<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
QLOGIC CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0537669
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
------------------------
3545 HARBOR BOULEVARD, COSTA MESA, CALIFORNIA 92626
(714) 438-2200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
THOMAS R. ANDERSON
VICE PRESIDENT -- FINANCE, CHIEF FINANCIAL OFFICER
QLOGIC CORPORATION
3545 HARBOR BOULEVARD, COSTA MESA, CALIFORNIA 92626
(714) 438-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
NICK E. YOCCA, ESQ. JORGE A. DEL CALVO, ESQ.
K.C. SCHAAF, ESQ. STANTON D. WONG, ESQ.
MICHAEL H. MULROY, ESQ. GEORGE A. GUCKER, ESQ.
NUMAN J. SIDDIQI, ESQ. ANN E. TARDY, ESQ.
STRADLING, YOCCA, CARLSON & RAUTH, PILLSBURY MADISON & SUTRO LLP
A PROFESSIONAL CORPORATION 2700 SAND HILL ROAD
660 NEWPORT CENTER DRIVE, SUITE 1600 MENLO PARK, CALIFORNIA 94025
NEWPORT BEACH, CALIFORNIA 92660 PHONE: (415) 233-4500
PHONE: (714) 725-4000 FAX: (415) 233-4545
FAX: (714) 725-4100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
===============================================================================================================
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED(1) REGISTERED(2) PER SHARE(3) PRICE (2)(3) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
Common Stock ($.10 par value)...... 2,300,000 shares $22.875 $52,612,500 $15,944
===============================================================================================================
</TABLE>
(1) This Registration Statement also applies to preferred stock purchase rights
under the Registrant's Rights Agreement which are attached to and tradable
only with the shares of Common Stock registered hereby. No registration fee
is required for such rights as they will be issued for no additional
consideration.
(2) Includes 300,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(3) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee based upon the average of the high and low prices of the
Company's Common Stock on the Nasdaq National Market on April 23, 1997.
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated April 25, 1997
2,000,000 Shares
[QLOGIC LOGO]
Common Stock
------------------------------
All of the 2,000,000 shares of Common Stock (the "Common Stock") offered
hereby are being issued and sold by QLogic Corporation ("QLogic" or the
"Company"). The Common Stock is quoted on the Nasdaq National Market under the
symbol "QLGC." The last sale price for the Common Stock on April 24, 1997, as
reported on the Nasdaq National Market, was $22.375 per share. See "Price Range
of Common Stock."
------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 HEREOF.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================
Price to Proceeds to
Public Underwriting Company (2)
Discounts and
Commissions (1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............... $ $ $
Total (3)............... $ $ $
====================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses, estimated to be $400,000, payable by the Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 300,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such shares are
purchased, the total Price to the Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of certificates for the shares will be made at the offices of Cowen &
Company, New York, New York, on or about , 1997.
COWEN & COMPANY
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
, 1997
<PAGE> 3
[DIAGRAM DEPICTING THE COMPANY'S SEMICONDUCTOR PRODUCTS APPLICATIONS IN A
COMPUTER MOTHERBOARD AND VARIOUS DATA STORAGE PERIPHERALS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET AND MAY
IMPOSE PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus or incorporated by
reference to this Prospectus. The discussion in this Prospectus contains
forward-looking statements, within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve
risks and uncertainties, such as statements of the Company's strategies, plans,
objectives, expectations and intentions. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors discussed elsewhere in this Prospectus. Except as
otherwise indicated, the information contained in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. Certain technical terms are
defined in the Glossary on page 41 of this Prospectus.
THE COMPANY
QLogic Corporation is a leading designer and supplier of semiconductor and
board level I/O products. The Company's products provide a high performance
interface between computer systems and their attached data storage peripherals,
such as hard disk and tape drives, CD-ROM drives and RAID subsystems. QLogic
provides complete I/O technology solutions by designing and marketing single
chip controller and adapter board products for both sides of the
computer/peripheral device interlink, or "bus." Historically, the Company has
targeted the high performance sector of the I/O market, focusing primarily on
the SCSI industry standard. The Company is utilizing its I/O expertise to
develop products for emerging I/O standards, such as Fibre Channel. Fibre
Channel is experiencing early industry acceptance as a higher performance
solution that maintains signal integrity while allowing for increased
connectivity between a computer system and its data storage peripherals.
QLogic's products utilize various I/O standards to service the needs of
manufacturers and end users of various types of computer systems and components,
such as workstations, servers and data storage peripherals. The Company believes
that the increasing processing power of computers, the proliferation of
networks, the rapid growth in the usage of the Internet and intranets, the wider
application of computers in multimedia and telecommunications applications and
the availability of higher performance data storage peripherals have driven the
demand for increased data throughput among servers, workstations and data
storage peripherals. To address this demand for increased I/O system
performance, the Company provides high performance SCSI-based solutions and new
I/O solutions based on the emerging Fibre Channel standard. In addition, the
Company is leveraging its technological expertise to provide I/O solutions based
on the IDE standard, a cost effective solution for the personal computer market.
The Company believes that its technological leadership, extensive
involvement in its customers' product development process and the ease of
migration of its SCSI-based products to its new I/O products position QLogic to
provide additional I/O solutions to its existing customer base. The Company
believes that these attributes also provide it with competitive advantages in
establishing new relationships with additional OEMs for both computer systems
and data storage peripherals. QLogic markets and distributes its products
through a direct sales organization supported by field application engineers, as
well as through a network of independent manufacturers' representatives and
regional and international distributors. The Company's primary OEM customers are
major domestic and international suppliers and manufacturers of servers,
workstations and data storage peripherals, such as Sun Microsystems, Inc.,
Fujitsu Limited and Digital Equipment Corporation.
The Company is the successor to the Emulex Micro Devices division of Emulex
Corporation. The Company was incorporated in Delaware in 1992, as Emulex Micro
Devices Corporation, a wholly-owned subsidiary of Emulex Corporation, and, in
1993, substantially all of the assets of the Emulex Micro Devices division were
transferred to the Company. In February 1994, pursuant to its spinoff from
Emulex Corporation, the Company became a separate publicly held corporation. The
terms "QLogic" and "Company" refer to QLogic Corporation and, for periods prior
to January 1993, the Emulex Micro Devices division of Emulex Corporation. The
Company's principal executive offices are located at 3545 Harbor Boulevard,
Costa Mesa, California 92626, and its telephone number is (714) 438-2200. FAS,
QLogic and the QLogic logo are trademarks of the Company.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.............. 2,000,000 shares
Common Stock to be outstanding after the
offering....................................... 7,840,701 shares (1)
Use of proceeds.................................. For working capital and general corporate
purposes. See "Use of Proceeds."
Nasdaq National Market symbol.................... QLGC
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------- -----------------
APR. 3, APR. 2, MAR. 31, DEC. 31, DEC. 29,
1994 1995 1996 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues................................... $44,902 $57,675 $53,779 $37,561 $49,896
Gross profit................................... 16,754 23,390 19,366 13,640 21,298
Operating income (loss)........................ (3,531) 3,379 1,184 (92) 6,120
Net income (loss).............................. $(4,749) $ 1,965 $ 666 $ (66) $ 3,822
Net income (loss) per common and equivalent
share (2)................................... $ 0.35 $ 0.12 $ (0.01) $ 0.61
Weighted average common and common equivalent
shares (2).................................. 5,567 5,737 5,552 6,301
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------
JULY 2, OCT. 1, DEC. 31, MAR. 31, JUNE 30, SEPT. 29, DEC. 29,
1995 1995 1995 1996 1996 1996 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SELECTED QUARTERLY DATA (3):
Net revenues.................. $ 9,570 $13,105 $14,886 $16,218 $15,740 $16,725 $17,431
Gross profit.................. 3,575 4,629 5,436 5,726 6,155 7,103 8,040
Operating income (loss)....... (1,162) 375 695 1,276 1,592 1,872 2,656
Net income (loss)............. $ (724) $ 214 $ 444 $ 732 $ 967 $ 1,178 $ 1,677
Net income (loss) per common
and equivalent share....... $ (0.13) $ 0.04 $ 0.08 $ 0.13 $ 0.16 $ 0.20 $ 0.26
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 29, 1996
---------------------------
ACTUAL AS ADJUSTED (4)
------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................................... $16,853 $58,742
Total assets...................................................... 32,871 74,760
Long term obligations............................................. 1,325 1,325
Total stockholders' equity........................................ 21,829 63,718
</TABLE>
- ---------------
(1) Based on the number of shares outstanding as of April 15, 1997. Excludes
838,755 shares subject to options outstanding as of March 30, 1997 under the
Company's stock option plans at a weighted average exercise price of $9.00
per share.
(2) Share and per share data have not been presented for periods prior to the
fiscal year ended April 2, 1995 as the Company operated as a wholly-owned
subsidiary of Emulex Corporation.
(3) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Selected Quarterly Results of Operations."
(4) Adjusted to reflect the sale by the Company of the 2,000,000 shares of
Common Stock offered hereby at an assumed public offering price of $22.375
per share and the receipt of the estimated net proceeds therefrom. See "Use
of Proceeds."
4
<PAGE> 6
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should consider carefully the following risk factors in evaluating an
investment in the Company and its business before purchasing any shares of the
Common Stock offered hereby.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results from quarter to quarter. As a
result, the Company believes that period to period comparisons of its operating
results are not necessarily meaningful, and that such comparisons cannot be
relied upon as indicators of future performance. In addition, there can be no
assurance that the Company will maintain its current profitability in the
future. A significant portion of the Company's net revenues in each fiscal
quarter results from orders booked in that quarter. In the past, a significant
percentage of the Company's quarterly bookings and sales to major customers
occurred during the last month of the quarter, and there can be no assurance
that this trend will not return in the future. Orders placed by major customers
are typically based on their forecasted sales and inventory levels for the
Company's products. Changes in purchasing patterns by one or more of the
Company's major customers, customer order changes or rescheduling, gain or loss
of significant customers, customer policies pertaining to desired inventory
levels of the Company's products, negotiations of rebates and extended payment
terms, as well as changes in the ability of the Company to anticipate in advance
the mix of customer orders, could result in material fluctuations in quarterly
operating results. Certain large OEM customers may require the Company to
maintain higher levels of inventory as such customers attempt to minimize their
own inventories. In addition, the Company must order its products and build
inventory substantially in advance of product shipments, and because the markets
for the Company's products are subject to rapid technological and price changes,
there is a risk the Company will forecast incorrectly and produce excess or
insufficient inventory of particular products. To the extent the Company
produces excess or insufficient inventory or is required to hold excess
inventory, the Company's operating results could be adversely affected. Other
factors that could cause the Company's sales and operating results to vary
significantly from period to period include: the time, availability and sale of
new products; seasonal OEM customer demand, such as the decline experienced in
the fiscal quarter ended June 30, 1996; changes in the mix of products having
differing gross margins; variations in manufacturing capacities, efficiencies
and costs; the availability and cost of components, including silicon wafers;
warranty expenses; variations in product development and other operating
expenses; and general economic and other conditions affecting the timing of
customer orders and capital spending. The Company's quarterly results of
operations are also influenced by competitive factors, including pricing and
availability of the Company's and its competitors' products. Although the
Company does not maintain its own wafer manufacturing facility, a large portion
of the Company's expenses are fixed and difficult to reduce in a short period of
time. If net revenues do not meet the Company's expectations, the Company's
fixed expenses would exacerbate the effect on net income of such shortfall in
net revenues. Furthermore, announcements by the Company, its competitors or
others regarding new products and technologies could cause customers to defer
purchases of the Company's products. Order deferrals by the Company's customers,
delays in the Company's introduction of new products and longer than anticipated
design-in cycles for the Company's products have in the past adversely affected
the Company's quarterly results of operations. Due to all of the foregoing
factors, as well as other unanticipated factors, it is likely that in some
future quarter or quarters the Company's operating results will be below the
expectations of public market analysts or investors. In such event, the price of
the Company's Common Stock would likely be materially and adversely affected.
See "-- Reliance on High Performance Computer and Computer Peripheral Market,"
"-- Volatility of Stock Price" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON SMALL NUMBER OF CUSTOMERS
A small number of customers account for a substantial portion of the
Company's net revenues, and the Company expects that a limited number of
customers will continue to represent a substantial portion of the Company's net
revenues for the foreseeable future. The Company's six largest customers in each
respective period accounted for approximately 73%, 81% and 71% of the Company's
net revenues for the nine months
5
<PAGE> 7
ended December 29, 1996 and for fiscal 1996 and 1995, respectively. For the nine
months ended December 29, 1996, Tokyo Electron Limited, Sun Microsystems, Inc.
and Fujitsu Limited accounted for approximately 24%, 18% and 16% of the
Company's net revenues, respectively. For fiscal 1996, Tokyo Electron Limited,
Sun Microsystems, Inc. and Avex Electronics, Inc. accounted for approximately
42%, 13% and 11% of the Company's net revenues, respectively. For fiscal 1995,
Tokyo Electron Limited, Micropolis Corporation and Digital Equipment Corporation
accounted for approximately 24%, 14% and 11% of the Company's net revenues,
respectively. There can be no assurance that sales to such customers will
continue or remain at comparable levels. In particular, the Company expects that
sales to Tokyo Electron Limited will significantly decrease as the Company
establishes a direct sales channel and a replacement distributor relationship in
Japan. The Company's operating results have been, and may continue to be,
adversely affected by the development of alternative input/output ("I/O")
solutions including the internal development by the Company's customers of
products competitive with those of the Company. For example, the Company's
results of operations during fiscal year ended March 31, 1996 were adversely
affected as a result of the loss of a large OEM customer as such customer
transitioned to a more vertically integrated manufacturing policy, and industry
consolidation that resulted in the acquisitions of other large customers. The
loss of any of the Company's major customers would have a materially adverse
effect on its business, financial condition and results of operations. In
addition, a majority of the Company's customers order the Company's products
through written purchase orders as opposed to long term supply contracts and,
therefore, such customers are generally not obligated to purchase products from
the Company for any specified period. Major customers also have significant
leverage over the Company and may attempt to change the terms, including
pricing, upon which the Company and such customers do business, which could
materially adversely affect the Company's business, financial condition and
results of operations. As the Company's OEM customers are pressured to reduce
prices as a result of competitive factors, the Company may be required to
contractually commit to price reductions for its products before it knows how,
or if, cost reductions can be obtained. If the Company is unable to achieve such
cost reductions, the Company's gross margins could decline and such decline
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the Company provides its major
distributors and certain volume purchasers with price protection in the event
that the Company reduces the prices of its products. While the Company maintains
reserves for such price protection, there can be no assurance that the impact of
future price reductions by the Company will not exceed the Company's reserves in
any specific fiscal period. Any price protection in excess of recorded reserves
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "-- Fluctuations in Quarterly Operating
Results," "-- Volatility of Stock Price" and "Business -- Customers."
COMPETITION
The markets for both peripheral and host computer products are highly
competitive and are characterized by short product life cycles, price erosion,
rapidly changing technology, frequent product performance improvements and
evolving industry standards. Competition typically occurs at the design stage,
where the customer evaluates alternative design approaches. Because of shortened
product life cycles and even shorter design-in cycles, the Company's competitors
have increasingly frequent opportunities to achieve design wins in next
generation systems. A design win usually ensures a customer will purchase the
product until a higher performance standard is available or a competitor can
demonstrate a significant price/performance advantage. All of the Company's
products compete with products available from several companies, many of which
have substantially greater research and development, long term guaranteed supply
capacity, marketing and financial resources, manufacturing capability and
customer support organizations than those of the Company. The Company believes
that its future operating results will depend, in part, upon its ability to
continue to improve product and process technologies and develop new
technologies in order to maintain the performance advantages of products and
processes relative to competitors, to adapt products and processes to
technological changes, and to identify and adopt emerging industry standards.
Because of the complexity of its products, the Company has experienced delays
from time to time in completing products on a timely basis. If the Company is
unable to design, develop and introduce competitive new products on a timely
basis, its future operating results would be adversely affected.
6
<PAGE> 8
The Company currently competes primarily with Adaptec, Inc. and Symbios
Logic, Inc. In the Fibre Channel sector of the I/O market, the Company expects
to compete primarily with Adaptec, Inc., Symbios Logic, Inc. and Hewlett-Packard
Company. In the Integrated Drive Electronics ("IDE") sector, the Company expects
to compete with Adaptec, Inc., and Cirrus Logic, Inc. The Company may compete
with some of its larger disk drive and computer systems customers, some of which
have the capability to develop I/O controller integrated circuits for use in
their products. At least one large OEM customer in the past has decided to
vertically integrate and has therefore ceased purchases from the Company.
The Company will have to continue to develop products appropriate to its
markets to remain competitive as its competitors continue to introduce products
with improved performance characteristics. While the Company continues to devote
significant resources to research and development, there can be no assurance
that such efforts will be successful or that the Company will develop and
introduce new technology and products in a timely manner. In addition, while
relatively few competitors offer a full range of Small Computer System Interface
("SCSI") and other I/O products, additional domestic and foreign manufacturers
may increase their presence in, and resources devoted to, these markets. There
can be no assurance that the Company will compete successfully in the future.
See "-- Rapid Technological Change; Dependence on New Products; Industry
Standards" and "Business -- Competition."
DEPENDENCE ON WAFER SUPPLIERS AND OTHER SUBCONTRACTORS
The Company currently relies on several independent foundries to
manufacture its semiconductor products either in finished form or wafer form.
The Company conducts business with its foundries through written purchase orders
as opposed to long term supply contracts and, therefore, such foundries are
generally not obligated to supply products to the Company for any specific
period, in any specific quantity or at any specified price, except as may be
provided in a particular purchase order. To the extent a foundry terminates its
relationship with the Company or should the Company's supply from a foundry be
interrupted or terminated for any other reason, the Company may not have a
sufficient amount of time to replace the supply of products manufactured by that
foundry. Until recently, there has been a worldwide shortage of advanced process
technology foundry capacity. The manufacture of semiconductor devices is subject
to a wide variety of factors, including the availability of raw materials, the
level of contaminants in the manufacturing environment, impurities in the
materials used, and the performance of personnel and equipment. The Company is
continuously evaluating potential new sources of supply. However, the
qualification process and the production ramp-up for additional foundries has in
the past taken, and could in the future take, longer than anticipated. There can
be no assurance that new supply sources will be able or willing to satisfy the
Company's wafer requirements on a timely basis or at acceptable quality or per
unit prices. While the quality, yield and timeliness of wafer deliveries to date
have been acceptable, there can be no assurance that manufacturing yield
problems will not occur in the future.
The Company is using multiple sources of supply for certain of its
products, which may require the Company's customers to perform separate product
qualifications. The Company has not, however, developed alternate sources of
supply for certain other products and its newly introduced products are
typically produced initially by a single foundry until alternate sources can be
qualified. In particular, the Company's integrated single chip Fibre Channel
controller is manufactured by LSI Logic Corporation ("LSI Logic") and integrates
LSI Logic's transceiver technology. In the event that LSI Logic is unable or
unwilling to satisfy the Company's requirements for this technology, the
Company's attempt to market Fibre Channel products would be delayed and, as
such, its results of operations could be materially and adversely affected. The
requirement that a customer perform separate product qualifications or a
customer's inability to obtain a sufficient supply of products from the Company
may cause that customer to satisfy its product requirements from the Company's
competitors, which would adversely affect the Company's results of operations.
See "-- Rapid Technological Change; Dependence on New Products; Industry
Standards."
The Company's ability to obtain satisfactory wafer and other supplies is
subject to a number of other risks. The Company's suppliers may be subject to
injunctions arising from alleged violations of third party intellectual property
rights. The enforcement of such an injunction could impede a supplier's ability
to provide wafers, components or packaging services to the Company. In addition,
the Company's flexibility to move production of any particular product from one
foundry to another can be limited in that such a move can require significant
re-engineering, which may take several quarters. These efforts also divert
engineering resources which otherwise
7
<PAGE> 9
could be dedicated to new product development and adversely affect new product
development schedules. Accordingly, production may be constrained even though
capacity is available at one or more foundries. In addition, the Company could
encounter supply shortages if sales grow substantially. The Company uses
domestic and offshore subcontractors for die assembly of its semiconductor
products purchased in wafer form, and for assembly of its host adapter board
products. The Company's reliance on independent subcontractors to provide these
services involves a number of risks, including the absence of guaranteed
capacity and reduced control over delivery schedules, quality assurance and
costs. The Company is also subject to the risks of shortages and increases in
the cost of raw materials used in the manufacture or assembly of the Company's
products. In addition, the Company may receive orders for large volumes of
products to be shipped within short periods, and the Company may not have
sufficient testing capacity to fill such orders. Constraints or delays in the
supply of the Company's products, whether because of capacity constraints,
unexpected disruptions at the Company's foundries or subcontractors, delays in
obtaining additional production at the existing foundries or in obtaining
production from new foundries, shortages of raw materials, or other reasons,
could result in the loss of customers and other material adverse effects on the
Company's operating results, including effects that may result should the
Company be forced to purchase products from higher cost foundries or pay
expediting charges to obtain additional supply. See "Business -- Manufacturing."
TRANSACTIONS TO OBTAIN MANUFACTURING CAPACITY; FUTURE CAPITAL NEEDS
Although the Company is currently not experiencing any difficulties in
obtaining sufficient foundry capacity due to the current abundance of worldwide
semiconductor fabrication capacity, the Company and the semiconductor industry
have in the past experienced shortages of available foundry capacity.
Accordingly, in order to obtain adequate supply of wafers, especially wafers
manufactured using advanced process technologies, the Company may consider
various possible transactions, including the use of "take or pay" contracts that
commit the Company to purchase specified quantities of wafers over extended
periods or equity investments in or advances to wafer manufacturing companies in
exchange for guaranteed production capacity, or the formation of joint ventures
to own and operate or construct foundries or to develop certain products. Any of
these transactions would involve financial risk to the Company and could require
the Company to commit substantial capital or provide technology licenses in
return for guaranteed production capacity. The need to commit substantial
capital may require the Company to seek additional equity or debt financing. The
sale or issuance of additional equity or convertible debt securities could
result in dilution to the Company's stockholders. There can be no assurance that
such additional financing, if required, will be available when needed or, if
available, will be on terms acceptable to the Company. See "Use of Proceeds."
RELIANCE ON HIGH PERFORMANCE COMPUTER AND COMPUTER PERIPHERAL MARKET
A significant portion of the Company's host adapter board products are
currently used in high-performance file servers, workstations and other office
automation products. The Company's growth has been supported by increasing
demand for sophisticated I/O solutions which support database systems, servers,
workstations, Internet/intranet applications, multimedia and telecommunications.
Should there be a slowing in the growth of demand for such systems, the
Company's business, financial condition and results of operations could be
materially and adversely affected.
As a supplier of controller products to manufacturers of computer
peripherals such as disk drives and other data storage devices, a portion of the
Company's business is dependent on the overall market for computer peripherals.
This market, which itself is dependent on the market for computers, has
historically been characterized by periods of rapid growth followed by periods
of oversupply and contraction. As a result, suppliers to the computer
peripherals industry from time to time experience large and sudden fluctuations
in demand for their products as their customers adjust to changing conditions in
their markets. If these fluctuations are not accurately anticipated, such
suppliers, including the Company, could produce excessive or insufficient
inventories of various components which could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"-- Fluctuations in Quarterly Operating Results."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS; INDUSTRY STANDARDS
The markets in which the Company and its competitors compete are
characterized by rapidly changing technology, evolving industry standards and
continuing improvements in products and services. The Company's
8
<PAGE> 10
future success depends on its ability to enhance its current products and to
develop and introduce in a timely manner new products that keep pace with
technological developments and industry standards, compete effectively on the
basis of price and performance, adequately address OEM customer and end-user
customer requirements and achieve market acceptance. The Company believes that
to remain competitive in the future it will need to continue to develop new
products, which will require the investment of significant financial resources
in new product development. In anticipation of the implementation of Fibre
Channel data transfer interface technologies, the Company has invested and will
continue to invest significant resources in developing its integrated circuit
single chip PCI to Fibre Channel controllers. There can be no assurance that
Fibre Channel will be adopted as a predominant industry standard. The Company is
aware of products for alternative I/O standards and enabling technologies being
developed by its competitors. The Company believes that certain competitors,
including Symbios Logic, Inc., have extensive development efforts related to
products based on the Low Voltage Differential ("LVD") technology. There can be
no assurance that such technology will not be adopted as an industry standard
and if an alternative standard is adopted, there can be no assurance the Company
will timely develop products for such standard. Further, even if Fibre Channel
is adopted, there can be no assurance that the Company's integrated PCI to Fibre
Channel controller will be fully developed in time to be accepted for use in
Fibre Channel technology or that, if developed, will achieve market acceptance,
or be capable of being manufactured at competitive prices in sufficient volumes.
In the event that Fibre Channel is not adopted as an industry standard, or that
the Company's integrated circuit PCI to Fibre Channel controllers are not timely
developed or do not gain market acceptance, the Company's business, financial
condition and results of operations could be materially and adversely affected.
The computer industry is characterized by various standards and protocols
that evolve with time. The Company's current products are designed to conform to
certain industry standards and protocols such as IDE, SCSI, Ultra SCSI and PCI.
In addition, the Company's Fibre Channel products have been designed to conform
with a standard that has yet to be uniformly adopted. The Company's products
must be designed to operate effectively with a variety of hardware and software
products supplied by other manufacturers, including microprocessors, operating
system software and peripherals. The Company depends on significant cooperation
with these manufacturers in order to achieve its design objectives and produce
products that interoperate successfully. While the Company believes that it
generally has good relationships with leading microprocessor, systems and
peripheral suppliers, there can be no assurance that such suppliers will not
from time to time make it more difficult for the Company to design its products
for successful interoperability. If industry acceptance of these standards was
to decline or if they were replaced with new standards, and if the Company did
not anticipate these changes and develop new products, the Company's business,
financial condition and results of operations could be materially and adversely
affected.
The Company could experience delays in product development that are common
in the computer and semiconductor industry. Significant delays in product
development and release would adversely affect the Company's business, financial
condition and results of operations. There can be no assurance that the Company
will respond effectively to technological changes or new product announcements
by other companies or that the Company's research and development efforts will
be successful. Furthermore, introduction of new products and moving production
of existing products to different suppliers involves substantial business risks
because of the possibility of product "bugs" or performance problems, in which
event the Company could experience significant product returns, warranty
expenses, expedite charges, in addition to lower sales and lower profits. See
"Business -- Engineering and Development."
IDENTIFICATION AND INTEGRATION OF ACQUISITIONS
The Company anticipates that its future growth may depend in part on its
ability to identify and acquire complementary businesses, technologies or
product lines that are compatible to those of the Company. The Company may, if
appropriate, use a portion of the net proceeds from this offering for such
acquisitions. Acquisitions involve numerous risks, including identifying and
pursuing acquisitions, difficulties in the assimilation of the operations,
technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks associated with
entering markets or conducting operations with which the Company has no or
limited direct prior experience, and the potential loss of key employees of the
acquired company. Moreover, there can be no assurance that the anticipated
benefits of an acquisition will be
9
<PAGE> 11
realized. There can be no assurance that the Company will be effective in
identifying and effecting attractive acquisitions, assimilating acquisitions or
managing future growth. Future acquisitions by the Company could result in
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities and amortization expenses related to goodwill and other
intangible assets, all of which could materially adversely affect the Company's
business, financial condition, results of operations or stock price. With
respect to the possible amortization of goodwill, the Financial Accounting
Standards Board ("FASB") has announced that it may make pooling of interests
accounting treatment for merger transactions more difficult to attain, or may
abolish such treatment altogether. If the FASB does limit or eliminate pooling
of interests accounting treatment, the Company's ability to consummate merger
transactions without incurring goodwill would be materially and adversely
affected. See "Use of Proceeds."
DEPENDENCE ON KEY PERSONNEL
The Company's future success is highly dependent on the continued services
of its key engineering, sales, marketing and executive personnel, including
highly skilled semiconductor design personnel and software developers, and its
ability to identify and hire additional personnel. The loss of the services of
key personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company believes that the
market for key personnel in the industries in which it competes is highly
competitive. In particular, the Company has experienced difficulty in attracting
and retaining qualified engineers and other technical personnel and anticipates
that competition for such personnel will increase in the future. There can be no
assurance that the Company will be able to attract and retain key personnel with
the skills and expertise necessary to develop new products in the future, or to
manage the Company's business, both in the United States and abroad. See
"Business -- Employees" and "Management."
RISKS OF DOING BUSINESS IN INTERNATIONAL MARKETS
International revenues of the Company's products were approximately 51%,
55% and 62% of net revenues for the nine months ended December 29, 1996 and for
fiscal 1996 and 1995, respectively. The Company expects that international
revenues will continue to account for a significant percentage of the Company's
net revenues for the foreseeable future. As a result, the Company is subject to
various risks, which include: a greater difficulty of administering its business
globally; compliance with multiple and potentially conflicting regulatory
requirements such as export requirements, tariffs and other barriers;
differences in intellectual property protections; difficulties in staffing and
managing foreign operations; potentially longer accounts receivable cycles;
currency fluctuations; export control restrictions; overlapping or differing tax
structures; political and economic instability; and general trade restrictions.
The Company's sales are invoiced in U.S. dollars and, accordingly, if the
relative value of the U.S. dollar in comparison to the currency of the Company's
foreign customers should increase, the resulting effective price increase of the
Company's products to such foreign customers could result in decreased sales.
There can be no assurance that any of the foregoing factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Sales and Marketing" and "-- Customers."
LACK OF SIGNIFICANT PATENT PROTECTION; INFRINGEMENT RISKS
Although the Company has patent protection on certain aspects of its
technology, it relies primarily on trade secrets, copyrights and contractual
provisions to protect its proprietary rights. There can be no assurance that
these protections will be adequate to protect its proprietary rights, that
others will not independently develop or otherwise acquire equivalent or
superior technology or that the Company can maintain such technology as trade
secrets. There also can be no assurance that any patents the Company possesses
will not be invalidated, circumvented or challenged. In addition, the laws of
certain countries in which the Company's products are or may be developed,
manufactured or sold, including various countries in Asia, may not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States. The failure of the Company to protect its
intellectual property rights could have a material adverse effect on the
Company's business, financial condition and results of operations.
There can be no assurance that patent or other intellectual property
infringement claims will not be asserted against the Company in the future.
Although patent and intellectual property disputes may be settled through
licensing or similar arrangements, costs associated with such arrangements may
be substantial and there can be
10
<PAGE> 12
no assurance that necessary licenses would be available to the Company on
satisfactory terms or at all. Accordingly, an adverse determination in a
judicial or administrative proceeding or failure to obtain necessary licenses
could prevent the Company from manufacturing and selling certain of its
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, should the Company
decide to, or be forced to, litigate such claims, such litigation could be
expensive and time consuming, could divert management's attention from other
matters or could otherwise have a material adverse effect on the Company's
business, financial condition and results of operations, regardless of the
outcome of the litigation. The Company's supply of wafers and other components
can also be interrupted by intellectual property infringement claims against its
suppliers. See "-- Dependence on Wafer Suppliers and Other Subcontractors" and
"Business -- Intellectual Property."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock has fluctuated substantially, and
there can be no assurance that such volatility will not continue. Future
announcements concerning the Company or its competitors or customers, quarterly
variations in operating results, the introduction of new products or changes in
product pricing policies by the Company or its competitors, conditions in the
semiconductor industry, changes in earnings estimates by analysts, market
conditions for high technology stocks in general, or changes in accounting
policies, among other factors, could cause the market price of the Common Stock
to fluctuate substantially. In addition, stock markets have experienced extreme
price and volume volatility in recent years and the stock prices of technology
companies have been especially volatile. This volatility has had a substantial
effect on the market prices of securities of many smaller public companies for
reasons frequently unrelated to the operating performance of the specific
companies. These broad market fluctuations could adversely affect the market
price of the Common Stock. See "Price Range of Common Stock."
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS
Pursuant to the Company's Restated Certificate of Incorporation, as
amended, the Board of Directors is authorized to approve the issuance of shares
of currently undesignated Preferred Stock, to determine the price, powers,
preferences and rights and the qualifications, limitations or restrictions
granted to or imposed on any unissued series of that Preferred Stock, and to fix
the number of shares constituting any such series and the designation of such
series, without any vote or future action by the stockholders. Pursuant to this
authority, the Board of Directors adopted a Shareholder Rights Plan and declared
a dividend of one preferred stock purchase right for each outstanding share of
the Company's Common Stock. The Shareholder Rights Plan, the undesignated
Preferred Stock and certain provisions of the Delaware law may have the effect
of delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Company's Common Stock at a premium over the market
price of the Common Stock and may adversely affect the market price of the
Common Stock. See "Description of Capital Stock."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in this Prospectus,
including, without limitation, the statements under "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" regarding the Company's strategies, plans,
objectives and expectations; the Company's future operating results; the
Company's ability to design, develop, manufacture and market products; the
ability of the Company's products to achieve or maintain commercial acceptance;
the Company's ability to achieve new product commercialization; the acceptance
of new I/O standards and the continued acceptance of existing standards; and
other matters are forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements are reasonable at
this time, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from the Company's expectations ("Cautionary Statements") are set
forth in these "Risk Factors," as well as elsewhere in this Prospectus. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby, at an assumed offering price of $22.375 per share
(after deducting estimated underwriting discounts and commissions and offering
expenses), are estimated to be approximately $41,888,750 (approximately
$48,232,063 if the Underwriters' over-allotment option is exercised in full).
The Company intends to use the net proceeds of the Offering for working capital
and general corporate purposes. The Company may use all or a portion of the net
proceeds to fund various possible transactions in order to secure additional
manufacturing capacity, such as the use of "take or pay" contracts that commit
the Company to purchase specified quantities of wafers over extended periods or
equity investments in or advances to wafer manufacturing companies in exchange
for guaranteed production capacity. Any such transaction could require the
Company to commit a significant amount of cash, including some or all of the net
proceeds of this Offering. There can be no assurance that the Company will
consummate any such transaction. In addition, the Company may use a portion of
such net proceeds for acquisitions of complementary businesses, technologies or
products, although there are currently no commitments or agreements with respect
to any material acquisition. Pending such uses, the Company intends to invest
the net proceeds in short term, investment grade, interest-bearing obligations.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "QLGC." The following table sets forth the high and low sales prices
for the Common Stock on the Nasdaq National Market for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year 1996
Quarter ended July 2, 1995....................................... $ 5.13 $ 4.25
Quarter ended October 1, 1995.................................... 6.63 4.50
Quarter ended December 31, 1995.................................. 8.88 5.63
Quarter ended March 31, 1996..................................... 9.13 6.50
Fiscal Year 1997
Quarter ended June 30, 1996...................................... $12.00 $ 8.50
Quarter ended September 29, 1996................................. 13.00 9.00
Quarter ended December 29, 1996.................................. 28.38 12.50
Quarter ended March 30, 1997..................................... 30.13 18.50
Fiscal Year 1998
Quarter ending June 29, 1997 (through April 24).................. $25.00 $18.75
</TABLE>
The last sale price for the Common Stock on April 24, 1997, as reported on
the Nasdaq National Market, was $22.375 per share. As of April 15, 1997, there
were 416 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock.
The Company presently intends to retain its earnings to fund the development and
growth of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's existing credit
agreement restricts the Company from paying cash dividends.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 29, 1996, on an actual basis, and as adjusted to reflect the issuance
and sale by the Company of the 2,000,000 shares of Common Stock offered hereby
at an assumed public offering price of $22.375 per share and the receipt of the
estimated net proceeds therefrom. See "Use of Proceeds." The table should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto, incorporated by reference to this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 29, 1996
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capitalized lease obligations, excluding current installments........... $ 401 $ 401
------- -------
Stockholders' equity:
Preferred stock, $0.10 par value, 1,000,000 shares authorized (200,000
shares designated as Series A Junior Participating Preferred,
$0.001 par value), none issued and outstanding..................... -- --
Common stock, $0.10 par value, 12,500,000 shares authorized;
5,777,211 shares issued and outstanding, actual; 7,777,211 shares
issued and
outstanding, as adjusted (1)....................................... 577 777
Additional paid-in capital............................................ 18,512 60,201
Retained earnings..................................................... 2,740 2,740
------- -------
Total stockholders' equity......................................... 21,829 63,718
------- -------
Total capitalization............................................. $22,230 $64,119
======= =======
</TABLE>
- ---------------
(1) Excludes 838,755 shares subject to options outstanding as of March 30, 1997
under the Company's stock option plans at a weighted average exercise price
of $9.00 per share.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the Company's consolidated statements of operations for each of the years in the
three-year period ended March 31, 1996, and with respect to the Company's
consolidated balance sheet data as of April 2, 1995 and March 31, 1996, are
derived from financial statements of the Company which are incorporated by
reference to this Prospectus and which have been audited by KPMG Peat Marwick
LLP, the Company's independent certified public accountants, as indicated in
their report, incorporated by reference to this Prospectus. The consolidated
statements of operations data for the nine months ended December 31, 1995 and
December 29, 1996, and the consolidated balance sheet data as of December 29,
1996, have been derived from unaudited condensed consolidated financial
statements, incorporated by reference to this Prospectus, and reflect, in
management's opinion, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the Company's financial
position and results of operations for such periods. Results of operations for
any interim period are not necessarily indicative of results to be expected for
the full fiscal year. The data set forth below should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein and with the Consolidated Financial
Statements and Notes thereto, incorporated by reference to this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------- ------------------
APR. 3, APR. 2, MAR. 31, DEC. 31, DEC. 29,
1994 1995 1996 1995 1996
------- ------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues..................................... $44,902 $57,675 $53,779 $ 37,561 $49,896
Cost of sales.................................... 28,148 34,285 34,413 23,921 28,598
------- ------- ------- ------- -------
Gross profit................................... 16,754 23,390 19,366 13,640 21,298
------- ------- ------- ------- -------
Operating expenses:
Engineering and development.................... 8,603 7,598 7,191 5,284 7,200
Selling and marketing.......................... 6,178 7,541 6,490 5,173 4,565
General and administrative..................... 4,356 4,872 4,501 3,275 3,413
Impairment of goodwill......................... 542 -- -- -- --
Amortization of goodwill....................... 99 -- -- -- --
Consolidation charges.......................... 507 -- -- -- --
------- ------- ------- ------- -------
Total operating expenses.................... 20,285 20,011 18,182 13,732 15,178
------- ------- ------- ------- -------
Operating income (loss)................... (3,531) 3,379 1,184 (92) 6,120
Transaction costs................................ 1,142 -- -- -- --
Interest income (expense)........................ (104) (53) 19 (6) 289
------- ------- ------- ------- -------
Income (loss) before income taxes.............. (4,777) 3,326 1,203 (98) 6,409
Income tax provision (benefit)................... (28) 1,361 537 (32) 2,587
------- ------- ------- ------- -------
Net income (loss)................................ $(4,749) $ 1,965 $ 666 $ (66) $ 3,822
======= ======= ======= ======= =======
Net income (loss) per common and equivalent
share (1)...................................... $ 0.35 $ 0.12 $ (0.01) $ 0.61
======= ======= ======= =======
Weighted average common and common equivalent
shares (1)..................................... 5,567 5,737 5,552 6,301
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
APR. 3, APR. 2, MAR. 31, DECEMBER 29,
1994 1995 1996 1996
------- ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................. $ 6,424 $10,564 $13,334 $16,853
Total assets..................................... 22,613 24,592 28,539 32,871
Long term obligations............................ 1,156 2,234 2,592 1,325
Total stockholders' equity....................... 13,615 15,581 16,277 21,829
</TABLE>
- ---------------
(1) Share and per share data have not been presented for periods prior to the
fiscal year ended April 2, 1995 as the Company operated as a wholly-owned
subsidiary of Emulex Corporation.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains forward-looking statements
that involve risk and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed hereunder,
in "Risk Factors" and "Business," as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
QLogic Corporation is a leading designer and supplier of semiconductor and
board level I/O products. The Company's products provide a high performance
interface between computer systems and their attached data storage peripherals,
such as hard disk and tape drives, CD-ROM drives and RAID subsystems. QLogic
provides complete I/O technology solutions by designing and marketing single
chip controller and adapter board products for both sides of the
computer/peripheral device interlink, or "bus." Historically, the Company has
targeted the high performance sector of the I/O market, focusing primarily on
the SCSI industry standard. The Company is utilizing its I/O expertise to
develop products for emerging I/O standards, such as Fibre Channel. Fibre
Channel is experiencing early industry acceptance as a higher performance
solution that maintains signal integrity while allowing for increased
connectivity between a computer system and its data storage peripherals.
The Company's products include semiconductors for computer peripheral
devices and semiconductors and adapter boards for computer systems. The
Company's peripheral products are comprised of the FAS and TEC product lines,
and its computer systems products are comprised of the ISP and Host Board
product lines. The Company's products have traditionally been based on the SCSI
standard, and the Company is currently developing products for the Fibre Channel
and IDE I/O standards. Net revenues from the Company's computer systems products
are relatively less subject to fluctuations than those from the Company's
peripheral device products due to generally longer product life cycles. In
addition, the Company's computer systems products are manufactured to meet the
specific solution needs of its OEM customers and, as a result, tend to carry
higher gross margins. The Company is attempting to increase its proportionate
sales of computer systems products. The Company is also identifying new sectors
of the peripheral device market with the goal of expanding its business. For
example, the Company is leveraging its I/O technological expertise to develop
high performance IDE-based peripheral controllers.
The Company recognizes revenue from the sale of products at the time of
shipment. The Company currently sells a majority of its products directly to
OEMs such as Sun Microsystems, Inc., Fujitsu Limited, Digital Equipment
Corporation, and Silicon Graphics, Inc. The Company also sells its products
through a network of independent manufacturers' representatives and regional and
international distributors. The Company believes that by establishing and
developing direct relationships with leading OEMs within the computer industry,
the Company will have greater opportunities to expand its SCSI-based sales and
to leverage these relationships into design wins for its IDE and Fibre Channel
products. The Company believes that sales to OEMs result in lower product return
rates and require a smaller customer support infrastructure. In addition, OEMs
historically have not required the Company to maintain excess inventory, though
this trend appears to be changing as OEMs attempt to minimize their own
inventories. However, there is a limited number of potential OEM customers. As a
result, the loss of a large OEM customer would have a material adverse effect on
the Company's business, results of operations and financial condition. Also, the
Company has historically experienced seasonality resulting in somewhat lower net
revenues in its first fiscal quarter as compared to the previous quarter, which
the Company believes is due to reduced spending by its OEM customers in advance
of scheduled production slowdowns in the forthcoming summer months. The Company
also generates revenues by licensing certain of its technology. License revenues
are recognized as payment is received from the customer.
The Company is the successor to the Emulex Micro Devices division of Emulex
Corporation ("Emulex"). On February 24, 1994, Emulex declared a special dividend
consisting of the distribution (the "Distribution") to its stockholders of all
outstanding shares of Common Stock of QLogic. The purpose of the Distribution
was to enable the Company to gain independent access to equity markets so that
it may use its capital stock as a source of funding.
15
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
and expense items expressed as a percentage of the Company's net revenues.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------- --------------------
APR. 3, APR. 2, MAR. 31, DEC. 31, DEC. 29,
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues................................... 100% 100% 100% 100% 100%
Cost of sales.................................. 63 59 64 64 57
--- --- --- --- ---
Gross profit................................. 37 41 36 36 43
--- --- --- --- ---
Operating expenses:
Engineering and development.................. 19 13 13 14 15
Selling and marketing........................ 14 13 12 14 9
General and administrative................... 10 9 9 8 7
Impairment of goodwill....................... 1 -- -- -- --
Amortization of goodwill..................... -- -- -- -- --
Consolidation charges........................ 1 -- -- -- --
--- --- --- --- ---
Total operating expenses.................. 45 35 34 36 31
--- --- --- --- ---
Operating income (loss)................. (8) 6 2 -- 12
Transaction costs.............................. 3 -- -- -- --
Interest income (expense)...................... -- -- -- -- 1
--- --- --- --- ---
Income (loss) before income taxes............ (11) 6 2 -- 13
Income tax provision (benefit)................. -- 3 1 -- 5
--- --- --- --- ---
Net income (loss).............................. (11)% 3% 1% --% 8%
=== === === === ===
</TABLE>
NET REVENUES
The Company's net revenues are derived primarily from the sale of
SCSI-based I/O products. License fees also contribute to the Company's net
revenues. Net revenues for the nine months ended December 29, 1996 increased
$12.3 million or 33% from the nine months ended December 31, 1995, to $49.9
million. The increase was primarily the result of an increase in sales of the
TEC, Host Board and ISP product lines. A partially offsetting decline in sales
of $2.5 million occurred in the FAS product line.
Net revenues for fiscal 1996 decreased $3.9 million or 7% from fiscal 1995,
to $53.8 million. The decrease was primarily due to decreases in sales of the
TEC, Host Board and other product lines of $11.4 million, $1.5 million and
$700,000, respectively. The decreases were partially offset by an increase in
sales of the FAS and ISP product lines of $6.7 million and $3.7 million,
respectively. The overall decline was due to unfavorable market conditions, the
loss of a large OEM customer as such customer transitioned to a more vertically
integrated manufacturing policy and industry consolidation that resulted in the
acquisitions of other large customers. Net revenues for fiscal 1995 increased
$12.8 million or 28% over fiscal 1994, to $57.7 million. The increase was
primarily the result of increased sales in the Host Board, ISP and other product
lines of $9.6 million, $4.8 million, and $300,000, respectively. A partially
offsetting sales decrease occurred in the TEC product line of $1.9 million.
Export revenues for fiscal 1996 decreased $6.0 million or 17% from fiscal
1995, to approximately $29.8 million. The decrease resulted primarily from U.S.
exports to Singapore declining $14.9 million. The decline in revenues to
Singapore was the result of a loss of the large OEM customer discussed above and
decreased sales to another large OEM customer. This decline was partially offset
by an increase in sales to Japan-based customers of $9.1 million. Export
revenues for fiscal 1995 increased $3.9 million or 12% from fiscal 1994, to
$35.8 million. The increase resulted primarily from U.S. exports to Pacific Rim
countries.
A small number of customers account for a substantial portion of the
Company's net revenues, and the Company expects that a limited number of
customers will continue to represent a substantial portion of the Company's net
revenues for the foreseeable future. The Company's six largest customers in each
respective
16
<PAGE> 18
period accounted for approximately 73%, 81% and 71% of the Company's net
revenues for the nine months ended December 29, 1996 and for fiscal 1996 and
1995, respectively. For the nine months ended December 29, 1996, Tokyo Electron
Limited, Sun Microsystems, Inc. and Fujitsu Limited accounted for approximately
24%, 18% and 16% of the Company's net revenues, respectively. For fiscal 1996,
Tokyo Electron Limited, Sun Microsystems, Inc. and Avex Electronics, Inc.
accounted for approximately 42%, 13% and 11% of the Company's net revenues,
respectively. For fiscal 1995, Tokyo Electron Limited, Micropolis Corporation
and Digital Equipment Corporation accounted for approximately 24%, 14% and 11%
of the Company's net revenues, respectively.
The Company believes that its major customers continually evaluate whether
or not to purchase products from alternate or additional sources. Accordingly,
there can also be no assurance that a major customer will not reduce, delay or
eliminate its purchases from the Company. Any such reduction, delay or loss of
purchases could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Dependence
on Small Number of Customers."
COST OF SALES
Cost of sales consists primarily of raw materials (including wafers and
completed chips from third-party manufacturers), assembly and test labor,
overhead and warranty costs. The cost of sales percentage for the nine months
ended December 29, 1996 was 57%, a decrease of 7% over the comparable period in
the prior fiscal year. The percentage decrease was due to computer systems
products accounting for a greater percentage of net revenues. Computer system
products contain higher levels of integration and functionality and are
generally associated with higher average selling prices and gross margins. The
Company continued to focus on reducing component costs as well as implementing
design efficiencies during the nine months ended December 29, 1996. The
Company's ability to maintain its current gross margin can be significantly
affected by factors such as supply costs and, in particular, the cost of silicon
wafers, the mix of products shipped, competitive price pressures, the timeliness
of volume shipments of new products and the Company's ability to achieve
manufacturing cost reductions. The Company anticipates that it will be
increasingly more difficult to reduce manufacturing costs. In addition, the
Company believes that cost of sales percentage will be adversely impacted by
sales of IDE-based products, which carry lower margins. As a result, the Company
does not anticipate cost of sales to decrease at a rate consistent with historic
trends.
The cost of sales percentage for fiscal 1996 was 64%, an increase of 5%
over fiscal 1995. The increase in the cost of sales percentage was primarily due
to inventory write-down charges being higher in fiscal 1996 compared to the
prior year. The cost of sales percentage for fiscal 1995 was 59%, a decrease of
4% over the comparable period in the prior fiscal year. The decrease in the cost
of sales percentage was primarily due to inventory write-down charges in fiscal
1994, which were not required in fiscal 1995.
OPERATING EXPENSES
Engineering and Development. Engineering and development expenses consist
primarily of salaries and other personnel related expenses, development related
equipment, occupancy costs and depreciation. For the nine months ended December
29, 1996, engineering and development expenditures increased by $1.9 million
from the corresponding nine month period of 1995, primarily due to increased
salary and occupancy expenses related to increased headcount. In particular, the
Company significantly expanded its engineering staff in the nine months ended
December 29, 1996, in connection with its development of Fibre Channel products.
The Company expects that engineering and development expenses will increase in
absolute dollars in fiscal 1998.
In fiscal 1996, engineering and development expenditures decreased by
$407,000, from the prior fiscal year, primarily due to reduced equipment repair,
consulting and depreciation expenses. In fiscal 1995, engineering and
development expenditures decreased by $1.0 million from fiscal 1994
expenditures.
Selling and Marketing. Selling and marketing expenses consist primarily of
sales commissions, salaries and other expenses for selling and marketing
personnel, travel expenses and trade shows. During the nine months ended
December 29, 1996, selling and marketing expenses decreased by $608,000 compared
to the same period in fiscal 1995, primarily as a result of reduced advertising
and trade show expenses, due to the Company's shift
17
<PAGE> 19
away from selling to resellers, which typically requires more advertising and
other promotions. The Company expects that selling and marketing expenses will
increase in absolute dollars in fiscal 1998.
In fiscal 1996, selling and marketing expenses decreased by $1.1 million
compared to fiscal 1995, primarily due to a reduction in advertising. In fiscal
1995, selling and marketing expenditures increased by $1.4 million compared to
fiscal 1994, reflecting costs to support expanded reseller marketing efforts.
General and Administrative. General and administrative expenses consist
primarily of salaries and other expenses for corporate management, finance,
accounting and human resources. For the nine months ended December 29, 1996,
general and administrative expenses increased $138,000 from the prior year's
period, primarily due to expenses related to implementing a new computer system
and salaries.
For fiscal year 1996, general and administrative expenses decreased
$371,000 compared to fiscal 1995, primarily due to decreased bad debt expense.
For fiscal 1995, general and administrative expenditures increased by $516,000
compared to fiscal 1994. This increase was related to bad debt expense.
INTEREST INCOME (EXPENSE)
Interest income, net of expense, increased $295,000 during the nine months
ended December 29, 1996 compared to the nine months ended December 31, 1995, due
to larger cash balances. In addition, the Company continued to make payments to
reduce its capital leases.
Interest income, net of expense, increased in fiscal 1996 to $19,000 from a
net expense of $53,000 in fiscal 1995. In fiscal 1995, interest expense
decreased $51,000 to $53,000, from $104,000 in fiscal 1994. In each case the
change was a result of the Company's continuing to make payments to reduce its
capital leases.
INCOME TAX PROVISION (BENEFIT)
The Company's effective tax rates were 40%, 45% and 41% for the nine months
ended December 29, 1996, and fiscal 1996 and 1995, respectively. The Company
received a tax benefit of 1% for fiscal 1994.
18
<PAGE> 20
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables present unaudited quarterly financial information for
the last seven quarters, and such data expressed as a percentage of the
Company's net revenues for the periods indicated. The information has been
presented by the Company on a basis consistent with the Company's audited
Consolidated Financial Statements incorporated in this Prospectus by reference
and includes all necessary adjustments, consisting only of normal recurring
adjustments, that management considers necessary for a fair presentation of the
unaudited quarterly results when read in conjunction with the audited
Consolidated Financial Statements of the Company and the Notes thereto. These
operating results are not necessarily indicative of results that may be expected
for any subsequent periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------
JULY 2, OCT. 1, DEC. 31, MAR. 31, JUNE 30, SEPT. 29, DEC. 29,
1995 1995 1995 1996 1996 1996 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenues.............................. $ 9,570 $13,105 $14,886 $16,218 $15,740 $16,725 $17,431
Cost of sales............................. 5,995 8,476 9,450 10,492 9,585 9,622 9,391
------- ------- ------- ------- ------- ------- -------
Gross profit............................ 3,575 4,629 5,436 5,726 6,155 7,103 8,040
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Engineering and development............. 1,653 1,672 1,959 1,907 2,089 2,536 2,575
Selling and marketing................... 1,989 1,642 1,542 1,317 1,357 1,466 1,742
General and administrative.............. 1,095 940 1,240 1,226 1,117 1,229 1,067
------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 4,737 4,254 4,741 4,450 4,563 5,231 5,384
------- ------- ------- ------- ------- ------- -------
Operating income (loss)............. (1,162) 375 695 1,276 1,592 1,872 2,656
Interest income (expense)................. (18) (15) 27 25 59 92 138
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes....... (1,180) 360 722 1,301 1,651 1,964 2,794
Income tax provision (benefit)............ (456) 146 278 569 684 786 1,117
------- ------- ------- ------- ------- ------- -------
Net income (loss)......................... $ (724) $ 214 $ 444 $ 732 $ 967 $ 1,178 $ 1,677
======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF NET REVENUES:
Net revenues.............................. 100% 100% 100% 100% 100% 100% 100%
Cost of sales............................. 63 65 63 65 61 58 54
------- ------- ------- ------- ------- ------- -------
Gross profit............................ 37 35 37 35 39 42 46
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Engineering and development............. 17 13 13 12 13 15 15
Selling and marketing................... 21 12 10 8 9 9 10
General and administrative.............. 11 7 8 7 7 7 6
------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 49 32 32 27 29 31 31
------- ------- ------- ------- ------- ------- -------
Operating income (loss)............. (12) 3 5 8 10 11 15
Interest income (expense)................. -- -- -- -- -- 1 1
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes....... (12) 3 5 8 10 12 16
Income tax provision (benefit)............ (5) 1 2 3 4 5 6
------- ------- ------- ------- ------- ------- -------
Net income (loss)......................... (7)% 2% 3% 5% 6% 7% 10%
======= ======= ======= ======= ======= ======= =======
</TABLE>
The Company's operating results for the first quarter of fiscal 1996 were
adversely affected by the loss of a large OEM customer as such customer
transitioned to a more vertically integrated manufacturing policy, decreases in
revenues from other large OEM customers, and proportionately higher selling and
marketing expenses due to sales promotion, advertising and related marketing
expenses associated with the Company's reseller business.
19
<PAGE> 21
The Company's net revenues declined in the first quarter of fiscal 1997
from the prior quarter, due to a seasonal slowdown in OEM demand. The Company
anticipates that its results of operations will continue to experience
seasonality in the future.
The Company's operating expense levels have fluctuated over time. For
example, engineering and development expenses increased substantially in the
second quarter of fiscal 1997, primarily as a result of increased headcount and
associated development costs as the Company staffed new I/O systems development
projects, including Fibre Channel. In addition, selling and marketing expenses
decreased throughout fiscal 1996, although from the first quarter of fiscal
1997, selling and marketing expenses increased steadily. The substantial
decrease in selling and marketing expenses during fiscal 1996 was the result of
a substantial restructuring of sales and marketing away from resellers, and the
reduced associated advertising and trade show expenses. Selling and marketing
expenses increased during the first three quarters of fiscal 1997, reflecting
the Company's expansion of its marketing efforts into new I/O technology
markets.
The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results from quarter to quarter. As a
result, the Company believes that period to period comparisons of its operating
results are not necessarily meaningful, and that such comparisons cannot be
relied upon as indicators of future performance. In addition, there can be no
assurance that the Company will maintain its current profitability in the
future. As a result of numerous factors, it is likely that in some future
quarter the Company's operating results will be below the expectations of public
market analysts or investors. In such event, the price of the Company's Common
Stock would likely be materially and adversely affected. See "Risk
Factors -- Fluctuations in Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
QLogic has financed its recent working capital needs and capital
expenditure requirements primarily from internally generated funds and
facilities and equipment leases. Cash provided by operations was approximately
$9.0 million for the nine months ended December 29, 1996. Cash provided by
operations was approximately $8.8 million in fiscal 1996, compared to cash used
in operations of $146,000 in fiscal 1995, and cash provided by operations of
$477,000 in fiscal 1994. The growth in cash provided by operations is primarily
attributable to improved profitability, accounts receivable collection, cash
management and internal efficiency.
Cash used in investing activities was approximately $3.1 million, $1.2
million, $1.3 million and $3.0 million for the nine months ended December 29,
1996 and fiscal years 1996, 1995 and 1994, respectively, reflecting expenditures
for property and equipment.
Cash provided by financing activities was approximately $1.5 million for
the nine months ended December 29, 1996, which reflected proceeds from the
exercise of stock options, offset in part by principal payments under capital
leases. Cash used in financing activities, reflecting primarily principal
payments under capital leases, was approximately $275,000 and $277,000 in fiscal
1996 and 1995, respectively, compared to cash provided by financing activities
of approximately $5.3 million for fiscal 1994. Fiscal 1994 was significantly
impacted by the Distribution.
Working capital at December 29, 1996 was $16.9 million, as compared to
$13.3 million at March 31, 1996. At December 29, 1996, the Company's principal
sources of liquidity included cash of $15.9 million. In addition, the Company
has a line of credit of up to $7.5 million with Silicon Valley Bank. The line of
credit allows the Company to borrow at the bank's prime rate plus 0.5%. There
were no borrowings under the line of credit as of December 29, 1996. The line of
credit with Silicon Valley Bank expires July 5, 1997, and, although there can be
no assurances, the Company currently expects to renew this line of credit.
The Company currently anticipates capital expenditures in fiscal 1997 will
be approximately $4.0 million. The Company also has long term capital lease
commitments of $401,000 which are due over the next three years. The Company
believes that the net proceeds of the offering, together with existing cash
balances, facilities and equipment leases, cash flow from operating activities
and its available line of credit will provide the Company with sufficient funds
to finance its operations for at least the next 12 months. However, should the
Company experience any difficulty in obtaining sufficient foundry capacity in
the future, the Company may undertake
20
<PAGE> 22
certain transactions to secure its supply of semiconductors. Such transactions
could require the Company to commit substantial capital and could require the
Company to seek additional equity or debt financing. See "Risk
Factors -- Transactions to Obtain Manufacturing Capacity; Future Capital Needs"
and "Use of Proceeds."
Prior to the Distribution, QLogic and Emulex entered into a Tax Sharing
Agreement (the "Tax Sharing Agreement") for purposes of allocating
pre-Distribution tax liabilities between QLogic and Emulex and to implement the
Distribution as a tax free distribution. The total amount due Emulex pursuant to
the Tax Sharing Agreement at December 29, 1996 was $458,000 which was included
in other noncurrent liabilities. Amounts due Emulex under the Tax Sharing
Agreement are payable on December 30, 1999, and commenced bearing interest on
January 1, 1996, at the rate applicable to underpayments of Federal income
taxes, which was 9% at December 29, 1996. Interest due Emulex is payable
quarterly and the Company commenced interest payments in April 1996.
21
<PAGE> 23
BUSINESS
OVERVIEW
QLogic Corporation is a leading designer and supplier of semiconductor and
board level I/O products. The Company's products provide a high performance
interface between computer systems and their attached data storage peripherals,
such as hard disk and tape drives, CD-ROM drives and RAID subsystems. QLogic
provides complete I/O technology solutions by designing and marketing single
chip controller and adapter board products for both sides of the
computer/peripheral device interlink, or "bus." Historically, the Company has
targeted the high performance sector of the I/O market, focusing primarily on
the SCSI industry standard. The Company is utilizing its I/O expertise to
develop products for emerging I/O standards, such as Fibre Channel. Fibre
Channel is experiencing early industry acceptance as a higher performance
solution that maintains signal integrity while allowing for increased
connectivity between a computer system and its data storage peripherals.
QLogic's products utilize various I/O standards to service the needs of
manufacturers and end users of various types of computer systems and components,
such as workstations, servers and data storage peripherals. The Company provides
high performance SCSI-based solutions and new I/O solutions based on the
emerging Fibre Channel standard, and is leveraging its technological
capabilities to provide solutions based on the IDE standard. The Company
believes that its technological leadership, extensive involvement in its
customers' product development process and the ease of migration of its
SCSI-based products to its new I/O products position the Company to provide
additional I/O solutions to its existing customer base. The Company believes
that these attributes also provide it with competitive advantages in
establishing new relationships with additional OEMs for both computer systems
and data storage peripherals. QLogic markets and distributes its products
through a direct sales organization supported by field application engineers, as
well as through a network of independent manufacturers' representatives and
regional and international distributors. The Company's primary OEM customers are
major domestic and international suppliers and manufacturers of servers,
workstations and data peripherals, such as Sun Microsystems, Inc., Fujitsu
Limited and Digital Equipment Corporation.
INDUSTRY BACKGROUND
The increasing processing power of computers, the proliferation of
networks, the rapid growth in the usage of the Internet and intranets, the wider
application of computers in multimedia and telecommunications applications and
the availability of higher performance data storage peripheral devices have
driven the demand for increased data throughput among servers, workstations and
data storage peripherals and, as a result, for increased I/O system performance.
The I/O system is the electronic link between the host CPU and the computer's
data storage peripheral devices, such as hard disk drives, tape drives,
removable disk drives, CD-ROM drives and RAID subsystems. The I/O system must
utilize industry standard hardware and software interfaces to manage and direct
the flow of large volumes of data at high speeds between the CPU and multiple
data storage peripherals, and, at the same time, minimize the consumption of CPU
processing power and maintain peripheral data storage integrity. As
microprocessors run at higher speeds and levels of performance, they require I/O
systems which support faster and more autonomous data transmission and other
advanced capabilities in order to function optimally.
22
<PAGE> 24
The following diagram illustrates the use of the I/O system in a computer
system using multiple data storage peripherals.
[GRAPHIC DISPLAYING I/O INTERFACE BETWEEN HOST COMPUTER
AND MULTIPLE DATA STORAGE PERIPHERALS]
IDE was an early standard for data interchange for personal computers.
Historically, IDE-based I/O systems managed and directed the flow of data
between personal computers and up to two hard disk drives. As PC-based servers
became increasingly sophisticated, the relatively low data throughout and
minimal connectivity of IDE became a limiting factor for system performance. As
a result, high performance systems, such as servers and workstations, migrated
to faster standards. Nevertheless, it is anticipated that IDE will remain an
important and cost-effective solution to the I/O needs of the personal computer
market due to the large installed base of personal computers and due to the
increasing performance capabilities of new IDE standards, such as EIDE and Ultra
IDE, which operate at higher data transfer rates and support up to four data
storage peripherals. International Data Corporation ("IDC"), an independent
market research firm, estimates that the overall market for IDE hard disk
controller devices will increase from approximately 95 million units in 1996 to
over 197 million units in 2000. In 1996, approximately 23% of this market, or
approximately 22 million unit sales, was available to independent silicon
suppliers.
In response to the increased data throughput required by networks and
workstations, SCSI was developed and adopted as the industry high performance
I/O communications standard. The overall growth of the SCSI marketplace has been
driven by rapid technological change and the evolving dynamics of high
performance computer and computer data storage peripheral devices, including,
the increased variety of higher performance peripheral devices and the continual
shift toward higher capacity and higher data rate disk drives; the demand for
I/O interfacing capabilities with greater numbers and types of attached
peripherals; the movement toward more distributed network architectures across
greater distances; the need for greater volumes of data transfer; and the demand
for increased data throughput. Additionally, SCSI is also benefiting from the
emerging "plug and play" standard, that is supported by Windows operating
systems and Intel microprocessor-based systems, which simplifies the
installation process, and from the growing usage of multi-tasking,
multi-threading operating systems for which the prevailing IDE technology is
less suited. For the computer systems products market, IDC projects shipments of
workstations, servers and other high performance systems to exceed 8.5 million
units in the year 2000, up from approximately 3.7 million units in 1996,
representing a 23% compound annual growth rate. For the peripheral controller
market, IDC projects the shipments of peripheral products, hard disk drives,
tape drives, removable disk drives and CD-ROM/DVD drives to grow from
approximately 166 million units shipped in 1996 to over 390 million units
shipped in the year 2000, representing a 23% compound annual growth rate.
23
<PAGE> 25
The continuing evolution towards higher performance computer systems has
led to the development of new connectivity solutions that provide even greater
data interchange between computer systems and data storage peripherals. Fibre
Channel is emerging as a new industry standard to meet the demand for increased
connectivity and data transfer rates. Fibre Channel is an advanced I/O standard
which provides data transmission speeds up to approximately two and one-half
times the rate currently provided by the fastest SCSI-based solutions. In
addition, Fibre Channel is designed to maintain signal integrity while allowing
for data interchange between a computer system and up to eight times more
peripherals than SCSI. Furthermore, Fibre Channel is designed to support the use
of either a fibre optic connection or a more compact version of the copper cable
traditionally used for SCSI solutions. Fibre optic connection allows the
distance between a computer system and its data storage peripherals to extend up
to 10 kilometers. The Company believes Fibre Channel will likely be the I/O
technology of choice for larger, higher performance data and network
applications while SCSI-based products will continue to be used in applications
requiring less functionality and performance.
Computer system and peripheral device manufacturers select I/O technologies
for incorporation into their products primarily on the basis of application,
performance and connectivity needs. The I/O products selected must be
specifically tailored to the manufacturer's requirements, in order to be
compatible with the manufacturer's system or peripherals either on a turn-key
basis or with minimum developmental effort. In addition to being compatible with
the present system or peripherals, I/O products ideally must be both "forward"
and "backward" compatible with future and past computers and peripherals. That
is, there must be a ready migration path between the I/O product and other
products sold and under development by the manufacturer. Also, it is critical
that the I/O product be available at a reasonable cost and in a timely manner,
so as not to delay the manufacturer's time to market, which has become
increasingly important in an era of short product life cycles. In order to
achieve these goals, manufacturers increasingly seek to involve I/O product
suppliers in their product validation and development cycles. By including the
I/O system providers in their planning and development process, manufacturers
not only ensure compatibility between product lines but also reduce the average
time to market for their products.
THE QLOGIC SOLUTION
QLogic is a leading designer and supplier of semiconductor and board-level
I/O products. The Company has been designing and marketing SCSI-based products
for over 10 years and is a leading supplier of connectivity solutions to this
market sector. The Company is leveraging its technological expertise in SCSI
into higher and lower end hardware and software solutions for its OEM customer
base. In 1996, the Company introduced the industry's first fully integrated
single chip PCI to Fibre Channel controller. The Company also recently has
introduced devices based on IDE standards to address additional I/O needs of its
OEM customer base.
The Company works closely with its customers in order to anticipate and
help identify their needs. Even after a product is identified and validated, the
Company continues to work with the customer in a joint product development
process to ensure compatibility with the customer's future product designs. As a
result of this partnership oriented approach, the Company believes that its
customers benefit from significant time to market advantages. By gaining insight
into the customers' system needs, the Company believes that it is in a better
position to deliver I/O products with an easier migration path, thus reducing
the customers' firmware and software development costs and associated
implementation risks. In addition, by utilizing selected wafer fabrication
suppliers, the Company seeks to ensure that it has ready access to the latest
developments in wafer fabrication, in addition to avoiding the fixed costs
associated with foundry ownership.
The Company's products are designed to reduce board space requirements on
plug-in cards, computer motherboards and peripheral controller boards by
integrating multiple I/O controller functions on a single chip. The Company
believes its products offer superior compatibility and ease of migration across
multiple I/O standards due to their use of common software. The Company believes
that its experience and focus on the SCSI market sector, the ease of migration
of its products, its current development efforts into I/O standards such as IDE
and Fibre Channel and its close customer relationships with leading server,
workstation and peripheral manufacturers provide the Company with competitive
advantages in the I/O product market.
24
<PAGE> 26
STRATEGY
QLogic's objective is to be a leading provider of high performance I/O
solutions to the IDE, SCSI and Fibre Channel sectors of the I/O market. Key
elements of the Company's strategy to achieve this objective include the
following:
Maintain Technological Leadership. The Company conducts active engineering
and development programs, in concert with its customers, to remain at the
forefront of I/O technology. The Company has traditionally been a leader in I/O
technologies, from the early developments in the SCSI standard to modern
developments in Fibre Channel connectivity. In 1985 the Company's predecessor
developed the first board level product for the SCSI standard, in 1990 the
Company's predecessor developed the industry's first fast SCSI solution and in
1996 QLogic introduced the industry's first fully integrated single chip PCI to
Fibre Channel controller. The Company recently has significantly expanded its
design and engineering resources to support its growing engineering and
development programs.
Facilitate Migration to New I/O Technologies. The Company intends to
broaden its product lines to allow its customers to quickly transition to Fibre
Channel and other new I/O technologies. The Company has designed its existing
I/O chip architecture to support new higher performance I/O technologies,
including Fibre Channel. By providing a more flexible chip architecture, the
Company seeks to minimize its customers' firmware and software migration
expenses and associated risks of implementation. The Company believes that OEMs
and end users will increasingly demand new I/O technologies with a ready
migration path from current products.
Increase Penetration of Existing Customer Base. The Company seeks to serve
a broad range of the I/O needs of its installed base of SCSI product customers.
The Company seeks to leverage its technological expertise in SCSI products, in
addition to its long standing vendor and product development relationships with
its customers, to successfully market its IDE, Fibre Channel and new SCSI
solutions to its existing customers. The Company believes that its existing
relationships, demonstrated commitment to customer support and the ease of
migration between its various product lines will provide it with a competitive
advantage with respect to other I/O providers.
Broaden Customer Base and Sales Channels. As the Company enters into new
sectors of the I/O market, it intends to market its products to a variety of
customers that traditionally have not been candidates for sales of the Company's
SCSI-based products. The Company believes that the proliferation of Intel
microprocessor-based servers and workstations, as opposed to those based on
traditional RISC architectures, represents a significant new market opportunity.
The Company will attempt to serve this market initially through its existing
direct sales channel and distributors. The Company additionally intends to
identify new independent manufacturers' representatives and regional and
international distributors to facilitate its marketing efforts.
Improve Time to Market. The Company continually seeks to improve the time
to market of its products in order to improve the time to market of its
customers' products and thereby enhance their competitiveness. The Company is
significantly involved in many of its customers' product identification and
development processes. By maintaining this partnership approach to the product
development cycle, the Company's products are tailored for, and designed into,
its customers' products. The Company's IDE, SCSI and Fibre Channel products are
designed to preserve a substantial portion of a customer's existing firmware
investment and operate on substantially similar software, thus minimizing the
design time necessary during customers' product and technology migration.
Additionally, the Company believes that using selected third-party foundries
provides it with the flexibility to adopt new technologies and obtain increased
capacity, thereby allowing the Company to bring its products to market more
quickly.
TECHNOLOGY
The Company develops and markets I/O products for both the host and
peripheral connections of the I/O bus. For the host interface, the Company's
products include a variety of adapters, in both board and single chip integrated
circuit form, which address the server and workstation segments of the computer
market. For peripheral applications, the Company provides single chip
controllers for data storage peripherals, including hard
25
<PAGE> 27
disk drives, tape drives, removable disk drives, CD-ROM drives and RAID
subsystems. The Company's I/O products are currently based on the three most
prevalent interface standards: IDE, SCSI and Fibre Channel.
The Company has historically focused on the SCSI standard interface for its
I/O product development. The Company's initial design wins for SCSI-based host
products came from manufacturers of workstations and servers using Reduced
Instruction Set Computer ("RISC") processors. The Company developed an embedded
RISC-based controller, which is supplied with executable firmware capable of
being custom tailored. The Company's leading peripheral technological
developments include a broad range of Very Large Scale Integration ("VLSI") SCSI
and IDE controllers, which incorporate intelligent I/O controllers with powerful
data error correction capability, in order to ensure data integrity between the
CPU and its peripherals. After accumulating significant architectural and
systems expertise in designing SCSI devices over successive generations of the
products, the Company expanded its SCSI-based host adapter board and peripheral
controller product lines to address additional computer systems and data storage
peripheral market segments, such as IDE and Fibre Channel.
In 1996, the Company introduced the industry's first fully integrated
single chip PCI to Fibre Channel controller. Fibre Channel is a scalable data
transfer interface technology (currently implemented at 100 megabytes per
second) that maps multiple standard transport protocols, and utilizes compact
copper cables, or fiber optics to transmit data over a distance of up to 10
kilometers, while supporting various topologies for data transfer. The Company's
single chip design with an embedded transceiver provides certain advantages over
existing multi-chip solutions, including a smaller footprint, increased
reliability and a more cost-effective solution. The Company believes Fibre
Channel will become an important I/O interface for high performance peripherals
and networks over the next several years.
The Company's host adapter chip product line incorporates its Intelligent
SCSI Processor ("ISP"), which integrates certain controller functions, such as
proprietary RISC processor, host interface (PCI or SBus) and protocol processor
(SCSI or Fibre Channel). By incorporating an I/O processor to control SCSI or
Fibre Channel operations and by including a proprietary RISC processor to
control and direct memory and software activities, the Company's ISP
architecture facilitates faster throughput and is designed to minimize customer
resource requirements as I/O standards evolve. Furthermore, the Company's
product architecture is designed to facilitate both upward and downward
compatibility. Customers' significant software investments can be preserved
during transition from Fast SCSI to Ultra SCSI, with only minimal additional
software design necessary to complete the upward migration to the Company's
Fibre Channel solutions.
For the peripherals market, the Company's triple embedded controller
("TEC") architecture integrates certain control functions such as buffer
controller, powerful data error correction and disk formatting, microprocessor
interface and I/O interface (SCSI, IDE or Fibre Channel). The Company's products
are designed to facilitate backward migration from SCSI to IDE and forward
migration from SCSI to Fibre Channel by ensuring that a substantial portion of a
customer's firmware investments can be preserved during the transition. The
Company's common architecture modules for ISP and TEC products are designed to
benefit the Company's customers by providing faster time to market, reduced
support costs, simplified technology transitions and increased performance.
The markets in which the Company competes are characterized by rapidly
changing technology, evolving industry standards and continuing improvements in
products and services. There can be no assurance that the Company will respond
effectively to technological changes or that the Company's products will conform
to evolving industry standards and protocols. The Company has invested and will
continue to invest significant resources in the development of its Fibre Channel
based products; there can be no assurance that Fibre Channel will be adopted as
a predominant industry standard, or that the Company's Fibre Channel products
will conform to an industry standard which has yet to be uniformly adopted. The
failure of the Company's products to gain acceptance within industry standards
and protocols would adversely affect the Company's business, financial condition
and results of operations. See "Risk Factors -- Rapid Technological Change;
Dependence on New Products; Industry Standards."
26
<PAGE> 28
PRODUCTS
QLogic designs and supplies semiconductor and board level I/O solutions for
peripheral and computer systems products. The Company's products have
traditionally been based on the SCSI standard, and the Company is currently
developing products for the Fibre Channel and IDE standards.
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION
- ----------------------------------------------------------------------------------------------
PERIPHERAL PRODUCTS
- ----------------------------------------------------------------------------------------------
Fast Architecture SCSI - First introduced in 1991
(FAS) - Supports latest SCSI standards
- Supports Fast and Ultra SCSI transfer rates (up to 40 MB/sec.)
- Supports 8- or 16-bit data handling
- May be used in host or peripheral applications
- ----------------------------------------------------------------------------------------------
Triple Embedded - First introduced in 1991
Controllers (TEC) - Single chip disk controllers
- Integrated buffer controller, formatter and SCSI processor
- Powerful on-chip data error correction
- Supports transfer rates compatible with Fast, Wide and Ultra SCSI
(up to 40 MB/sec.)
- Supports 8- or 16-bit data handling
- ----------------------------------------------------------------------------------------------
COMPUTER SYSTEMS PRODUCTS
- ----------------------------------------------------------------------------------------------
Intelligent SCSI - First introduced in 1992
Processor (ISP) - - Embedded RISC single chip solution
Host Adapter Chips - Supports latest SCSI standards
- Supports transfer rates up to 40 MB/sec.
- Supports 8- or 16-bit data handling
- Supports direct PCI and SBus connection
- Recently shipped Fibre Channel evaluation units which operate at
transfer rates up to 100 MB/sec.
- ----------------------------------------------------------------------------------------------
QLA Product Family - - First introduced in 1993
Host Adapter Boards - Full line of host adapter cards with direct PCI and SBus
connection
- Supports latest SCSI standards
- Incorporates the Company's ISP host adapter chips
- Provides a fully integrated, high performance board level I/O
interface
solution
- Recently shipped Fibre Channel evaluation units which operate at
transfer rates up to 100 MB/sec.
- ----------------------------------------------------------------------------------------------
</TABLE>
SALES AND MARKETING
QLogic markets and distributes its products through a direct sales
organization supported by field application engineers, as well as through a
network of independent manufacturers' representatives and regional and
international distributors. In North America, the Company uses a tiered sales
and marketing approach, with a direct sales force to serve large and strategic
OEM accounts, OEM representatives that are focused on specific medium sized
accounts, and regional distributors and resellers that serve smaller accounts.
Throughout the Pacific Rim, the Company sells directly as well as through a
master distributor. In Europe, the Company sells its products through
distributors and through a representative. The Company believes that it is
important to work closely with its large peripheral and computer system
manufacturer OEMs during their design cycles. The Company supports these
customers with extensive applications and system design support, as well as
training
27
<PAGE> 29
classes and seminars both in the field and from its offices in Costa Mesa,
California. The Company also maintains a high level of customer support through
technical hotlines and Internet communications.
The Company's manufacturers' representatives and distributors are not
subject to minimum purchase requirements and can discontinue marketing any of
the Company's products at any time. The Company's distributors are permitted to
return to the Company a portion of the products purchased by them. In addition,
the Company provides its distributors with price protection in the event that
the Company reduces the prices of its products. The loss of one or more
manufacturers' representatives or distributors could have an adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Small Number of Customers."
The Company's marketing efforts are focused on establishing and developing
long term relationships with OEMs and other potential customers. The sales cycle
typically begins with a design win, which entails a product of the Company being
selected to be incorporated into a potential customer's computer system or data
storage peripherals. Once the Company secures a design win with a given
customer, the time to production shipment can range between six and 18 months.
After winning a design with a potential customer, QLogic works closely with the
customer to integrate its product with the customer's current and next
generation products. Due to the extensive amounts of resources required for each
customer design, typically only one I/O solution is designed into any given
customer product. After being designed into a customer's product, sales are
typically made through purchase orders which are subject to cancellation,
postponement or other types of delays.
International sales of the Company's products accounted for approximately
51%, 55% and 62% of net revenues for the nine months ended December 29, 1996 and
for fiscal years 1995 and 1996, respectively. International sales are
denominated in U.S. dollars. Due to its international sales, the Company is
subject to a number of risks, including restrictions related to export
regulations as well as those related to political upheaval and economic
downturns in foreign nations. See "Risk Factors--Risks of Doing Business in
International Markets."
CUSTOMERS
The Company's primary customers are regional and international distributors
and major domestic and international suppliers and manufacturers of servers,
workstations and data storage peripherals. The following is a representative
list of the Company's leading customers during the nine months ended December
29, 1996:
<TABLE>
<S> <C>
Atto Technology, Inc. Jabil Circuit, Inc.
Avex Electronics, Inc. Micropolis Corporation
Axis Components, Inc. NewTek Incorporated
Digital Equipment Corporation Silicon Graphics, Inc.
Distributed Processing Technology Sun Microsystems, Inc.
Fujitsu Limited Tokyo Electron Limited
GDL Corporation, Ltd. Vela Research, Inc.
Hitachi Computer Products (America),
Inc.
</TABLE>
A small number of customers account for a substantial portion of the
Company's net revenues, and the Company expects that a limited number of
customers will continue to represent a substantial portion of the Company's net
revenues for the foreseeable future. The Company's six largest customers in each
respective period accounted for approximately 73%, 81% and 71% of the Company's
net revenues for the nine months ended December 29, 1996 and for fiscal 1996 and
1995, respectively. For the nine months ended December 29, 1996, Tokyo Electron
Limited, Sun Microsystems, Inc. and Fujitsu Limited accounted for approximately
24%, 18% and 16% of the Company's net revenues, respectively. For fiscal 1996,
Tokyo Electron Limited, Sun Microsystems, Inc. and Avex Electronics, Inc.
accounted for approximately 42%, 13% and 11% of the Company's net revenues,
respectively. For fiscal 1995, Tokyo Electron Limited, Micropolis Corporation
and Digital Equipment Corporation accounted for approximately 24%, 14% and 11%
of the Company's net revenues, respectively. Many of the Company's leading
customers purchase several types of the Company's products, and the Company
believes that the sale of any particular product does not comprise a significant
percentage of total
28
<PAGE> 30
sales to such customers. Nevertheless, the Company is seeking to diversify its
customer base so that total sales to any one customer or any small number of
customers is not a significant percentage of overall sales. The Company has
recently established new channels of distribution in the Pacific Rim. The
Company expects that sales to Tokyo Electron Limited will significantly decrease
as a result of the Company establishing direct sales channels and securing a new
master distributorship in Japan. There can be no assurances, however, that the
Company will be successful in further diversifying its customer base. The
Company believes that its major customers continually evaluate whether or not to
purchase products from alternate or additional sources. Accordingly, there can
also be no assurance that a major customer will not reduce, delay or eliminate
its purchases from the Company. Any such reduction, delay or loss of purchases
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Dependence on Small
Number of Customers."
ENGINEERING AND DEVELOPMENT
In order to compete successfully, the Company believes that it must
continually design, develop and introduce new products that take advantage of
market opportunities and address emerging standards. The Company's strategy is
to leverage its substantial base of architectural and systems expertise and
product innovation capabilities to address a broad range of I/O solutions as
well as to develop products for its core SCSI business. The Company is currently
engaged in the development of integrated circuit I/O controllers for
additional I/O standards and enabling technologies, such as Fibre Channel, Ultra
SCSI, Low Voltage Differential (LVD), Ultra IDE and 1394 (Firewire). The Company
intends to broaden its product lines while continuing to allow its customers to
transition rapidly to Fibre Channel and other emerging I/O standards.
At December 29, 1996, the Company employed approximately 90 engineers,
including technicians and support personnel engaged in the development of new
products and the improvement of existing products. There can be no assurance
that the Company will continue to be successful in attracting and retaining key
personnel with the skills and expertise necessary to develop new products in the
future. Engineering and development expenses were approximately $7.2 million,
$7.2 million and $7.6 million for the nine months ended December 29, 1996 and
for fiscal 1996 and 1995, respectively.
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards and product obsolescence. The
Company's success is highly dependent upon the timely completion and
introduction of new products at competitive prices and performance levels. There
can be no assurance that the Company will be able to identify new product
opportunities successfully and develop and bring to market new products in a
timely manner, or that the Company will be able to respond effectively to
technological advancements or new product announcements. See "Risk
Factors -- Rapid Technological Change; Dependence on New Products; Industry
Standards."
BACKLOG
The Company's backlog of orders was approximately $17.0 million at December
29, 1996, compared to approximately $15.5 million at March 31, 1996. All backlog
is scheduled for delivery within six months or less. Most orders are subject to
rescheduling and/or cancellation with little or no penalty. Purchase order
release lead times depend upon the scheduling practices of the individual
customer, and the rate of booking new orders fluctuates from month to month. The
Company's customers have in the past encountered uncertain and changing demand
for their products. Orders are typically placed based on customer forecasts. If
demand falls below customers' forecasts, or if customers do not control their
inventories effectively, they may cancel or reschedule shipments previously
ordered from the Company. In the past, the Company has experienced, and may at
any time and with minimal notice in the future experience, cancellations and
postponements of orders. Therefore, the level of backlog at any particular date
is not necessarily indicative of sales for any future period.
COMPETITION
The markets for both peripheral and host computer products are highly
competitive and are characterized by short product life cycles, price erosion,
rapidly changing technology, frequent product performance
29
<PAGE> 31
improvements and evolving industry standards. Competition typically occurs at
the design stage, where the customer evaluates alternative design approaches.
Because of shortened product life cycles and even shorter design-in cycles, the
Company's competitors have increasingly frequent opportunities to achieve design
wins in next generation systems. A design win usually ensures a customer will
purchase the product until a higher performance standard is available or a
competitor can demonstrate a significant price/performance advantage. All of the
Company's products compete with products available from several companies, many
of whom have research and development, long term guaranteed supply capacity,
marketing and financial resources, manufacturing capability and customer support
organizations that are substantially greater than those of the Company. The
Company believes that its future operating results will depend, in part, upon
its ability to continue to improve product and process technologies and develop
new technologies in order to maintain the performance advantages of products and
processes relative to competitors, to adapt products and processes to
technological changes, and to identify and adopt emerging industry standards.
Because of the complexity of its products, the Company has experienced delays
from time to time in completing products on a timely basis. If the Company is
unable to design, develop and introduce competitive new products on a timely
basis, its future operating results would be adversely affected.
The Company currently competes primarily with Adaptec, Inc. and Symbios
Logic, Inc. The Fibre Channel sector of the I/O market, the Company expects to
compete primarily with Adaptec, Inc., Symbios Logic, Inc. and Hewlett-Packard
Company. In the IDE sector, the Company expects to compete with Adaptec and
Cirrus Logic, Inc. The Company may compete with some of its larger disk drive
and computer systems customers, some of which have the capability to develop I/O
controller integrated circuits for use in their products. At least one large OEM
customer in the past has decided to vertically integrate and has therefore
ceased purchases from the Company.
The Company believes that one of its principal competitive strengths in the
integrated circuit I/O controller market is its ability to obtain major design
wins as the result of its systems level expertise, integrated circuit design
capability and substantial experience in I/O applications, particularly SCSI.
The Company believes competitive factors in design wins are time to market,
performance, product features, price, quality, technical support and ease of
migration path to other I/O standards. The Company will have to continue to
develop products appropriate to its markets to remain competitive, as its
competitors continue to introduce products with improved performance
characteristics. While the Company continues to devote significant resources to
research and development, there can be no assurance that such efforts will be
successful or that the Company will develop and introduce new technology and
products in a timely manner. In addition, while relatively few competitors offer
a full range of SCSI and other I/O products, additional domestic and foreign
manufacturers may increase their presence in, and resources devoted to, these
markets. There can be no assurance that the Company will compete successfully in
the future against its existing competitors or potential competitors. See "Risk
Factors -- Competition" and "-- Rapid Technological Change; Dependence on New
Products; Industry Standards."
MANUFACTURING
The Company subcontracts the manufacturing of its semiconductor chips and
its host adapter boards to independent foundries and subcontractors, which
allows the Company to avoid the high costs of owning, operating and constantly
upgrading a wafer fabrication facility and a host adapter board assembly
factory. As a result, the Company focuses its resources on product design and
development, quality assurance, sales and marketing and customer support. The
Company designs both its semiconductor and host adapter board products, and
performs final tests on products, including tests required under the Company's
ISO9001/TickIT Certification. The Company also provides fab process reliability
tests, conducts failure analysis and audits its finished goods inventory to
confirm the integrity of its quality assurance procedures.
The Company's semiconductor products are ASICs, currently manufactured for
the Company by a number of domestic and offshore foundries. The Company's major
semiconductor suppliers are Toshiba, NEC Electronics, LSI Logic and Samsung
Semiconductor, Inc. Most of the Company's products are manufactured using 0.8,
0.6 or 0.5 micron process technology.
30
<PAGE> 32
The Company is dependent on its foundries to allocate to the Company a
portion of their foundry capacity sufficient to meet the Company's needs and to
produce products of acceptable quality and with acceptable manufacturing yields
in a timely manner. These foundries fabricate products for other companies and
manufacture products of their own design. The Company does not have long-term
agreements with any of its foundries, and purchases both wafers and finished
chips on a purchase order basis. Therefore, the foundries generally are not
obligated to supply products to the Company for any specific period, in any
specific quantity or at any specific price, except as may be provided in a
particular purchase order. The Company works with its existing foundries, and
intends to qualify new foundries, as needed, to obtain additional manufacturing
capacity. There can be no assurance, however, that the Company will be able to
obtain additional capacity.
The Company currently purchases its semiconductor products from its
foundries either in finished form or wafer form. The Company uses subcontractors
for die assembly of its semiconductor products purchased in wafer form, and for
assembly of its host adapter board products. In the assembly process for the
Company's semiconductor products, the silicon wafers are separated into
individual die, which are then assembled into packages and tested. Following
assembly, the packaged devices are further tested and inspected by the Company
prior to shipment to customers. For its host adapter board products, the Company
purchases components and printed circuit boards as kits. The Company provides
these kits to contract manufacturing companies that work together with the
Company's component suppliers to assemble the boards to the Company's
specifications.
The Company believes most component parts used in its host adapter boards
are standard off-the-shelf items which are, or can be, purchased from two or
more sources. The Company selects suppliers on the basis of technology,
manufacturing capacity, quality and cost. Whenever possible and practicable, the
Company strives to have at least two manufacturing locations for each host
adapter board and chip product. Nevertheless, the Company's reliance on
third-party manufacturers involves risks, including possible limitations on
availability of products due to market abnormalities, unavailability of, or
delays in obtaining access to, certain product technologies and the absence of
complete control over delivery schedules, manufacturing yields, and total
production costs. The inability of the Company's suppliers to deliver products
of acceptable quality and in a timely manner or the inability of the Company to
procure adequate supplies of its products could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Risk Factors -- Dependence on Wafer Suppliers and Other Subcontractors."
INTELLECTUAL PROPERTY
Although the Company has seven patents issued and two additional patent
applications pending in the United States, the Company relies primarily on its
trade secrets, trademarks and copyrights to protect its intellectual property.
The Company attempts to protect its proprietary information through agreements
with its customers, suppliers, employees and consultants, and through other
security measures. Although the Company intends to protect its rights
vigorously, there can be no assurance that these measures will be successful. In
addition, the laws of certain countries in which the Company's products are or
may be developed, manufactured or sold, including various countries in Asia, may
not protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.
While the Company's ability to compete may be affected by its ability to
protect its intellectual property, the Company believes that, because of the
rapid pace of technological change in the I/O solutions markets, its technical
expertise and ability to introduce new products on a timely basis will be more
important in maintaining its competitive position than protection of its
intellectual property. Although the Company continues to implement protective
measures and intends to defend vigorously its intellectual property rights,
there can be no assurance that these measures will be successful.
The Company has received notices of claimed infringement of trademark
rights in the past, and there can be no assurance that third parties will not
assert claims of infringement of trademarks or any other intellectual property
rights against the Company with respect to existing and future products. In the
event of a patent or other intellectual property dispute, the Company may be
required to expend significant resources to develop non-infringing technology or
to obtain licenses to the technology which is the subject of the claim. There
can be no assurance that the Company would be successful in such development or
that any such license would be
31
<PAGE> 33
available on commercially reasonable terms, if at all. In the event of
litigation to determine the validity of any third party's claims, such
litigation could result in significant expense to the Company, and divert the
efforts of the Company's technical and management personnel, whether or not such
litigation is determined in favor of the Company. See "Risk Factors -- Lack of
Significant Patent Protection; Infringement Risks."
EMPLOYEES
The Company had 183 employees as of December 29, 1996. The Company believes
that its future prospects will depend, in part, on its ability to continue to
attract, train, motivate, retain and manage skilled engineering, sales,
marketing and executive personnel. None of QLogic's employees is represented by
a labor union. The Company believes that its relations with its employees are
good. See "Risk Factors -- Dependence on Key Personnel."
PROPERTIES
The Company's corporate offices and principal product development, sales
and operational facilities are currently located in one, approximately 70,000
square foot building in Costa Mesa, California. The Company occupies the
facility pursuant to a lease that expires in 1999. The Company believes that its
current facilities are adequate for its present level of operations.
LEGAL PROCEEDINGS
From time to time, the Company is a party to ordinary disputes arising in
the normal course of business. The Company does not believe that the outcome of
these matters will have a material adverse effect on the Company's business,
financial condition or results of operations.
32
<PAGE> 34
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company, including their ages as of
December 29, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Gary E. Liebl (1)............. 55 Chairman of the Board of Directors
H.K. Desai.................... 50 President, Chief Executive Officer and Director
Thomas R. Anderson............ 52 Vice President and Chief Financial Officer
Michael R. Manning............ 42 Secretary and Treasurer
Mark E. Edwards............... 38 Vice President -- Sales and Corporate Marketing
David Tovey................... 52 Vice President and General Manager -- Peripheral Products
Group
Lawrence F. Fortmuller, Jr.... 48 Vice President and General Manager -- Computer Systems
Group
James A. Bixby (1)............ 49 Director
Carol L. Miltner (2).......... 54 Director
George D. Wells (2)........... 61 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Liebl has been Chairman of the Board of Directors of the Company since
the Distribution in February 1994. Mr. Liebl currently serves as a director of
Smartflex Systems, Inc., a manufacturing services provider of sophisticated
electronic assemblies. He is also Vice Chairman of the Board of Directors of
Artisoft, Inc., a local area network company. Beginning in October 1985, Mr.
Liebl held senior management positions, including Chairman of the Board and
Chief Executive Officer, at Cipher Data Products, Inc., a manufacturer of tape
and optical disk drives to the computer industry, until such corporation was
acquired by Archive Corporation in April 1990.
Mr. Desai joined the Company in August 1995 as President and Chief
Technical Officer of QLogic and President of QLogic Foreign Sales Corporation.
He was subsequently promoted to President and Chief Executive Officer and became
a Director in January 1996. From May 1995 to August 1995, he was Vice President,
Engineering (Systems Products) at Western Digital Corporation, a manufacturer of
disk drives. From July 1990 until May 1995, he served as Director of
Engineering, and subsequently Vice President of Engineering at the Company. From
1980 until joining the Company in 1990, Mr. Desai was an Engineering Section
manager at Unisys Corporation, a computer system manufacturer.
Mr. Anderson joined the Company in July 1993 as Vice President and Chief
Financial Officer. From October 1990 to July 1993, he was corporate Senior Vice
President and Chief Financial Officer of Distributed Logic Corporation, a
manufacturer of tape and disk controllers and computer subsystems. From June
1982 to April 1990, he held various positions with Cipher Data Products, Inc.,
including corporate Vice President, Chief Financial Officer, Treasurer and
Assistant Secretary. Before joining Cipher, Mr. Anderson held various financial
positions with Dataproducts Corporation, Rockwell International and Arthur
Andersen, LLP.
Mr. Manning joined the Company in June 1993 as Treasurer and Secretary.
Previously, Mr. Manning held various positions at Emulex, including Senior
Director and Treasurer from April 1991 with the additional role of Secretary in
1992. Mr. Manning joined Emulex in July 1983 as Tax Director. Prior to joining
Emulex, Mr. Manning was a Tax Manager at KPMG Peat Marwick LLP, independent
certified public accountants.
Mr. Edwards joined the Company in October 1996 as Vice President -- Sales
and Corporate Marketing. Prior to joining the Company, Mr. Edwards served as
Vice President -- Sales and Marketing for the Storage Systems Division of Unisys
Corporation, from August 1994 to September 1996, and as Director -- European
Channels from August 1993 through August 1994. Prior to joining Unisys, Mr.
Edwards served as Regional Sales
33
<PAGE> 35
Manager for Zitel Corporation from April 1991 through August 1993. Prior to
joining Zitel, Mr. Edwards held a sales and management position with Digital
Equipment Corporation.
Mr. Tovey has served as Vice President and General Manager -- Peripheral
Products Group since October 1996. From April 1994 to October 1996, Mr. Tovey
served as Vice President -- Marketing of the Company. From March 1985 to April
1994, he held various positions in the Disk Products Division of Toshiba America
Information Systems, a computer system and disk drive manufacturer, including
Director of Technology Planning and Vice President -- HDD Marketing. Prior to
1985, Mr. Tovey held various marketing and sales management positions with
Unisys Corporation and engineering positions with Ferranti, Ltd. in the U.K.
Mr. Fortmuller joined the Company in October 1996 as Vice President and
General Manager -- Computer Systems Group. Prior to joining the Company, Mr.
Fortmuller held various positions with AST Research, Inc., a manufacturer of
microprocessor-based systems, for nine years, including Vice
President -- Americas Marketing from September 1995 to October 1996; Vice
President and General Manager -- Server Business Unit from August 1994 through
September 1995; Director of Product Marketing from 1990 through August 1994; and
various product marketing positions. Prior to joining AST Research, Inc., Mr.
Fortmuller held various product marketing positions with Data Card Corporation,
MSI Data Corporation and Litton Industries, Inc.
Mr. Bixby became a director of the Company in February 1994. He is Vice
President -- Business Development of Rockwell Semiconductor Systems, a producer
of high-performance, mixed-signal integrated circuits. Since 1996, Mr. Bixby has
been an officer of Rockwell Semiconductor. Previously, Mr. Bixby served as an
officer of Brooktree Corporation, most recently as Chairman, President and Chief
Executive Officer, from 1983 until its acquisition by Rockwell Semiconductor in
1996. Before joining Brooktree, Mr. Bixby was Director of Engineering at Spin
Physics, a division of Eastman Kodak Company.
Ms. Miltner became a director of the Company in February 1994. She is
President of Miltner & Associates, a management consultant and seminar firm. Ms.
Miltner also serves as a director of Multiple Zones International. From December
1993 until March 1995, she served as Executive Vice President of Sales and
Marketing of AmeriQuest Technologies, Inc., a subassembler of storage products
and distributor of microcomputer products. From July 1991 to December 1993 she
was President of Motivation by Miltner. From April 1989 to July 1991, she was
Senior Vice President -- Sales of Merisel, a distributor of microcomputer
products. For the previous four years, she was Senior Vice President -- Sales of
Ingram Micro, Inc. a distributor of computer products.
Mr. Wells became a director of the Company in February 1994. He also
currently serves as a member of the Boards of Directors of Exar Corporation, a
manufacturer of analog and mixed-signal integrated circuits, and Align Rite
Corporation, a manufacturer of photomasks. He was President and Chief Executive
Officer of Exar Corporation, from June 1992 until October 1996. Before joining
Exar, he served as President and Chief Operating Officer of LSI Logic, a
manufacturer of HCMOS and BiCMOS application specific integrated circuits, for
seven years.
34
<PAGE> 36
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 15, 1997, information regarding
beneficial ownership of the Company's Common Stock by each director and each
executive officer and by all directors and executive officers of the Company as
a group. As of April 15, 1997, there were no persons known by the Company to own
beneficially more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED (1)
-------------------------------------------
PERCENT PRIOR PERCENT AFTER
NUMBER TO OFFERING OFFERING
------- ------------- -------------
<S> <C> <C> <C>
Gary E. Liebl (2)....................................... 15,500 * *
H.K. Desai (3).......................................... 57,782 * *
Thomas R. Anderson (4).................................. 33,251 * *
Michael R. Manning (5).................................. 35,476 * *
Mark E. Edwards......................................... -- * *
David Tovey (6)......................................... 28,925 * *
Lawrence F. Fortmuller, Jr.............................. 1,500 * *
James A. Bixby (7)...................................... 12,500 * *
Carol L. Miltner (8).................................... 5,491 * *
George D. Wells......................................... 5,500 * *
All Directors and Executive Officers
as a group (10 Persons)............................... 195,925 3.3% 2.5%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Based upon 5,840,701 shares of Common Stock outstanding prior to the
Offering and 7,840,701 shares of Common Stock outstanding after the
Offering. Each named person and all directors and executive officers as a
group are deemed to be the beneficial owners of shares of Common Stock that
may be acquired within 60 days upon exercise of stock options. Accordingly,
the number of shares and percentages set forth next to the name of such
person and all directors and executive officers as a group include the
shares of Common Stock issuable upon stock options exercisable within 60
days. However, the shares of Common Stock so issuable upon such exercise by
any such person are not included in calculating the percentage of Common
Stock beneficially owned by any other stockholder.
(2) Includes 12,500 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
(3) Includes 50,782 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
(4) Includes 28,751 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
(5) Includes 3,400 shares held for the benefit of Mr. Manning's minor children.
Also includes 18,625 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
(6) Includes 20,625 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
(7) Consists entirely of shares which may purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
(8) Includes 4,166 shares which may be purchased pursuant to stock options which
are currently, or within the next 60 days, will be, exercisable.
35
<PAGE> 37
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 12,500,000 shares of common stock, $0.10
par value ("Common Stock"), of which 5,840,701 shares were issued and
outstanding at April 15, 1997, and 1,000,000 shares of Preferred Stock, $0.10
par value ("Preferred Stock"), of which 200,000 shares have been designated as
Series A Junior Participating Preferred Stock, $0.001 par value (the "Series A
Preferred Stock"), none of which was issued and outstanding at April 15, 1997.
COMMON STOCK
Each stockholder is entitled to one vote for each share of Common Stock
held of record on all matters to be voted on by stockholders, and stockholders
are not entitled to cumulate votes for the election of directors. Stockholders
have no preemptive rights or other subscription rights. There are no conversion
rights or redemption rights with respect to shares of Common Stock. All
outstanding shares of Common Stock are, and those offered hereby will be, when
issued, validly issued, fully paid and nonassessable. Holders of Common Stock
are entitled to such dividends as may be declared by the Board of Directors out
of funds legally available therefor. On liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive pro rata the
net assets of the Company remaining after the payment of debts, expenses and the
liquidation preference of any outstanding shares of Preferred Stock.
PREFERRED STOCK
The Company's Board of Directors, pursuant to the Company's Restated
Certificate of Incorporation, as amended, is authorized to issue the Preferred
Stock in one or more series and to fix the voting rights, liquidation
preferences, dividend rights, conversion rights, redemption rights and terms,
including sinking fund provisions, and certain other rights and preferences of
the Preferred Stock. The Board of Directors, without stockholder approval, can
therefore, issue Preferred Stock with voting, conversion and other rights which
could adversely affect the voting power and other rights of, and amounts payable
with respect to, the Common Stock. This may be deemed to have a potential
anti-takeover effect because the issuance of Preferred Stock in accordance with
such provision may delay, defer or prevent a change of control of the Company
and could adversely affect the price of the Company's Common Stock. In
connection with the Company's Shareholder Rights Plan, the Board of Directors
designated rights, preferences and privileges of the Series A Preferred Stock
with the purpose of preventing hostile takeovers of the Company that are unfair
to the holders of Common Stock. See "-- Shareholder Rights Plan."
SHAREHOLDER RIGHTS PLAN
On June 4, 1996 the Company's Board of Directors adopted the Shareholder
Rights Plan, pursuant to which preferred stock rights (the "Rights") were
distributed in the form of a dividend to stockholders of record on the close of
business on June 20, 1996 (the "Dividend Date") on the basis of one Right for
each share of Common Stock held. One Right will also attach to each share of
Common Stock issued by the Company subsequent to the Dividend Date and prior to
the Distribution Date (as defined below).
In general, the Rights become exercisable or transferable only upon the
occurrence of certain events related to changes in ownership of the Common
Stock. Once exercisable, each Right entitles its holder to purchase from the
Company one one-hundredth of a share ("Unit") of Series A Preferred Stock at a
purchase price of $45.00 per Unit, subject to adjustment. The Rights will
separate from the Common Stock and become exercisable or transferable on a
distribution date (the "Distribution Date"), which will occur on the earlier of
(i) 10 days following a public announcement that a person or group of affiliated
or associated persons (an "Acquiring Person") has acquired beneficial ownership
of securities representing 15% or more of the Common Stock or (ii) 10 business
days following the commencement of a tender or exchange offer that would result
in a person or group of related persons becoming an Acquiring Person. Upon the
occurrence of certain other events related to changes in the ownership of the
Common Stock, each holder of a Right would be entitled to purchase shares of the
Common Stock, or an acquiring corporation's common stock, having a market value
equal to two times the exercise value of the Right.
36
<PAGE> 38
The Rights expire on the earliest of (i) June 4, 2006, (ii) consummation of
a merger transaction with a person or group who acquires Common Stock pursuant
to a transaction approved by a majority of the disinterested members of the
Company's Board of Directors, and (iii) redemption of the Rights. Subject to
certain conditions, the Rights may be redeemed by the Company's Board of
Directors at any time at a price of $0.001 per Right. The Rights are not
currently exercisable and trade together with the shares of Common Stock
associated therewith.
The Rights, if exercised, will cause a substantial dilution to the equity
interest in QLogic to a person's or group's ownership interest in the Company's
Common Stock that attempts to acquire the Company on terms not approved by the
Company's Board of Directors. See "Risk Factors -- Potential Effect of
Anti-Takeover Provisions" and "Description of Capital Stock-- Delaware Law."
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
either (i) prior to the date at which the person becomes an interested
stockholder, the Board of Directors approves such transaction or business
combination, (ii) the stockholder acquires more than 85% of the outstanding
voting stock of the corporation (excluding shares held by directors who are
officers or held in certain employee stock plans) upon consummation of such
transaction, or (iii) the business combination is approved by the Board of
Directors and by two-thirds of the outstanding voting stock of the corporation
(excluding shares held by the interested stockholder) at a meeting of
stockholders (and not by written consent). A "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to such
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own) 15%
or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Harris
Trust Company of California.
37
<PAGE> 39
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, for whom
Cowen & Company, Prudential Securities Incorporated and Morgan Keegan & Company,
Inc. are acting as representatives (the "Representatives"), and each of the
Underwriters has severally agreed to purchase from the Company the respective
number of shares of Common Stock set forth opposite the name of such
Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------- ---------
<S> <C>
Cowen & Company.........................................
Prudential Securities Incorporated......................
Morgan Keegan & Company, Inc. ..........................
---------
Total......................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock offered
hereby (other than those covered by the over-allotment option described below),
if any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page of
this Prospectus and in part to certain dealers at such price less a concession
not in excess of $ per share. The Underwriters may allow, and such
dealers may re-allow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the Representatives.
The Company has granted the Underwriters an option, exercisable for up to
30 days after the date of this Prospectus, to purchase up to an aggregate of
300,000 additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them as shown in the foregoing table bears to the 2,000,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the 2,000,000 shares of
Common Stock offered hereby.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act and to
contribute to payments that the Underwriters may be required to make in respect
thereof.
The Company and the Company's officers and directors have agreed not to
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock or any right to acquire Common Stock for a period of 90 days after the
date of this Prospectus without the prior written consent (which consent may be
given without notice to the Company's stockholders or other public announcement)
of Cowen & Company, on behalf of the Underwriters. Cowen & Company has advised
the Company that it has no present intention of releasing any of the Company's
stockholders or option holders from such lock-up agreements until the expiration
of such 90-day period.
In connection with this Offering, certain Underwriters and selling group
members (if any) or their respective affiliates may engage in passive market
making transactions in the Common Stock on the Nasdaq National Market in
accordance with Rule 103 of Regulation M under the Securities Exchange Act of
1934 or any successor rule or regulation thereto. Passive market making consists
of displaying bids on the Nasdaq National Market limited by the highest
independent bid for the security and effecting purchases limited by such prices
and
38
<PAGE> 40
in response to order flow. Net purchases by a passive market maker on each day
are generally limited in amount to 30% of the passive market maker's average
daily trading volume in Common Stock during a specified prior period and must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of Common Stock at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in the offering, if the Underwriters repurchase previously distributed
Common Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the Common
Stock above market levels that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
Cowen & Company has in the past and may in the future provide certain
financial advisory services to the Company for which it has received and may
receive customary fees and reimbursement of expenses.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Newport Beach, California. Pillsbury Madison & Sutro LLP, Menlo
Park and San Francisco, California, is acting as counsel for the Underwriters in
connection with certain legal matters relating to the shares of Common Stock
offered hereby.
EXPERTS
The consolidated financial statements and schedule as of April 2, 1995 and
March 31, 1996 and for each of the years in the three-year period ended March
31, 1996, have been incorporated by reference herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
This Prospectus, which constitutes a part of the Registration Statement,
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto on file with the Commission pursuant to the
Securities Act and the rules and regulations of the Commission thereunder. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies may be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office in Washington, D.C. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
to the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith, files reports, proxy or
information statements, and other information with the Commission. Such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W. Washington,
39
<PAGE> 41
D.C. 20549, as well as at the following Regional Offices: 7 World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials also can
be obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, by mail at
prescribed rates. In addition, the Commission has a Web site on the World Wide
Web http://www.sec.gov, containing registration statements, reports, proxy and
information statements and other information that registrants, such as the
Company, file electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission under the Exchange Act and are incorporated herein by reference:
(i) The description of the Common Stock contained in the Company's
Registration Statement on Form 10, filed on February 15, 1994;
(ii) The description of the Rights contained in the Company's
Registration Statement on Form 8-A, filed on June 19, 1996;
(iii) The Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1996 including portions of the Company's definitive Proxy
Statement for the 1996 Annual Meeting of Stockholders incorporated therein
by reference; and
(iv) The Company's Quarterly Reports on Form 10-Q for the quarterly
periods ended December 29, 1996, September 29, 1996, and June 30, 1996.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the filing of a post-effective amendment which indicates that all securities
offered have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference in this Prospectus and
to be part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated herein by reference, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the information that has been
incorporated by reference herein (other than exhibits to the information that is
incorporated by reference unless such exhibits are specifically incorporated by
reference into the information this Prospectus incorporates). Such requests
should be directed to QLogic Corporation, Attention: Thomas R. Anderson, Vice
President and Chief Financial Officer, 3545 Harbor Boulevard, Costa Mesa,
California 92626, telephone number (714) 438-2200.
40
<PAGE> 42
GLOSSARY
Bus. Any of the internal control paths which travel from the central
processing unit to any of the adapters, the I/O ports, or to the random access
memory of a computer. The bus is the primary means of communications between
components in a personal computer, workstation or server.
Controller. A functional unit that controls one or more I/O channels.
Peripheral controllers receive data from the host computer, arrange and store
the data in a manner suitable for the storage media, retrieve data, correct data
for errors and return the data to the host computer. Host controllers receive
commands from the host computer, execute data transfers to and from the
peripheral device and supervise the placement of the data in the host computer
memory.
Fibre Channel. An interface standard for connecting peripheral devices to
computer systems and networks. Fibre Channel was developed and standardized in
order to provide increased data transfer speed, reduced wiring complexity,
greater connectivity and to enable greater distances between the connected
devices.
IDE. Integrated Drive Electronics. A basic interface between the computer
and a limited number of data storage devices. Enhanced IDE and Ultra IDE refer
to newer technology that offers improved performance, higher capacity support
and increased options. IDE is the I/O interface commonly associated with
personal computers.
ISP. Intelligent SCSI Processor. The Company's integrated circuit I/O
architecture which integrates an I/O processor and a proprietary RISC-based
processor on a single chip, facilitating faster host I/O transfers, software
transparency across multiple I/O standards and greater I/O transfer autonomy
from the host CPU.
LVD. Low Voltage Differential. A proposed signaling standard which
increases SCSI cable length and speed. LVD is used to implement I/O products
based on Ultra2 SCSI, which can operate at speeds up to 80 megabytes per second,
and is significantly, but not completely, backward compatible with the current
Ultra SCSI standard.
PCI. Peripheral Component Interconnect. Introduced in 1993, PCI is a local
bus architecture designed to support peripherals on a dedicated electronic
pathway closer to the central processing unit in order to improve system
performance.
RAID. Redundant Array of Independent Disks. In order to prevent system
data loss due to hard drive failure, RAID devices share data across multiple
lower capacity hard drives. By adding some redundancy, the system can tolerate
the failure of a single disk without shutdown or data loss. In addition, the
system can obtain significant improvements in data transfer rates and time to
data, as compared to a single disk solution.
RISC. Reduced Instruction Set Computing. A microprocessor architecture
designed to reduce the number of instructions and accelerate processing power
for workstations, servers and, more recently, personal computers.
SCSI. Small Computer System Interface. An interface standard for
connecting peripheral devices to a computer system. SCSI defines a special bus
cable dedicated to data transfer between the computer and up to 15 peripherals,
each with its own controller. The original standard has an 8-bit wide bus and a
transfer rate of five megabytes (MB) per second. Fast SCSI has an 8-bit wide bus
and a maximum data transfer rate of 10 MB/sec. Fast Wide SCSI has a 16-bit wide
bus and a maximum data transfer rate of 20 MB/sec. Ultra SCSI has an 8- or
16-bit wide bus and a maximum data transfer rate of 40 MB/sec. Ultra2 SCSI,
which has not yet been deployed, has an 8- or 16-bit wide bus and a maximum data
transfer rate of 80 MB/sec.
41
<PAGE> 43
[GRAPHIC DEPICTING COMPUTER SYSTEMS AND DATA STORAGE
PERIPHERAL PRODUCTS THAT UTILIZE THE COMPANY'S PRODUCTS FROM 1994 THROUGH 1997]
42
<PAGE> 44
============================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE
UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY,
TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................... 3
Risk Factors................................ 5
Use of Proceeds............................. 12
Price Range of Common Stock................. 12
Dividend Policy............................. 12
Capitalization.............................. 13
Selected Consolidated Financial Data........ 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 15
Business.................................... 22
Management.................................. 33
Principal Stockholders...................... 35
Description of Capital Stock................ 36
Underwriting................................ 38
Legal Matters............................... 39
Experts..................................... 39
Additional Information...................... 39
Incorporation of Certain Documents by
Reference................................. 40
Glossary.................................... 41
</TABLE>
============================================================
============================================================
2,000,000 Shares
[QLOGIC LOGO]
Common Stock
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
, 1997
============================================================
<PAGE> 45
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale of
the Common Stock being registered hereunder. All of the amounts shown are
estimates except for the SEC registration fee, the NASD filing fee and the
Nasdaq National Market application fee, all of which, shall be borne by the
registrant, in connection with the offering of the shares of Common Stock
pursuant to this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission Fee............................ $ 15,944
NASD Filing Fee................................................... 5,761
Nasdaq National Market Listing Fee................................ 17,500
Accounting Fees and Expenses...................................... 75,000
Legal Fees and Expenses........................................... 200,000
Printing Fees..................................................... 70,000
"Blue Sky" Fees................................................... 5,000
Transfer Agent and Registrar Fees................................. 10,000
Miscellaneous Expenses............................................ 795
-------
Total................................................... $400,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) Section 145 of the Delaware General Corporation Law makes provision for
the indemnification of officers and directors in terms sufficiently broad to
include indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Section 145 of the Delaware General
Corporation Law permits indemnification by a corporation of its officers and
directors against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with actions or proceedings against them if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful. Section 145
provides that no indemnification may be made, however, without court approval,
in respect of any claim as to which the officer or director is adjudged to be
liable to the corporation. Such indemnification provisions of Delaware law are
expressly not exclusive of any other rights which the officers or directors may
have under the corporation's by-laws or agreements, pursuant to the vote of
stockholders or disinterested directors or otherwise.
(b) The Restated Certificate of Incorporation of the registrant provides
that the registrant will, to the maximum extent permitted by law, indemnify each
of its officers and directors against expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact any such person is or was a director or
officer of the registrant. The Company also carries directors and officers
liability insurance.
(c) The Underwriting Agreement (Exhibit 1.1) provides that the Company
shall indemnify the Underwriters for certain liabilities, including liabilities
arising under the Securities Act.
II-1
<PAGE> 46
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Distribution Agreement dated as of January 24, 1994 among Emulex Corporation, a
Delaware corporation, Emulex Corporation, a California corporation, and QLogic
Corporation (incorporated by reference to same numbered exhibit to the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1996).
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional Corporation.
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional Corporation (included
in Exhibit 5.1).
23.2 Consent of Independent Auditors.
24.1 Power of Attorney (included in the signature pages to the Registration
Statement -- see page II-4).
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) If the securities to be registered are to be offered at competitive
bidding:
The undersigned registrant hereby undertakes (1) to use its best efforts to
distribute prior to the opening of bids, to prospective bidders, underwriters,
and dealers, a reasonable number of copies of a prospectus which at that time
meets the requirements of Section 10(a) of the Act, and relating to the
securities offered at competitive bidding, as contained in the registration
statement, together with any supplements thereto, and (2) to file an amendment
to the registration statement reflecting the results of bidding, the terms of
the reoffering and related
II-2
<PAGE> 47
matters to the extent required by the applicable form, not later than the first
use, authorized by the issuer after the opening of bids, of a prospectus
relating to the securities offered at competitive bidding, unless no further
public offering of such securities by the issuer and no reoffering of such
securities by the purchasers is proposed to be made.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(f) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Costa Mesa, State of California, on the 25th day of
April, 1997.
QLOGIC CORPORATION
By: /s/ THOMAS R. ANDERSON
------------------------------------
Thomas R. Anderson
Vice President and Chief Financial
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of QLogic Corporation, do hereby
constitute and appoint Gary E. Liebl and Thomas R. Anderson, and each of them,
our true and lawful attorneys and agents, to do any and all acts and things in
our name and behalf in our capacities as directors and officers and to execute
any and all instruments for us and in our names in the capacities indicated
below, which said attorneys and agents, or either of them, may deem necessary or
advisable to enable said corporation to comply with the Securities Act of 1933,
as amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or any
of us in our names and in the capacities indicated below, any and all amendments
(including post-effective amendments) to this Registration Statement, or any
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended; and we do hereby
ratify and confirm all that the said attorneys and agents, or either of them,
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------- ----------------
<S> <C> <C>
/s/ GARY E. LIEBL Chairman of the Board of April 25, 1997
- ----------------------------------------------- Directors
Gary E. Liebl
/s/ H.K. DESAI President, Chief April 25, 1997
- ----------------------------------------------- Executive Officer and
H.K. Desai Director
/s/ THOMAS R. ANDERSON Vice President and Chief April 25, 1997
- ----------------------------------------------- Financial Officer
Thomas R. Anderson
/s/ MICHAEL R. MANNING Secretary and Treasurer April 25, 1997
- -----------------------------------------------
Michael R. Manning
/s/ JIM BIXBY Director April 25, 1997
- -----------------------------------------------
Jim Bixby
/s/ CAROL MILTNER Director April 25, 1997
- -----------------------------------------------
Carol Miltner
/s/ GEORGE WELLS Director April 25, 1997
- -----------------------------------------------
George Wells
</TABLE>
II-4
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------- -------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.........................................
2.1 Distribution Agreement dated as of January 24, 1994 among Emulex
Corporation, a Delaware corporation, Emulex Corporation, a California
corporation, and QLogic Corporation (incorporated by reference to same
numbered exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996)......................................
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation............................................................
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation (included in Exhibit 5.1)..................................
23.2 Consent of Independent Auditors........................................
24.1 Power of Attorney (included in the signature pages to the Registration
Statement -- see page II-4)............................................
</TABLE>
<PAGE> 1
EXHIBIT 1.1
2,000,000 SHARES
QLOGIC CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
___________, 1997
COWEN & COMPANY
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
As Representatives of the several Underwriters
c/o Cowen & Company
Financial Square
New York, New York 10005
Ladies and Gentlemen:
1. Introductory. QLogic Corporation, a Delaware corporation (the
"Company"), proposes to sell, pursuant to the terms of this Agreement, to the
several underwriters named in Schedule A hereto (the "Underwriters," or, each,
an "Underwriter"), an aggregate of 2,000,000 shares of Common Stock, $0.10 par
value (the "Common Stock"). The aggregate of 2,000,000 shares so proposed to
be sold is hereinafter referred to as the "Firm Stock." The Company also
proposes to sell to the Underwriters, upon the terms and conditions set forth
in Section 3 hereof, up to an additional 300,000 shares of Common Stock (the
"Optional Stock"). The Firm Stock and the Optional Stock are hereinafter
collectively referred to as the "Stock". Cowen & Company ("Cowen"), Prudential
Securities Incorporated ("Prudential") and Morgan Keegan & Company, Inc.
("Morgan Keegan") are acting as representatives of the several Underwriters and
in such capacity are hereinafter referred to as the "Representatives."
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement on Form S-3 (File No.
333-_________) in the form in which it became or becomes effective and
also in such form as it may be when any post-effective amendment
thereto shall become effective with respect to the Stock, including
any preeffective prospectuses included as part of the registration
statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, copies of which
(including all documents incorporated by reference therein) have
heretofore been delivered to you, has been prepared by the Company in
conformity with the requirements of the Securities Act and has been
filed with the Commission under the Securities Act; one or more
amendments to such registration statement, including in each case an
amended preeffective prospectus, copies of which amendments (including
all documents incorporated by reference therein), have heretofore been
delivered to you, have been so prepared and filed. If it is
contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed
and must be declared effective before the offering of the Stock may
commence, the term "Registration Statement" as used in this Agreement
means the registration statement as amended by said post-effective
amendment. The term "Registration Statement" as used in this
Agreement shall also include any registration statement relating to
the Stock that is filed and declared effective pursuant to Rule 462(b)
under the Securities Act. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the
Registration Statement, or, (A) if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A
under the Securities Act and such information is
-1-
<PAGE> 2
included in a prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule
430A information contained in the prospectus filed with the Commission
pursuant to Rule 424(b) and (B) if prospectuses that meet the
requirements of Section 10(a) of the Securities Act are delivered
pursuant to Rule 434 under the Securities Act, then (i) the term
"Prospectus" as used in this Agreement means the "prospectus subject
to completion" (as such term is defined in Rule 434(g) under the
Securities Act) as supplemented by (a) the addition of Rule 430A
information or other information contained in the form of prospectus
delivered pursuant to Rule 434(c)(2) under the Securities Act or (b)
the information contained in the abbreviated term sheets described in
Rule 434(c)(3) under the Securities Act, and (ii) the date of such
prospectuses shall be deemed to be the date of the abbreviated term
sheets. The term "Preeffective Prospectus" as used in this Agreement
means the prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus
shall have been amended from time to time prior to the date of the
Prospectus. Any reference herein to any Preeffective Prospectus or
the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Form S-3 under the
Securities Act, as of the date of such Preeffective Prospectus or
Prospectus, as the case may be, and any reference to any amendment or
supplement to any Preeffective Prospectus or the Prospectus shall be
deemed to refer to and include any documents filed after such date
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and so incorporated by reference.
(b) The Commission has not issued or, to the best of the
Company's knowledge, threatened to issue any order preventing or
suspending the use of any Preeffective Prospectus, and, at its date of
issue, each Preeffective Prospectus conformed in all material respects
with the requirements of the Securities Act and did not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, other than any such nonconformance or untrue statement or
omission in a Preeffective Prospectus which has been corrected in the
Prospectus; and, when the Registration Statement becomes effective and
at all times subsequent thereto up to and including each of the
Closing Dates (as hereinafter defined), the Registration Statement and
the Prospectus and any amendments or supplements thereto contained and
will contain all material statements and information required to be
included therein by the Securities Act and conformed and will conform
in all material respects to the requirements of the Securities Act and
neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, included or will include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing representations,
warranties and agreements shall not apply to information contained in
or omitted from any Preeffective Prospectus or the Registration
Statement or the Prospectus or any such amendment or supplement
thereto in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter, directly
or through you, specifically for use in the preparation thereof; there
is no franchise, lease, contract, agreement or document required to be
described in the Registration Statement or Prospectus or to be filed
as an exhibit to the Registration Statement which is not described or
filed therein as required; and all descriptions of any such
franchises, leases, contracts, agreements or documents contained in
the Registration Statement are accurate and complete descriptions of
such documents in all material respects.
(c) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, neither the
Company nor its subsidiary has incurred any liabilities or
obligations, direct or contingent, not in the ordinary course of
business nor entered into any transactions not in the ordinary course
of business, and there has not been any material adverse change in the
condition (financial or otherwise), properties, business, management,
prospects, net worth or results of operations of the Company and its
subsidiary considered as a whole, or any change in the capital stock,
short-term or long-term debt of the Company and its subsidiary
considered as a whole.
-2-
<PAGE> 3
(d) The financial statements, together with the related notes
and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and changes in financial position of the Company and its
consolidated subsidiaries at the respective dates or for the
respective periods therein specified. Such statements and related
notes and schedules have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis except as
may be set forth in the Prospectus. The selected financial and
statistical data set forth in the Prospectus and in the Company's
Annual Report on Form 10-K for the fiscal year ended March __ , 199_,
incorporated by reference in the Prospectus fairly present, on the
basis stated in the Registration Statement and such Annual Report, the
information set forth therein.
(e) KPMG Peat Marwick, LLP, who have expressed their opinions
on the audited financial statements and related schedules included in
the Registration Statement and the Prospectus are independent public
accountants as required by the Securities Act and the Rules and
Regulations.
(f) The Company and its subsidiary have been duly organized
and are validly existing and in good standing as corporations under
the laws of their respective jurisdictions of organization, with power
and authority (corporate and other) to own or lease their properties
and to conduct their businesses as described in the Prospectus; the
Company and its subsidiary are in possession of and operating in
compliance with all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders required for the
conduct of its business, all of which are valid and in full force and
effect or the absence of which would not have a material adverse
effect on the business or financial condition of the Company and its
subsidiary considered as a whole; and the Company and such subsidiary
are duly qualified to do business and in good standing as foreign
corporations in all other jurisdictions where their ownership or
leasing of properties or the conduct of their businesses requires such
qualification, except where the failure to so qualify would not have a
material adverse effect on the business or financial condition of the
Company and its subsidiary considered as a whole. The Company has and
its subsidiary have all requisite power and authority, and all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public regulatory
or governmental agencies and bodies to own, lease and operate its
properties and conduct its business as now being conducted and as
described in the Registration Statement and the Prospectus, and no
such consent, approval, authorization, order, registration,
qualification, license or permit contains a materially burdensome
restriction not adequately disclosed in the Registration Statement and
the Prospectus. The Company owns or controls, directly or indirectly,
only the following corporations, associations or other entities:
QLogic Foreign Sales Corporation, a U.S. Virgin Islands Corporation
and a wholly-owned subsidiary.
(g) The Company's authorized and outstanding capital stock is
on the date hereof, and will be on the Closing Date[s], as set forth
under the heading "Capitalization" in the Prospectus; the outstanding
shares of common stock of the Company conform to the description
thereof in the Prospectus and have been duly authorized and validly
issued and are fully paid and nonassessable; are duly listed on the
Nasdaq National Market and have been issued in compliance with all
federal and state securities laws and were not issued in violation of
or subject to any preemptive rights or similar rights to subscribe for
or purchase securities and conform to the description thereof
contained in the Prospectus. Except as disclosed in and or
contemplated by the Prospectus and the financial statements of the
Company and related notes thereto included in the Prospectus, the
Company does not have outstanding any options or warrants to purchase,
or any preemptive rights or other rights to subscribe for or to
purchase any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock
or any such options, rights, convertible securities or obligations,
except for options granted subsequent to the date of information
provided in the Prospectus pursuant to the Company's employee and
stock option plans as disclosed in the Prospectus. The description of
the Company's stock option and other stock plans or arrangements, and
the options or other rights granted or exercised thereunder, as set
forth in the Prospectus, accurately and fairly presents the
information required to be shown with respect to such plans,
arrangements, options and rights. All outstanding shares of capital
stock of each
-3-
<PAGE> 4
subsidiary have been duly authorized and validly issued, and are fully
paid and nonassessable and (except for directors' qualifying shares)
are owned directly by the Company or by another wholly owned
subsidiary of the Company free and clear of any liens, encumbrances,
equities or claims.
(h) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and nonassessable and free of
any preemptive or similar rights and will conform to the description
thereof in the Prospectus.
(i) Except as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or its
subsidiary is a party or of which any property of the Company or its
subsidiary is subject, which, if determined adversely to the Company
or its subsidiary, might individually or in the aggregate (i) prevent
or adversely affect the transactions contemplated by this Agreement,
(ii) suspend the effectiveness of the Registration Statement, (iii)
prevent or suspend the use of the Preeffective Prospectus in any
jurisdiction or (iv) result in a material adverse change in the
condition (financial or otherwise), properties, business, management
prospects, net worth or results of operations of the Company and its
subsidiary considered as a whole and there is no valid basis for any
such legal or governmental proceeding; and to the best of the
Company's knowledge no such proceedings are threatened or contemplated
against the Company or its subsidiary by governmental authorities or
others. The Company is not a party nor subject to the provisions of
any material injunction, judgment, decree or order of any court,
regulatory body or other governmental agency or body. The description
of the Company's litigation under the heading "Legal Proceedings" in
the Prospectus is true and correct and complies with the Rules and
Regulations.
(j) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated (A) will
not result in any violation of the provisions of the certificate of
incorporation, by-laws or other organizational documents of the
Company or its subsidiary, or any law, order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or its subsidiary or any of their properties or assets, (B)
will not conflict with or result in a breach or violation of any of
the terms or provisions of or constitute a default under any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company or its subsidiary is a party or by
which it or any of its properties is or may be bound, the Certificate
of Incorporation, By-laws or other organizational documents of the
Company or any of its subsidiaries, or any law, order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company or its subsidiary or any of their
properties or will result in the creation of a lien.
(k) No consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery
and performance of this Agreement by the Company and the consummation
of the transactions contemplated hereby, except such as may be
required by the National Association of Securities Dealers, Inc. (the
"NASD") or under the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act") or the securities or "Blue Sky"
laws of any jurisdiction in connection with the purchase and
distribution of the Stock by the Underwriters.
(l) The Company has the full corporate power and authority to
enter into this Agreement and to perform its obligations hereunder
(including to issue, sell and deliver the Stock), and this Agreement
has been duly and validly authorized, executed and delivered by the
Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
to the extent that rights to indemnity and contribution hereunder may
be limited by federal or state securities laws or the public policy
underlying such laws.
(m) The Company and its subsidiary are in all material
respects in compliance with, and conduct their businesses in
conformity with, all applicable federal, state, local and foreign
laws, rules and regulations or any court or governmental agency or
body; to the knowledge of the Company, otherwise than as set forth in
the Registration Statement and the Prospectus, no prospective change
in any of such
-4-
<PAGE> 5
federal or state laws, rules or regulations has been adopted which,
when made effective, would have a material adverse effect on the
operations of the Company and its subsidiary considered as a whole.
In the ordinary course of business, employees of the Company conduct
periodic reviews of the effect of Environmental Laws (as defined
below) on the business operations and properties of the Company and
its subsidiaries, in the ordinary course of which they seek to
identify and evaluate associated costs and liabilities. Except as
disclosed in the Registration Statement, the Company and its
subsidiary are in compliance with all applicable existing federal,
state, local and foreign laws and regulations relating to the
protection of human health or the environment or imposing liability or
requiring standards of conduct concerning any Hazardous Materials
("Environmental Laws"), except for such instances of noncompliance
which, either singly or in the aggregate, would not have a material
adverse effect. The term "Hazardous Material" means (i) any
"hazardous substance" as defined by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, (ii) any
"hazardous waste" as defined by the Resource Conservation and Recovery
Act, as amended, (iii) any petroleum or petroleum product, (iv) any
polychlorinated biphenyl and (v) any pollutant or contaminant or
hazardous, dangerous or toxic chemical, material, waste or substance
regulated under or within the meaning of any other Environment Law.
(n) The Company and its subsidiary have filed all necessary
federal, state, local and foreign income, payroll, franchise and other
tax returns and have paid all taxes shown as due thereon or with
respect to any of their properties, and there is no tax deficiency
that has been, or to the knowledge of the Company is likely to be,
asserted against the Company or its subsidiary or any of their
respective properties or assets that would materially adversely affect
the financial position, business or operations of the Company and its
subsidiary considered as a whole.
(o) No person or entity has the right to require registration
of shares of Common Stock or other securities of the Company because
of the filing or effectiveness of the Registration Statement or
otherwise, except for persons and entities who have expressly waived
such right and notice of such right or who have been given required
notice and have failed to exercise such right within the time or times
required under the terms and conditions of such right.
(p) Neither the Company nor any of its officers, directors or
affiliates has taken or will take, directly or indirectly, any action
designed or intended to stabilize or manipulate the price of any
security of the Company, or which caused or resulted in, or which
might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the
Company.
(q) The Company has provided you with all financial
statements since __________ to the date hereof that are available to
the officers of the Company, including financial statements for the
months of _______, ____________ and ________ of 1997.
(r) The Company and its subsidiary own or possess the right
to use all patents, trademarks, trademark registrations, service
marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights described in the Prospectus as
being owned by them or either of them or necessary for the conduct of
their respective businesses, and the Company is not aware of any claim
to the contrary or any challenge by any other person to the rights of
the Company and its subsidiary with respect to the foregoing. Except
as disclosed in the Prospectus, the Company's business as now
conducted and as proposed to be conducted does not and will not
infringe or conflict with in any material respect patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses or
other intellectual property or franchise right of any person. Except
as described in the Prospectus, no claim has been made against the
Company alleging the infringement by the Company of any patent,
trademark, service mark, trade name, copyright, trade secret, license
in or other intellectual property right or franchise right of any
person.
(s) The Company and its subsidiary have performed all
material obligations required to be performed by them under all
contracts required by Item 601(b)(10) of Regulation S-K under the
Securities
-5-
<PAGE> 6
Act to be filed as exhibits to the Registration Statement, and neither
the Company nor its subsidiary nor any other party to such contract is
in default under or in breach of any such obligations. Neither the
Company nor its subsidiary has received any notice of such default or
breach.
(t) The Company is not involved in any labor dispute nor, to
the best of the Company's knowledge, is any such dispute threatened.
The Company is not aware that (A) any executive, key employee or
significant group of employees of the Company or its subsidiary plans
to terminate employment with the Company or any such subsidiary or (B)
any such executive or key employee is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar
agreement that would be violated by the present or proposed business
activities of the Company and its subsidiary. Neither the Company nor
its subsidiary has or expects to have any liability for any prohibited
transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or
other plan which is subject to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), to which the Company or its
subsidiary makes or ever has made a contribution and in which any
employee of the Company or its subsidiary is or has ever been a
participant. With respect to such plans, the Company and its
subsidiary are in compliance in all material respects with all
applicable provisions of ERISA.
(u) The Company has obtained the written agreement described
in Section 8(j) of this Agreement from each of its officers, directors
and holders of Common Stock listed on Schedule B hereto.
(v) The Company and its subsidiary have, and the Company and
its subsidiary as of the Closing Date[s] will have, good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned or proposed to be
owned by them which is material to the business of the Company or of
its subsidiary, in each case free and clear of all liens, encumbrances
and defects except such as are described the Prospectus or such as
would not have a material adverse effect on the Company and its
subsidiary considered as a whole; and any real property and buildings
held under lease by the Company and its subsidiary or proposed to be
held after giving effect to the transactions described in the
Prospectus are, or will be as of each of the Closing Dates, held by
them under valid, subsisting and enforceable leases with such
exceptions as would not have a material adverse effect on the Company
and its subsidiary considered as a whole, in each case except as
described in or contemplated by the Prospectus.
(w) The Company and its subsidiary are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts as are customary in the businesses in which they are
engaged or propose to engage after giving effect to the transactions
described in the Prospectus; and neither the Company nor its
subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary
to continue their business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the
earnings, business or operations of the Company and its subsidiary
considered as a whole, except as described in or contemplated by the
Prospectus.
(x) The Company has complied with all provisions of Section
517.075 Florida Statutes (Chapter 92-198; Laws of Florida).
(y) Other than as contemplated by this Agreement, there is no
broker, finder or other party that is entitled to receive from the
Company any brokerage or finder's fee or other fee or commission as a
result of any of the transactions contemplated by this Agreement.
(z) The Company and its subsidiary maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain
-6-
<PAGE> 7
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(aa) To the Company's knowledge, neither the Company nor its
subsidiary nor any employee or agent of the Company or its subsidiary
has made any payment of funds of the Company or its subsidiary or
received or retained any funds in violation of any law, rule or
regulation, which payment, receipt or retention of funds is of a
character required to be disclosed in the Prospectus.
(bb) Neither the Company nor its subsidiary is or, after
application of the net proceeds of this offering as described under
the caption "Use of Proceeds" in the Prospectus, will become an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended.
(cc) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company as to the
matters covered thereby.
3. Purchase by, and Sale and Delivery to, Underwriters--Closing
Dates. The Company agrees to sell to the Underwriters the Firm Stock, and on
the basis of the representations, warranties, covenants and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase the Firm Stock from
the Company, the number of shares of Firm Stock to be purchased by each
Underwriter being set opposite its name in Schedule A, subject to adjustment in
accordance with Section 12 hereof.
The purchase price per share to be paid by the Underwriters to the
Company will be $____ per share (the "Purchase Price").
The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or
prior to 12:00 Noon, New York Time, on the second full business day preceding
the First Closing Date (as defined below) or, if no such direction is received,
in the names of the respective Underwriters or in such other names as Cowen may
designate (solely for the purpose of administrative convenience) and in such
denominations as Cowen may determine, against payment of the aggregate Purchase
Price therefor by certified or official bank check or checks in immediately
available funds (same day funds), payable to the order of the Company, all at
the offices of Stradling, Yocca, Carlson & Rauth, a Professional Corporation,
660 Newport Center Drive, Suite 1600, Newport Beach, CA 92660. The time and
date of the delivery and closing shall be at 10:00 A.M., New York Time, on
_________, 1997, in accordance with Rule 15c6-1 of the Exchange Act. The time
and date of such payment and delivery are herein referred to as the "First
Closing Date." The First Closing Date and the location of delivery of, and the
form of payment for, the Firm Stock may be varied by agreement between the
Company and Cowen. The First Closing Date may be postponed pursuant to the
provisions of Section 12.
The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later than
10:00 A.M., New York Time, on the business day preceding the First Closing Date
at the offices of Cowen & Company, Financial Square, New York, New York 10005.
It is understood that Cowen, Prudential or Morgan Keegan, individually
and not as Representatives of the several Underwriters, may (but shall not be
obligated to) make payment to the Company on behalf of any Underwriter or
Underwriters, for the Stock to be purchased by such Underwriter or
Underwriters. Any such payment by Cowen, Prudential or Morgan Keegan shall not
relieve such Underwriter or Underwriters from any of its or their other
obligations hereunder.
-7-
<PAGE> 8
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is advisable.
The Representatives shall promptly advise the Company of the making of the
initial public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Company hereby grants to the Underwriters an option to purchase, severally and
not jointly, up to the aggregate number of shares of Optional Stock set forth
opposite the Company's name on Schedule A hereto, for an aggregate of up to
300,000 shares. The price per share to be paid for the Optional Stock shall be
the Purchase Price. The option granted hereby may be exercised as to all or
any part of the Optional Stock at any time, and from time to time, not more
than thirty (30) days subsequent to the effective date of this Agreement. No
Optional Stock shall be sold and delivered unless the Firm Stock previously has
been, or simultaneously is, sold and delivered. The right to purchase the
Optional Stock or any portion thereof may be surrendered and terminated at any
time upon notice by the Underwriters to the Company.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Cowen to the Company setting forth the number of
shares of the Optional Stock to be purchased by them and the date and time for
delivery of and payment for the Optional Stock. Each date and time for
delivery of and payment for the Optional Stock (which may be the First Closing
Date, but not earlier) is herein called the "Option Closing Date" and shall in
no event be earlier than two (2) business days nor later than ten (10) business
days after written notice is given. (The Option Closing Date and the First
Closing Date are herein called the "Closing Dates".) All purchases of Optional
Stock from the Company shall be made on a pro rata basis. Optional Stock shall
be purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Stock set forth opposite such Underwriter's name in
Schedule A hereto bears to the total number of shares of Firm Stock (subject to
adjustment by the Underwriters to eliminate odd lots). Upon exercise of the
option by the Underwriters, the Company agrees to sell to the Underwriters the
number of shares of Optional Stock set forth in the written notice of exercise
and the Underwriters agree, severally and not jointly and subject to the terms
and conditions herein set forth, to purchase the number of such shares
determined as aforesaid.
The Company will deliver the Optional Stock to the Underwriters (in
the form of definitive certificates, issued in such names and in such
denominations as the Representatives may direct by notice in writing to the
Company given at or prior to 12:00 Noon, New York Time, on the second full
business day preceding the Option Closing Date or, if no such direction is
received, in the names of the respective Underwriters or in such other names as
Cowen may designate (solely for the purpose of administrative convenience) and
in such denominations as Cowen may determine, against payment of the aggregate
Purchase Price therefor by certified or official bank check or checks in
immediately available funds (same day funds), payable to the order of the
Company, all at the offices of Stradling, Yocca, Carlson & Rauth, a
Professional Corporation, 660 Newport Center Drive, Suite 1600, Newport Beach,
CA 92660. The Option Closing Date and the location of delivery of, and the
form of payment for, the Option Stock may be varied by agreement between the
Company and Cowen. The Option Closing Date may be postponed pursuant to the
provisions of Section 12.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the several Underwriters that:
(a) The Company will (i) if the Company and the
Representatives have determined not to proceed pursuant to Rule 430A
of the of the Rules and Regulations, use its best efforts to cause the
Registration Statement to become effective, (ii) if the Company and
the Representatives have determined to proceed pursuant to Rule 430A
of the Rules and Regulations, use its best efforts to comply with the
provisions of and make all requisite filings with the Commission
pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
(iii) if the Company and the Representatives have determined to
deliver Prospectuses pursuant to Rule 434 of the Rules and
Regulations, to use its best efforts to comply with all the applicable
provisions thereof. The Company will advise the Representatives
promptly as to the time at which the Registration Statement becomes
effective, will advise the Representatives promptly of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for
that purpose, and will use its best efforts to prevent
-8-
<PAGE> 9
the issuance of any such stop order and to obtain as soon as possible
the lifting thereof, if issued. The Company will advise the
Representatives promptly of the receipt of any comments of the
Commission or any request by the Commission for any amendment of or
supplement to the Registration Statement or the Prospectus or for
additional information and will not at any time file any amendment to
the Registration Statement or supplement to the Prospectus which shall
not previously have been submitted to the Representatives a reasonable
time prior to the proposed filing thereof or to which the
Representatives shall reasonably object in writing or which is not in
compliance with the Securities Act and the Rules and Regulations.
(b) The Company will prepare and file with the
Commission, promptly upon the request of the Representatives, any
amendments or supplements to the Registration Statement or the
Prospectus which in the opinion of the Representatives may be
necessary to enable the several Underwriters to continue the
distribution of the Stock and will use its best efforts to cause the
same to become effective as promptly as possible. The Company will
promptly file all reports and any definitive proxy or information
statements required to be filed with the Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act subsequent to the date of
the Prospectus and for so long as the delivery of a prospectus is
required in connection with the offering or sale of the Stock.
(c) If at any time after the effective date of the
Registration Statement when a prospectus relating to the Stock is
required to be delivered under the Securities Act any event relating
to or affecting the Company or its subsidiary occurs as a result of
which the Prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact, or omit to state any
material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or if it
is necessary at any time to amend the Prospectus to comply with the
Securities Act, the Company will promptly notify the Representatives
thereof and will prepare an amended or supplemented prospectus or make
an appropriate filing pursuant to Section 13 or 14 of the Exchange Act
which will correct such statement or omission; and in case any
Underwriter is required to deliver a prospectus relating to the Stock
nine (9) months or more after the effective date of the Registration
Statement, the Company upon the request of the Representatives and at
the expense of such Underwriter will prepare promptly such prospectus
or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Securities Act.
(d) The Company will deliver to the Representatives, at
or before the Closing Date, signed copies of the Registration
Statement, as originally filed with the Commission, and all amendments
thereto including all financial statements and exhibits thereto and
all documents theretofore incorporated by reference therein, and will
deliver to the Representatives such number of copies of the
Registration Statement, including such financial statements and all
documents theretofore incorporated by reference therein but without
exhibits, and all amendments thereto, as the Representatives may
reasonably request. The Company will deliver or mail to or upon the
order of the Representatives, from time to time until the effective
date of the Registration Statement, as many copies of the Preeffective
Prospectus as the Representatives may reasonably request. The Company
will deliver or mail to or upon the order of the Representatives on
the date of the initial public offering, and thereafter from time to
time during the period when delivery of a prospectus relating to the
Stock is required under the Securities Act, as many copies of the
Prospectus, in final form or as thereafter amended or supplemented as
the Representatives may reasonably request; provided, however, that
the expense of the preparation and delivery of any prospectus required
for use nine (9) months or more after the effective date of the
Registration Statement shall be borne by the Underwriters required to
deliver such prospectus.
(e) The Company will make generally available to its
stockholders as soon as practicable, but not later than fifteen (15)
months after the effective date of the Registration Statement, an
earnings statement which will be in reasonable detail (but which need
not be audited) and which will comply with Section 11(a) of the
Securities Act, covering a period of at least twelve (12) months
beginning after the "effective date" (as defined in Rule 158 under the
Securities Act) of the Registration Statement.
-9-
<PAGE> 10
(f) The Company will cooperate with the Representatives
to enable the Stock to be registered or qualified for offering and
sale by the Underwriters and by dealers under the securities laws of
such jurisdictions as the Representatives may designate and at the
request of the Representatives will make such applications and furnish
such consents to service of process or other documents as may be
required of it as the issuer of the Stock for that purpose; provided,
however, that the Company shall not be required to qualify to do
business or to file a general consent (other than that arising out of
the offering or sale of the Stock) to service of process in any such
jurisdiction where it is not now so subject. The Company will, from
time to time, prepare and file such statements and reports as are or
may be required of it as the issuer of the Stock to continue such
qualifications in effect for so long a period as the Representatives
may reasonably request for the distribution of the Stock. The Company
will advise the Representatives promptly after the Company becomes
aware of the suspension of the qualifications or registration of (or
any such exception relating to) the Common Stock of the Company for
offering, sale or trading in any jurisdiction or of any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any orders suspending such qualifications, registration or
exception, the Company will, with the cooperation of the
Representatives use its best efforts to obtain the withdrawal thereof.
(g) The Company will furnish to its stockholders annual
reports containing financial statements certified by independent
public accountants and with quarterly summary financial information in
reasonable detail which may be unaudited. During the period of five
(5) years from the date hereof, the Company will deliver to the
Representatives and, upon request, to each of the other Underwriters,
as soon as they are available, copies of each annual report of the
Company and each other report furnished by the Company to its
stockholders and will deliver to the Representatives, (i) as soon as
they are available, copies of any other reports (financial or other)
which the Company shall publish or otherwise make available to any of
its stockholders as such, (ii) as soon as they are available, copies
of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange and (iii) from time to
time such other information concerning the Company as you may request.
So long as the Company has active subsidiaries, such financial
statements will be on a consolidated basis to the extent the accounts
of the Company and its subsidiaries are consolidated in reports
furnished to its stockholders generally. Separate financial
statements shall be furnished for all subsidiaries whose accounts are
not consolidated but which at the time are significant subsidiaries as
defined in the Rules and Regulations.
(h) The Company will use its best efforts to list the
Stock, subject to official notice of issuance, on the Nasdaq National
Market concurrently with the effectiveness of the Registration
Statement.
(i) The Company will maintain a transfer agent and
registrar for its Common Stock.
(j) For a period of one year from the date hereof, prior
to filing its quarterly statements on Form 10-Q, the Company will have
its independent auditors perform a limited quarterly review of its
quarterly numbers.
(k) The Company will not, without the prior written
consent of Cowen, offer, sell, assign, transfer, encumber, contract to
sell, grant an option to purchase or otherwise dispose of, other than
by operation of law, gifts, pledges or dispositions by estate
representatives, any shares of Common Stock or securities convertible
into or exercisable or exchangeable for Common Stock (including,
without limitation, Common Stock of the Company which may be deemed to
be beneficially owned by the Company in accordance with the Rules and
Regulations) during the 90 days following the date on which the price
of the Common Stock to be purchased by the Underwriters is set, other
than the Company's sale of Common Stock hereunder and the Company's
issuance of Common Stock upon the exercise of warrants and stock
options which are presently outstanding and described in the
Prospectus or pursuant to the Company's stock plan described in the
Prospectus or document incorporated by reference therein.
-10-
<PAGE> 11
(l) Prior to filing with the Commission any reports on
Form SR or successor report thereto pursuant to Rule 463 of Rules and
Regulations which reflects a material change in the use of proceeds
described in the Prospectus, the Company will furnish a copy thereof
to the counsel for the Underwriters and receive and consider its
comments thereon, and will deliver promptly to the Representatives a
signed copy of each report on Form SR filed by it with the Commission.
(m) The Company will apply the net proceeds from the sale
of the Stock as set forth in the description under "Use of Proceeds"
in the Prospectus, which description complies in all respects with the
requirements of Item 504 of Regulation S-K.
(n) The Company will supply you with copies of all
correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Stock under the
Securities Act.
(o) Prior to each of the Closing Dates the Company will
furnish to you, as soon as they have been prepared, copies of any
unaudited interim consolidated financial statements of the Company and
its subsidiary for any periods subsequent to the periods covered by
the financial statements appearing in the Registration Statement and
the Prospectus.
(p) Prior to each of the Closing Dates the Company will
issue no press release or other communications directly or indirectly
and hold no press conference with respect to the Company or its
subsidiary, the financial condition, results of operations, business,
prospects, assets or liabilities of any of them, or the offering of
the Stock, without your prior written consent. For a period of twelve
(12) months following the first Closing Date, the Company will use its
best efforts to provide to you copies of each press release or other
public communications with respect to the financial condition, results
of operations, business, prospects, assets or liabilities of the
Company as soon as practicable prior to the public issuance thereof.
(q) During the period of five (5) years hereafter, the
Company will furnish to the Representatives, and upon request of the
Representatives, to each of the Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as
of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants; (ii)
as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Report on Form 8-K or other report filed by the Company with the
Commission, or the NASD or any securities exchange; and (iii) as soon
as available, copies of any report or communication of the Company
mailed generally to holders of its Common Stock.
5. Payment of Expenses. (a) The Company will pay (directly or
by reimbursement) all costs, fees and expenses incurred in connection with
expenses incident to the performance of its obligations under this Agreement
and in connection with the transactions contemplated hereby, including but not
limited to (i) all expenses and taxes incident to the issuance and delivery of
the Stock to the Representatives; (ii) all expenses incident to the
registration of the Stock under the Securities Act; (iii) the costs of
preparing stock certificates (including printing and engraving costs); (iv) all
fees and expenses of the registrar and transfer agent of the Stock; (v) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Stock to the Underwriters; (vi) fees and expenses of the
Company's counsel and the Company's independent accountants; (vii) all costs
and expenses incurred in connection with the preparation, printing filing,
shipping and distribution of the Registration Statement, each Preeffective
Prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements provided for herein, the "Agreement Among
Underwriters" between the Representatives and the Underwriters, the Master
Selected Dealers' Agreement, the Underwriters' Questionnaire and the Blue Sky
memoranda (including related fees and expenses of counsel to the Underwriters)
and this Agreement; (viii) all filing fees, attorneys' fees and expenses
incurred by the Company or the Underwriters in connection with exemptions from
the qualifying or registering (or obtaining qualification or
-11-
<PAGE> 12
registration of) all or any part of the Stock for offer and sale and
determination of its eligibility for investment under the Blue Sky or other
securities laws of such jurisdictions as the Representatives may designate;
(ix) all fees and expenses paid or incurred in connection with filings made
with the NASD (including related fees and expenses of counsel to the
Underwriters); and (x) all other costs and expenses incident to the performance
of its obligations hereunder which are not otherwise specifically provided for
in this Section.
(b) In addition to its other obligations under Section 6(a) hereof,
the Company agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding arising out of or
based upon (i) any statement or omission or any alleged statement or omission,
(ii) any act or failure to act or any alleged act or failure to act or (iii)
any breach or inaccuracy in its representations and warranties, it will
reimburse each Underwriter on a quarterly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's obligation to reimburse each Underwriter for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, each Underwriter shall
promptly return it to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) announced from time to time by
Citibank, New York, New York (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter in a timely manner
as provided below shall bear interest at the Prime Rate from the due date for
such reimbursement. This expense reimbursement agreement will be in addition
to any other liability which the Company may otherwise have. The request for
reimbursement will be sent to the Company.
(c) In addition to its other obligations under Section 6(b)
hereof, each Underwriter severally agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in Section 6(b) hereof which relates to
information furnished to the Company pursuant to Section 2(b) hereof, it will
reimburse the Company (and, to the extent applicable, each officer, director or
controlling person) on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director or controlling person) for such expenses and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company (and, to
the extent applicable, each officer, director or controlling person) shall
promptly return it to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30)
days of a request for reimbursement shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(d) It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth in paragraph (b) and/or (c)
of this Section 5, including the amounts of any requested reimbursement
payments and the method of determining such amounts, shall be settled by
arbitration conducted under the provisions of the Constitution and Rules of the
Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be commenced
by service of a written demand for arbitration or written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the
party demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said demand or
notice is authorized to do so. Such an arbitration would be limited to the
operation of the interim reimbursement provisions contained in paragraph (b)
and/or (c) of this Section 5 and would not resolve the ultimate propriety or
enforceability of the obligation to reimburse expenses which is created by the
provisions of Section 6.
6. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls such Underwriter within the meaning of the Securities
-12-
<PAGE> 13
Act and the respective officers, directors, partners, employees,
representatives and agents of each of such Underwriter (collectively, the
"Underwriter Indemnified Parties" and, each, an "Underwriter Indemnified
Party"), against any losses, claims, damages, liabilities or expenses
(including the reasonable cost of investigating and defending against any
claims therefor and counsel fees incurred in connection therewith), joint or
several, which may be based upon the Securities Act, or any other statute or at
common law, (i) on the ground or alleged ground that any Preeffective
Prospectus, the Registration Statement or the Prospectus (or any Preeffective
Prospectus, the Registration Statement or the Prospectus as from time to time
amended or supplemented) includes or allegedly includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, unless such statement
or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter, directly or through
the Representatives, specifically for use in the preparation thereof or (ii)
for any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Stock or the
offering contemplated hereby, and which is included as part of or referred to
in any loss, claim, damage, liability or expense arising out of or based upon
matters covered by clause (i) above (provided that the Company shall not be
liable under this clause (ii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage, or
liability or expense resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); provided, that with respect to any untrue
statement or omission or alleged untrue statement or omission made in any
Preeffective Prospectus, the indemnity agreement contained in this subsection
(a) shall not inure to the benefit of any Underwriter Indemnified Party from
whom the person asserting any such losses, claims, damages or liabilities
purchased the shares of Stock concerned to the extent that any such loss,
claim, damage or liability of such Underwriter Indemnified Party results from
the fact that a copy of the Prospectus excluding documents incorporated by
reference therein was not sent or given to such person at or prior to the
written confirmation of the sale of such shares of Stock to such person as
required by the Securities Act and if the untrue statement or omission
concerned has been corrected in the Prospectus. The Company will be entitled
to participate at its own expense in the defense or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the
Company elects to assume the defense, such defense shall be conducted by
counsel chosen by it and reasonably acceptable to the Underwriters. In the
event the Company elects to assume the defense of any such suit and retain such
counsel, any Underwriter Indemnified Parties, defendant or defendants in the
suit, may retain additional counsel but shall bear the fees and expenses of
such counsel unless (i) the Company shall have specifically authorized the
retaining of such counsel or (ii) the parties to such suit include any such
Underwriter Indemnified Parties, and the Company and such Underwriter
Indemnified Parties at law or in equity have been advised by counsel to the
Underwriters that one or more legal defenses may be available to it or them
which may not be available to the Company, in which case the Company shall not
be entitled to assume the defense of such suit notwithstanding its obligation
to bear the fees and expenses of such counsel. This indemnity agreement is not
exclusive and will be in addition to any liability which the Company might
otherwise have and shall not limit any rights or remedies which may otherwise
be available at law or in equity to each Underwriter Indemnified Party.
(b) Each Underwriter severally and not jointly agrees to indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who controls
the Company within the meaning of the Securities Act (collectively, the
"Company Indemnified Parties") against any losses, claims, damages, liabilities
or expenses (including, unless the Underwriter or Underwriters elect to assume
the defense, the reasonable cost of investigating and defending against any
claims therefor and counsel fees incurred in connection therewith), joint or
several, which arise out of or are based in whole or in part upon the
Securities Act, the Exchange Act or any other federal, state, local or foreign
statute or regulation, or at common law, on the ground or alleged ground that
any Preeffective Prospectus, the Registration Statement or the Prospectus (or
any Preeffective Prospectus, the Registration Statement or the Prospectus, as
from time to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, but only insofar as any
such statement or omission was made in reliance upon, and in conformity with,
written information furnished to the Company by such Underwriter, directly or
through the Representatives, specifically for use in the preparation thereof;
provided, however, that in no case is such Underwriter to be liable with
respect to any claims made against any Company Indemnified Party against
-13-
<PAGE> 14
whom the action is brought unless such Company Indemnified Party shall have
notified such Underwriter in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon the Company Indemnified Party, but failure to
notify such Underwriter of such claim shall not relieve it from any liability
which it may have to any Company Indemnified Party otherwise than on account of
its indemnity agreement contained in this paragraph. Such Underwriter shall be
entitled to participate at its own expense in the defense, or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but,
if such Underwriter elects to assume the defense, such defense shall be
conducted by counsel chosen by it. In the event that any Underwriter elects to
assume the defense of any such suit and retain such counsel, the Company
Indemnified Parties and any other Underwriter or Underwriters or controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, respectively. The
Underwriter against whom indemnity may be sought shall not be liable to
indemnify any person for any settlement of any such claim effected without such
Underwriter's consent. This indemnity agreement is not exclusive and will be
in addition to any liability which such Underwriter might otherwise have and
shall not limit any rights or remedies which may otherwise be available at law
or in equity to any Company Indemnified Party.
(c) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other from the offering of the Stock. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contribution were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to above shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating, defending, settling or compromising any such
claim. Notwithstanding the provisions of this subsection (d), no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the shares of the Stock underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. The
Underwriters' obligations to contribute are several in proportion to their
respective underwriting obligations and not joint. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7. Survival of Indemnities, Representations, Warranties, etc.
The respective indemnities, covenants, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by them respectively, pursuant to this Agreement,
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter, the
-14-
<PAGE> 15
Company or any of its officers or directors or any controlling person, and
shall survive delivery of and payment for the Stock.
8. Conditions of Underwriters' Obligations. The respective
obligations of the several Underwriters hereunder shall be subject to the
accuracy, at and (except as otherwise stated herein) as of the date hereof and
at and as of each of the Closing Dates, of the representations and warranties
made herein by the Company, to compliance at and as of each of the Closing
Dates by the Company with its covenants and agreements herein contained and
other provisions hereof to be satisfied at or prior to each of the Closing
Dates, and to the following additional conditions:
(a) The Registration Statement shall have become
effective and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the Company or the Representatives,
shall be threatened by the Commission, and any request for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives.
Any filings of the Prospectus, or any supplement thereto, required
pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations,
shall have been made in the manner and within the time period required
by Rule 424(b) and Rule 434 of the Rules and Regulations, as the case
may be.
(b) The Representatives shall have been satisfied that
there shall not have occurred any change, on a consolidated basis,
prior to each of the Closing Dates in the condition (financial or
otherwise), properties, business, management, prospects, net worth or
results of operations of the Company and its subsidiary considered as
a whole, or any change in the capital stock, short-term or long- term
debt of the Company and its subsidiary considered as a whole, such
that (i) the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains an untrue statement of fact
which, in the opinion of the Representatives, is material, or omits to
state a fact which, in the opinion of the Representatives, is required
to be stated therein or is necessary to make the statements therein
not misleading, or (ii) it is unpracticable in the reasonable judgment
of the Representatives to proceed with the public offering or purchase
the Stock as contemplated hereby.
(c) The Representatives shall be satisfied that no legal
or governmental action, suit or proceeding affecting the Company which
is material and adverse to the Company or which affects or may affect
the Company's ability to perform their respective obligations under
this Agreement shall have been instituted or threatened and there
shall have occurred no material adverse development in any existing
such action, suit or proceeding.
(d) At the time of execution of this Agreement, the
Representatives shall have received from KPMG Peat Marwick, LLP,
independent certified public accountants, a letter, dated the date
hereof, in form and substance satisfactory to the Underwriters.
(e) The Representatives shall have received from KPMG
Peat Marwick, LLP, independent certified public accountants, letters,
dated each of the Closing Dates, to the effect that such accountants
reaffirm, as of each of the Closing Dates, and as though made on each
of the Closing Dates, the statements made in the letter furnished by
such accountants pursuant to paragraph (d) of this Section 8.
(f) The Representatives shall have received from
Stradling, Yocca, Carlson & Rauth, counsel for the Company, opinions,
dated each of the Closing Dates, to the effect set forth in Exhibit I
hereto.
(g) The Representatives shall have received from
Pillsbury Madison & Sutro LLP, counsel for the Underwriters, their
opinions dated each of the Closing Dates with respect to the
incorporation of the Company, the validity of the Stock, the
Registration Statement and the Prospectus and such other
-15-
<PAGE> 16
related matters as it may reasonably request, and the Company shall
have furnished to such counsel such documents as they may request for
the purpose of enabling them to pass upon such matters.
(h) The Representatives shall have received certificates,
dated each of the Closing Dates, of the chief executive officer or the
President and the chief financial or accounting officer of the Company
to the effect that:
(i) No stop order suspending the effectiveness of
the Registration Statement has been issued, and, to the best
of the knowledge of the signers, no proceedings for that
purpose have been instituted or are pending or contemplated
under the Securities Act;
(ii) Neither any Preeffective Prospectus, as of
its date, nor the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, as of the time when
the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate,
included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iii) Subsequent to the respective dates as of
which information is given in the Registration Statement and
the Prospectus, and except as set forth or contemplated in the
Prospectus, neither the Company nor its subsidiary has
incurred any material liabilities or obligations, direct or
contingent, nor entered into any material transactions not in
the ordinary course of business and there has not been any
material adverse change in the condition (financial or
otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiary considered as a whole, or any change in the capital
stock, short-term or long-term debt of the Company and its
subsidiary considered as a whole;
(iv) The representations and warranties of the
Company in this Agreement are true and correct at and as of
each of the Closing Dates, and the Company has complied with
all the agreements and performed or satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Dates; and
(v) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as disclosed in or contemplated by the
Prospectus, (i) there has not been any material adverse change
or a development involving a material adverse change in the
condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of
the Company and its subsidiary considered as a whole; (ii) the
business and operations conducted by the Company and its
subsidiary have not sustained a loss by strike, fire, flood,
accident or other calamity (whether or not insured) of such a
character as to interfere materially with the conduct of the
business and operations of the Company and its subsidiary
considered as a whole; (iii) no legal or governmental action,
suit or proceeding is pending or threatened against the
Company which is material to the Company, whether or not
arising from transactions in the ordinary course of business,
or which may materially and adversely affect the transactions
contemplated by this Agreement; (iv) since such dates and
except as so disclosed, the Company has not incurred any
material liability or obligation, direct, contingent or
indirect, made any change in its capital stock (except
pursuant to its stock plans), made any material change in its
short-term or funded debt or repurchased or otherwise acquired
any of the Company's capital stock; and (v) the Company has
not declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the Closing Date.
(vi) The Company shall have furnished to the
Representatives such additional certificates as the
Representatives may have reasonably requested as to the
accuracy, at and as of each of the Closing Dates, of the
representations and warranties made herein by it and as to
compliance at and as
-16-
<PAGE> 17
of each of the Closing Dates by it with its covenants and
agreements herein contained and other provisions hereof to be
satisfied at or prior to each of the Closing Dates, and as to
satisfaction of the other conditions to the obligations of the
Underwriters hereunder.
(vii) Cowen shall have received the written
agreements, substantially in the form of Exhibit II hereto, of
the officers, directors and holders of Common Stock listed in
Schedule B that each will not directly or indirectly, offer,
sell, contract to sell, grant an option to purchase, transfer
the economic risk of ownership in, make any short sale, assign,
transfer, pledge, encumber or otherwise sell or dispose of,
other than by operation of law, gifts, pledges or dispositions
by estate representatives, any shares of Common Stock
(including, without limitation, Common Stock which may be
deemed to be beneficially owned by such officer, director or
holder in accordance with the Rules and Regulations) during the
90 days following the date of the final Prospectus.
The Nasdaq National Market shall have approved the stock for listing,
subject only to official notice of issuance.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in form
and substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents as the Representatives shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement, this Agreement may be
terminated by the Representatives by notifying the Company of such termination
in writing or by telegram at or prior to each of the Closing Dates, but Cowen,
on behalf of the Representatives, shall be entitled to waive any of such
conditions.
9. Effective Date. This Agreement shall become effective
immediately as to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to
all other provisions, at 11:00 a.m. New York City time on the first full
business day following the effectiveness of the Registration Statement or at
such earlier time after the Registration Statement becomes effective as the
Representatives may determine on and by notice to the Company or by release of
any of the Stock for sale to the public. For the purposes of this Section 9,
the Stock shall be deemed to have been so released upon the release for
publication of any newspaper advertisement relating to the Stock or upon the
release by you of telegrams (i) advising Underwriters that the shares of Stock
are released for public offering or (ii) offering the Stock for sale to
securities dealers, whichever may occur first.
10. Termination. This Agreement (except for the provisions of
Section 5) may be terminated by the Company at any time before it becomes
effective in accordance with Section 9 by notice to the Representatives and may
be terminated by the Representatives at any time before it becomes effective in
accordance with Section 9 by notice to the Company. In the event of any
termination of this Agreement under this or any other provision of this
Agreement, there shall be no liability of any party to this Agreement to any
other party, other than as provided in Sections 5, 6 and 11 and other than as
provided in Section 12 as to the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company (i) if at or prior to the First
Closing Date trading in securities on any of the Nasdaq National Market shall
have been suspended or minimum or maximum prices shall have been established on
any such exchange or market, or a banking moratorium shall have been declared
by New York or United States authorities; (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market; (iii) if at or prior to the First Closing Date there shall have been
(A) an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or (B) any change in financial markets or any calamity or crisis
which, in the judgment of the Representatives, makes it impractical or
inadvisable to offer or sell the Stock on the terms contemplated by the
Prospectus; (iv) if there shall have been any development or prospective
development involving particularly the business or properties or securities of
the Company or its subsidiary or the transactions contemplated by this
Agreement, which, in the judgment of the Representatives, makes it
impracticable or inadvisable to offer or deliver the Stock on the terms
contemplated by the Prospectus; (v) if there shall be any litigation or
proceeding,
-17-
<PAGE> 18
pending or threatened, which, in the judgment of the Representatives, makes it
impracticable or inadvisable to offer or deliver the on the terms contemplated
by the Prospectus; or (vi) if there shall have occurred any of the events
specified in the immediately preceding clauses (i) - (v) together with any
other such event that makes it, in the judgment of the Representatives,
impractical or inadvisable to offer or deliver the Stock on the terms
contemplated by the Prospectus.
11. Reimbursement of Underwriters. Notwithstanding any other
provisions hereof, if this Agreement shall not become effective by reason of
any election of the Company pursuant to the first paragraph of Section 10 or
shall be terminated by the Representatives under Section 8 or Section 10, the
Company will bear and pay the expenses specified in Section 5 hereof and, in
addition to its obligations pursuant to Section 6 hereof, the Company will
reimburse the reasonable out-of-pocket expenses of the several Underwriters
(including reasonable fees and disbursements of counsel for the Underwriters)
incurred in connection with this Agreement and the proposed purchase of the
Stock, and promptly upon demand the Company will pay such amounts to you as
Representatives.
12. Substitution of Underwriters. If any Underwriter or
Underwriters shall default in its or their obligations to purchase shares of
Stock hereunder and the aggregate number of shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed ten
percent (10%) of the total number of shares underwritten, the other
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the shares which such defaulting Underwriter
or Underwriters agreed but failed to purchase. If any Underwriter or
Underwriters shall so default and the aggregate number of shares with respect
to which such default or defaults occur is more than ten percent (10%) of the
total number of shares underwritten and arrangements satisfactory to the
Representatives and the Company for the purchase of such shares by other
persons are not made within forty-eight (48) hours after such default, this
Agreement shall terminate.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company
shall have the right to postpone the Closing Date for a period of not more than
five (5) full business days in order that the Company may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of shares to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken as the basis of their underwriting obligation for
all purposes of this Agreement. Nothing herein contained shall relieve any
defaulting Underwriter of its liability to the Company or the other
Underwriters for damages occasioned by its default hereunder. Any termination
of this Agreement pursuant to this Section 12 shall be without liability on the
part of any non-defaulting Underwriter or the Company, except for expenses to
be paid or reimbursed pursuant to Section 5 and except for the provisions of
Section 6.
13. Notices. All communications hereunder shall be in writing
and, if sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o Cowen & Company at Financial
Square, New York, New York 10005 with a copy to Pillsbury Madison & Sutro LLP
2700 Sand Hill Road, Menlo Park, CA 94025 attention: Jorge del Calvo except
that notices given to an Underwriter pursuant to Section 6 hereof shall be sent
to such Underwriter at the address furnished by the Representatives or, if sent
to the Company, shall be mailed, delivered or telegraphed and confirmed c/o
QLogic Corporation at 3545 Harbor Boulevard, Costa Mesa, California 92626 with
a copy to Stradling, Yocca, Carlson & Rauth, 660 Newport Center Drive, Suite
1600, Newport Beach, CA 92660 attention: Nick Yocca.
14. Successors. This Agreement shall inure to the benefit of and
be binding upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person other than the
persons mentioned in the preceding sentence any legal or equitable right,
remedy or claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company contained in
this Agreement
-18-
<PAGE> 19
shall also be for the benefit of the person or persons, if any, who control any
Underwriter or Underwriters within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, and the indemnities of the several
Underwriters shall also be for the benefit of each director of the Company,
each of its officers who has signed the Registration Statement and the person
or persons, if any, who control the Company within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act.
15. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
16. Authority of the Representatives. In connection with this
Agreement, you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by Cowen, as Representative, will be binding
on all the Underwriters.
17. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made
such minor changes (and only such minor changes) as are necessary to make it
valid and enforceable.
18. General. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect
to the subject matter hereof. In this Agreement, the masculine, feminine and
neuter genders and the singular and the plural include one another. The
section headings in this Agreement are for the convenience of the parties only
and will not affect the construction or interpretation of this Agreement. This
Agreement may be amended or modified, and the observance of any term of this
Agreement may be waived, only by a writing signed by the Company and the
Representatives.
19. Counterparts. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
-19-
<PAGE> 20
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
QLOGIC CORPORATION
By:____________________________________
H. K. Desai
President and Chief Executive Officer
Accepted and delivered in
__________________ as of
the date first above written.
COWEN & COMPANY
PRUDENTIAL SECURITIES INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
Acting on their own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.
By: COWEN & COMPANY
By: Cowen Incorporated,
its general partner
By: _______________________________________
John P. Dunphy
Managing Director - Syndicate
-20-
<PAGE> 21
SCHEDULE A
<TABLE>
<CAPTION>
Number Number of
of Firm Optional
Shares Shares
to be to be
Name Purchased Purchased
---- --------- ---------
<S> <C> <C>
Cowen & Company .........................................
Prudential Securities Incorporated ......................
Morgan Keegan & Company, Inc. ...........................
Total................................................... 2,000,000 300,000
========= =======
</TABLE>
<PAGE> 22
SCHEDULE B
<PAGE> 23
[Form of Opinion of Issuer's Counsel] Exhibit I
[Date]
Cowen & Company
Prudential Securities Incorporated
Morgan Keegan & Company, Inc.
As representatives of the several
Underwriters named in Schedule A
c/o Cowen & Company
Financial Square
New York, New York 10005
Re: QLogic Corporation
_______ Shares of Common Stock
Dear Sirs:
We have acted as counsel for QLogic Corporation, a Delaware corporation (the
"Company"), in connection with the sale by the Company and purchase of ____
shares of Common Stock, par value $.10 per share, of the Company (the "Shares")
by the several Underwriters listed in Schedule A to the Underwriting Agreement,
dated ____, among the Company, Cowen & Company, Prudential Securities
Incorporated and Morgan Keegan & Company, Inc., as representatives of the
several Underwriters named therein (the "Underwriting Agreement"). This
opinion is being furnished pursuant to Section 8(f) of the Underwriting
Agreement. All defined terms not defined herein shall have the meanings
ascribed to them in the Underwriting Agreement. [final opinion to include
customary assumptions and qualifications]
We are of the opinion that:
1. The Company and each of its subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, are duly qualified to do
business and are in good standing as foreign corporations in each jurisdiction
in which their respective ownership or lease of property or the conduct of
their respective businesses requires such qualification, except to the extent
that the failure to so qualify would not have a material adverse effect on the
Company and its subsidiaries taken as a whole, and have all corporate power and
authority necessary to own or hold their respective properties and conduct the
businesses in which they are engaged;
2. The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and all of the Shares to be issued and sold by the Company to the Underwriters
pursuant to the Underwriting Agreement have been duly and validly authorized
and, when issued and delivered against payment therefor as provided for in the
Underwriting Agreement, shall be duly and validly issued, fully paid and
non-assessable; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued and
are fully paid, non- assessable and are owned directly or indirectly by the
Company;
3. There are no preemptive or other rights to subscribe for or to
purchase, nor any restriction upon the voting or transfer of, any of the Shares
pursuant to the Company's Certificate of Incorporation or By-Laws or, to the
best of our knowledge, any agreement or other instrument;
4. To the best of our knowledge, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is a party
or of which any property or assets of the Company or any of its Subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, could have
<PAGE> 24
a material adverse effect on the Company and its subsidiaries; and, to the best
of our knowledge, no such proceedings are threatened or contemplated by
governmental authorities or other third parties;
5. The Company has full corporate power and authority to enter into the
Underwriting Agreement and to perform its obligations thereunder (including to
issue, sell and deliver the Shares), and the Underwriting Agreement has been
duly and validly authorized, executed and delivered by the Company and is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except to the extent that rights to indemnification
and contribution thereunder may be limited by federal or state securities laws
or the public policy underlying such laws, and except as enforcement may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other laws relating to or affecting creditors' rights generally
or by general principles of equity and limitations on availability of equitable
remedies.;
6. The execution, delivery and performance of the Underwriting Agreement
and the consummation of the transactions therein contemplated will not result
in a breach or violation of any of the terms or provisions of or constitute a
default under any material indenture, mortgage, deed of trust, note agreement
or other agreement or instrument known to us to which the Company or any of its
subsidiaries is a party or by which any of them or any of their properties is
or may be bound, the Certificate of Incorporation, By-laws or other
organizational documents of the Company or any of its subsidiaries, or, to the
best of our knowledge, any law, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties or result in the creation of a lien;
7. No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company of
the transactions contemplated by the Underwriting Agreement, except such as may
be required by the National Association of Securities Dealers, Inc. (the
"NASD") or under the Securities Act or the securities or "Blue Sky" laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters;
8. The Registration Statement was declared effective under the
Securities Act as of __________, 1997, the Prospectus was filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations on __________,
1997 and, to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose is pending or threatened by the Commission;
9. The Registration Statement and the Prospectus and any amendments or
supplements thereto comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations and the
documents incorporated by reference in the Prospectus, when they became
effective or were filed with the Commission, as the case may be, complied as to
form in all material respects with the requirements of the Securities Act or
the Exchange Act, as applicable, and the Rules and Regulations; and any
amendment or supplement to any such incorporated document, when they became
effective or were filed with the Commission, as the case may be, complied as to
form in all respects with the requirements of the Securities Act or the
Exchange Act, as applicable, and the Rules and Regulations;
10. To the best of our knowledge, there are no contracts or other
documents which are required by the Securities Act or by the Rules and
Regulations to be described in the Prospectus or filed as exhibits to the
Registration Statement which have not been described in the Prospectus or filed
as exhibits to the Registration Statement or incorporated therein by reference
as permitted by the Rules and Regulations;
11. To the best of our knowledge, there are no contracts, agreements or
understandings between the Company and any person granting such person the
right (other than rights which have been waived or satisfied) to require the
Company to file a registration statement under the Securities Act with respect
to any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities registered
pursuant to this Registration Statement or in any securities being registered
pursuant to any other registration statement filed by the Company under the
Securities Act;
12. The descriptions in the Registration Statement and Prospectus of
statutes, rules, regulations, legal or governmental proceedings, contracts and
other documents are accurate and such descriptions fairly present the
<PAGE> 25
information required to be disclosed; and to the best of our knowledge, there
are no legal or governmental proceedings, statutes, ruler or regulations, or
any contracts or documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as required;
13. The statements under the captions "Risk Factors"; and
"Business-Government Regulation", to the extent they reflect matters of federal
law arising under the laws of the United States or legal conclusions relating
to such law, accurately summarize and fairly present the legal and regulatory
matters described therein; and
14. The Company and each of its subsidiaries are not, nor will they be
immediately after receiving the proceeds from the sale of the Shares, an
"investment company" or an entity "controlled" by an "investment company" as
such terms are defined in the Investment Company Act of 1940, as amended.
The foregoing opinion is limited to matters governed by the Federal
laws of the United States of America, the general corporate law of the State of
Delaware and the laws of the State of California.
In connection with our participation in the preparation and filing of
the Registration Statement and the Prospectus, we have not independently
verified the accuracy, completeness or fairness of the statements contained
therein (except with respect to the descriptions of the Company's capital
stock), and the limitations inherent in the examination made by us and the
knowledge available to us are such that we are unable to assume, and we do not
assume, any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except
with respect to the descriptions of the Company's capital stock). However, on
the basis of our examination and our participation in conferences with certain
officers of the Company, its independent public accountants and representatives
of the Underwriters and the Underwriters' counsel in connection with the
preparation of the Registration Statement and the Prospectus, we can advise you
supplementally as a matter of fact and not as an opinion that we have no current
actual knowledge that the Registration Statement or any amendment thereto, as of
the Effective Date (other than the consolidated financial statements and the
notes thereto or the schedules or other financial and numerical data derived
therefrom, as to which we express no belief), contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, not misleading or that the
Prospectus, as of the date of the Prospectus or the date hereof (other than the
consolidated financial statements and the notes thereto or the schedules or
other financial and numerical data derived therefrom, as to which we express no
belief), contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Very truly yours,
<PAGE> 26
SCHEDULE A
Cowen & Company
Prudential Securities Incorporated
Morgan Keegan & Company, Inc.
<PAGE> 27
[Form of Lock-Up Agreement] Exhibit II
April __, 1997
Cowen & Company
Prudential Securities Incorporated
Morgan Keegan & Company, Inc.
As representatives of the
several Underwriters
c/o Cowen & Company
Four Embarcadero Center
Suite 1200
San Francisco, California 94111
Re: QLogic Corporation
Ladies and Gentlemen:
In order to induce Cowen & Company ("Cowen"), Prudential Securities
Incorporated and Morgan Keegan & Company, Inc. (together with Cowen, the
"Representatives") to enter into a certain underwriting agreement with QLogic
Corporation, a Delaware corporation (the "Company"), with respect to the public
offering (the "Public Offering") of shares of the Company's common stock, par
value $0.10 per share ("Common Stock"), the undersigned hereby agrees that for
a period commencing from the date hereof through 90 days from the date of the
final prospectus, filed by the Company with the Securities and Exchange
Commission in connection with such Public Offering, the undersigned will not,
without the prior written consent of Cowen, directly or indirectly, offer,
sell, contract to sell, grant an option to purchase, transfer the economic risk
of ownership in, make any short sale, assign, transfer, pledge, encumber or
otherwise sell or dispose of (i) any shares of Common Stock, or (ii) any
securities convertible into or exchangeable for shares of Common Stock held by
the undersigned or over which the undersigned has the power of disposition
during such period or which may be deemed to be beneficially owned, whether
directly or indirectly, by the undersigned or issuable upon exercise of
options, warrants or rights to purchase or acquire held by the undersigned
during such period.
Notwithstanding the foregoing, if the undersigned is an individual, he or she
may transfer any or all of his or her shares either during his or her lifetime
by gift or on death by will or intestacy; provided, however, that in any such
case it shall be a condition to the transfer that the transferee execute an
agreement stating that the transferee is receiving and holding the shares
subject to the provisions of this Lock-Up Agreement.
In order to enable the aforesaid covenants to be enforced, the undersigned
hereby consents to the placing of legends and/or stop-transfer orders with the
transfer agent of the Common Stock with respect to such shares.
The undersigned understands that the Company, the Underwriters and the
Representatives will proceed with the Public Offering in reliance upon this
Lock-Up Agreement.
The undersigned hereby agrees that this Lock-Up Agreement is valid and
binding notwithstanding any prior agreements relating to this matter and
further represents and warrants that the undersigned has full power and
authority to enter into this Lock-Up Agreement. All authority herein conferred
or agreed to be conferred shall survive the death or incapacity of the
undersigned and any obligations of the undersigned shall be binding upon the
heirs, personal representatives, successors and assigns of the undersigned.
Notwithstanding anything to the contrary herein, if the closing of the Public
Offering has not occurred prior to September 30, 1997, this Lock-Up Agreement
shall be of no further force and effect.
<PAGE> 28
Very truly yours,
______________________________________________
Signature
______________________________________________
Printed Name
______________________________________________
Title, if applicable
______________________________________________
Additional signature(s), if stock jointly held
<PAGE> 1
EXHIBIT 5.1
[STRADLING, YOCCA, CARLSON & RAUTH LETTERHEAD]
April 25, 1997
QLogic Corporation
3545 Harbor Boulevard
Costa Mesa, California 92626
RE: Registration Statement on Form S-3
Ladies and Gentlemen:
At your request, we have examined Registration Statement on Form S-3,
filed by QLogic Corporation, a Delaware corporation (the "Company"), with the
Securities and Exchange Commission on April 25, 1997 (the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended, of 2,300,000 shares of Common Stock, $.10 par value per
share, of the Company (the "Common Stock"). Said shares of Common Stock, which
include 300,000 shares which will be subject to an over-allotment option to be
granted to the underwriters by the selling stockholders named in the
Registration Statement, are to be sold to the underwriters as described in the
Registration Statement for sale to the public.
As your counsel in connection with this transaction, we have examined
the proceedings taken and are familiar with the proceedings proposed to be taken
by you in connection with the authorization, issuance and sale of the shares of
the Common Stock.
Based on the foregoing, and subject to compliance with applicable state
securities laws, it is our opinion that the 2,300,000 shares of Common Stock,
when issued and sold in the manner described in the Registration Statement,
will be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Prospectus which is a part of the Registration Statement.
Very truly yours,
STRADLING, YOCCA, CARLSON & RAUTH
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
QLogic Corporation:
The audits referred to in our report dated May 17, 1996 included the
related financial statement schedule as of March 31, 1996 and for each of the
years in the three-year period ended March 31, 1996 incorporated by reference in
the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein or incorporated herein
by reference and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Orange County, California
April 24, 1997
