LORETTA CUBICLE 1231, 1231A 500.00 500.00
1 OSCILLOSCOPES (TAKTRONIX 2236) DEBUG 1521 400.00 400.00
1 OSCILLOSCOPES (TAKTRONIX 2236) DEBUG 1521A 400.00 400.00
1 OSCILLOSCOPES (TAKTRONIX 2236) DEBUG 1521B 400.00 400.00
1 OSCILLOSCOPES (TAS 465) DEBUG 1521D 300.00 300.00
1 466 STORAGE OSCILLOSCOPE DEBUG 959 600.00 600.00
1 MICROSCOPES (LEICA) RAID / SCSI 2596 800.00 800.00
1 MICROSCOPES (LEICA) RAID / SCSI 1506D 800.00 800.00
1 MICROSCOPES (LEICA) RAID / SCSI 2597 800.00 800.00
1 MICROSCOPES (LEICA) RAID / SCSI 2598 800.00 800.00
1 MICROSCOPES (LEICA) RAID / SCSI 1506C 800.00 800.00
1 MICROSCOPES (LEICA) RAID / SCSI 2600 800.00 800.00
1 MICROSCOPE (BAUSH & LOMB) RAID / SCSI 2599 800.00 800.00
1 MICROSCOPE (BAUSH & LOMB) DEBUG 1506B 800.00 800.00
1 MICROSCOPE (LEICA) FGI 800.00 800.00
1 WASH MACHINE (ELECTROVERT H500) WASH AREA 2774 8,000.00 8,000.00
82 METAL CARTS W/SHELVES ALL MFG 75.00 6,150.00
8 2' X 5' ESD SHELVES DEBUG 60.00 480.00
32 4' X 2' NONE ESD SHELVES FGI 40.00 1,280.00
360 2' X 3' ESD PADDED SHELVES FGI 60.00 21,600.00
12 2' X 3' NONE ESD SHELVES FGI 40.00 480.00
5 2' X 5' ESD PADDED SHELVES FGI 60.00 300.00
347 4' X 2' ESD PADDED SHELVES FGI 60.00 20,820.00
Page 1
<PAGE>
EXHIBIT F
MYLEX - MOVING DATA -> SMARTER
LISTS OF ASSETS AS OF 12/02/98
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
QTY DESCRIPTION LOCATION TAG # FMV/EACH TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
70 3' X 2' NONE ESD SHELVES MEM ROOM 40.00 2,800.00
28 4' X 2' NON ESD SHELVES MEM ROOM 40.00 1,120.00
28 4' X 2' NONE ESD SHELVES MEM ROOM 40.00 1,120.00
17 4' X 2' ESD SHELVES MEM ROOM 60.00 1,020.00
30 NONE ESD SHELVES MRB 40.00 1,200.00
40 ESD SHELVES MRB 60.00 2,400.00
325 4' X 2' SHELVES STCK 40.00 13,000.00
443 3' X 2' ESD SHELVES (KEEP 50) STCK 60.00 26,580.00
12 WOOD 8.5'*2 SHELVES STCK 40.00 480.00
16 4' X 2' SHELVES W/H & REC. 40.00 640.00
5 2' X 3' NONE ESD SHELVES WASH AREA 40.00 200.00
4 2' X 6' BENCH DEBUG 150.00 600.00
1 5' BENCH FGI 70.00 70.00
2 2' X 5' BENCH FT/HBA 150.00 300.00
16 2' X 8' BENCH FT/HBA 150.00 2,400.00
25 2' X 5' BENCH RAID / SCSI 150.00 3,750.00
26 2' X 6' BENCH RAID / SCSI 150.00 3,900.00
8 2' X 8' BENCH RAID / SCSI 150.00 1,200.00
4 5' X 32" BENCHES NONE ESD PAD SHPG 70.00 280.00
14 5' X 32" BENCHES W/ ESD PAD SHPG 70.00 980.00
6 8' BENCH W/ ESD PAD STCK 70.00 420.00
6 8' X 3' WORK BENCHES W/ESD PADDED W/H & REC. 70.00 420.00
1 HBA PC LABEL MARKER FT/HBA 2772 400.00 400.00
1 HBA PC LABEL MARKER FT/HBA 2773 400.00 400.00
5 2' X 5' TABLE FT/HBA 150.00 750.00
18 2' X 5' TABLE RAID / SCSI 150.00 2,700.00
4 2' X 8' TABLE RAID / SCSI 150.00 600.00
47 CHAIRS ALL MFG 20.00 940.00
6 CHAIRS FGI 20.00 120.00
1 ARMED CHAIR MEM ROOM 40.00 40.00
2 CHAIR MRB 20.00 40.00
19 CHAIRS STCK 20.00 380.00
Page 2
<PAGE>
EXHIBIT F
MYLEX - MOVING DATA -> SMARTER
LISTS OF ASSETS AS OF 12/02/98
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
QTY DESCRIPTION LOCATION TAG # FMV/EACH TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
6 2 DOORS METAL CABINETS CUBICLE 30.00 180.00
2 2 DOORS METAL CABINETS DEBUG 30.00 60.00
1 4 DRAWER CABINET DEBUG 30.00 30.00
2 2 DRAWER CABINETS DEBUG 30.00 60.00
2 1 DRAWER CABINETS DEBUG 30.00 60.00
1 11/2' X 3' 2 DRAWER CABINET DEBUG 30.00 30.00
1 5 DRAWER FILE CABINET MRB 30.00 30.00
2 METAL CABINET MRB 30.00 60.00
2 FILE CABINET ( LETTER SIZE ) MRB 30.00 60.00
2 4 DRAWER CABINETS RAID / SCSI 30.00 60.00
1 CABINET (MRB AREA) RAID / SCSI 30.00 30.00
11 2 DRAWER CABINETS RAID / SCSI 30.00 330.00
2 1 DRAWER CABINETS RAID / SCSI 30.00 60.00
1 METAL CABINET SHPG 30.00 30.00
3 METAL CABINETS W/H & REC. 30.00 90.00
6 FILE CABINETS W/H & REC. 30.00 180.00
1 CHEMICAL CABINET WASH AREA 150.00 150.00
1 7' X 3' METAL RACKS FGI 60.00 60.00
1 7' X 4' METAL RACK FGI 60.00 60.00
1 7' X 5' METAL RACKS FGI 60.00 60.00
38 7'10" X 3' METAL RACKS FGI 60.00 2,280.00
31 8' X 4' METAL RACKS FGI 60.00 1,860.00
12 3' X 8' METAL RACKS MEM ROOM 60.00 720.00
2 4' x 6' METAL RACKS MEM ROOM 60.00 120.00
7 4' x 7' METAL RACKS MEM ROOM 60.00 420.00
12 7' 10" x 3' METAL RACKS MEM ROOM 60.00 720.00
13 4' X 7' METAL RACKING MRB 60.00 780.00
15 7' X 4' METAL RACKING SHPG 60.00 900.00
3 7' X 5' METAL RACKING SHPG 60.00 180.00
4 12' X 8.5' RACKS STCK 60.00 240.00
4 7' X 3' METAL RACKS STCK 60.00 240.00
24 7' X 4' METAL RACKS STCK 60.00 1,440.00
68 7'10" X 3' METAL RACKS (KEEP 10) STCK 60.00 4,080.00
4 7' X 4' METAL RACKING W/H & REC. 60.00 240.00
<PAGE>
EXHIBIT F
MYLEX - MOVING DATA -> SMARTER
LISTS OF ASSETS AS OF 12/02/98
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
QTY DESCRIPTION LOCATION TAG # FMV/EACH TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
2 PRINTERS (HP LASERJET 5L) SONNY / SUDHA CUBICLE 150.00 300.00
1 PRINTERS (HP LASERJET 6L) LINDA T CUBICLE 150.00 150.00
1 PRINTERS (HP LASERJET IIP PLUS) LINDA P CUBICLE 75.00 75.00
1 OKIDATA PRINTER (MODEL# OL410E) MRB 75.00 75.00
1 PRINTER ( HP 2563C ) - 1148 SHPG 300.00 300.00
1 PRODIGY PLUS LABEL PRINTERS W/MONITORS SHPG 500.00 500.00
1 PRODIGY PLUS LABEL PRINTERS W/MONITORS SHPG 500.00 500.00
1 EPSON LQ570 PRINTER SHPG 150.00 150.00
1 HP LASERJET 5L PRINTER W/H & REC. 924 150.00 150.00
3 WOODEN BOOK CASES CUBICLE 30.00 90.00
1 3 STEP LADDER FGI 30.00 30.00
2 DESKS FGI 70.00 140.00
1 486 SYSTEM W/ "JOUCH" MONITOR MRB 300.00 300.00
1 BOOK CASE (METAL) FGI 30.00 30.00
1 MAGNIFYING LIGHT FGI 20.00 20.00
1 DATAMAX THERNAL LABEL PRINTER SHPG 1,500.00 1,500.00
1 EPROM LEAD FORMING (HEPCO) FT/HBA 75.00 75.00
1 EPROM LEAD FORMING FT/HBA 75.00 75.00
1 STRAP MACHINES SHPG 200.00 200.00
1 STEP LADDER (3 STEPS) MRB 30.00 30.00
1 486 SYSTEM W/ "JOUCH" MONITOR MRB 300.00 300.00
11 MAGNIFYING LAMPS RAID / SCSI 20.00 220.00
1 LABEL MACHINE WITH PC SYS - 1268 RAID / SCSI 2,000.00 2,000.00
1 486 COMPUTERLAND SYSTEM SHPG 300.00 300.00
1 BETTER PACK 555 S - 984 SHPG 956 200.00 200.00
1 ESD TESTER SHPG 983 100.00 100.00
1 HP FAX - MODEL 750 SHPG 300.00 300.00
1 SHRINK WRAP MACHINE SHPG 1,500.00 1,500.00
1 FORKLIFT CHARGER SHPG - -
3 PALLET RACKINS SETIONS SHPG 200.00 600.00
2 BETTER PACK 333 SHPG 2480&2490 150.00 300.00
3 PALLET RACKINS SETIONS SHPG 2498 200.00 600.00
1 SYS GATEWAY 2000 SHPG 2494/2494A 500.00 500.00
2 HAND PALLET JACE SHPG 200.00 400.00
Page 4
<PAGE>
EXHIBIT F
MYLEX - MOVING DATA -> SMARTER
LISTS OF ASSETS AS OF 12/02/98
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
QTY DESCRIPTION LOCATION TAG # FMV/EACH TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
1 ELECTRIC PALLET JACK SHPG 1,500.00 1,500.00
2 MAGNIFYINGS LIGHT STCK 20.00 40.00
1 PC UNIDENTFIED TYOE W VIEWSONIC MONITOR STCK 2500 300.00 300.00
1 SCALE STCK 500.00 500.00
1 SMD REEL COUNTER V- TEK STCK 1520 300.00 300.00
17 METAL CARTS (KEEP 5) STCK 75.00 1,275.00
1 VACCUME SEALER (2100R) STCK 3,500.00 3,500.00
1 CLARK - FORKLIFT ( 9459PR ) W/H & REC. 20,000.00 20,000.00
1 EMPAC SYSTEM W/ MONITOR W/H & REC. 2486 500.00 500.00
1 EMPAC SYSTEM W/ MONITOR (VIEW SONIC) W/H & REC. 2488 500.00 500.00
1 HP VECTRA SYSTEM W/ MONITOR W/H & REC. 2485 500.00 500.00
2 LADDERS W/H & REC. 300.00 600.00
28 SECTIONS OF PALLET RACKING W/H & REC. 50.00 1,400.00
4000 BOARD RACKS (BLACK) WASH AREA 8.00 32,000.00
TOTAL 250,285.00
20,648.51
--------------------
GRAND TOTAL 270,933.51
====================
</TABLE>
<PAGE>
EXHIBIT 10.45
LICENSE AGREEMENT
This Agreement effective as of the last signature below between EMC
CORPORATION, a corporation duly organized and exiting under the laws of the
Commonwealth of Massachusetts, and having its principal office and place of
business at 35 Parkwood Drive, Hopkinton MA 01748 (hereinafter "EMC"), and
MYLEX CORPORATION ("MYLEX"), a corporation duly organized and existing under
the laws of the State of Delaware, and having its principal office and place
of business at 34551 Ardenwood Blvd., Fremont, CA 94555.
WHEREAS, EMC has rights in certain patents and pending patent
applications identified herein;
WHEREAS, MYLEX has rights in certain patents and pending patent
applications identified herein, and also has certain nonpatent rights in
technology identified herein;
WHEREAS, each of the parties expects to obtain rights in additional
patents and patent applications in the future;
WHEREAS, each of the parties is desirous of obtaining a nonexclusive
license under certain current and future patents of the other party, and EMC
is desirous of obtaining certain nonpatent rights in identified MYLEX
technology, and each party has the authority and is willing to grant such
licenses under the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of other good and
valuable consideration, and in further consideration of the covenants
hereinafter contained to be kept and performed by the parties hereto, it is
agreed as follows:
SECTION I - DEFINITIONS
1.1 "EMC Licensed Patents" means any and all issued patents listed in
Exhibits A and B hereto, and any and all patents issuing from patent
applications listed in Exhibits A and B, as well as EMC owned and controlled
continuations, continuations-in-part, divisions, and foreign counterparts
thereof, and original, reissue and re-examination patents issuing from any of
the above.
1.2 "MYLEX Licensed Patents" means all patents, throughout the world,
issued or issuing on patent applications entitled to an effective United
States filing date prior to the third anniversary of the date of execution of
this Agreement, under which patents or the applications thereof MYLEX now
has, or hereafter obtains, the right to grant licenses to EMC.
<PAGE>
1.3 "MYLEX Technology" means the items identified in Exhibit C.
1.4 "Host" or "Client" means any external data source, including a
computer, server or other device, which is intended to transmit I/O requests
to store data to or retrieve data from a Subsystem.
1.5 "Subsystem" means a data storage subsystem including one or more
arrays of physical mass storage devices, and one or more Array Controllers
associated therewith.
1.6 "Array Controller" means a single or multi-processor device or
group of functionally inter-related devices operable to physically and/or
logically configure a plurality of physical mass storage devices as one or
more independently accessible arrays, and to control the communication of
data between the array(s) and one or more Hosts or Clients in a predetermined
format or formats.
1.7 "Licensed Subsystem" means a Subsystem which, but for the license
granted herein, the manufacture, use, or sale of which would constitute an
infringement of one or more claims of EMC Licensed Patents. In the United
States, infringement includes direct infringement, inducement to infringe,
and contributory infringement as enacted in 35 USC 271(a)-(c), respectively,
and also infringement under the Doctrine of Equivalents.
1.8 "Licensed Controller" means an Array Controller which, but for the
license granted herein, the manufacture, use, or sale of which would
constitute an infringement of one or more claims of EMC Licensed Patents. In
the United States, infringement includes direct infringement, inducement to
infringe, and contributory infringement as enacted in 35 USC 271(a)-(c),
respectively, and also infringement under the Doctrine of Equivalents.
1.9 "MYLEX Licensed Products" shall mean Licensed Subsystems and
Licensed Array Controllers, either individually or collectively. A
particular MYLEX Licensed Product is licensed under an EMC Licensed Patent
when and only when MYLEX accrues or pays the royalty amount as provided in
Section 4.1.
1.10 "EMC Licensed Product " means an EMC product which, but for the
license granted herein, the manufacture, use, or sale of which would
constitute an infringement of one or more claims of MYLEX Licensed Patents.
In the United States, infringement includes direct infringement, inducement
to infringe, and contributory infringement as enacted in 35 USC 271(a)-(c),
respectively, and also infringement under the Doctrine of Equivalents.
1.11 "Licensed Products" means Mylex Licensed Products and EMC Licensed
Products.
2
<PAGE>
1.12 "Licensed Territory", in the case of a grant by EMC, means the
United States of America, its territories and possessions, and any other
country in which EMC has or obtains one or more EMC Licensed Patents, and, in
the case of a grant by MYLEX, means the United States of America, its
territories and possessions, and any other country in which MYLEX has or
obtains one or more MYLEX Licensed Patents.
1.13 "Sales Price" for sale of a MYLEX Licensed Product on the open
market means MYLEX's gross invoice price for the MYLEX Licensed Product (or
the total of the gross invoice prices for all components of the MYLEX
Licensed Product if the components are shipped, delivered, and/or invoiced
separately) less discounts and shipping.
"Sales Price" as applied to leases, installment sales, and other
executory cash dispositions means the total gross amount of all payments to
be made without any adjustment to present value.
"Sales Price" for sales to any company in which MYLEX holds, or has
held, an equity interest, or control, or other affiliation past or present,
or where MYLEX Licensed Products are bartered or exchanged for goods or
services, or are otherwise disposed of for value other than cash, means the
sales price at which the same or the most nearly comparable MYLEX Licensed
Product has been or would currently be sold on the open market in the
ordinary course of business and in an arm's length transaction. However,
MYLEX Licensed Products used internally by MYLEX and samples for which no
consideration is paid to MYLEX shall not be considered sales and no royalties
shall be due on such products.
1.14 "Subsidiary" of a company means a corporation or other legal entity
(a) the majority of whose shares or other securities entitled to vote for
election of directors (or other managing authority) is now or hereafter
controlled by such company either directly or indirectly; or (b) which does
not have outstanding shares or securities but the majority of whose ownership
interest representing the right to manage such corporation or other legal
entity is now or hereafter owned and controlled by such company either
directly or indirectly; but any such corporation or other legal entity shall
be deemed to be a Subsidiary of such company only as long as such control or
ownership and control exists.
SECTION II - GRANT
2.1 EMC LICENSE GRANT. Subject to the terms and conditions provided in
this Agreement, EMC hereby grants MYLEX a non-exclusive, indivisible,
non-transferable license (except as otherwise provided) under EMC Licensed
Patents to make, have made pursuant to MYLEX's own specifications, use, sell,
lease or otherwise dispose of MYLEX Licensed Products within the Licensed
Territory during the term of this
3
<PAGE>
Agreement. The license granted under this Agreement and the covenant set
forth below in Section 2.4 shall be transferable by MYLEX upon the sale or
other transfer of its entire assets relating to the Licensed Products.
2.1.1 LIMITATIONS ON LICENSE. It is expressly understood and agreed
that the scope of the license granted herein by EMC to MYLEX is commensurate
with and not greater than the payment received from MYLEX in accordance with
Section 4.1. Specifically, the license is not intended to and shall not
confer upon any third party who purchases or otherwise receives a Licensed
Controller which is not sold, leased or otherwise disposed of as part of a
Licensed Subsystem any license to combine or otherwise incorporate such
Licensed Controller with other products or components to form a combination
which is covered by claims of EMC Licensed Patents applicable to Subsystems.
Particularly, the aforesaid license grant applicable to a Licensed Controller
shall not expressly or impliedly constitute a grant of a license under claims
of EMC Licensed Patents applicable to Subsystems, whether or not such
Subsystems incorporate a Licensed Controller.
2.1.1.1 MYLEX agrees to notify each purchaser of a Licensed Controller
in its purchase order acknowledgment of the foregoing license limitations by
including in a prominent manner and location on the purchase order
acknowledgement, a notice in substantially the following form:
MYLEX is licensed under patents owned by EMC to sell, lease, or
otherwise dispose of Controllers. However, the purchase of a Controller
does not expressly nor impliedly license the purchaser to combine or use
the Controller in combination with any other products or components
which combination would be covered by EMC patent claims applicable to
Subsystems. As used herein, Controllers means a single or
multi-processor device or group of functionally interrelated devices
operable to physically and/or logically configure a plurality of
physical mass storage devices as one or more independently accessible
arrays, and to control the communication of data between the array(s)
and Host(s) or Client(s) in a predetermined format or formats. Subsystem
means a data storage subsystem including one or more arrays of physical
mass storage devices, and one or more Controllers associated therewith.
2.2 DEDUCTION FOR LICENSED PURCHASERS. EMC agrees that if a purchaser
of a Licensed Controller from MYLEX has entered into or enters into a license
agreement with EMC and is licensed to manufacture a Subsystem which includes
one or more of such Licensed Controllers, MYLEX need not pay a royalty for
Licensed Controllers sold to such licensed purchaser. MYLEX may inform
prospective purchaser of this provision.
2.3 WAIVER OF INDUCEMENT AND CONTRIBUTORY INFRINGEMENT CLAIMS.
Subject to payment of the required royalty, EMC waives any and all claims
against MYLEX for induced or contributory infringement of EMC Licensed
Patents applicable to Subsystems for MYLEX's sales of Licensed Controllers.
4
<PAGE>
2.4 EMC COVENANT NOT TO SUE GRANT. EMC hereby grants MYLEX a covenant
not to sue on all RAID patents other than Licensed Patents, throughout the
world, issued or issuing on patent applications entitled to an effective
United States filing date prior to the third anniversary of the date of
execution of this Agreement, under which patents or the applications thereof
EMC now has, or hereafter obtains, the right to grant such covenant not to
sue to MYLEX. No royalties shall accrue under such covenant not to sue.
Such covenant not to sue shall also extend to any customer of MYLEX who
purchases or otherwise receives an Array Controller from MYLEX, but only to
the same extent as Licensed Controllers as limited in Section 2.1.1 above.
2.5 MYLEX LICENSE GRANT. Subject to the terms and conditions provided
in this Agreement, MYLEX hereby grants EMC a non-exclusive, indivisible,
non-transferable license under the MYLEX Licensed Patents to make, have made
pursuant to EMC's own specifications, use, sell, lease or otherwise dispose
of EMC Licensed Products within the Licensed Territory during the term of
this Agreement.
2.6 MYLEX TECHNOLOGY GRANT. MYLEX grants EMC a non-exclusive,
indivisible, non-transferable license to use MYLEX Technology including, but
not limited to, copyrights, trade secrets, and know how. This grant is
strictly limited to the technology set forth in Exhibit C.
2.7 SUBLICENSES. EMC and MYLEX shall each have the right to grant
sublicenses within the scope of the respective licenses granted herein to its
Subsidiaries but to no other person, company or legal entity. A sublicense
may be granted to a Subsidiary at any time during the term of this Agreement.
Any sublicense granted hereunder to a Subsidiary shall terminate
automatically if and when such Subsidiary no longer qualifies as a Subsidiary
as defined herein. A sublicense granted to a Subsidiary gives the Subsidiary
no right to grant any additional sublicense without the written consent of
the other party. If a sublicense has been granted to a Subsidiary, the term
EMC or MYLEX, as applicable, shall include Subsidiary for all purposes. If
MYLEX has MYLEX Licensed Products made for it pursuant to MYLEX's own
specifications, such MYLEX Licensed Products shall be sold only by MYLEX
through MYLEX's normal sales channels, and MYLEX's right to have MYLEX
Licensed Products made for it shall not be construed as a right to grant
sublicenses under the licenses granted herein.
SECTION III - LIMITATIONS ON RIGHTS AND RELATIONSHIPS
3.1 NO IMPLIED LICENSE. It is expressly understood that no license or
right is hereby granted, by implication, estoppel, or otherwise:
3.1.1 with respect to any patent, patent right, or other intellectual
property or property right not specifically identified herein;
5
<PAGE>
3.1.2 to any third party that makes Licensed Products for EMC or MYLEX;
3.1.3 with respect to any product other than a MYLEX Licensed Product
notwithstanding that such other product may incorporate a MYLEX Licensed
Product; or
3.1.4 to parties acquiring any Licensed Controller from MYLEX for the
combination of the Licensed Controller with any other product, including
additional products provided by MYLEX, or for the use of any such combination
even if such other or additional product has no substantial use other than as
part of such combination.
3.1.5 in no event shall MYLEX be required to pay more than one royalty
on any of the Licensed Controllers or Licensed Subsystems.
3.2 NO JOINT VENTURE. Nothing herein is intended to nor shall be
construed as creating any joint venture, agency, partnership or relationship
other than licensor-licensee between EMC and MYLEX.
SECTION IV - PAYMENTS AND ROYALTIES
4.1 ROYALTY PAYMENTS BY MYLEX. As additional consideration for the
license, immunities, and other rights granted to MYLEX herein, MYLEX shall
pay to EMC an initial lump sum payment of $XXXX due and payable upon
execution of this agreement. Such initial payment may be credited against
quarterly per controller royalties due up to a maximum of fifty percent (50%)
of each such quarterly controller royalties. MYLEX agrees to pay EMC a
royalty rate for each Licensed Controller made, sold, leased, or otherwise
disposed of separately from a Licensed Subsystem by MYLEX equal to XXX
percent (XXX%) of the Sales Price of the Licensed Controller for the first
XXX dollars ($XXX) of sales of royalty bearing Licensed Controllers and
thereafter the royalty rate for each Licensed Controller will be reduced to
XXX percent (XXX%) of the Sales Price of the Licensed Controller for those
Licensed Products that are covered by more than one of the EMC Licensed
Patents. After the first $XXXXX of sales of royalty bearing Licensed
Controllers, in the case of a Licensed Controller which, but for the license
granted herein, the manufacture, use, or sale of which would constitute an
infringement of only one of the EMC Licensed Patents, the royalty rate for
each such Licensed Controller shall be reduced to equal XXX percent (XXX%) of
the Sales Price of the Licensed Controller. In such event, MYLEX shall
certify that, in its opinion, only one of the EMC Licensed Patents is
infringed, and shall identify that patent in the written report of Section
4.3. Further, MYLEX agrees to pay EMC a royalty for each Licensed Subsystem
made, sold, leased, or otherwise disposed of by MYLEX equal to XXXX percent
(XXXX%) of the Sales Price of the Licensed Subsystem. The parties have
agreed that at least seventy five percent (75%) of the royalties paid under
this Agreement are attributable to the patents of Exhibit B.
6
<PAGE>
4.1.1 MYLEX shall not be obligated to pay a royalty for any Licensed
Product returned to MYLEX for which MYLEX issues a credit in the amount of
the Sales Price. MYLEX shall not be obligated to pay a separate royalty for
a Licensed Controller sold, leased or otherwise transferred or disposed of by
MYLEX as a part of a Licensed Subsystem, provided MYLEX has paid the required
royalty for the Licensed Subsystem.
4.1.2 No part of any payment by MYLEX to EMC hereunder shall be
refundable for any reason whatsoever.
4.1.3 All royalties specified in Section 4.1 shall be payable in lawful
money of the United States of America.
4.2 ACCOUNTING. MYLEX agrees to make and retain true and accurate
records showing the sales, leases and other transfers or dispositions of
MYLEX Licensed Products in sufficient detail to enable the royalties payable
hereunder to be determined and shall not destroy such records for at least
five (5) years from the date of creation. MYLEX further agrees to permit its
books and records to be examined from time to time to the extent necessary to
verify the payment of royalties in the proper amounts, provided such
examinations shall take place upon reasonable notice to MYLEX and no more
frequently than once per year. Such examinations shall be made at the expense
of EMC by any auditor appointed by EMC who shall be acceptable to MYLEX,
which acceptance shall not be unreasonably withheld by MYLEX. Further, MYLEX
shall furnish whatever additional information EMC may reasonably request from
time to time to enable EMC to verify the calculation of royalties due
pursuant to this Agreement.
4.3 REPORTING. MYLEX agrees to make written reports to EMC quarterly.
MYLEX shall use its best efforts to report to EMC within forty-five (45) days
after the first day of each January, April, July, and October during the term
of this Agreement. Each report shall include the number, identification or
designation, description and aggregate Selling Price of each type of MYLEX
Licensed Product sold, leased, transferred or otherwise disposed of during
the preceding three (3) calendar months and the aggregate royalties payable
for each type of MYLEX Licensed Product as provided in Section 4.1. Each
report shall be certified by an officer of MYLEX. The first such report shall
include the above-specified information for all MYLEX Licensed Products sold,
leased, transferred or otherwise disposed of between the Effective Date of
this Agreement and the date of such report. MYLEX also agrees to make a
written report to EMC within thirty (30) days after the date of any
termination of this Agreement, including in such report the above-specified
information for all MYLEX Licensed Products sold, leased, transferred or
otherwise disposed of and not previously reported to EMC. EMC shall treat
such reports as confidential and shall not use the information contained
therein except for accounting purposes under this Agreement.
4.4 PAYMENTS. Concurrently with the making of each report as provided
for in Section 4.3, MYLEX shall remit to EMC the royalties provided for in
Section 4.1.
7
<PAGE>
Payment shall be made by draft payable to EMC Corporation and shall be sent
to EMC as provided in Section 10.5.
4.5 INTEREST. MYLEX shall pay interest to EMC from the payment due
date to the actual date of payment upon any and all amounts of royalty or
payment that are overdue and payable hereunder at the rate of 125% of the
prime interest rate of Citibank of New York published in The Wall Street
Journal on the date the amount became due and owing. Said interest rate
shall, in no event, exceed the applicable usury law limitation.
4.6
SECTION V - MARKING LICENSED PRODUCTS
5.1 MARKING. Where commercially practicable, each of the parties shall
place appropriate patent markings upon an exposed surface of all of its own
Licensed Products. The content, form, location and language used in such
markings shall be in accordance with the laws and practices of the Licensed
Territory and shall be approved by the other party in writing before use.
5.2 LABELS. Upon request by either party and where commercially
practicable, the other party shall provide the requesting party with labels
for use in complying with Section 5.1. The requesting party may specify the
dimensions of the area in which the label must fit, consistent with the
requirements of 35 U.S.C. 287 where commercially practicable.
SECTION VI - INDEMNIFICATION
8
<PAGE>
6.1 INDEMNIFICATION. Each party as licensee agrees to hold the other
party as licensor harmless against all liabilities, demands, damages,
expenses or losses arising out of the manufacture, use, sale or other
disposition by the licensee party or its vendees or other transferees of
Licensed Products.
SECTION VII - REPRESENTATIONS AND WARRANTIES
7.1 OWNERSHIP AND AUTHORITY TO GRANT LICENSE. Each party warrants and
represents that to the best of its knowledge it has the authority to grant
the licenses granted hereinabove.
7.2 NO WARRANTY OF NON-INFRINGEMENT. Neither party makes any warranty
that the manufacture, use, sale, lease, transfer or other disposition of
Licensed Products by the other party as licensee will not infringe patents or
other intellectual property rights of any third parties. It is agreed that
neither party has any obligation to indemnify or defend the other party with
respect to any claim, demand or cause of action for infringement or alleged
infringement of any patent or other intellectual property right arising out
of or connected with the manufacture, use, sale, lease or other transfer or
disposition of operation of Licensed Products.
7.3 DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, NEITHER
PARTY MAKES ANY REPRESENTATIONS, EXTENDS ANY WARRANTIES OF ANY KIND, EITHER
EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE, AND ASSUMES ANY RESPONSIBILITIES WHATEVER, INCLUDING
ANY RESPONSIBILITIES OF INDEMNIFICATION, WITH RESPECT TO THE USE, SALE OR
OTHER DISPOSITION BY THE OTHER PARTY, ITS VENDEES OR OTHER TRANSFEREES OF
PRODUCTS INCORPORATING OR OPERATING IN ACCORDANCE WITH THE EMC OR MYLEX
LICENSED PATENTS.
SECTION VIII - TERM AND TERMINATION
8.1 EFFECTIVE DATE. This Agreement is effective as of the last
signature below.
8.2 TERMINATION. Unless earlier terminated in accordance with the
terms and provisions of this Agreement, this Agreement and the licenses and
rights granted hereunder shall remain in force and effect until the last to
expire of EMC or MYLEX Licensed Patents.
8.3 SURVIVAL OF RIGHTS AND OBLIGATIONS. Notwithstanding the provisions of
Section 8.2, the following rights and obligations shall survive any termination
of this Agreement:
9
<PAGE>
(a) MYLEX's obligation to supply the final report provided for in
Section 4.3;
(b) EMC's right to receive or recover, and MYLEX's obligation to
pay royalties accrued or accruable for payment as of the time of any
termination as provided for in Section 4.1;
(c) MYLEX's obligation to maintain records and EMC's right to
conduct a final audit as provided in Section 4.2;
(d) licenses running in favor of vendees of MYLEX with respect to
MYLEX Licensed Products sold, leased, transferred or otherwise disposed of
by MYLEX prior to any termination and on which applicable royalties shall
have been paid as provided in Section 4.1;
(e) any cause of action or claim of either party accrued or to
accrue, because of any breach or default by the other party; and
(f) in the event of termination of this Agreement by one party as
a result of circumstances provided for in Sections 8.4, 8.5 or 8.6, the
patent licenses and other rights granted to or for the benefit of the
terminating party hereto by the other party, provided however, the licenses
and rights granted to or for the benefit of the other party, including all
sublicenses granted by the other party to Subsidiaries, shall terminate.
8.4 TERMINATION ON BREACH. In the event of a material breach of a term
or condition of this Agreement by a party, the other party shall have the
right to terminate this Agreement forthwith by notice in writing identifying
and describing the breach. This Agreement will terminate thirty (30) days
following the sending of such notice, unless the breach is cured within that
time. The right to terminate shall be in addition to all other rights and
remedies which a party may have in law or equity to enforce this contract or
to seek damages for breach thereof.
8.5 TERMINATION ON ATTEMPTED TRANSFER. Any assignment, transfer or
sublicense or attempted assignment, transfer or sublicense of this Agreement
or of any license or other rights granted hereunder in violation of the terms
and conditions hereof shall be null and void ab initio, shall constitute a
material breach of this Agreement, and shall entitle the aggrieved party to
immediately terminate this Agreement on written notice without any
requirement to provide advance notice as provided in Section 8.4.
8.6 TERMINATION ON BANKRUPTCY. In any of the following events, EMC
shall have the right to terminate this Agreement at any time if :
(a) MYLEX files a voluntary petition in bankruptcy; or
(b) an involuntary petition in bankruptcy is filed naming MYLEX; or
10
<PAGE>
(c) MYLEX makes an assignment of assets for the benefit of creditors;
or
(d) a receiver or trustee of MYLEX's assets shall be appointed; or
(e) MYLEX shall cease or discontinue conducting business in the
ordinary course.
8.7 NO WAIVER. The waiver by either party of a breach or default in or
of any provision of this Agreement by the other party shall not act or be
construed as a waiver by such party of any other or succeeding breach of the
same or other provision(s), nor shall any delay or omission on the part of
either party to exercise or avail itself of any right, power or privilege
that it has or may have hereunder, operate as a waiver of any right, power or
privilege by such party.
SECTION IX - TRANSFERABILITY
9.1 NON-TRANSFERABLE. This Agreement shall inure to the benefit of the
parties hereto and, insofar as expressly provided for herein, to their
respective Subsidiaries. Neither party shall assign or transfer, or attempt
to assign or transfer, either this Agreement or any portion of its license or
rights under the other party's Licensed Patents to any third party, whether
by contract, by acquisition of a controlling interest, by merger, by
consolidation or by operation of law without the prior written consent of the
other party except as provided above in Section 2.1.
SECTION X - MISCELLANEOUS
10.1 COMPLETE AGREEMENT. This instrument embodies the complete and
only agreement between the parties and supersedes and cancels any and all
previous understandings, agreement, negotiations, commitments and any other
writings or communications pertaining to its subject matter.
10.2 MODIFICATION AND WAIVER. This Agreement may not be modified or
amended, nor may any right or obligation set forth herein be waived, except
in a writing signed by the parties with at least the same formalities as are
observed herein. A waiver as to any particular term shall not operate as a
waiver as to any other terms.
10.3 SEVERABILITY. In the event any provision of this Agreement shall
be held to be invalid or unenforceable in any respect or for any reason, such
holding shall not impair the validity and enforceability of the remaining
provisions of this Agreement, which shall continue to be given full force and
effect, except that the Parties agree to make such other and further
agreements as may be necessary to provide the full intended economic benefit,
if any, associated with any provisions held invalid or unenforceable.
11
<PAGE>
10.4 CONFIDENTIALITY. The Parties agree that the terms of this
Agreement shall be kept confidential, except that the Parties may disclose
the following aspects of this Agreement to the following persons and under
the following conditions:
(a) any aspect may be disclosed to anyone with the express written
consent of the other party obtained in advance of the disclosure;
(b) any aspect may be disclosed to a party or person subject to an
obligation to maintain the confidentiality of this Agreement, when ordered or
directed to disclose this Agreement by a court of competent jurisdiction in
connection with a lawsuit or administrative proceeding;
(c) any aspect may be disclosed to those persons with a "need to
know" in order to provide the parties with corporate, financial, legal,
contract, insurance, loan, investment, audit, or similar business related
information and services, and who also agree to treat such information as
confidential;
(d) any aspect may be disclosed publicly if necessary to correct
or respond to material misinformation regarding the substance of this
Agreement made by one of the Parties to this Agreement, but only after the
Parties have consulted and attempted in good faith to resolve any concerns
privately;
(e) the existence of license rights under this Agreement may be
disclosed in connection with further licensing efforts;
(f) EMC may disclose the terms of this Agreement in connection
with future licensing efforts;
(g) an announcement of this Agreement and the existence of license
rights thereunder may be disclosed publicly in a joint press release, the
language of which shall be agreed upon by the Parties, following execution of
this Agreement.
10.5 NOTICES. Any notice, request, report, or remittance required or
permitted to be given under or in connection with this Agreement or the
subject matter hereof, shall be deemed to have been sufficiently given when
addressed as follows and sent by Certified Mail, postage prepaid, or (except
for remittance of royalties) by facsimile.
TO EMC: Mr. William R. Clark, Esq.
Intellectual Property Counsel
EMC Corporation
35 Parkwood Drive
Hopkinton, MA 0l748-9103
Telephone: (508)-435-1000 (ext. 77225)
Facsimile: (508)-497-6915
12
<PAGE>
TO : Ms. Colleen Gray
Chief Financial Officer
Mylex Corporation
34551 Ardenwood Blvd.
Fremont, CA 94555-3607
Telephone: (510) 796-6100
Facsimile: (510) 745-0931
The date of receipt of any such notice or request shall be deemed
to be the date of actual receipt by the addressee thereof, but in any case
not later than fourteen (14) days after the date of dispatch thereof. Either
party may give written notice of change of address to the other and, after
such notice has been received, any notice or request required to be given to
such party shall be given at such changed address, in the manner provided
above.
10.6 CHOICE OF LAW AND VENUE. This Agreement shall be construed and
interpreted with the laws of the Commonwealth of Massachusetts. In the event
suit is filed by either party involving a dispute concerning the
construction, interpretation, enforcement, or breach of this Agreement, or
the enforcement of any intellectual property rights which are the subject
hereof, the parties agree to submit to personal jurisdiction and venue of any
Massachusetts State or Federal Court located within Massachusetts having
appropriate subject matter jurisdiction.
10.7 ATTORNEY FEES. In the event a party hereto initiates any legal
action to interpret any provision or term of this Agreement or to enforce any
right or obligation thereunder, the prevailing party shall be entitled, in
addition to any other relief or award granted, to an award of reasonable
attorney's fees.
10.8 REPRESENTATIONS OF AUTHORITY. Each of the Parties warrants and
represents to the other that it has the power to enter into this Agreement
and that the person executing this Agreement on its behalf has been
authorized to do so by any and all appropriate corporate bodies.
10.9 RELEASE OF CLAIMS. Upon execution of this Agreement, EMC releases
all claims for profits, damages, or royalties otherwise collectable under
applicable laws by EMC from MYLEX by reason of past infringement.
10.10 COUNTERPARTS. This Agreement may be executed in two (2)
counterparts, all of which, taken together, shall be regarded as one and the
same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed below by its duly authorized officer or representative:
<PAGE>
EMC CORPORATION MYLEX CORPORATION
By: /s/ Paul Noble By: /s/ Colleen Gray
------------------------ -------------------------
Executive Vice
Title: President Title: VP Finance & CEO
--------------------- ----------------------
Date: Dec 22, 1998 Date: Dec 24, 1998
--------------------- ----------------------
<PAGE>
ATTACHMENT A
<TABLE>
<CAPTION>
U.S. PATENT NO. TITLE
- --------------- -----
<S> <C>
5,023,891 Method and Circuit for Decoding a Manchester Code Signal
5,146,574 Method and Circuit for Programmable Selecting a Variable Sequence of Element Using
Write-Back
5,349,686 Method and Circuit for Programmable Selecting a Variable Sequence of Elements Using
Write-Back
5,315,708 A Method and Apparatus for Transferring Data through a Staging Memory
5,134,619 Failure-Tolerant Mass Storage System
5,285,451 Failure-Tolerant Mass Storage System
5,233,692 Enhanced Interface Permitting Multiple-Byte Parallel Transfers of Control Information
and Data on a Small Computer System Interface
5,454,085 Method and Apparatus for an Enhanced Computer System Interface
5,185,876 Buffering System for Dynamically Providing Data to Multiple Storage Elements
5,386,548 A Method for Storing Data from an External Processor in Storage Devices through Buffer
Devices
5,195,100 Non-Volatile Memory Storage of Write Operation Identifier in Data Storage Device
5,475,697 Non-Volatile Memory Storage of Write Operation Identifier in Data Storage Device
5,758,054 Non-Volatile Memory Storage of Write Operation Identifier in Data Storage Device
5,233,618 Data Correcting Applicable to Redundant Array of Independent Disks
5,469,453 Data Corrections Applicable to Redundant Array of Independent Disks
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. PATENT NO. TITLE
- --------------- -----
<S> <C>
5,166,939 Data Storage Apparatus and Method
5,461,723 Dual Channel Data Block Transfer Bus
5,485,147 Method and Apparatus for Scheduling Access to a CSMA Communication Medium
5,175,537 Method and Apparatus for Scheduling Access to a CSMA Communication Medium
5,361,063 Method and Apparatus for Scheduling Access to a CSMA Communication Medium
5,359,320 Method and Apparatus for Scheduling Access to a CSMA Communication Medium
5,325,497 Method and Apparatus for Assigning Signatures to Identify Members of a Set of Mass
Storage Devices
5,214,778 Resource Management in a Multiple Resource System
5,361,347 Resource Management in a Multiple Resource System where Each Resource Includes an
Availability State Stored in a Memory of the Resource
5,388,243 A Multi-Port Mass Storage Device Announcing its Active Paths without Deactivating its
Ports in a Network Architecture
5,212,785 Apparatus and Method for Controlling Data Flow between a Computer and Memory Devices
5,202,856 Method and Apparatus for Simultaneous, Interleaved Access of Multiple Memories by
Multiple Ports
5,226,010 Method and Apparatus for Simultaneous, Interleaved Access of Multiple Memories by
Multiple Ports
5,414,818 Controlled Bus Reselection and Method
5,715,406 Controlled Bus Reselection and Method
5,140,592 Disk Array System
5,274,645 Disk Array System
</TABLE>
<PAGE>
ATTACHMENT B
<TABLE>
<CAPTION>
U.S. PATENT NO. TITLE
- --------------- -----
<S> <C>
5,148,432 Arrayed Disk Drive System and Method
316,850 Arrayed Disk Drive System
5,235,601 On-Line Restoration of Redundancy Information in a Redundant Array System
5,613,059 On-Line Restoration of Redundancy Information in a Redundant Array System
5,708,769 Logical Partitioning of a Redundant Array Storage System
5,519,844 Logical Partitioning of a Redundant Array Storage System
5,274,799 Storage Device Array Architecture with Copyback Cache
5,526,482 Storage Device Array Architecture with Copyback Cache
5,617,530 Storage Device Array Architecture with Copyback Cache
5,499,337 Storage Device Array Architecture with Solid-State Redundancy
5,208,813 On-Line Reconstruction of a Failed Redundant Array System
5,390,187 On-Line Reconstruction of a Failed Redundant Array System
5,636,358 Dual Port Buffer Memory for Data Storage System
5,398,253 Storage-Unit Generation of Redundancy Information
5,517,613 Environment Sensing/Control Circuit
5,675,726 Flexible Parity Generation Circuit
5,469,566 Flexible Parity Generation Circuit
5,546,535 Multiple Controller Sharing in a Redundant Storage Array
5,590,276 Method for Synchronizing Reserved Areas in a Redundant Storage Array
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
U.S. PATENT NO. TITLE
- --------------- -----
<S> <C>
5,689,678 Distributed Disk Array
5,787,459 Distributed Disk Array Architecture
PATENT APPLICATION TITLE
NO.
- ------------------ -----
08/551,928 Address Protection Circuit
09/004,671 Logical Partitioning of A Redundant Array Storage System
08/825,625 Storage Device Array Architecture with Copyback Cache
08/579,552 Storage Device Array Architecture with Solid-State Redundancy
08/832,050 Flexible Parity Generation Circuit
08/579,314 Method for Synchronizing Reserved Areas in a Redundant Storage Array
09/093,242 Method for Synchronizing Reserved Areas in a Redundant Storage Array
09/123,176 Distributed Disk Array
</TABLE>
<PAGE>
EXHIBIT C
MYLEX Technology:
- ----------------
- - Pegasus Hardware Specification, revision 0.2, 12/12/95
- - RAID Data Path Controller (RDC), revision 0.5, Preliminary Specification
of 12/12/95
- - Fibre Channel Topologies for RAID Controllers, White Paper
- - New Backup Strategies for the DAC960SX and DAC96OSF RAID Controllers,
Document of 11/18/97
- - N-Way Controller Architecture
<PAGE>
MYLEX CORPORATION FINANCIAL DATA
Consolidated Financial Statements
DECEMBER 26, 1998 AND DECEMBER 27, 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
STATEMENTS
<TABLE>
<S> <C>
Selected Five-Year Consolidated Financial Data IFC
Summary Quarterly Income Statement IFC
Management's Discussion and Analysis of
Financial Condition and Results of Operations 1
Market for Registrant's Common Equity and
Related Stockholder Matters 7
Consolidated Balance Sheets 8
Consolidated Statements of Operations 9
Consolidated Statements of Stockholders' Equity 10
Consolidated Statements of Cash Flows 11
Notes to Consolidated Financial Statements 12
Independent Auditors' Report IBC
</TABLE>
<PAGE>
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------(IN THOUSANDS, EXCEPT PER SHARE DATA)
SUMMARY INCOME STATEMENT 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 135,726 $ 123,550 $ 173,123 $ 127,455 $ 92,589
Cost of sales 88,467 88,392 106,103 77,172 56,159
---------------------------------------------------------------------------------------------------------
Gross profit 47,259 35,158 67,020 50,283 36,430
Operating expenses and other income /expense 58,569 44,585 39,640 29,810 24,452
---------------------------------------------------------------------------------------------------------
Income (loss) before income tax (11,310) (9,427) 27,380 20,473 11,978
Income tax expense (benefit) (4,185) (3,488) 10,130 7,165 3,165
---------------------------------------------------------------------------------------------------------
Net income (loss) $ (7,125) $ (5,939) $ 17,250 $ 13,308 $ 8,813
---------------------------------------------------------------------------------------------------------
Income (loss) per share:
Basic $ (0.36) $ (0.29) $ 0.85 $ 0.74 $ 0.53
Diluted $ (0.36) $ (0.29) $ 0.81 $ 0.68 $ 0.48
Weighted average shares:
Basic 19,934 20,387 20,277 18,074 16,532
Diluted 19,934 20,387 21,359 19,430 18,291
Consolidated balance sheet data:
Total assets $ 111,143 $ 104,483 $ 116,586 $ 94,620 $ 42,371
Working capital 70,160 83,759 97,931 72,967 25,551
Long-term obligations -- -- 66 203 493
Stockholders' equity 82,244 92,295 104,172 75,897 25,943
</TABLE>
SUMMARY QUARTERLY INCOME STATEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------(IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 1997
QUARTER ENDED DEC. 26, SEP. 26, JUN. 27, MAR. 28, DEC. 27, SEPT. 27, JUN. 28, MAR. 31,
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 39,088 $ 36,159 $ 32,130 $ 28,348 $ 31,278 $ 29,432 $ 26,926 $ 35,914
Gross profit 14,132 12,196 11,241 9,689 11,169 9,407 8,944 5,638
Operating income (loss) (2,201) (3,751) (3,784) (3,360) (1,589) (2,053) (2,684) (4,772)
Net income (loss) $ (997) $ (2,096) $ (2,054) $ (1,979) $ (656) $ (1,074) $ (1,431) $ (2,778)
Net income (loss) per share:
Basic $ (0.05) $ (0.11) $ (0.10) $ (0.10) $ (0.03) $ (0.05) $ (0.07) $ (0.13)
Diluted $ (0.05) $ (0.11) $ (0.10) $ (0.10) $ (0.03) $ (0.05) $ (0.07) $ (0.13)
Weighted-average shares:
Basic 19,757 19,786 20,005 20,182 20,192 20,166 20,448 20,726
Diluted 19,757 19,786 20,005 20,182 20,192 20,166 20,448 20,726
</TABLE>
<PAGE>
1
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: FISCAL YEAR ENDED DECEMBER 26, 1998, COMPARED TO FISCAL
YEAR ENDED DECEMBER 27, 1997.
The Company's financial results in 1998 were mixed, but improving. Revenue
for the year increased 10% as compared to 1997 and increased 25% from the
fourth quarter of 1997 to the fourth quarter of 1998. However, the
Company's 1997 loss widened in 1998, principally as a result of two
significant charges recorded in the year. In the third quarter of 1998,
the Company booked a restructuring charge of $4.3 million (of which $ 1.2
million was charged to cost of sales) related to a reduction-in-force and
the closure of its NP&L-TM- division. In the fourth quarter of 1998, the
Company took a special charge against earnings of $3.7 million, resulting
from the settlement of a lawsuit with a former officer. In both the third
and fourth quarter of 1998, excluding these charges, the Company was
profitable.
SALES AND GROSS PROFIT. Net sales increased by 10% to $135.7 million in
1998 from $123.6 million in 1997. Sales of the Company's disk array
controller products in 1998 continued to be the dominant portion of the
Company's net revenue at 95%, or seven percentage points higher than 1997's
88% of net revenues.
The Company's fastest growing product segment in 1998 was its external RAID
product line. This portion of the Company's business grew by 63% between
1997 and 1998. The market acceptance of the Company's DAC960SX product line
in 1998 resulted in a 155% increase of that product line's 1997 revenues.
The Company also began to ship its external bus based SCSI-to-Fibre
products, in production quantities, in the fourth quarter.
The problems that plagued the Company in its high performance PCI based
product in 1997 were resolved in 1998. The DAC960PG and DAC960PJ accounted
for 26% of net sales in 1998. The Company's newest PCI RAID product,
eXtremeRAID 1100, began to ship in volume in the third quarter of 1998. The
Company also began to ship in volume two of several planned low cost PCI
based RAID solutions, the AcceleRAID 200 and 250, to both OEM customers and
distributors in the fourth quarter of 1998. These products are targeted for
a market niche that has in the past been addressed by the high-end host bus
adapter (HBA) market.
Sales of the Company's host bus adapter products declined from $12.3
million in 1997 to $4.4 million in 1998. As described, the successful
launch of the Company's AcceleRAID 200 and 250 products adversely affected
the Company's HBA sales in 1998. The overall market place is changing its
requirements for HBA products as the price point for RAID becomes low
enough to supplant high-end HBA products.
The Company continues its commitment to 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
their respective follow-on 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-sourced. As a result, there can be no assurance that sufficient
quantities of these or other critical components will be available for the
Company's production needs. 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 may 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 margins.
The Company's largest customer during 1998 was DEC/Compaq, which accounted
for 25% of the Company's sales. The Company's next four largest customers,
Siemens, NEC, Fujitsu and MTI, each accounted for 16%, 8%, 5% and 5%,
respectively, of total sales. Due to Compaq's acquisition of Digital
Equipment Corporation (DEC) in February 1998, there has been and will
continue to be product consolidation between the two companies that will
have an adverse impact on the Company's historic revenues from DEC.
<PAGE>
2
Although the full impact of these product line consolidations is not known
at this time, the Company estimates that its 1999 revenues from Compaq will
be approximately 30% to 40% less than such 1998 revenues. The Company is
striving to replace any shortfall from its historic DEC business with new
business from other OEMs; however, there can be no assurances that the
Company will be successful in those efforts.
Many of the Company's customers manufacture and sell products in the
networked PC market, which is subject to rapid technological change and
intense price competition. These factors affecting the networked PC market
in general, or any of the Company's customers in particular, could have a
material adverse effect on the Company's future results of operations. 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 significant 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 significant customer, or cancellation or rescheduling of
orders already placed, could materially and adversely affect the Company's
business and operating results.
Gross profit was $47.3 million or 35% of sales in 1998, compared to $35.2
million or 28% of sales in 1997. The 1997 gross margin was negatively
affected by higher than normal inventory obsolescence charges related to
the loss of two principal customers. The level of the 1997 charges were not
repeated in 1998, but the Company's gross margin was under considerable
pressure due to pricing competition from several new entrants into the RAID
market. Despite the Company's commitment to introduce new products to
maintain its market share and historic margins, there can be no assurances
of the timing of such introductions or that the mix of products sold will
result in gross margins at the same level as the Company experienced in
1998.
In December 1998, the Company signed a cross license agreement with EMC,
requiring an up-front payment against future royalties. This cross license
agreement covers all of the Company's RAID products sold to its customers
that do not currently have RAID license agreements with EMC. The agreement
provides for a certain rate for approximately one year after which, the
Company will be obligated to pay royalties, at a relatively lower rate, for
as long as the Company's products are covered by the EMC patents. The
Company expects that its payments to EMC will have an adverse impact,
albeit immaterial, on its gross margins in the foreseeable future.
Improvements, as well as maintenance, of gross margins are dependent upon
successful development and market acceptance of the Company's new internal
and external disk array controller products. There can be no assurance that
the Company will be able to develop and introduce such products in a timely
manner, or that such products will gain or sustain market acceptance.
Gross margin improvement is also dependent on continued manufacturing cost
reductions. The Company signed a manufacturing agreement in the first
quarter of 1999 with Dovatron International, Inc. (Dovatron), a wholly
owned subsidiary of the DII Group of Colorado, which is an ISO 9000
certified manufacturer that specializes in turnkey arrangements. Dovatron
will be undertaking all of the Company's manufacturing activities. The
Company anticipates that the agreement will be fully implemented in the
second quarter of 1999. Under this arrangement, Dovatron will become the
Company's principal turnkey manufacturer, procuring the Company's raw
materials and assembling, testing, configuring and shipping most of its
products. The expected benefits in this relationship are a focused supplier
that should consistently deliver high quality products on a timely basis,
that will leverage its purchasing power for the benefit of the Company and
that will be able to better deliver state-of-the-art assembly and testing
capabilities. Although the Company eventually expects to see lower product
costs as a result of this relationship, there can be no assurances as to
whether and when these cost savings will materialize.
The Company faced intense competition in the market for its disk array
products during 1998 and anticipates that these competitive pressures will
further intensify in 1999. Because of the acceptance and commodization of
RAID in the network PC market place, several competitors entered the RAID
market in 1998. Among the Company's current competitors in that market are
American Megatrends, DPT, Infotrend, ICP Vortex and Adaptec, who also has
been the Company's principal HBA competitor. Additional intense competition
could materially adversely affect selling prices for its products in 1999,
which would impact both gross margins and operating results. As a response
to this competition seen in 1998, the Company has accelerated certain key
research and development projects and continues to enhance its customer
service and support organizations and strengthen its sales and marketing
organizations. However, there can be no assurances that increasing
competition in the RAID market will not adversely affect the Company's
operating results and prospects in 1999.
RESEARCH AND DEVELOPMENT. Expenditures for research and development
increased by 19% to $23.5 million in 1998, as compared to $19.8 million in
1997. Research and development expenses increased slightly as a percent of
sales from 16% in 1997 to 17% in 1998.
<PAGE>
3
The Company's R&D efforts in 1998 resulted in improving the Company's
DAC960PG and DAC960PJ, and the introduction of the PCI based
eXtremeRAID 1100 (which uses the Strong Arm processor), the AcceleRAID
200 and 250 low cost RAID controllers and external bus based RAID
controllers, the DAC960SF and DAC960FL. The growth in research and
development expenses was primarily due to increased headcount, and the
related higher compensation and benefits costs, 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 1999 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 technological leadership in
those markets in which it has positioned its products.
SALES AND MARKETING. Sales and marketing expenses were $19.3 million or 14%
of net sales in 1998, the same percentage represented by $17.7 million of
such expenses in 1997. The 9% increase in sales and marketing expenses,
year-over-year, was primarily due to increases in compensation and benefit
expense. There were also increases in travel expenses and expenses related
to evaluation units of the Company's new products given to its customers.
The Company expects that sales and marketing expenses will increase during
1999, particularly if the Company's sales in 1999 increase over its 1998
sales. However, there can be no assurances that such sales growth will
occur.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $10.8 million or 8% of net sales in 1998 from $8.8 million or 7% of net
sales in 1997. Higher general and administrative expenses in 1998 were due
principally to legal charges related to a legal proceeding with a former
officer of the Company that was recently settled. Additionally, 1998
expenses increased due to consulting costs incurred in conjunction with the
Company's selection and implementation of an enterprise-wide resource
planning (ERP) system, which is presently expected to be implemented in the
second quarter of 1999, and increased bonuses from 1997. The Company
anticipates that general and administrative expenses will increase during
1999, due principally to further consulting costs related to the ERP system
implementation.
IMPACT OF INFLATION. The impact of inflation on the Company's business was
not material during the three years ended in 1998.
INTEREST INCOME/EXPENSES AND OTHER. Net interest income remained
relatively the same in 1998, increasing by 7%.
INCOME TAXES. The Company's combined federal and state effective income tax
provision rate was 37% in 1998, the same as 1997. The Company recorded a
tax benefit of $4.2 million in 1998, primarily attributable to tax net
operating losses (NOL) and credit carryovers. The Company has the ability
to carry back net operating losses to obtain a refund of $1.5 million of
taxes paid in prior years. The Company believes it will generate sufficient
future taxable income to utilize the remaining NOL.
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 were 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 were taken to
reposition the Company for 1998 and beyond.
SALES AND GROSS PROFIT. Net 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 decline in disk array controller products,
sales of the Company's host bus adapter (HBA) products declined from $18.4
million in 1996 to $12.3 million in 1997.
The Company's largest customer during 1997 was 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 net sales.
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.
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 net 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-TM- Division. The growth in research and development expenses was
primarily due
<PAGE>
4
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.
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.
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. Higher general and administrative expenses in 1996 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.
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.
INCOME TAXES. The Company's combined federal and state effective income tax
provision rate was 37% in 1997, the same as 1996. The Company recorded a
tax benefit in 1997 of $3.5 million primarily related to NOL which were
carried back to refund taxes paid in prior years.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company financed its operations primarily from existing
cash balances and cash generated from operations. Working capital of the
Company as of December 26, 1998, was $70.2 million, a decrease of $13.6
million from the $83.8 million as of December 27, 1997. The reduction in
working capital was primarily attributable to the increase in current
liabilities of $16.7 million, offset by an increase in current assets of
$3.1 million. The increase in current liabilities was the result of an $8.6
million increase in accrued liabilities and an $8.1 million increase in
accounts payable. These accounts will be further described below. Cash
balances decreased by $13.2 million from $21.5 million as of December 27,
1997 to $8.3 million as of December 26, 1998. This decrease in cash was
correspondingly offset by an increase in short-term investments of $11.7
million.
Net cash used in investment activities was $17.4 million, made up of net
purchases of marketable investments of $11.9 million and $5.5 million in
capital expenditures. In addition to the use of cash in investment
activities, $3.3 million of net cash was used in financing activities. This
cash outflow resulted from $4.7 million used to repurchase the Company's
common stock on the open market, offset by $1.4 million provided from the
purchase of the Company's stock by its employees and directors through the
Company's employee stock purchase plan and stock option plans. These uses
of cash in investing and financing were offset by $7.5 million in cash
resulting from operating activities.
The cash resources provided from operations were primarily the result of a
$6.6 million net reduction of inventory balances and an increase in accrued
liabilities and accounts payable of $8.6 million and $8.1 million,
respectively, offset by an increase in accounts receivable of $9.6 million
and an increase in deferred income tax assets of $3.1 million, primarily
due to deferred income tax credits generated in conjunction with the
Company's 1998 loss of $7.1 million. Net inventories declined due to a
focused effort to reduce overall inventory balances and increase inventory
turns.
Accrued liabilities increased, in part, due to the settlement of a legal
proceeding with the Company's former Chief Executive Officer, Dr. M.A.
Chowdry. The proceedings resulted from a complaint filed against the
Company and its outside directors in October 1994, claiming breach of an
employment agreement that the plaintiff entered into with the Company. In
addition, accrued liabilities increased due to increases for Federal income
taxes, bonuses earned in the fourth quarter of 1998 and timing of normally
recurring expenses. The accounts payable balance increased by $8.1 million
primarily due to raw materials that were purchased to support the fourth
quarter 1998 sales. The sales in the fourth quarter of 1998 increased over
the fourth quarter 1997 sales by 25%, and the majority of those raw
materials were purchased toward the end of the quarter as sales for the
fourth quarter were more heavily weighed toward December. In addition, the
consumption of inventory balances and low purchases of raw material in 1997
drove the year-end accounts payable balance to an unusually low level. This
situation did not occur at the end of 1998, and, as a result, the accounts
payable balance reflected a more normal raw material purchasing pattern.
<PAGE>
5
Accounts receivable increased due to most of the fourth quarter 1998
sales shipping in the last month of the quarter and to the increase in
sales of 25% over the fourth quarter of 1997. Accounts receivable
balances were also higher than year-end 1997 due to $2.6 million of
inventory sold in the fourth quarter of 1998 to the Company's
subcontract manufacturer and to extension of payment terms from 30 days
to 45 days required by Compaq after its acquisition of DEC. The Company
also increased its deferred income tax assets by $3.1 million, as a
result of the $7.1 million loss in 1998. The Company expects to
generate sufficient future taxable income to utilize its deferred tax
assets.
At December 26, 1998, 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 1999, 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 a profitability
test, the maintenance of specific financial ratios and prohibitions on
additional indebtedness without the prior consent of the bank. At December
26, 1998, the Company was not in compliance with the covenant requiring
annual and quarterly profitability on an operating and after tax basis.
However, the Company has received a waiver from the lender with regards to
such non-compliance.
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 1999. The Company believes
that such capital resources will meet the Company's working capital needs
through at least the end of 1999.
YEAR 2000
Many computers, software and other control devices utilizing
microprocessors use only two digits to identify the year in a date field.
As the year 2000 approaches, a critical technology issue has emerged for
all organizations, including the Company, with respect to the ability of
computer hardware and software systems, including application software and
operating systems, and embedded systems to accurately process date-based
transactions for the year 2000 and thereafter.
During 1998, the Company compiled a list of the critical information
technology related computer software and hardware systems and software
tools it uses to monitor its business. It then engaged in a review,
completed during the fourth quarter of 1998, of such systems and tools to
determine whether they can process such transactions (i.e. they are "year
2000 compliant"). As a result of such review, the Company has modified many
of its critical application software programs.
In the second quarter of 1998, the Company initiated the implementation of
Enterprise Resource Planning (ERP) software to replace its core management
information systems that support manufacturing, sales, customer service and
finance and accounting. The Company has obtained the assurances of the
providers of such ERP software that it is year 2000 compliant. The Company
expects to complete the implementation of the ERP software during the
second quarter of 1999. The ERP software was implemented to enable the
Company to enhance its business processes and to more rapidly report
information and not because of year 2000 compliance issues.
The Company presently expects to complete, by September 30, 1999,
remediation efforts, including substantial testing, validation and
implementation (through a combination of upgrades, custom modifications and
replacements), of all of the information technology software, systems and
tools it uses to monitor its business. As appropriate, the Company will
also attempt to obtain written certification from each of the providers of
such systems and tools to the effect that such systems and tools are year
2000 compliant. Based upon its review to date, the Company does not
currently believe any year 2000 compliance issues with respect to such
software, systems or tools will materially adversely affect the Company or
its operations.
The Company has completed its review and development of remediation plans
related to its critical non-information technology related systems, and
expects to complete any necessary remediation efforts for those systems by
June 30, 1999.
The Company's RAID and host bus adapter products do not contain specific
calendar year functions. However, the Company has, in recent months,
provided warranties to many of its customers that its present products are
year 2000 compliant. During the first quarter of 1999, the Company tested
and analyzed certain of its present products for year 2000 compliance. As a
result of that testing and analysis, the Company has verified that it does
not expect to encounter year 2000 compliance issues with those products.
If, for any reason, any of the Company's present products or old products
(which have not been tested) are found not to be year 2000 compliant, the
Company may be exposed to damages or other claims that could have a
material adverse effect on the Company. However, although no assurances can
be given, because the Company's RAID and host adapter products, both
present and past, do not contain
<PAGE>
6
specific calendar year functions, and its motherboard products, last sold
in 1996, are no longer under warranty, the Company does not presently
believe that any such claims are likely to be made or, if made, to be
successful.
The Company is currently assessing year 2000 compliance issues with respect
to major customers and suppliers and other essential service providers. In
the first quarter of 1999, the Company received detailed year 2000
readiness feedback from its primary manufacturer. During the second quarter
of 1999, the Company expects to send to its significant customers,
suppliers and service providers a questionnaire seeking information about
the year 2000 compliance status of those third parties. During the same
quarter, the Company will begin the testing and validation phase with those
third party suppliers and service providers it has identified as essential.
Additionally, during April 1999, the Company and an outside consultant will
conduct a year 2000 compliance review of its principal and most critical
supplier. The Company expects to complete these third party review
processes by September 30, 1999. However, there can be no assurance that
the software or systems of third parties on which the Company relies will
be year 2000 compliant or that it will be able to obtain the information
from such third parties necessary for it to determine whether it may be
materially adversely affected by any such software or systems.
Management believes that the most reasonably likely worst case scenario
related to year 2000 compliance that the Company may experience would be a
delay or inability to procure components from suppliers or an interruption
of orders from key customers due to their failure to successfully remediate
year 2000 related issues. Such scenarios, if they were to develop, could
materially adversely affect the Company and its operations. The Company
does not yet have in place contingency plans to respond to any such
scenario. The Company has identified general contingency plans, such as
replacement of suppliers, stockpiling of critical components and the
purchase of generators. Upon completing its review of third party year 2000
compliance issues, presently scheduled for September 30, 1999, it intends
to develop and implement, by December 1999, any necessary contingency
plans.
The Company does not consider the cost of implementing its ERP systems
software to be a cost related to year 2000 compliance because the project
was initiated independently of the year 2000 issue and was not accelerated
in order to achieve year 2000 compliance. The total cost to the Company of
year 2000 compliance has not been, and is not anticipated to be, material
to its financial position or results of operations. To date, costs to the
Company of year 2000 compliance have consisted primarily of internal labor
and payments to consultants. Future costs related to the year 2000
compliance issue will consist of internal labor, payments to consultants,
and, as necessary, software and hardware upgrades.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting
and reporting standards for derivative instruments and requires recognition
of all derivatives as assets or liabilities in the statement of financial
position and measurement of those instruments at fair value. The statement
is effective for fiscal years beginning after June 15, 1999. The Company
will adopt the standard no later than the first quarter of fiscal year 2000
and is in the process of determining the impact the adoption will have on
its consolidated financial statements.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The foregoing discussion and the accompanying annual report contains
forward-looking information with respect to plans, projections or future
performance of the Company, the occurrence of which involves 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 and
SCSI host adapter products; component availability; the mix of product
sold; pricing pressures; the ability of the Company to ship ordered product
in a timely manner; 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; unanticipated costs and risks of
litigation; the Company's ability to generate sufficient future taxable
income to utilize its recognized deferred tax assets; the risk that any of
the systems or products of the Company, or its vendors, suppliers or
customers, may not be Year 2000 compliant, and other risks and
uncertainties detailed in the Company's filings with the Securities and
Exchange Commission, including its 10-K report for its year ended December
26, 1998. These forward-looking statements speak only as of the date
hereof, and the Company disclaims any intent or obligation to update such
statements.
<PAGE>
7
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company's Common Stock ($0.01 par value) is traded on The Nasdaq Stock
Market under the symbol MYLX.
The following table sets forth quarterly high and low closing sale prices
for the Company's Common Stock for the two-year period ended December 26,
1998, as reported by Nasdaq.
<TABLE>
<CAPTION>
COMMON STOCK (MYLEX) HIGH LOW
----------------------------------------------------------------------------
1997
<S> <C> <C>
First Quarter 13 3/4 10
Second Quarter 11 3/8 7 7/8
Third Quarter 10 5/8 6 1/2
Fourth Quarter 11 1/2 7
1998
First Quarter 11 3/8 6 3/4
Second Quarter 9 1/2 5
Third Quarter 8 3 1/2
Fourth Quarter 12 1/8 4 1/8
</TABLE>
As of January 31, 1999, there were approximately 472 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.
<PAGE>
8
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------------------------(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS DECEMBER 26, 1998 DECEMBER 27, 1997
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,260 $ 21,521
Short-term marketable investments 34,739 23,062
Accounts receivable, net of allowances of $159 and $190
in 1998 and 1997, respectively 24,546 14,881
Inventories 19,240 25,866
Prepaid expenses and other current assets 5,235 5,616
Deferred income taxes 7,039 5,001
--------------------------------------------------------------------------------------------------
Total current assets 99,059 95,947
Property and equipment, net 10,837 8,325
Deferred income taxes 1,035 --
Other assets 212 211
--------------------------------------------------------------------------------------------------
$ 111,143 $ 104,483
---------------------------------
---------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,809 $ 5,700
Accrued liabilities 15,090 6,488
--------------------------------------------------------------------------------------------------
Total current liabilities 28,899 12,188
--------------------------------------------------------------------------------------------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 120,000,000 shares
authorized; 21,229,950 and 20,940,300 shares issued
and outstanding in 1998 and 1997, respectively 212 209
Additional paid-in capital 67,353 65,396
Notes receivable from stockholders (895) (720)
Retained earnings 27,577 34,702
Treasury stock, at cost; 1,400,400 and 732,500 shares
in 1998 and 1997, respectively (12,003) (7,292)
--------------------------------------------------------------------------------------------------
Total stockholders' equity 82,244 92,295
--------------------------------------------------------------------------------------------------
$ 111,143 $ 104,483
---------------------------------
---------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
9
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 26,1998 DECEMBER 27,1997 DECEMBER 31,1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 135,726 $ 123,550 $ 173,123
Cost of sales 88,467 88,392 106,103
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 47,259 35,158 67,020
- ----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling and marketing 19,287 17,657 14,391
Research and development 23,503 19,832 16,690
General and administrative 10,796 8,767 9,696
Special charges:
Restructuring of operations 3,092 -- --
Litigation settlement 3,677 -- --
- ----------------------------------------------------------------------------------------------------------------------------
60,355 46,256 40,777
- ----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (13,096) (11,098) 26,243
Other income (expense):
Interest income 2,092 1,828 1,293
Interest expense (224) (3) (24)
Other expense (82) (154) (132)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (11,310) (9,427) 27,380
Income taxes (benefit) (4,185) (3,488) 10,130
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (7,125) $ (5,939) $ 17,250
-----------------------------------------------------
-----------------------------------------------------
Earnings (loss) per share:
Basic $ (0.36) $ (0.29) $ 0.85
-----------------------------------------------------
-----------------------------------------------------
Diluted $ (0.36) $ (0.29) $ 0.81
-----------------------------------------------------
-----------------------------------------------------
Weighted-average number of shares:
Basic 19,934 20,387 20,277
-----------------------------------------------------
-----------------------------------------------------
Diluted 19,934 20,387 21,359
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
10
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
YEARS ENDED DECEMBER 26, 1998, DECEMBER 27, 1997, AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
NOTES TOTAL
ADDITIONAL RECEIVABLE TREASURY STOCK, STOCK-
COMMON STOCK PAID-IN FROM RETAINED AT COST HOLDERS'
SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS SHARES AMOUNT EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 31, 1995 19,587 $ 196 $ 52,310 $ -- $ 23,391 -- $ -- $ 75,897
Common stock issued for cash
and notes receivable upon
exercise of options 1,068 11 4,145 (465) -- -- -- 3,691
Common stock issued under employee
stock purchase plan 35 -- 465 -- -- -- -- 465
Tax benefit from disqualifying
dispositions of stock options -- -- 6,869 -- -- -- -- 6,869
Net income -- -- -- -- 17,250 -- -- 17,250
- -----------------------------------------------------------------------------------------------------------------------------------
Balances as of December 31, 1996 20,690 207 63,789 (465) 40,641 -- -- 104,172
Common stock issued for cash and
notes receivable upon
exercise of options 176 2 870 (255) -- -- -- 617
Common stock issued under
employee stock purchase plan 89 -- 662 -- -- -- -- 662
Common stock surrendered for
exercise of options (15) -- (163) -- -- -- -- (163)
Tax benefit from disqualifying
disposition of stock options -- -- 238 -- -- -- -- 238
Repurchase of common stock -- -- -- -- -- (732) (7,292) (7,292)
Net loss -- -- -- -- (5,939) -- -- (5,939)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances as of December 27, 1997 20,940 209 65,396 (720) 34,702 (732) (7,292) 92,295
Common stock issued for cash and
notes receivable upon
exercise of options 114 1 540 (185) -- -- -- 356
Common stock issued under
employee stock purchase plan 176 2 1,030 -- -- -- -- 1,032
Repayment of notes receivable
from stockholders -- -- -- 10 -- -- -- 10
Tax benefit from disqualifying
disposition of stock options -- -- 387 -- -- -- -- 387
Repurchase of common stock -- -- -- -- -- (668) (4,711) (4,711)
Net loss -- -- -- -- (7,125) -- -- (7,125)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances as of December 26, 1998 21,230 $ 212 $ 67,353 $(895) $ 27,577 (1,400) $(12,003) $ 82,244
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
11
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)----------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 26, 1998 DECEMBER 27, 1997 DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,125) $ (5,939) $ 17,250
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Amortization of net discount/premium on short-term
marketable investments 263 (205) (249)
Tax benefit related to disqualifying dispositions
of stock options 387 238 6,869
Depreciation and amortization 2,971 2,445 1,814
Deferred income taxes (3,073) (2,035) (326)
Changes in operating assets and liabilities:
Accounts receivable (9,665) 12,851 (4,651)
Inventories 6,626 15,814 (15,159)
Prepaid expenses and other current assets 380 (2,168) (1,787)
Accounts payable 8,109 (457) (6,086)
Accrued liabilities 8,602 415 104
----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 7,475 20,959 (2,221)
----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (5,483) (4,646) (4,917)
Purchase of short-term marketable investments (78,817) (27,353) (7,246)
Sales and maturities of short-term investments 66,877 23,034 14,665
Other -- (28) --
----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (17,423) (8,993) 2,502
----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repurchase of common stock (4,711) (7,292) --
Proceeds from exercise of stock options 356 454 3,691
Proceeds from employee stock purchase plan 1,032 662 465
Repayment of capital lease obligations -- (118) (321)
Repayment of notes receivable from stockholders 10 -- --
----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (3,313) (6,294) 3,835
----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (13,261) 5,672 4,116
Cash and cash equivalents at beginning of year 21,521 15,849 11,733
Cash and cash equivalents at end of year $ 8,260 $ 21,521 $ 15,849
-----------------------------------------------------
-----------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest $ 66 $ 3 $ 24
-----------------------------------------------------
-----------------------------------------------------
Income taxes $ 308 $ 1,351 $ 5,656
-----------------------------------------------------
-----------------------------------------------------
Noncash financing and investing activities--common
stock issued for notes receivable from stockholders $ (185) $ (255) $ (465)
----------------------------------------------------
----------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998, DECEMBER 27, 1997, AND DECEMBER 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Mylex Corporation and its wholly-owned subsidiaries (the "Company" or
"Mylex"). 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.
B. USE OF ESTIMATES
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.
C. 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, provision is made for expected returns and price protection
at the time of shipment.
D. 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 component of other comprehensive income. Gains and losses on securities
sold are based on the specific identification method. Through December 26,
1998, 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 agency obligations, and corporate
debt securities that have maturities throughout 1999. 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 an allowance 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 26, 1998, is $1,165,000 restricted for
payment of officer bonuses, which had been earned in previous years.
E. INVENTORIES
Inventories are valued at the lower of first in, first out cost or market.
Appropriate consideration is given to obsolescence, excessive levels,
deterioration, and other factors in evaluating carrying value.
F. PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Assets recorded under capital
leases are stated at the lower of fair value or 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.
<PAGE>
13
G. PREPAID ROYALTIES
Prepaid royalties related to the licensing of existing technology for use
in the Company's RAID products are amortized to income ratably over the
term of the agreement, or based upon revenue recognized from the sale of
the products, depending on the structure of the agreement.
H. IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews 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. In the event that
facts and circumstances indicate that the carrying amount of long-lived
assets may be impaired, 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 must be recorded.
I. 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 financial reporting and tax bases 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.
J. 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.
K. EARNINGS (LOSS) 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 after giving
effect to dilutive potential common shares. Potential common shares consist
of shares issuable upon the exercise of stock options and warrants, except
where antidilutive, using the treasury stock method.
L. STOCK PLANS
The Company accounts for its stock option plans and employee stock purchase
plans using the intrinsic value method.
M. OTHER COMPREHENSIVE INCOME
Effective the first quarter of 1998, the Company adopted the provisions of
SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes
standards of reporting and display of comprehensive income and its
components of net income and other comprehensive income. Other
comprehensive income refers to revenues, expenses, gains and losses that
are not included in net income, but rather are recorded directly in
stockholders' equity. There was no material difference between net income
(loss) and total comprehensive income (loss) for all periods presented.
(2) SPECIAL CHARGES
A. RESTRUCTURING OF OPERATIONS
During the second quarter of 1998, the Company analyzed each of its
business initiatives based on their near-term market potential, the
projected financial investment, and the strategic opportunity. The Company
implemented a restructuring plan in July 1998 that resulted, in large part,
from the analysis. As a result, the Company announced a 7% workforce
reduction and discontinued the development activities of its Network Power
& Light (NP&L)-TM- division. The pretax charge for this restructuring
action was $4.3 million. This charge comprised $1.2 million for the
write-off of NP&L inventory included in cost of sales and $3.1 million of
other restructuring costs charged to operating expenses. The other
restructuring costs consisted of severance benefits, $1.6 million,
facilities consolidation, $0.1 million, and the write-off of related assets
to be abandoned, $1.4 million. A total of 47 employees were terminated
under the plan. As of December 31, 1998, $1.6 million of the $1.7 million
cash charges had been paid.
<PAGE>
14
B. LITIGATION SETTLEMENT
During January 1999, the Company reached a settlement of litigation with
the Company's former Chief Executive Officer. The total settlement, which
included cash of $2 million and warrants to purchase 400,000 shares of the
Company's common stock at its fair value on the date of grant, amounted to
$4.2 million. The fair value of the warrants was calculated using the
Black-Scholes pricing model with the following assumptions: expected
dividend yield of 0%, risk free interest rate of 4.52%, expected volatility
of 69%, and expected life of 3 years. After giving effect to amounts
previously provided, the settlement resulted in a charge to operations for
1998 of $3.7 million.
(3) 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 consolidated
financial statements have been restated to include the accounts and results
of operations of BusLogic for periods preceding the merger.
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.
(4) SHORT-TERM MARKETABLE INVESTMENTS
Fair values of short-term marketable investments are based on quoted market
values as of December 26, 1998 and December 27, 1997. As of December 26,
1998 and December 27, 1997, the difference between the fair value and
amortized cost of short-term marketable investments was not significant.
As of December 26, 1998 and December 27, 1997, short-term marketable
investments consisted of $34,739,000 and $23,062,000, respectively, of
corporate and U.S. government agency debt securities due within one year or
less.
(5) INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, 1998 DECEMBER 27, 1997
------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 7,535 $ 14,976
Work in process 3,903 3,428
Finished goods 7,802 7,462
------------------------------------------------------------------------------------------
$ 19,240 $ 25,866
--------------------------------
--------------------------------
</TABLE>
(6) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, 1998 DECEMBER 27, 1997
------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 5,356 $ 5,751
Furniture and fixtures 3,750 3,539
Computer equipment and software 9,976 7,637
------------------------------------------------------------------------------------------
19,082 16,927
Less accumulated depreciation and amortization 8,245 8,602
------------------------------------------------------------------------------------------
$ 10,837 $ 8,325
--------------------------------
--------------------------------
</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 or
December 26, 1998.
<PAGE>
15
(7) ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, 1998 DECEMBER 27, 1997
--------------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation and benefits $ 3,815 $ 2,858
Accrued litigation settlement 4,177 500
Accrued royalties 1,517 1,727
Income taxes payable 2,176 --
Other 3,405 1,403
--------------------------------------------------------------------------------
$ 15,090 $ 6,488
-------------------------------------
-------------------------------------
</TABLE>
(8) LINE OF CREDIT
The Company has an available $20,000,000 line of credit, which expires in
June 1999, bearing interest at the bank's prime rate, or Eurodollar or
LIBOR option rate, plus 1.75% (7.75% as of December 26, 1998). There were
no amounts outstanding under the line of credit as of December 26, 1998.
The agreement with the Company contains covenants that include a
profitability requirement, the maintenance of specific financial ratios and
prohibitions on additional indebtedness without the prior consent of the
bank. At December 26, 1998, the Company was not in compliance with the
covenant requiring annual and quarterly profitability on an operating and
after tax basis. However, the Company did receive a waiver from the lender
with regards to such non-compliance.
(9) INCOME TAXES
Income taxes (benefit) consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 26, 1998 DECEMBER 27, 1997 DECEMBER 31, 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal $ (1,505) $ (1,694) $ 3,291
State 6 3 296
--------------------------------------------------------------------------------------------------------------------
Total current (1,499) (1,691) 3,587
--------------------------------------------------------------------------------------------------------------------
Deferred tax expense (benefit):
Federal (2,436) (1,201) (351)
State (637) (834) 25
--------------------------------------------------------------------------------------------------------------------
Total deferred (3,073) (2,035) (326)
--------------------------------------------------------------------------------------------------------------------
Charge in lieu of taxes attributable
to employer stock option plan 387 238 6,869
-------------------------------------------------------------------------------------------------------------------
Total tax expense (benefit) $ (4,185) $ (3,488) $ 10,130
---------------------------------------------------
---------------------------------------------------
</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) was as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 26, 1998 DECEMBER 27, 1997 DECEMBER 31, 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax at 35% $ (3,958) $ (3,299) $ 9,582
State income tax, net of federal tax effect (394) (523) 1,093
Foreign sales corporation benefit -- -- (777)
Other, net 167 334 232
-------------------------------------------------------------------------------------------------------------------
Total tax expense (benefit) $ (4,185) $ (3,488) $ 10,130
-------------------------------------------------
-------------------------------------------------
</TABLE>
<PAGE>
16
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 26, 1998 DECEMBER 27, 1997
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable valuation reserves $ 59 $ 72
Lower of cost or market adjustments to inventory
and other tax related adjustments 2,956 3,517
Reserves and accruals for reporting purposes
not taken for tax purposes 2,802 879
State tax benefit, net of federal tax reduction 2 1
Net operating loss 248 170
Credit carryovers 2,103 346
Depreciation and amortization -- 16
-----------------------------------------------------------------------------------------------------
Total gross deferred tax assets 8,170 5,001
Deferred tax liabilities -- depreciation and amortization (96) --
-----------------------------------------------------------------------------------------------------
Net deferred tax assets $ 8,074 $ 5,001
------------------------------
------------------------------
</TABLE>
The Company has net operating loss carryforwards for state income tax
purposes of approximately $2,894,000. The state net operating loss
carryforwards expire beginning in 2002 through 2003.
There is no change in the valuation allowance for the year ended December
31, 1998. Management believes that no valuation allowance is required on
deferred tax assets based on historical and projected profitability.
The Company has research credit carryforwards for federal and California
income tax purposes of approximately $1,454,000 and $773,000, respectively.
The federal research credit carryforwards expire beginning in 2009 through
2018. The California research credits carryforward indefinitely.
(10) STOCKHOLDERS' EQUITY
A. EMPLOYEE STOCK PURCHASE PLANS
In December 1995, the Company adopted the 1995 Employee Stock Purchase
Plan, which authorized the issuance of up to 300,000 shares of its common
stock. The plan permitted 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 purchase period
within such offering period. During 1998, 1997, and 1996, 176,000, 89,000,
and 35,000 shares, respectively, were issued to employees pursuant to the
plan.
Since all shares were exhausted from the 1995 Employee Stock Purchase Plan
in November 1998, the Company's Board of Directors has approved a new 1998
Employee Stock Purchase Plan, which authorizes the issuance of up to
500,000 shares of the Company's 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 or end of each six-month offering period. The plan
will be submitted to the Company's stockholders for approval at the
Company's 1999 annual meeting of stockholders. To date, no shares have been
issued under the 1998 Employee Stock Purchase Plan.
B. STOCK OPTION PLANS
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 generally 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.
<PAGE>
17
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 AVAILABLE NUMBER OF RANGE OF AVERAGE
FOR GRANT SHARES EXERCISE PRICES EXERCISE PRICE
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances as of December 31, 1995 389,000 2,606,000 $ 0.48 - 18.88 6.16
Increases in number of shares available
for grant 850,000 -- -- --
Decreases 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 532,000 2,182,000 0.48 - 13.19 9.12
Increase 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 995,000 3,443,000 0.48 - 13.19 9.57
Granted (3,775,000) 3,775,000 5.75 - 10.34 6.66
Exercised -- (114,000) 3.88 - 9.75 4.78
Canceled 2,949,000 (2,949,000) 4.66 - 13.19 9.89
-------------------------------------
Balances as of December 26, 1998 169,000 4,155,000 0.48 - 12.88 6.84
-------------------------------------
-------------------------------------
Exercisable as of December 26, 1998 1,052,000 0.48 - 12.88 7.58
------------
------------
</TABLE>
The following table summarizes information about stock options
outstanding as of December 26, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------------------- -----------------------------
WEIGHTED-AVERAGE WEIGHTED-
RANGE OF NUMBER REMAINING CONTRACTUAL WEIGHTED-AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.48- 5.00 394,021 4.90 $ 4.55 394,021 $ 4.55
5.01-10.00 3,064,141 8.26 6.16 248,196 6.84
10.01-12.85 514,688 6.31 10.51 334,811 10.51
12.86-12.88 182,500 7.14 12.88 74,500 12.88
------------ ----------
0.48-12.88 4,155,350 7.65 6.84 1,051,528 7.58
------------ ----------
</TABLE>
During October 1998, the Company offered option holders under its stock
option plans, excluding its President and CEO and Directors, the
opportunity to have outstanding options repriced to the then current fair
market value of the Company's common stock of $5.81 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 31, 1998, the Company canceled and reissued options to acquire
1,952,129 shares of common stock.
During October 1996, the Company offered option holders under its stock
option plans, with options at exercise prices above the then fair market
value of its common stock, the opportunity to have those options repriced
to the then current fair market value of
<PAGE>
18
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.
C. FAIR VALUE DISCLOSURES
The Company uses the intrinsic value method 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 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 26, 1998 DECEMBER 27, 1997 DECEMBER 31, 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss): As reported $ (7,125) (5,939) 17,250
Pro forma (11,063) (8,860) 15,003
Earnings (loss) per share:
Basic: As reported (0.36) (0.29) 0.85
Pro forma (0.55) (0.42) 0.74
Diluted: As reported (0.36) (0.29) 0.81
Pro forma (0.55) (0.42) 0.70
</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
1998, 1997, and 1996 was $ 3.61, $5.51, and $8.34, respectively, on the
date of grant as estimated using the Black-Scholes option pricing model
with the following weighted-average assumptions: 1998 - expected dividend
yield of 0%, risk free interest rate of 4.52%, expected volatility of 69%,
and expected life of 3.79 years; 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 an expected life of 4 years.
Under SFAS No. 123, compensation cost is calculated for the fair value of
the employees' purchase rights granted under the Company's employee stock
purchase plans, which was estimated using the Black-Scholes model with the
following assumptions for 1998, 1997, and 1996: dividend yield of 0% for
all years; expected life of six months for 1998 and nine months for all
other years; expected volatility of 69%, 56%, and 73%, respectively; and
risk free interest rate of 5.42%, 5.75%, and 5.12%, 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 1998,
1997, and 1996 was $2.62, $2.61, and $6.81, respectively.
During July and September 1996, the Company received notes from 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
aggregate principal amount of 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 the
Company's stock if they cease to be a director of the Company. The term of
each of these notes was extended for a year as of the initial maturity
date. In 1998, an additional year was added to the extended maturity date.
In September 1998, after one of these directors resigned, his note, issued
in September 1996 and the maturity of which had been extended to September
1998, was extended to September 1999 by the Board.
During March 1997, the Company received notes from the executive officers
of the Company related to their exercise of options. A total of 51,827
shares were issued to these officers for $255,000 in aggregate principal
amount of notes. The notes are full recourse, bear interest at 6.5%, and
are due on the earlier of two years from issuance or 30 days after the
officer could first sell shares of the Company's common stock if they cease
to be an employee of the Company.
During March and July 1998, the Company received notes from three directors
of the Company related to their exercise of options. A
<PAGE>
19
total of 47,738 shares were issued to these directors for cash and
$185,000 in aggregate principal amount of notes. The notes are full
recourse, bear interest at 6.5% and are due on the earlier of two years
from issuance or 30 days after the director could first sell shares of
the Company's common stock if they cease to be a director of the
Company.
D. 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 the Company's common stock held by stockholders of
record on May 23, 1997, and for each share of the Company's common stock
subsequently issued. 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 Board of
Directors determines 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% or 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.
E. 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 1998 and 1997 totaled 667,900 and 732,500 shares at a cost of
approximately $4,711,000 and $7,292,000, respectively.
F. EARNINGS (LOSS) PER SHARE
A reconciliation of the shares used in the computation for basic and
diluted earnings (loss) per share follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 26, 1998 DECEMBER 27, 1997 DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS--weighted-average
number of outstanding common share 19,934 20,387 20,277
Effect of dilutive securities--stock options -- -- 1,082
----------------------------------------------------------
Diluted EPS--weighted-average number of common
and potential common shares outstanding 19,934 20,387 21,359
----------------------------------------------------------
</TABLE>
As of December 26, 1998, December 27, 1997, and December 31, 1996, there
were outstanding 4,155,000, 2,007,348, and 116,146 options to acquire
shares of common stock with weighted-average exercise prices of $6.84,
$11.50, and $22.12, respectively, which could potentially dilute basic
earnings per share in the future but which were not included in the
computation of diluted earnings per share as their effect was antidilutive
in the periods presented.
(11) 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 1998, 1997, and 1996, were
$540,422, $466,000, and $318,000, respectively.
<PAGE>
20
(12) INDUSTRY INFORMATION AND CERTAIN CONCENTRATIONS
The Company operates in one industry and is engaged in the design,
marketing, and support of high-performance hardware and software for
moving, storing, protecting and managing data in network and desktop
environments. The Company produces RAID controllers, SCSI adapters, and
complementary computer products for network servers, mass storage systems,
workstations, and system motherboards. The Company sells its products
globally to OEMs and through a network of major distributors, VARs, and
systems integrators.
Sales to major customers from 1998, 1997, and 1996, as a percentage of net
sales, and the amount receivable (in thousands) as of December 26, 1998,
from such customers were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------------------- GROSS AMOUNT
1998 1997 1996 RECEIVABLE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Compaq Computer
(formerly Digital Equipment) 25% 23% 17% $ 1,474
Siemens Nixdorf 16 10 5 965
NEC 8 8 6 2,253
IBM -- 4 14 --
Hewlett-Packard -- 2 14 689
</TABLE>
Export sales, principally to Europe and Japan, comprised 75%, 73%, and 65%
of net sales in 1998, 1997, and 1996, respectively. Sales of the Company's
RAID controller products comprised 95%, 88%, and 87%, of net sales in 1998,
1997, and 1996, respectively. The Company's other product line consists of
host bus adapters also used in mass storage systems.
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.
(13) COMMITMENTS
Future minimum payments under leases as of December 26, 1998, will be as
follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING OPERATING LEASES
--------------------------------------------------------
<S> <C>
1999 $ 1,379
2000 1,399
2001 798
2002 616
2003 371
--------------------------------------------------------
$ 4,563
---------------
</TABLE>
The Company leases its facilities in Fremont, California, and Boulder,
Colorado, under noncancelable operating lease agreements that expire in
2003 and provide for renewal options. Under these leases, the Company is
required to pay property taxes, insurance, and normal maintenance costs.
Rent expense was $1,607,800, $1,692,000, and $1,578,000 in 1998, 1997, and
1996, respectively.
<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 26, 1998 and December 27, 1997,
and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 26, 1998. 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 26, 1998 and December 27, 1997,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 26, 1998, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
Mountain View, California
January 26, 1999
<PAGE>
CORPORATE DIRECTORY
<TABLE>
<CAPTION>
BOARD OF DIRECTORS INTERNET FORM 10-K
<S> <C> <C>
MR. ISMAEL DUDHIA For more complete information about If you would like to receive, without
Chairman of the Board Mylex Corporation, visit our web site charge, a copy of the Company's Form
Mylex Corporation at http://www.mylex.com 10-K, as filed with the Securities and
Exchange Commission, or other share-
MR. AL MONTROSS holder communications, please
President and Chief Executive Officer CORPORATE COUNSEL send your request to:
Mylex Corporation
BROWN & BAIN INVESTOR RELATIONS DEPARTMENT
DR. M. YAQUB MIRZA MYLEX CORPORATION
President and Chief Executive Officer 1755 Embarcadero Road, Suite 200 34551 Ardenwood Boulevard
Mar-Jac Investments, Incorporated Palo Alto, California 94303 Fremont, California 94555
510-608-2464
DR. INDER M. SINGH [email protected]
Chairman and Chief Executive Officer INDEPENDENT AUDITORS
Lynx Real-Time Systems, Incorporated
KPMG LLP STOCK LISTING
MR. STEPHEN MCKENZIE 500 E. Middlefield Road
Chairman of the Board Mountain View, California 94043 Mylex Corporation
Resource Management, Incorporated Common Stock is traded on the
Nasdaq Stock Market under MYLX
MR. WALT WILSON TRANSFER AGENT AND REGISTRAR
Sr. Vice President Supply Chain
Integration and Information Technology EQUISERVE ANNUAL MEETING
Solectron Corporation Shareholder Services
P.O. Box 8040 The Annual Meeting of Stockholders
Boston, Massachusetts 02266-8040 will be held at 2:00 p.m. on Monday,
EXECUTIVE OFFICERS May 17, 1999 at:
MR. AL MONTROSS CORPORATE HEADQUARTERS Sheraton Palo Alto
President, Chief Executive Officer and 625 El Camino Real
Director MYLEX CORPORATION Palo Alto, California 94301
34551 Ardenwood Boulevard
MRS. COLLEEN GRAY Fremont, California 94555-3607
Vice President-Finance and Chief
Financial Officer
MR. KRISHNAKUMAR RAO
Sr. Vice President and
Chief Technology Officer
MR. JOSEPH A. SCHMIDT
Vice President-Human Resources
MR. BAL SINGH
Vice President-Operations
MR. RONALD G. VON TRAPP
Vice President-World Wide
Sales and Marketing
</TABLE>
Mylex Corporation 34551 Ardenwood Boulevard, Fremont, California 94555
pho / 510.796.6100 800.77.Mylex www.mylex.com 4760-PS-99
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS'
The Board of Directors and Shareholders
Mylex Corporation:
We consent to the incorporation by reference in the Registration Statements No.
033-30104, No. 333-01283, No. 333-11655, No. 333-08974, No. 033-88198, No.
033-61877, No. 033-31283 on Form S-8 of Mylex Corporation our report dated
January 26, 1999, relating to the consolidated balance sheets of Mylex
Corporation and Subsidiaries as of December 26, 1998 and December 27, 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 26, 1998,
which report appears in the 1998 Mylex Corporation Annual Report to Shareholders
and is incorporated by reference in the December 26, 1998 annual report on Form
10-K of Mylex Corporation, and our report dated January 26, 1999, on the related
financial schedule which appears in the 1998 annual report on Form 10-K.
/s/ KPMG LLP
Mountain View, California
March 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> DEC-26-1998
<CASH> 8,260
<SECURITIES> 34,739
<RECEIVABLES> 24,705
<ALLOWANCES> (159)
<INVENTORY> 19,240
<CURRENT-ASSETS> 99,059
<PP&E> 19,082
<DEPRECIATION> (8,245)
<TOTAL-ASSETS> 111,143
<CURRENT-LIABILITIES> 28,899
<BONDS> 0
0
0
<COMMON> 212
<OTHER-SE> 82,032
<TOTAL-LIABILITY-AND-EQUITY> 111,143
<SALES> 135,727
<TOTAL-REVENUES> 140,183
<CGS> 88,467
<TOTAL-COSTS> 145,146
<OTHER-EXPENSES> 3,759
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,867)<F1>
<INCOME-PRETAX> (11,310)
<INCOME-TAX> (4,185)
<INCOME-CONTINUING> (7,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,125)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
<FN>
<F1>Net of interest income and interest expense
</FN>
</TABLE>
