<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or 240.14a-12
QLOGIC CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), or 14a-6(i)(2) or Item 22(a) of
schedule 14(a).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
QLOGIC CORPORATION
3545 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
(714) 438-2200
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 28, 1999
To the Stockholders of QLOGIC CORPORATION:
You are cordially invited to attend the Annual Meeting of Stockholders of
QLogic Corporation, a Delaware corporation (the "Company"), which will be held
at the Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach, California,
at 10:00 a.m., Pacific Daylight Time, on Tuesday, September 28, 1999, to
consider and act upon the following matters, all as more fully described in the
accompanying Proxy Statement which is incorporated herein by this reference:
1. To elect a board of four directors to serve until the next annual
meeting of the Company's stockholders and until their successors have
been elected and qualified; and
2. To approve and ratify an amendment to the certificate of incorporation
to: (i) increase authorized common stock from 50,000,000 shares to
150,000,000 and (ii) to change par value of common stock from $0.05 to
$0.001; and
3. To approve and ratify an amendment to the QLogic Corporation Stock
Awards Plan ("Awards Plan") to increase the maximum number of shares by
3,000,000 from 6,900,000 to 9,900,000; and
4. To approve and ratify an amendment to the QLogic Corporation
Non-Employee Director Stock Option Plan ("Director Plan") to (i)
increase annual option grants for non-employee directors from 12,000 to
16,000 shares and (ii) to increase annual option grants for a
non-employee Chairman of the Board from 20,000 to 27,000 shares; and
5. To ratify the selection of KPMG LLP as the Company's independent public
accountants for fiscal year 2000; and
6. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record of the Company's common stock at the close of
business on August 9, 1999, the record date fixed by the Board of Directors, are
entitled to notice of, and to vote at, the meeting.
THOSE WHO CANNOT ATTEND ARE URGED TO SIGN, DATE, AND OTHERWISE COMPLETE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ANY STOCKHOLDER
GIVING A PROXY HAS THE RIGHT TO REVOKE IT ANY TIME BEFORE IT IS VOTED.
BY ORDER OF THE BOARD OF DIRECTORS
Michael R. Manning
Secretary
Costa Mesa, California
August 23, 1999
<PAGE> 3
QLOGIC CORPORATION
3545 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
(714) 438-2200
------------------------
PROXY STATEMENT
------------------------
APPROXIMATE DATE PROXY MATERIAL FIRST SENT TO STOCKHOLDERS:
AUGUST 28, 1999
The following information is in connection with the solicitation of proxies
for the Annual Meeting of Stockholders of QLogic Corporation, a Delaware
corporation (the "Company"), to be held at the Sutton Place Hotel, 4500
MacArthur Boulevard, Newport Beach, California, at 10:00 a.m., Pacific Daylight
Time, on Tuesday, September 28, 1999, and adjournments thereof (the "Meeting"),
for the purposes stated in the Notice of Annual Meeting of Stockholders
preceding this Proxy Statement.
SOLICITATION AND REVOCATION OF PROXIES
A form of proxy is being furnished herewith by the Company to each
stockholder and, in each case, is solicited on behalf of the Board of Directors
of the Company for use at the Meeting. The entire cost of soliciting these
proxies will be borne by the Company. The Company may pay persons holding shares
in their names or the names of their nominees for the benefit of others, such as
brokerage firms, banks, depositaries, and other fiduciaries, for costs incurred
in forwarding soliciting materials to their principals. In that connection, the
Company has retained Corporate Investor Communications Incorporated, New York,
New York, to deliver soliciting materials to such record holders for
distribution by them to their principals and to assist the Company in collecting
proxies from such holders. The cost of these services, excluding out-of-pocket
expenses, is not expected to exceed $7,000. Members of the Management of the
Company may also solicit some stockholders in person, or by telephone, telegraph
or telecopy, following solicitation by this Proxy Statement, but will not be
separately compensated for such solicitation services.
Proxies duly executed and returned by stockholders and received by the
Company before the Meeting will be voted FOR the election of all four of the
nominee-directors specified herein, FOR the approval of an increase in
authorized common shares and a change in the par value of the common shares, FOR
the approval of an increase to the number of shares under the QLogic Corporation
Stock Awards Plan, FOR the approval of an increase in annual option grants for
non-employee directors and a non-employee Chairman of the Board, and FOR the
ratification of the selection of KPMG LLP as the Company's independent public
accountants for fiscal year 2000, unless a contrary choice is specified in the
proxy. Where a specification is indicated as provided in the proxy, the shares
represented by the proxy will be voted and cast in accordance with the
specification made. As to other matters, if any, to be voted upon, the persons
designated as proxies will take such actions as they, in their discretion, may
deem advisable. The persons named as proxies were selected by the Board of
Directors of the Company and each of them is a director of the Company.
Under the Company's bylaws and Delaware law, shares represented by proxies
that reflect abstentions or "broker non-votes" (i.e., shares held by a broker or
nominee which are represented at the Meeting, but with respect to which such
broker or nominee is not empowered to vote on a particular proposal) will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Any shares represented at the Meeting but
not voted (whether by abstention, broker non-vote or otherwise) or voted against
a nominee will have no impact in the election of directors, except to the extent
that the failure to vote for an individual results in four other individuals
receiving a larger number of votes. Any shares represented at the Meeting but
not voted (whether by abstention, broker non-vote or otherwise) with respect to
the proposals to approve and to ratify the selection of KPMG LLP will have no
effect on the vote for such proposals except to the extent the number of shares
not voted causes the number of shares voted in favor of such proposals not to
equal or exceed a majority of the shares present or represented and entitled to
vote at the Meeting (in which case such proposals would not be approved).
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<PAGE> 4
Your execution of the enclosed proxy will not affect your right as a
stockholder to attend the Meeting and to vote in person. Any stockholder giving
a proxy has the right to revoke it at any time by either (i) a later-dated proxy
voted at the Meeting, (ii) a later dated proxy or written revocation sent to and
received by the Secretary of the Company prior to the Meeting, or (iii)
attendance at the Meeting and voting in person.
VOTING SECURITIES
The Company has outstanding only common stock, of which 36,386,622 shares
were outstanding as of the close of business on August 9, 1999 (the "Record
Date"). Only stockholders of record on the books of the Company at the close of
business on the Record Date will be entitled to vote at the Meeting. Each share
of common stock is entitled to one vote.
Representation at the Meeting by the holders of a majority of the
outstanding common stock of the Company, either by personal attendance or by
proxy, will constitute a quorum.
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth as of July 19, 1999, 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
--------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ --------- -------
<S> <C> <C>
H.K. Desai(2)............................................... 371,186 1.0%
Thomas R. Anderson(3)....................................... 112,452 *
Mark K. Edwards(4).......................................... 89,664 *
Lawrence F. Fortmuller, Jr.(5).............................. 86,472 *
Michael R. Manning(6)....................................... 96,628 *
David M. Race(7)............................................ 19,998 *
David Tovey(8).............................................. 191,954 *
James A. Bixby(9)........................................... 70,240 *
Carol L. Miltner(10)........................................ 10,700 *
George D. Wells(11)......................................... 30,000 *
Larry R. Carter............................................. -- *
All Directors and Executive Officers as a group (11
Persons).................................................. 1,079,294 3.0%
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
(1) Based upon 36,175,664 shares of common stock outstanding. 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 persons are not
included in calculating the percentage of common stock beneficially owned
by any other stockholder.
(2) Includes 107,506 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
(3) Includes 23,004 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
(4) Includes 89,498 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
2
<PAGE> 5
(5) Includes 17,504 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
(6) Includes 11,800 shares held for the benefit of Mr. Manning's minor
children.
(7) Consists entirely of shares which may be purchased pursuant to stock
options which are currently, or within the next 60 days, will be,
exercisable.
(8) Includes 102,754 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days will be, exercisable.
(9) Includes 70,000 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days, will be, exercisable.
(10) Includes 8,000 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days will be, exercisable.
(11) Includes 16,000 shares which may be purchased pursuant to stock options
which are currently, or within the next 60 days will be, exercisable.
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding ownership of
outstanding shares of the Company's common stock by those individuals or groups
who have advised the Company that they own more than five percent (5%) of such
outstanding shares.
<TABLE>
<CAPTION>
SHARES OWNED AS OF
JULY 12, 1999
---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ --------- -------
<S> <C> <C>
FMR Corp. .................................................. 4,201,600(1) 11.7%
82 Devonshire Street
Boston, MA 02109
Putnam Investments, Inc. ................................... 2,055,700(2) 5.7%
One Post Office Square
Boston, MA 02109
Driehaus Capital Management, Inc. .......................... 1,931,752(3) 5.4%
25 East Erie Street
Chicago, IL 60611
</TABLE>
- ---------------
(1) Based on its Schedule 13G filed July 12, 1999, FMR Corp., a parent holding
company of investment companies with its principal offices at 82 Devonshire
Street, Boston, MA 02109, Edward C. Johnson 3d, the Chairman of FMR Corp.
and Abigail P. Johnson, a Director of FMR Corp., beneficially owned (as
adjusted for the July 30, 1999 two-for-one stock split) 4,201,600 shares of
common stock, including sole voting power over 639,200 shares and sole
dispositive power over 4,201,600 shares, as of June 10, 1999.
(2) Based on its Schedule 13G filed February 11, 1999, Putnam Investments, Inc.,
an investment company, Putnam Investment Management, Inc., and The Putnam
Advisory Company, Inc., with their principal offices at One Post Office
Square, Boston, MA 02109; and Marsh & McLennan Companies, Inc., the parent
holding company of Putnam Investments, Inc., with its principal offices at
1166 Avenue of the Americas, New York, NY 10036, beneficially owned (as
adjusted for the February 22, 1999 and July 30, 1999 two-for-one stock
splits) 2,055,700 share of common stock, including shared voting power over
348,800 shares and shared dispositive power over 2,055,700 shares, as of the
end of the calendar year 1998.
(3) Based on its Schedule 13G filed February 12, 1999, Driehaus Capital
Management, Inc., and investment advisor with its principal offices at 25
East Erie Street, Chicago, IL 60611, beneficially owned (as adjusted for the
February 22, 1999 and July 30, 1999 two-for-one stock splits) 1,931,752
shares of common stock, including sole voting power over 1,151,248 shares
and sole dispositive power over 1,931,752 shares, as of the end of calendar
year 1998.
3
<PAGE> 6
PROPOSAL ONE
NOMINATION AND ELECTION OF DIRECTORS
The Company's directors are to be elected at each annual meeting of
stockholders to serve until the next annual meeting of stockholders or until
their successors are elected and qualified. The Board of Directors proposes the
election of four directors at the Meeting. Each of the nominated directors named
below was elected as a director of the Company at the Company's 1998 Annual
Meeting of Stockholders, with the exception of Larry R. Carter who was chosen by
the Company's Board of Directors on June 25, 1999, to fill an existing vacancy
on the Board of Directors resulting from the resignation of director Gary E.
Liebl on May 20, 1999.
In the event that any of the nominees for director should become unable to
serve if elected, it is intended that shares represented by proxies which are
executed and returned will be voted for such substitute nominee(s) as may be
recommended by the Company's existing Board of Directors.
The four nominee-directors receiving the highest number of votes cast at
the Meeting will be elected as the Company's directors to serve until the next
annual meeting of stockholders or until their successors are elected and
qualified. Subject to certain exceptions specified below, stockholders of record
on the Record Date are entitled to cumulate their votes in the election of the
Company's directors (i.e., they are entitled to the number of votes determined
by multiplying the number of shares held by them times the number of directors
to be elected) and may cast all of their votes so determined for one person, or
spread their votes among two or more persons as they see fit. No stockholder
shall be entitled to cumulate votes for a given candidate for director unless
such candidate's name has been placed in nomination prior to the vote and the
stockholder has given notice at the Annual Meeting, prior to the voting, of the
stockholder's intention to cumulate his or her votes. If any one stockholder has
given such notice, all stockholders may cumulate their votes for candidates in
nomination. Discretionary authority to cumulate votes is hereby solicited by the
Board of Directors.
The Company's bylaws provide that only persons who are nominated in
accordance with specified bylaw procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors may be
made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder entitled to vote for the election of directors
who complies with certain notice procedures set forth in the bylaws. Such
nominations must be made by written notice to the Secretary of the Company and
must be delivered or mailed and received at the principal executive offices of
the Company not less than 60 days or more than 90 days prior to the date of the
meeting. In the event that the first public disclosure of the date of the
meeting is made less than 70 days prior to the date of the meeting, notice by
the stockholder will be timely if received not later than the close of business
on the tenth day following the day on which such public disclosure was first
made. The stockholder's notice must set forth certain information concerning the
proposed nominee and the stockholder giving notice, as set forth in the bylaws.
The following table and paragraphs set forth the names of and certain
information concerning the nominees for election as directors of the Company:
<TABLE>
<CAPTION>
NOMINEE(1) POSITION(S) WITH THE COMPANY AGE
---------- ---------------------------- ---
<S> <C> <C>
H.K. Desai................................ Chairman of the Board, CEO and President 53
Carol L. Miltner(2)....................... Director 57
George D. Wells(2)........................ Director 64
Larry R. Carter........................... Director 56
</TABLE>
- ---------------
(1) The Company does not have a nominating committee of the Board of Directors.
The nominees for election as directors at the Annual Meeting were selected
by the Board of Directors of the Company.
(2) Member of the compensation committee of the Board of Directors of the
Company, currently consisting of Ms. Miltner and Mr. Wells, neither of whom
is an employee of the Company.
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
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<PAGE> 7
Executive Officer and became a Director in January 1996 and Chairman of the
Board in May 1999. 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.
Ms. Miltner became a director of the Company in February 1994. She is a
Senior Partner of IMPACT-Hoffman, Miltner, Carr LLC, a management consultant and
seminar firm. 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 Align Rite
Corporation, a manufacturer of photomasks, and Johnson Matthey, a U.K. company
involved with advanced materials technology. 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.
Mr. Carter became a director of the Company in June 1999. He currently
serves as a member of the Board of Directors of Network Appliance, Inc., a high
performance network attached storage and access devices company. He is Senior
Vice President of Finance and Administration and Chief Financial Officer of
Cisco Systems, Inc., a computer networking products company. From July 1992 to
January 1995, he served as Vice President and Corporate Controller of Advanced
Micro Devices, Inc. Mr. Carter has also served as Chief Financial Officer for
VLSI Technology, Inc. and for SGS Thompson Microelectronics, Inc.
BOARD MEETINGS AND COMMITTEES
There were ten meetings of the Board of Directors of the Company during the
last fiscal year of the Company. The Board of Directors has established a
standing Audit Committee and a Compensation Committee. The Compensation
Committee held six meetings and the Audit Committee held ten meetings during the
fiscal year ended March 28, 1999. Each of the directors of the Company attended
90% or more of the aggregate of the total number of meetings of the Board of
Directors held during the period in which he or she was a director and the total
number of meetings held by all committees of the Board of Directors on which he
or she served during such period.
The Audit Committee reviews, acts on, and reports to the Board of Directors
with respect to various auditing and accounting matters, including the selection
of the Company's independent public accountants, the scope of the annual audits,
the nature of nonaudit services, fees to be paid to the independent public
accountants, the performance of the Company's independent public accountants,
and the accounting practices of the Company.
The Compensation Committee reviews the performance of the executive
officers of the Company and reviews the compensation programs for other key
employees, including salary and cash incentive payment levels and option grants
under the QLogic Corporation Stock Awards Plan.
There is no standing nominating committee or other committee performing a
similar function.
COMPENSATION OF DIRECTORS
Directors' Fees. For service on the Board of Directors, directors who are
not employees of the Company receive a quarterly retainer of $6,000 plus $1,000
for each meeting of the Board of Directors in excess of five per year, and
reimbursement for travel expenses. In addition, the chairmen of the audit and
compensation committees receive an additional quarterly retainer of $1,000.
Directors who are employees of the Company
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<PAGE> 8
receive no additional compensation for serving on the Board of Directors.
Directors are entitled to reimbursement for out-of-pocket expenses in connection
with attendance at board and committee meetings.
Stock Options. On January 12, 1994, the Board of Directors of the Company
adopted the QLogic Corporation Non-Employee Director Stock Option Plan (the
"Director Plan") under which shares of Common Stock of the Company may be issued
pursuant to exercise of stock options granted under the plan to directors who
are not employees of the Company or any of its subsidiaries. The Director Plan
was approved by Emulex Corporation ("Emulex"), the former parent corporation and
sole stockholder of the Company, prior to the distribution of all of the
Company's outstanding Common Stock by Emulex to the then stockholders of Emulex
on February 28, 1994, as a result of which the Company became a separate
publicly held company. In June 1996, the Board adopted, and in August 1996 the
stockholders approved, amendments to the Director Plan to (i) extend the
termination date of the Director Plan by five years to December 31, 2001, (ii)
increase the number of shares of Common Stock subject to the Director Plan by
300,000, (iii) provide for initial grants to new directors of options to
purchase 32,000 shares of Common Stock and (iv) provide for annual grants to
each non-employee director (other than the Chairman of the Board) of options to
purchase 12,000 shares of Common Stock, and annual grants to a non-employee
Chairman of the Board of options to purchase 20,000 shares of Common Stock. As
so amended, a total of 800,000 shares of Common Stock have been reserved for
issuance under the Director Plan. Prior to such amendment, each non-employee
director of the Company had received an automatic grant of an option to purchase
50,000 shares of Company Common Stock upon the date on which such director first
became an eligible director. (All share quantities have been restated to reflect
the Company's stock splits and stock dividends to date).
Under the terms of the Director Plan, as amended in 1996, new directors
currently receive an option grant at fair market value to purchase 32,000 shares
of Common Stock upon election to the Board, non-employee directors (other than
the Chairman of the Board) receive annual grants of options to purchase 12,000
shares of Common Stock, and a non-employee Chairman of the Board receives annual
grants of options to purchase 20,000 shares of Common Stock. As of July 19,
1999, an aggregate of 335,998 shares of Common Stock had been issued upon
exercise of stock options granted under the Director Plan, options for a total
of 174,000 shares were outstanding and the remaining 290,002 shares were
available for grant. All stock options granted under the Director Plan have
10-year terms, and become exercisable as to one-third of the shares subject to
the option on each anniversary of the date the option is granted if the director
to whom the option is granted is still a director of the Company on such
anniversary.
The Director Plan provisions discussed above do not reflect the amendment
to the Director Plan adopted by the Board of Directors on June 25, 1999 and
subject to approval at this 1999 Annual Meeting of Stockholders, which is
described in more detail in Proposal Four of this Proxy Statement.
Other Compensation. Gary E. Liebl was paid a total of $60,297 for
consulting services rendered to the Company at the request of the Board of
Directors in fiscal year 1999. In addition, for his years of service as the
Company's founding Chairman of the Board of Directors, Mr. Liebl was paid
$2,064,682 upon his retirement from the Board in May 1999. Mr. Liebl has also
agreed not to become an officer or director of any of the Company's competitors
in exchange for $10,000 per month for up to 24 months.
6
<PAGE> 9
EXECUTIVE OFFICERS
The following table and paragraphs set forth the names of and certain
information concerning the executive officers of the Company as of September 28,
1999:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY AGE
---- ---------------------------- ---
<S> <C> <C>
H.K. Desai........................ Chairman of the Board, CEO and President 53
Thomas R. Anderson................ Vice President and Chief Financial Officer 55
Mark K. Edwards................... Vice President -- Sales and Corporate Marketing 41
Lawrence F. Fortmuller, Jr........ Vice President and General Manager -- Computer Systems 50
Group
David Tovey....................... Vice President and General Manager -- Peripheral Products 54
Group
David M. Race..................... Vice President and General Manager -- Enclosure Management 43
Products Group
Michael R. Manning................ Secretary and Treasurer 45
</TABLE>
For information on the business background of Mr. Desai, see "Nomination
and Election of Directors" above.
Mr. Anderson joined the Company in July 1993 as Vice President and Chief
Financial Officer. Prior to joining the Company, Mr. Anderson was Executive Vice
President, Chief Operating Officer and Chief Financial Officer of HIARC, a
software startup company. From October 1990 to January 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. 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 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. 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. 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. Race joined the Company in August 1998 as Vice President and General
Manager, Enclosure Management Products. Mr. Race was Co-founder and President of
Silicon Design Resources, Inc. (SDR) from January 1996 until August 1998, when
SDR was acquired by QLogic. From January 1996 to August 1998 Mr. Race also held
the position of Director of Sales at Software.com. From March 1989 to January
1996 Mr. Race held various positions with Distributed Processing Technology
including Vice President, Strategic Planning.
7
<PAGE> 10
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 LLP, independent certified public
accountants.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth compensation received for the three fiscal
years ended March 28, 1999 by the Company's Chief Executive Officer and by each
of the persons who were, for the fiscal year ended March 28, 1999, the other
four most highly compensated executive officers of the Company (the "Named
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------- LONG-TERM
OTHER COMPENSATION ALL
ANNUAL SECURITIES OTHER
FISCAL COMPENSA- UNDERLYING COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS TION(1) OPTIONS(#)(2) TION(3)
--------------------------- ------ -------- -------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
H.K. Desai........................... 1999 $316,224 $334,000 -0- 140,000 shs $11,258
Chairman of the Board, CEO, 1998 277,003 200,000 -0- 60,000 shs 9,980
President, and Director(4) 1997 242,505 140,000 -0- 40,000 shs 7,462
Thomas R. Anderson................... 1999 179,369 120,000 -0- 40,000 shs 6,468
V.P. and Chief 1998 163,908 70,000 -0- -0- shs 5,764
Financial Officer 1997 151,418 57,000 -0- 20,000 shs 5,044
Mark K. Edwards...................... 1999 165,625 120,000 -0- 30,000 shs 5,447
V.P. -- Sales and 1998 158,008 70,000 -0- -0- shs 5,122
Corporate Marketing(5) 1997 70,709 35,000 -0- 160,000 shs 273
Lawrence F. Fortmuller, Jr........... 1999 170,667 110,000 -0- 30,000 shs 6,020
V.P. and General Manager -- 1998 159,760 70,000 -0- -0- shs 5,430
Computer Systems Group(6) 1997 68,151 25,000 -0- 160,000 shs 2,437
David Tovey.......................... 1999 168,660 120,000 -0- 30,000 shs 6,135
V.P. and General 1998 160,680 70,000 -0- -0-shs 5,633
Manager -- Peripheral 1997 150,767 55,000 -0- 60,000 shs 4,394
Products Group
</TABLE>
- ---------------
(1) Perquisites and other personal benefits did not for any Named Officer in the
aggregate equal or exceed the lesser of $50,000 or 10% of the total of
annual salary and bonus reported in this table for such person.
(2) The amounts in the table represent shares of the Company's common stock
covered by stock options granted to the named individual under the QLogic
Corporation Stock Awards Plan. All share quantities have been restated to
reflect the Company's February 1999 and July 1999 two-for-one stock splits.
(3) This column includes the Company's matching contributions to the QLogic
Corporation Retirement Savings Plan and group term life insurance premiums
paid with respect to the named executive.
(4) Mr. Desai served as the Company's Vice President of Engineering from
February 1994, when the Company became a separate publicly held corporation,
until his resignation on May 1, 1995. He was rehired on August 4, 1995 as
President and Chief Technical Officer. Mr. Desai was subsequently appointed
as the Company's President and Chief Executive Officer effective January 25,
1996, and Chairman of the Board of Directors on May 21, 1999.
(5) Mr. Edwards joined the Company as Vice President -- Sales and Corporate
Marketing on October 1, 1996 at an annual base salary of $145,000.
(6) Mr. Fortmuller joined the Company as Vice President -- Computer Systems
Group on October 7, 1996 at an annual salary of $145,000.
8
<PAGE> 11
KEY EMPLOYEE RETENTION AGREEMENT
The Company has previously entered into an agreement with Mr. Desai under
which Mr. Desai would be entitled to receive the following payments and benefits
in the event of termination of his employment by the Company without cause or by
Mr. Desai because of a demotion within two years after a change in control of
the Company: (i) a severance payment equal to the present value of two times the
sum of Mr. Desai's annual salary plus the highest annual average of any two of
his last three annual bonuses; (ii) continuation for two years following
termination of employment of his health, life insurance, disability income, tax
assistance, and executive automobile benefits (reduced to the extent similar
benefits are received by him from another employer); and (iii) acceleration of
vesting of his right to exercise his stock options based on the length of his
continued employment following the grant of the option by one year upon the
change in control of the Company and full acceleration of vesting of such
exercise right in the event of termination of his employment without cause or
because of a demotion within two years after the change in control.
OPTION GRANTS DURING FISCAL 1999
The following table sets forth information on grants of stock options
pursuant to the QLogic Corporation Stock Awards Plan during the fiscal year
ended March 28, 1999, to the Named Officers:
OPTION GRANTS TABLE
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM($)(4)
OPTIONS IN FISCAL PRICE EXPIRATION -------------------
NAME GRANTED(1) YEAR(2) ($/SHARE) DATE(3) 5% 10%
---- ----------- ------------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
H.K. Desai........................... 140,000 13.03 9.38 6/18/08 825,424 2,091,787
Thomas R. Anderson................... 40,000 3.72 9.38 6/18/08 235,835 597,653
Mark K. Edwards...................... 30,000 2.79 9.38 6/18/08 176,877 448,240
Lawrence F. Fortmuller, Jr........... 30,000 2.79 9.38 6/18/08 176,877 448,240
David Tovey.......................... 30,000 2.79 9.38 6/18/08 176,877 448,240
</TABLE>
- ---------------
(1) The amounts in the table represent shares of the Company's common stock
covered by stock options granted to the named individual under the QLogic
Corporation Stock Awards Plan. Each option becomes exercisable on a
cumulative basis as to 25% of the option shares one year after the date of
grant and as to an additional 6.25% of the option shares each three month
interval thereafter. All share quantities have been restated to reflect the
Company's February 1999 and July 1999 two-for-one stock splits.
(2) Options to purchase an aggregate of 1,074,400 shares of common stock were
granted to employees, including the Named Officers, during the fiscal year
ended March 28, 1999.
(3) Options granted have a term of 10 years, subject to earlier termination in
certain events related to termination of employment.
(4) These columns present hypothetical future values of the stock obtainable
upon exercise of the option net of the option's exercise price, assuming
that the market price of the Company's common stock appreciates at a 5% and
10% compound annual rate over the ten year term of the options. The 5% and
10% rates of stock price appreciation are presented as examples pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC")
and do not necessarily reflect management's estimate or projection of the
Company's future stock price performance. The potential realizable values
presented are not intended to indicate the value of the options.
9
<PAGE> 12
OPTION EXERCISES IN FISCAL 1999 AND YEAR-END OPTION VALUES
The following table sets forth information concerning stock options which
were exercised during, or held at the end of, fiscal 1999 by the Named Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES VALUE AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(2)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H.K. Desai................. 405,620 13,570,820 3,754 258,754 90,096 6,185,252
Thomas R. Anderson......... 109,448 3,293,278 22,502 49,062 631,930 1,091,821
Mark K. Edwards............ 8,000 218,499 61,998 100,002 1,679,767 2,524,733
Lawrence F. Fortmuller,
Jr....................... 90,000 2,565,022 -- 100,000 -- 2,496,250
David Tovey................ 52,000 931,250 99,250 58,750 2,801,680 1,403,945
</TABLE>
- ---------------
(1) All share quantities have been restated to reflect the Company's February
1999 and July 1999 two-for-one stock splits.
(2) Market value of underlying securities at exercise date or year end, as the
case may be, minus the exercise or base price of "in-the-money" options. The
closing sale price for the Company's common stock as of March 28, 1999 on
the Nasdaq National Market was $30.31.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current Compensation Committee of the Company consists of Mr. Wells and
Ms. Miltner, neither of whom is now, or was at any time during the last
completed fiscal year of the Company, an officer or employee of the Company.
During fiscal year 1999, no executive officer of the Company served as a member
of the Compensation Committee (or its equivalent) or as a director of any entity
whose executive officers served on either the Compensation Committee or the
Board of Directors of the Company.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors makes this report on
executive compensation pursuant to Item 402 of Regulation S-K. Notwithstanding
anything to the contrary set forth in any of the Company's previous filings
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), that might incorporate future filings,
including this Proxy Statement, in whole or in part, this report and the graph
which follows this report shall not be incorporated by reference into any such
filings, and such information shall be entitled to the benefits provided in Item
402(a)(9).
The Compensation Committee reviews the performance of the executives of the
Company. It makes recommendations to the Board of Directors as to the
compensation of the Chief Executive Officer of the Company and reviews and
determines the compensation programs for other key employees, including salary
and cash incentive payment levels and stock awards under the QLogic Corporation
Stock Awards Plan.
Compensation Policies and Philosophy. The Company's executive compensation
policies are designed to attract, retain and reward executives who contribute to
the Company's success, to provide economic incentives for executives to achieve
the Company's business objectives by linking the executives' compensation to the
performance of the Company, to strengthen the relationship between executive pay
and stockholder value and to reward individual performance. The Company uses a
combination of base salary, cash incentive payments and stock awards to achieve
the aforementioned objectives.
10
<PAGE> 13
In carrying out these objectives, the Compensation Committee considers a
number of factors, which include the level and types of compensation paid to
executives in similar positions by comparable companies. Some, but not all, of
the comparable companies are included in the Stockholder Return Performance
Presentation set forth immediately following this Report of the Compensation
Committee. In addition, the Compensation Committee evaluates corporate
performance by looking at factors such as performance relative to competitors,
performance relative to business conditions, and the success of the Company in
meeting its financial objectives. The Compensation Committee also reviews the
individual performance of each executive, including a review of the ability of a
given executive to meet individual performance objectives, demonstration of job
knowledge and skills, and the ability to work with others toward the achievement
of the Company's goals.
Section 162(m) of the Internal Revenue Code establishes a limitation on the
deductibility of compensation payable in any particular tax year to the Chief
Executive Officer and the four most highly compensated other executive officers.
The Company has not paid, and does not foresee any payment authorized in fiscal
1999 of, any compensation that would be non-deductible under Section 162(m).
Components of Compensation. Executives' salaries are established in
relation to a range of salaries for comparable positions among a peer group of
other technology companies of comparable size and complexity. The Company seeks
to pay its executives salaries that are commensurate with the qualifications,
duties and responsibilities and that are competitive in the marketplace. In
general, the Company attempts to set executive compensation that equals or
exceeds the 50th percentile of salaries paid to executives of the Company's peer
group of corporations. In making its annual salary recommendations, the
Compensation Committee looks at the Company's financial position and
performance, the contribution of the individual executive during the prior
fiscal year in helping to meet the Company's financial and business objectives
as well as the executives' performance of their individual responsibilities.
Executives' annual cash incentive payments are used to provide executives
with financial incentives to meet annual performance targets of the Company.
Performance targets and cash incentive payment recommendations for executives
other than principal executives are proposed by the management of the Company's
principal operating divisions, reviewed and, when appropriate, revised by the
Compensation Committee and approved by the Board of Directors. Personal goals
and cash incentive payment recommendations for the principal executives of the
Company are recommended by the Compensation Committee and approved by the Board.
The Compensation Committee believes that equity ownership by executives
provides incentives to build stockholder value and align the interests of
executives with the stockholders. Upon hiring executives, the Compensation
Committee typically recommends stock option or stock awards grants to the
officers under the QLogic Corporation Stock Awards Plan, subject to applicable
vesting periods. Thereafter, the Compensation Committee periodically considers
awarding additional grants under the QLogic Corporation Stock Awards Plan. The
Compensation Committee believes that these additional grants provide incentives
for executives to remain with the Company. Stock options and awards generally
have value only if the price of the Company's common stock increases over the
exercise or grant price. The size of options or awards is usually based upon
factors such as comparable equity compensation offered by other technology
companies, the seniority of the executive and the contribution that the
executive is expected to make to the Company. In determining the size of the
periodic grants, the Compensation Committee considers prior grants to the
executive, the executive's performance during the current fiscal year and his or
her expected contributions during the succeeding fiscal year.
11
<PAGE> 14
Compensation of the Principal Executive Officer. The Compensation Committee
reviews the performance of the principal executive officer of the Company, as
well as other executives of the Company annually. As the principal executive
officer of the Company, Mr. Desai's compensation was determined based on a
subjective consideration of the various factors discussed above, including the
performance of the Company, the individual performance of Mr. Desai, a review of
the compensation packages of executives in technology companies similar in size
and complexity to the Company, and Mr. Desai's performance compared to various
objective and subjective goals established by the Board of Directors. It is the
practice of the Board of Directors to set performance goals at the commencement
of a fiscal year, to give a performance appraisal to the Chief Executive Officer
at the end of the fiscal year, and to set payment of incentive payments based on
the Chief Executive's performance as measured against such objectives.
Respectfully submitted,
Compensation Committee:
George D. Wells
Carol L. Miltner
12
<PAGE> 15
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
The graph below compares the cumulative total stockholder return on the
Company's common stock with the cumulative total return on the Nasdaq Composite
Index and the Nasdaq Computer Index for the period beginning April 3, 1994 and
ended March 28, 1999.
COMPARISON OF CUMULATIVE TOTAL RETURN*
QLOGIC CORPORATION COMMON STOCK, NASDAQ COMPOSITE INDEX AND
NASDAQ COMPUTER INDEX
<TABLE>
<CAPTION>
QLOGIC CORPORATION NASDAQ COMPOSITE INDEX NASDAQ COMPUTER INDEX
------------------ ---------------------- ---------------------
<S> <C> <C> <C>
4/3/94 100.00 100.00 100.00
4/2/95 70.37 109.92 129.81
3/31/96 129.63 148.15 184.49
3/30/97 307.41 168.08 242.72
3/29/98 555.55 245.30 372.41
3/28/99 1,796.32 325.41 616.25
</TABLE>
- ---------------
* Assumes that the value of the investment in the Company's common stock and
each index was $100 on April 3, 1994, and reinvestment of dividends into the
same security.
PROPOSAL TWO
AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK AND
TO CHANGE PAR VALUE PER SHARE
The Company's Certificate of Incorporation currently authorizes the
issuance of up to 50,000,000 shares of common stock. As of the Record Date, the
Company had 36,386,622 shares of common stock issued and outstanding, and an
additional 8,900,000 shares of common stock reserved for issuance under stock
plans. This leaves approximately 4,713,378 shares of common stock currently
available for other purposes.
13
<PAGE> 16
At the Annual Meeting, the stockholders of the Company will be asked to
approve amendments to the Company's Certificate of Incorporation to increase the
number of authorized shares of common stock from 50,000,000 to 150,000,000, and
to change the respective par values per share of the common stock and the
preferred stock from $0.05 to $0.001. If the stockholders approve this Proposal
Two, the second and third sentences of the first paragraph of Article IV of the
Company's Certificate of Incorporation will be amended to read in their entirety
as follows:
"The amount of total authorized capital stock of the corporation is
151,000,000 shares, divided into 150,000,000 shares of Common Stock, par
value $0.001 per share, and 1,000,000 shares of Preferred Stock, par value
$0.001 per share. Upon the effectiveness of this Certificate of Amendment
of Certificate of Incorporation, the par value per share of each issued and
outstanding share of the Corporation's Common Stock and Preferred Stock,
respectively, shall automatically and without any action on the part of the
respective holders thereof be reclassified as and changed to par value
$0.001 per share."
On June 25, 1999, the Board of Directors unanimously approved, subject to
stockholder approval, the foregoing amendment to the Company's Certificate of
Incorporation.
REASONS FOR THE AMENDMENT
The Company's reserve of authorized but unissued shares of common stock has
been substantially depleted in recent years as a result of the Company's recent
stock split and stock dividend, financing activities through the sale of common
stock and the granting of stock options under stock option plans. The proposed
amendment to the Company's Certificate of Incorporation will increase the number
of authorized shares of common stock from 50,000,000 to 150,000,000. The Board
of Directors has decided to increase the authorized number of shares of common
stock in order to provide that the Company will have a sufficient number of
authorized and unissued shares of common stock for corporate opportunities, such
as additional stock offerings, acquisitions, stock splits, stock dividends and
compensation plans. There are currently no arrangements, agreements or
understandings for the issuance or use of the additional shares of authorized
common stock (other than issuances permitted or required under the Company's
stock option plans or awards made pursuant to those plans). However, and while
this is not the intent of this Proposal Two, in addition to general corporate
purposes, the proposed share increase can be used to make a change in control of
the Company more difficult. See "Potential Anti-Takeover Effect of Authorized
Securities" below.
The par value per share of the common stock and the preferred stock is
being decreased from $0.05 to $0.001 in order to restore a nominal total
aggregate par value of the authorized capital stock.
Except for the change in par value, the additional shares of common stock
for which authorization is sought would be identical to the shares of common
stock of the Company authorized prior to approval of this Proposal Two. Holders
of common stock do not have preemptive rights to subscribe to additional
securities that may be issued by the Company, which means that current
stockholders do not have a prior right to purchase any new issue of capital
stock of the Company in order to maintain their proportionate ownership of the
Company, except for such rights as may arise under the Shareholder Rights Plan
described under "Potential Anti-Takeover Effect of Unissued Securities" below.
As of the Record Date, no shares of the Corporation's preferred stock, of
which 1,000,000 shares are authorized, were issued or outstanding. No increase
in the number of authorized shares of preferred stock of the Company is proposed
or anticipated at the present time, although this Proposal Two does include a
change in the par value per share as stated above. However, the Company has
implemented a Shareholder Rights Plan (described below), pursuant to which
shares of preferred stock may in the future be issued.
If approved, the increased number of authorized shares of common stock will
be available for issue from time to time for such purposes and consideration as
the Board of Directors may approve, and no further vote of stockholders of the
Company will be required, except as provided under Delaware law or under
applicable stock exchange or stock market rules. The availability of additional
shares for issuance, without the delay and expense of obtaining stockholder
approval at a special meeting, will restore the Company's flexibility to issue
common stock to a level that the Board of Directors believes is advisable.
14
<PAGE> 17
POTENTIAL ANTI-TAKEOVER EFFECT OF AUTHORIZED SECURITIES
The increase in the authorized common stock may facilitate certain
anti-takeover devices that may be advantageous to management if management
attempts to prevent or delay a change of control. The Board of Directors could
create impediments to a takeover or transfer of control of the Company by
causing such additional authorized shares to be issued to a holder or holders
who might side with the Board of Directors in opposing a takeover bid. In this
connection, the Board of Directors could issue shares of common stock to a
holder that would thereby have sufficient voting power to assure that certain
types of proposals would not receive the requisite stockholder vote, including
any proposal to remove directors, to accomplish certain business combinations
opposed by the Board of Directors, or to alter, amend or repeal provisions in
the Company's Certificate of Incorporation or Bylaws relating to any such
action. Furthermore, the existence of such shares might have the effect of
discouraging any attempt by a person or entity, through the acquisition of a
substantial number of shares of common stock, to acquire control of the Company,
since the issuance of such shares could dilute the common stock ownership of
such person or entity. Employing such devices may adversely impact stockholders
who desire a change in management or who desire to participate in a tender offer
or other sale transaction involving the Company. By use of such anti-takeover
devices, the Board of Directors may thwart a merger or tender offer even though
stockholders might be offered a substantial premium over the then current market
price of the common stock. At the present time, the Company is not aware of any
contemplated mergers, tender offers or other plans by a third party to attempt
to effect a change in control of the Company, and this Proposal Two is not being
made in response to any such attempt.
The Certificate of Incorporation of the Company authorizes the issuance of
1,000,000 shares of preferred stock, of which 800,000 shares remain undesignated
("preferred stock"). In 1996, the Board of Directors designated 200,000 shares
of preferred stock as Series A Junior Participating preferred stock ("Series A
Preferred Stock") in connection with its adoption of the shareholder Rights Plan
(discussed below). The Board of Directors, within the limitations and
restrictions contained in the Certificate of Incorporation and without further
action by the Company's stockholders, has the authority to issue the remaining
undesignated preferred stock from time to time in one or more series and to fix
the number of shares and the relative rights, conversion rights, voting rights,
rights and terms of redemption, liquidation preferences and any other
preferences, special rights and qualifications of any such series. Any issuance
of preferred stock with voting rights could, under certain circumstances, have
the effect of delaying or preventing a change in control of the Company by
increasing the number of outstanding shares entitled to vote and increasing the
number of votes required to approve a change in control of the Company.
On June 4, 1996, the Board of Directors adopted the Shareholder Rights Plan
(the "Rights Plan"), pursuant to which preferred stock rights ("Rights") were
distributed in the form of a dividend to stockholders of record on June 20, 1996
on the basis of one-fourth Right (after adjustments for stock splits and stock
dividends to date) for each share of common stock held. One-fourth Right also
attach to each share of common stock issued by the Company subsequent to June
20, 1996, and prior to the Distribution Date (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 1/100 of a share of
the Company's Series A Preferred Stock. Initially, the purchase price was fixed
at $45.00 per 1/100 of a share, subject to adjustment. In September 1997, the
Board of Directors amended the Rights Plan to increase such purchase price from
$45.00 to $225.00, and in June 1999, the Board further amended the Rights Plan
to increase such purchase price from $225.00 to $425.00. 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 a 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
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
Company 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. The Rights expire on
the earliest of (a) June 4, 2006, (b) consummation of a merger
15
<PAGE> 18
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, or (c) 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 to which they are
attached. The Rights, if exercised, could cause a substantial dilution to the
equity interest in the Company to a person's or group's ownership interest in
the common stock that attempts to acquire the Company on terms not approved by
the Company's Board of Directors. The Rights Plan may be amended or terminated
at the discretion of the Company's Board of Directors then in office; provided,
however, that if a majority of the Board of Directors is elected by stockholder
action by written consent or at a special meeting of stockholders (a meeting
other than a regularly scheduled annual meeting), no proposed amendment will be
effective until the earlier of (i) the 180th day following the effectiveness of
such election or (ii) the next regular annual meeting of stockholders of the
Company following the effectiveness of such election.
The Company is also governed by Section 203 of the Delaware General
Corporation Law (the "Delaware anti-takeover law"), which provides that certain
"business combinations" between a Delaware corporation whose stock is generally
traded or held of record by more than 2,000 stockholders, such as the Company,
and an "interested stockholder" (generally defined as a stockholder who
beneficially owns 15% or more of a Delaware corporation's voting stock) are
prohibited for a three-year period following the date that such stockholder
became an "interested stockholder," unless certain exceptions apply. The term
"business combination" is defined generally to include, among other
transactions, mergers, tender offers and transactions which increase an
"interested stockholder's" percentage ownership of stock in a Delaware
corporation.
While it may be deemed to have potential anti-takeover effects, the
proposed amendment to increase the authorized common stock is not prompted by
any specific effort or takeover threat currently perceived by the Board of
Directors. Moreover, the Board of Directors does not currently intend to propose
additional anti-takeover measures in the foreseeable future.
BOARD OF DIRECTORS' RESERVATION OF RIGHTS
The Board of Directors retains the authority to take or to authorize
discretionary actions as may be appropriate to carry out the purposes and
intentions of this Proposal Two, including without limitation editorial
modifications or any other change to the proposed amendment to the Certificate
of Incorporation which the Board of Directors may adopt without stockholder vote
in accordance with the Delaware General Corporation Law.
NO DISSENTERS' RIGHTS
Under Delaware law, stockholders are not entitled to dissenters' rights of
appraisal with respect to this Proposal Two.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION;
RECOMMENDATION OF BOARD DIRECTORS
Approval of this Proposal Two to amend the Company's Certificate of
Incorporation requires the affirmative vote of the holders of a majority of the
shares of common stock of the Company outstanding on the Record Date. Both
abstentions and broker non-votes are not affirmative votes and, therefore, will
have the same effect as votes against this Proposal Two.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION.
16
<PAGE> 19
PROPOSAL THREE
AMENDMENT OF THE STOCK AWARDS PLAN
At the Meeting, the stockholders of the Company will be asked to approve an
amendment to the QLogic Corporation Stock Awards Plan (the "Awards Plan") to
increase the maximum number of shares of common stock of the Company available
for awards granted under the Awards Plan by 3,000,000 shares.
In January 1994, the Company's Board of Directors adopted the Awards Plan
and the Awards Plan was approved by Emulex, the Company's then sole stockholder.
In June 1995, the Board of Directors amended the Awards Plan to increase the
maximum number of shares of common stock available for awards granted under the
Awards Plan from 4,400,000 shares to 5,400,000 shares, and the stockholders
approved this amendment at the Annual Meeting held in August 1995. In August
1997, the Board of Directors adopted a further amendment to the Awards Plan to
further increase the maximum number of shares of common stock available for
awards granted under the Awards Plan from 5,400,000 shares to 6,900,000 shares,
and to establish a maximum number of derivative securities that may be granted
to any one participant in any calendar year at 2,000,000, and the stockholders
approved this further amendment at the Annual Meeting held in August 1997. (All
share quantities have been restated to reflect the Company's stock splits and
stock dividends to date).
THE AMENDMENT
On June 25, 1999, the Board of Directors amended the Awards Plan to further
increase the maximum number of such shares by 3,000,000, from 6,900,000 shares
to 9,900,000 shares, subject to stockholder approval.
PURPOSE OF THE AWARDS PLAN
The purpose of the Awards Plan is to advance the interests of the Company
by encouraging employees who will largely be responsible for the long-term
success and development of the Company to acquire and retain an ownership
interest in the Company. The Awards Plan is also intended to provide flexibility
to the Company in attracting and retaining key employees and stimulating their
efforts on behalf of the Company. The Awards Plan is designed to provide a
competitive and balanced incentive and reward program for participants.
REASONS FOR AMENDMENT OF THE AWARDS PLAN
The amendment to the Awards Plan to increase the number of shares available
thereunder was adopted by the Board and is recommended for approval by the
Company's stockholders because, due to overall revenue growth, the number of
employees eligible to participate in the Awards Plan has increased
substantially. The Board believes that option grants or other awards under the
Awards Plan play an important role in the Company's ability to attract, motivate
and retain employees of outstanding ability and to reward employees for
outstanding performance; if the Company were unable to grant additional options
under the Awards Plan, the Company's future hiring, promotion and operating
plans could be negatively impacted.
DESCRIPTION OF THE AWARDS PLAN
Awards under the Awards Plan may include incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock awards,
unrestricted stock awards, deferred stock awards, performance unit awards and
other stock-based awards. As of July 30, 1999, of the 6,900,000 shares
authorized under the Awards Plan, stock options were outstanding under the
Awards Plan in respect of an aggregate of 3,227,200 shares; and an aggregate of
589,040 shares were available for future grants of options or other awards.
The principal features of the Awards Plan are summarized below, but the
summary is qualified in its entirety by reference to the Awards Plan itself.
Copies of the Awards Plan and of the proposed amendment will be available at the
Annual Meeting and can be obtained by writing to the Corporate Secretary, QLogic
Corporation, 3545 Harbor Boulevard, Costa Mesa, California 92626.
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Eligibility. Employees of the Company and its subsidiaries, if any, as
selected by the Plan Administrator (defined below), are eligible to receive
awards under the Awards Plan. As of July 30, 1999, approximately 321 employees
were eligible to receive awards under the Awards Plan.
Administration. The Awards Plan is administered by the Plan Administrator,
which has broad discretion in determining the type and specific terms and
provisions of the various awards described below. The Awards Plan provides that
the Plan Administrator will be the Board of Directors of the Company, if all
members of the Board are "disinterested persons," within the meaning of SEC
regulations, who are ineligible to receive awards under the Awards Plan.
Alternatively, the Board may delegate this function to the Compensation
Committee, or to any other committee appointed by the Board that includes two or
more directors of the Company who are "disinterested persons." The Awards Plan
is currently administered by the Compensation Committee.
Stock Option Awards. The Awards Plan permits the Plan Administrator to
grant nontransferable stock options that qualify as incentive stock options
under Section 422 of the Code ("ISOs") and stock options that do not so qualify
("NSOs"). All ISO awards under the Awards Plan must have an exercise price that
is equal to at least 100% of the fair market value of the shares to which the
options relate as of the option grant date, and ISOs granted to any employee
possessing more than 10% of the combined voting power of all classes of stock of
the Company or its subsidiaries must be granted at 110% of fair market value as
of the option grant date. Optionees under the Awards Plan may exercise their
options by paying cash, by using the cashless exercise procedure allowed under
Federal Reserve Regulation T or by tendering shares of the Company's common
stock that they already own. Upon a change of control of the Company (described
below), any outstanding options will become fully vested and immediately
exercisable.
Stock Appreciation Rights. The Awards Plan authorizes the Plan
Administrator to grant stock appreciation rights ("SARs") and to determine the
form of payment therefor. A SAR entitles the recipient to receive an amount in
cash or shares of the Company's common stock, or a combination thereof, having a
value equal to the excess of the fair market value of a share on the date of
exercise over a specified price fixed by the Plan Administrator multiplied by
the number of shares with respect to which the holder is exercising SARs. SARs
may be granted in tandem with any previously or contemporaneously granted option
or independent of any option. The specified price of a tandem SAR will be the
option price of the related option. To the extent a tandem SAR is exercised, the
related option will be cancelled and, to the extent that related option is
exercised, the tandem SAR will be cancelled. ISOs and options which are not ISOs
may provide that in connection with exercises thereof, the holders will receive
cash payments in amounts necessary to reimburse holders for their income tax
liability resulting from such exercise in the payment made pursuant to this
provision.
Restricted Stock Awards. The Awards Plan also permits the Plan
Administrator to grant shares of common stock to a participant subject to the
terms and conditions imposed by the Plan Administrator ("Restricted Stock").
Each certificate for Restricted Stock will be registered in the name of the
participant and deposited, together with a stock power endorsed in blank, with
the Company. There will be established for each Restricted Stock award a
restriction period (the "Restriction Period") determined by the Plan
Administrator during which shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered. Except for such restrictions on
transfer and such other restrictions as the Plan Administrator may impose, the
participant will have all the rights of a holder of common stock as to such
Restricted Stock.
The Plan Administrator may permit or require the payment of cash dividends
to be deferred and, if it so determines, reinvested in additional Restricted
Stock or otherwise invested. At the expiration of the Restriction Period, the
Company will redeliver to the participant (or the participant's legal
representative or designated beneficiary) the certificates deposited. Except as
may be provided at the time of grant or otherwise, upon a termination of
employment for any reason during the Restriction Period all shares still subject
to restriction shall be forfeited by the participant.
Unrestricted Stock. In addition to Restricted Stock awards, the Plan
Administrator may grant or sell to any participant shares of common stock free
of restrictions under the Awards Plan ("Unrestricted Stock").
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Any purchase of Unrestricted Stock by a recipient must take place within 60 days
after the grant of the right to purchase such shares. Notwithstanding the
foregoing, any shares of Unrestricted Stock granted to a participant subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") may not be sold or otherwise disposed of for value for a period of six
months from the date of grant.
Deferred Stock Awards. The Awards Plan also permits the Plan Administrator
to make a Deferred Stock award. A Deferred Stock award is an award entitling the
recipient to acquire shares of common stock with payment in one or more
installments at a future date or dates, as determined in the Plan
Administrator's discretion. The Plan Administrator may condition such
acquisition on the attainment of specified performance goals or on such other
factors or criteria as the Plan Administrator may deem appropriate.
The deferral period will be determined by the Plan Administrator and set
forth in a Deferred Stock award agreement executed between the Company and the
participant. Subject to the Plan Administrator's approval, a participant may
elect to further defer receipt of the common stock payable under a Deferred
Stock award for a specified period, provided such election is made at least
twelve months prior to the completion of the deferral period specified in the
Deferred Stock award agreement.
Performance Unit Awards. The Awards Plan permits the Plan Administrator to
make awards entitling the recipient to acquire cash or shares of common stock,
or a combination of cash and common stock, upon the attainment of specified
performance goals established by the Plan Administrator at the date of grant.
The performance goals may relate to objectives relating to the Company or the
individual participant. Performance goals may vary from participant to
participant and between groups of participants as determined by the Plan
Administrator. Performance units may be awarded independent of or in combination
with the grant of any other award under the Awards Plan. The specific terms of
the performance unit award, the performance periods, goals and payment terms
shall be set forth in the terms of an award agreement prepared by the Plan
Administrator and executed between the Company and the participant.
Other Stock-Based Awards. Under the Awards Plan, in addition to the types
of awards described above, participants may be awarded other stock-based awards
under which common stock is or may in the future be acquired. Such awards may
include, without limitation, debt securities convertible into or exchangeable
for shares of common stock. Awards will be granted upon such conditions,
including attainment of performance goals, as the Plan Administrator may
determine at the time of grant. However, no other stock-based award will be
exercisable in whole or in part during the first six months following the date
of grant or, if shares of common stock are awarded to a participant on the date
of grant, such stock shall be subject to restrictions against transfer for a
minimum of six months. In addition, no convertible or exchangeable debt may be
issued unless the Plan Administrator provides a means of avoiding any right of
the holders of such debt to prevent a corporate transaction by reason of
covenants in such debt. The Plan Administrator has discretion to determine the
consideration, if any, payable upon the issuance or exercise of any other
stock-based award, the conditions under which any such award could be forfeited,
or other terms and conditions which are to be specified in any award agreement
entered into between the Company and the participant.
Change of Control. In the event of a liquidation of the Company, or a
merger, reorganization, or consolidation of the Company with any other
corporation in which the Company is not the surviving corporation or the Company
becomes a wholly owned subsidiary of another corporation, any unexercised
options or other award rights theretofore granted under the Awards Plan shall be
deemed cancelled unless the surviving corporation in any such transaction elects
to assume such award rights or to substitute other award rights therefor;
provided, however, if such award rights would otherwise be cancelled in
accordance with the foregoing, the award recipient will have the right,
exercisable during a ten-day period ending on the fifth day prior to such
transaction, to exercise the award rights without regard to any restrictions on
exercisability.
Amendment, Modification and Termination. The Awards Plan will terminate on
the earliest to occur of the date when all shares of common stock available
under the Awards Plan have been acquired through the exercise of awards and the
payment of benefits in connection with awards under the Awards Plan, February
28, 2004, or such earlier date as the Board of Directors may determine. The
Board of Directors may amend, modify or terminate the Awards Plan, but may not
without the approval of stockholders make any amendments which would (i)
materially increase the benefits accruing to participants under the Awards Plan,
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(ii) increase the total number of shares which may be issued under the Awards
Plan or (iii) materially modify the class of employees eligible to participate
in the Awards Plan. No amendment of the Awards Plan will impair the rights of
any participant without such participant's consent.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences of
participation in the Awards Plan. Such summary should not be relied upon as
being a complete statement. Federal tax laws are complex and subject to change.
Moreover, participation in the Awards Plan may also have consequences under
state and local tax laws which may vary from the federal tax consequences
described below. For such reasons, the Company recommends that each participant
consult his or her personal tax advisor to determine the specific tax
consequences applicable to him or her.
Incentive Options. No taxable income will be recognized by an optionee
under the Awards Plan upon either the grant or the exercise of an incentive
option. Instead, a taxable event will occur upon the sale or other disposition
of the shares acquired upon exercise of an incentive option, and the tax
treatment of the gain or loss realized will depend upon how long the shares were
held before their sale or disposition. As is discussed below, the exercise of an
incentive option and the subsequent disposition of the shares acquired also may
result in items of "tax preference" for purposes of the "alternative minimum
tax."
If a sale or other disposition of the shares received upon the exercise of
an incentive option occurs more than (i) one year after the date of exercise of
the option and (ii) two years after the date of grant of the option, the holder
will recognize long-term capital gain or loss at such time equal to the full
amount of the difference between the proceeds realized and the exercise price
paid. However, a sale, exchange, gift or other transfer of legal title of such
stock before the expiration of either the one-year or two-year period described
above will constitute a "disqualifying disposition." A disqualifying disposition
involving a sale or exchange will result in ordinary income to the optionee in
an amount equal to the lesser of (i) the fair market value of the stock on the
date of exercise minus the exercise price, or (ii) the amount realized on
disposition minus the exercise price. If the amount realized in a disqualifying
disposition exceeds the fair market value of the stock on the date of exercise,
the gain realized, in excess of that taxed as ordinary income as indicated
above, will be taxed as capital gain. A disqualifying disposition as a result of
a gift will result in ordinary income to the optionee in an amount equal to the
difference between the exercise price and the fair market value of the stock on
the date of exercise. Any loss realized upon a disqualifying disposition will be
treated as a capital loss. Capital gains and losses resulting from disqualifying
dispositions will be treated as long-term or short-term depending upon whether
the shares were held for more or less than the applicable statutory holding
period (which currently is one year). The Company will be entitled to a tax
deduction in an amount equal to the ordinary income recognized by the optionee
as a result of the disqualifying disposition.
If legal title to any shares acquired upon exercise of an incentive option
is transferred by sale, gift or exchange, such transfer will be treated as a
disposition for purposes of determining whether a "disqualifying disposition"
has occurred. However, certain transfers will not be treated as dispositions for
such purposes, such as transfers to an estate or by inheritance upon an
optionee's death, a mere pledge or hypothecation, or a transfer into the name of
the optionee and another person as joint tenants.
Section 55 of the Code imposes an "alternative minimum tax" on an
individual's income to the extent the amount of the alternative minimum tax
exceeds the individual's regular tax for the year. For purposes of computing the
alternative minimum tax, the excess of the fair market value (on the date of
exercise) of the shares received upon the exercise of an incentive option over
the exercise price paid is included in alternative minimum taxable income in the
year the option is exercised. If the shares are sold in the same year that the
option is exercised, the regular tax treatment and the alternative tax treatment
will be the same. If the shares are sold during a year subsequent to that in
which the option was exercised, the basis of the stock acquired will equal its
fair market value on the date of exercise for purposes of computing alternative
minimum taxable income in the year of sale. For example, assume that an
individual pays an exercise price of $10 to purchase stock having a fair market
value of $15 on the date of exercise. The amount included in alternative minimum
taxable income is $5, and the stock has a basis of $10 for regular tax purposes
and $15 for alternative
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minimum tax purposes. If the individual sells the stock in a subsequent year for
$20, the gain recognized is $10 for regular tax purposes and $5 for alternative
minimum tax purposes.
Under the Awards Plan, the Plan Administrator may permit an optionee to pay
the exercise price of an incentive option by delivering shares of common stock
of the Company already owned by the optionee, valued at their fair market value
on the date of exercise. Generally, if the exercise price of an incentive option
is paid with already-owned shares or by a combination of cash and already-owned
shares, there will be no current taxable gain or loss recognized by the optionee
on the already-owned shares exchanged. A special rule applies, however, if the
shares exchanged were previously acquired through the exercise of an incentive
option and the applicable holding period requirements for favorable tax
treatment of such shares have not been met at the time of the exchange. In such
event, the exchange will be treated as a disqualifying disposition of such
shares and will result in the recognition of income to the optionee, in
accordance with the rules described above for disqualifying dispositions. If
this special rule does not apply, then the new shares received by the optionee
upon the exercise of the option equal in number to the old shares exchanged will
have the same tax basis and holding period for long-term capital gain purposes
as the optionee's basis and holding period in the old shares. The balance of the
shares received by the optionee upon exercise of the option will have a tax
basis equal to any cash paid by the optionee, and if no cash was paid, the tax
basis of such shares will be zero. The holding period of the additional shares
for long-term capital gain purposes will commence on the date of exercise. The
holding period for purposes of the one-year and two-year periods described above
will commence on the date of exercise as to all of the shares received upon the
exercise of an incentive option. If any of the shares subject to the basis
allocation rules described above are subsequently transferred in a disqualifying
disposition, the shares with the lowest tax basis will be treated as being
transferred first.
Nonqualified Options. No taxable income is recognized by an optionee upon
the grant of a nonqualified option. Upon exercise, however, the optionee will
recognize ordinary income in the amount by which the fair market value of the
shares purchased exceeds, on the date of exercise, the exercise price paid for
such shares. The income recognized by the optionee will be subject to income tax
withholding by the Company out of the optionee's current compensation. If such
compensation is insufficient to pay the taxes due, the optionee will be required
to make a direct payment to the Company for the balance of the tax withholding
obligation. The Company will be entitled to a tax deduction equal to the amount
of ordinary income recognized by the optionee, provided certain reporting
requirements are satisfied.
If the exercise price of a nonqualified option is paid by the optionee in
cash, the tax basis of the shares acquired will be equal to the cash paid plus
the amount of income recognized by the optionee as a result of such exercise. If
the exercise price is paid by delivering shares of common stock of the Company
already owned by the optionee or by a combination of cash and already-owned
shares, there will be no current taxable gain or loss recognized by the optionee
on the already-owned shares exchanged (however, the optionee will nevertheless
recognize ordinary income to the extent that the fair market value of the shares
purchased on the date of exercise exceeds the price paid, as described above).
The new shares received by the optionee equal in number to the old shares
exchanged will have the same tax basis and holding period as the optionee's
basis and holding period in the old shares. The balance of the shares received
will have a tax basis equal to any cash paid by the optionee plus the amount of
income recognized by the optionee as a result of such exercise, and will have a
holding period commencing with the date of exercise.
Upon the sale or disposition of shares acquired pursuant to the exercise of
a nonqualified option, the difference between the proceeds realized and the
optionee's basis in the shares will be a capital gain or loss and will qualify
for long-term capital gain or loss treatment if the shares have been held for
more than the applicable statutory holding period.
Restricted Stock. The receipt of Restricted Stock will not result in a
taxable event to the Participant until the expiration of any repurchase rights
retained by the Company with respect to such stock, unless the participant makes
an election under Section 83(b) of the Code to be taxed as of the date of
purchase. If no repurchase rights are retained, or if a Section 83(b) election
is made, the participant will recognize ordinary income in an amount equal to
the excess of the fair market value of such shares on the date of purchase over
the purchase price paid for such shares. Even if the purchase price and the fair
market value of the shares are
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the same (in which case there would be no ordinary income), a Section 83(b)
election must be made to avoid deferral of the date ordinary income is
recognized. The election must be filed with the Internal Revenue Service not
later than thirty (30) days after the date of transfer.
If no Section 83(b) election is made or if no repurchase rights are
retained, a taxable event will occur on each date the participant's ownership
rights vest (e.g., when the Company's repurchase rights expire) as to the number
of shares that vest on that date, and the holding period for long-term capital
gain purposes will not commence until the date the shares vest. The participant
will recognize ordinary income on each date shares vest in an amount equal to
the excess of the fair market value of such shares on that date over the amount
paid for such shares.
AWARDS OUTSTANDING UNDER THE AWARDS PLAN
As of July 30, 1999 awards in the form of options were outstanding under
the Awards Plan held by approximately 264 persons to purchase an aggregate of
3,227,200 shares of common stock at an average exercise price of $22.35 per
share, and 589,040 shares (excluding those contemplated by the subject
amendment) were available for future grants of options under the Awards Plan.
Grants under the Awards Plan in fiscal 1999 to the Chief Executive Officer and
certain other executive officers are set forth above in the table entitled
"Option Grants During Fiscal 1999." As July 30, 1999, stock options under the
Awards Plan were held by the following persons: H.K. Desai -- 478,508 shares;
Thomas R. Anderson -- 92,744 shares; Mark K. Edwards -- 192,000 shares; Michael
R. Manning -- 27,500 shares; David Tovey -- 184,000 shares; Larry F. Fortmuller,
Jr. -- 92,496; and David M. Race -- 96,000 shares; all current executive
officers as a group (7 persons) -- 1,163,248 shares; all employees as a group
(excluding current executive officers) (approximately 257 persons) -- 2,063,952
shares. Current directors or nominees for director who are not employees of the
Company have not been granted any options under the Awards Plan. In addition, no
associate of any current director, nominee for director or executive officer has
been granted any options under the Awards Plan. As of July 30, 1999, options
were the only type of award that had been granted under the Awards Plan.
The market value of the Company's common stock on July 30, 1999 was $83.44
per share.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT TO AWARDS PLAN; RECOMMENDATION OF BOARD
DIRECTORS
Approval of this Proposal Three to amend the Awards Plan to increase the
authorized shares by 3,000,000 requires the affirmative vote of the holders of a
majority of the shares of common stock of the Company present, or represented,
and entitled to vote at the Annual Meeting. If Proposal Three to approve such
amendment is not approved by the stockholders, the Awards Plan, as previously
approved, will continue in effect.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL TO AMEND THE AWARDS PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE
THEREUNDER.
PROPOSAL FOUR
AMENDMENT OF THE NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
At the Meeting, the stockholders of the Company will be asked to approve an
amendment to the QLogic Corporation Non-Employee Director Stock Option Plan (the
"Director Plan"), to increase annual grants of options to purchase shares of
common stock from 12,000 to 16,000 for each non-employee director (other than
the Chairman of the Board), and from 20,000 to 27,000 for a non-employee
Chairman of the Board.
In January 1994, the Company's Board of Directors adopted the Director Plan
and the Director Plan was approved by Emulex, the Company's then sole
stockholder. In June 1996, the Board of Directors amended the Director Plan to
(i) extend the termination date of the Director Plan by five years to December
31, 2001, (ii) increase the number of shares of common stock subject to the
Director Plan by 300,000, (iii) provide for initial grants to new directors of
options to purchase 32,000 shares of common stock and (iv) provide for
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annual grants to each non-employee director (other than the Chairman of the
Board) of options to purchase 12,000 shares of common stock, and annual grants
to a non-employee Chairman of the Board of options to purchase 20,000 shares of
common stock. The stockholders approved these amendments at the Annual Meeting
held in August 1996. (All share quantities have been restated to reflect the
Company's stock splits and stock dividends to date).
THE AMENDMENT
On June 25, 1999, the Board of Directors amended the Director Plan to
increase annual grants of options to purchase shares of common stock from 12,000
to 16,000 for each non-employee director (other than the Chairman of the Board),
and from 20,000 to 27,000 for a non-employee Chairman of the Board, subject to
stockholder approval.
PURPOSE OF THE DIRECTOR PLAN
The Director Plan is intended to increase the proprietary and vested
interests of the non-employee directors of the Company and the growth and
performance of the Company by granting to them options to purchase shares of
common stock of the Company, to encourage them to continue their services to the
Company, and to attract individuals with outstanding ability to serve on the
Board of Directors of the Company.
REASONS FOR AMENDMENT OF THE DIRECTOR PLAN
The foregoing amendment was adopted and is recommended for approval by the
Company's stockholders because the Board believes that continued option grants
under the Director Plan play an important role in the Company's efforts to
attract and retain the services of individuals of outstanding ability as
directors of the Company. The Board also believes that option grants such as
those contemplated in the Director Plan are consistent with a trend in computer
industry companies similar in size and complexity to the Company to compensate
directors with stock options.
DESCRIPTION OF THE DIRECTOR PLAN
The Director Plan provides for the grant of stock options to purchase
shares of the Company's common stock to directors who are not employees of the
Company or any of its subsidiaries.
The principal features of the Director Plan are summarized below, but the
summary is qualified in its entirety by reference to the Director Plan itself.
Copies of the Director Plan and of the proposed amendment will be available at
the Meeting and can be obtained by writing to the Corporate Secretary, QLogic
Corporation, 3545 Harbor Boulevard, Costa Mesa, California 92626.
Options granted under the Director Plan are non-qualified stock options not
eligible for favorable tax consequences given to incentive stock options by
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The
purchase price per share of the common stock of the Company issuable upon
exercise of the option shall be 100% of the fair market value per share of such
common stock on the date of grant.
No option granted under the Director Plan shall be exercisable after the
expiration of the earlier of (i) ten years following the date the option is
granted, or (ii) one year following the date the optionee ceases to be a
director of the Company for any reason.
Options granted to a director upon becoming an Eligible Director (as
defined below), as well as options granted to a director upon re-election, shall
be exercisable as to one-third of the shares subject to the option on each
anniversary date of the date the option is granted if the director to whom the
option is granted is still a director of the Company on such anniversary.
In the event of the death of an optionee, any option (or unexercised
portion thereof) held by the optionee, to the extent exercisable by him or her
on the date of death, may be exercised by the optionee's personal
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representatives, heirs, or legatees in accordance with the Director Plan. No
option shall be transferable by an optionee otherwise than by will or the laws
of descent and distribution, and, during the lifetime of the individual to whom
an option is granted, it may be exercised only by such individual or such
individual's guardian or legal representative.
Eligibility. Each director of the Company shall be eligible to receive an
option under the Director Plan only if such director (i) is not then an employee
of the Company or any of its subsidiaries, and (ii) has not within the three
years immediately preceding such time, received any stock option, stock bonus,
stock appreciation right, or other similar stock award from the Company or any
of its subsidiaries, other than options granted to such director under the
Director Plan (an "Eligible Director"). Only Eligible Directors may receive
options under the Director Plan. All current members of the Board of Directors,
other than Mr. Desai, are Eligible Directors.
Administration. The Board of Directors is authorized to administer the
Director Plan in accordance with its terms; however, the Board shall have no
discretion with respect to the selection of directors to receive options, the
number of shares of common stock of the Company subject to any such options, or
the exercise price thereof. The Board may, in its sole discretion, delegate any
or all of its administrative duties to a committee of not fewer than two
non-employee members of the Board.
Mergers, Reorganizations and Changes in Control. In the event of a
liquidation of the Company or a merger, reorganization or consolidation of the
Company with any other corporation in which the Company is not the surviving
corporation or the Company becomes a subsidiary of another corporation, any
unexercised options previously granted under the Director Plan shall be deemed
cancelled unless the surviving corporation elects to assume the options or to
use substitute options. However, unless the surviving corporation elects to
assume the options or to use substitute options, the optionee shall have the
right, exercisable during a ten day period ending on the fifth day prior to such
liquidation, merger or consolidation, to fully exercise the optionee's option in
whole or in part without regard to any installment exercise provisions otherwise
provided in the Director Plan. In the event of a change in control of the
Company, as defined in the Director Plan, any unexercised option previously
granted under the Director Plan which is not then already exercisable as to all
of the shares subject to the option shall become exercisable upon such change in
control as to one half of the shares as to which the option is not already
exercisable in addition to the shares, if any, as to which the option is already
exercisable.
Director Plan Amendment. The Director Plan may be terminated or amended by
the Board as it shall deem advisable. Without the authorization and approval of
the stockholders, however, the Board may not make any amendments which would (i)
materially increase the benefits accruing to directors under the Director Plan,
(ii) increase the total number of shares which may be issued under the Director
Plan, (iii) materially modify the eligibility requirements to receive a stock
option grant under the Director Plan, (iv) reduce the exercise price of options
granted under the Director Plan, or (v) extend the exercise date of any option
granted under the Director Plan.
Term of Director Plan. The Director Plan expires December 31, 2001.
FEDERAL INCOME TAX CONSEQUENCES
Only non-qualified options which are not intended to meet the incentive
stock option requirements of Section 422 of the Code will be issued under the
Director Plan. Under current federal income tax law, the grant of an option
under the Director Plan will have no federal income tax consequences to the
Company or the Director to whom it is granted. Generally, upon exercise of a
non-qualified stock option granted under the Director Plan, the excess of the
fair market value of the stock at the date of exercise over the option price
(the "Spread") is taxable to the optionee as ordinary income. All such amounts
taxable to an optionee are deductible by the Company as compensation expense.
The deduction will be allowed for the taxable year of the Company in which the
optionee includes an amount in income.
Generally, the shares received on exercise of an option under the Director
Plan are not subject to restrictions on transfer or risks of forfeiture and,
therefore, the optionee will recognize income on the date of
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exercise of a nonqualified stock option. However, if the optionee is subject to
Section 16(b) of the Exchange Act, the Section 16(b) restriction will be
considered a substantial risk of forfeiture for tax purposes. Under current law,
participants who are directors of the Company will be subject to restrictions
under Section 16(b) of the Exchange Act during their term of service and for up
to six months after termination of such service. SEC Rule 16b-3 provides an
exemption from the restrictions of Section 16(b) for the grant of derivative
securities, such as stock options, under qualifying plans. Because the Director
Plan satisfies the requirements for exemption under SEC Rule 16b-3, the grant of
options will not be considered a purchase and the exercise of the options to
acquire the underlying shares of common stock will not be considered a purchase
or sale. Thus, ordinary income will be recognized and the Spread will be
measured on the date of exercise.
The foregoing discussion, based upon federal tax laws now in effect, is not
intended to cover all relevant tax aspects of the Director Plan.
OPTIONS OUTSTANDING UNDER THE DIRECTOR PLAN
A total of 800,000 shares of common stock have been reserved for issuance
under the Director Plan. As of July 19, 1999, an aggregate of 335,998 shares of
common stock had been issued upon exercise of stock options granted under the
Director Plan, options for a total of 174,000 shares at an average exercise
price of $4.76 per share were outstanding and held by the three non-employee
directors of the Company, and the remaining 290,002 shares were available for
grant.
The market value of the Company's common stock on July 30, 1999 was $83.44
per share.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT TO DIRECTOR PLAN; RECOMMENDATION OF
BOARD DIRECTORS
Approval of this Proposal Four to amend the Director Plan to increase
annual grants of options to purchase shares of common stock from 12,000 to
16,000 for each non-employee director (other than the Chairman of the Board),
and from 20,000 to 27,000 for a non-employee Chairman of the Board, requires the
affirmative vote of the holders of a majority of the shares of common stock of
the Company present, or represented, and entitled to vote at the Annual Meeting.
The vote requirement exists by virtue of the Board of Directors", Determination
to submit this matter to the stockholders for approval. If Proposal Four to
approve such amendment is not approved by the stockholders, the Director Plan,
as previously approved, will continue in effect.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THIS
PROPOSAL TO AMEND THE DIRECTOR PLAN TO INCREASE THE ANNUAL GRANTS OF OPTIONS TO
NON-EMPLOYEE DIRECTORS THEREUNDER.
PROPOSAL FIVE
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of KPMG LLP serves the Company as its independent
public accountants at the direction of the Board of Directors of the Company and
has served in such capacity since the Company's inception. One or more
representatives of KPMG LLP are expected to be present at the Meeting and will
have an opportunity to make a statement, if they desire to do so, and to be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF KPMG LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY FOR
FISCAL YEAR 2000. This matter is not required to be submitted for stockholder
approval, but the Board of Directors has elected to seek ratification of its
selection of the independent public accountants by the affirmative vote of a
majority of the shares represented and voting at the Meeting. The Company has
not determined its intended actions in the event of a negative vote.
25
<PAGE> 28
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file various reports with the Securities and
Exchange Commission and the National Association of Securities Dealers
concerning their holdings of, and transactions in, securities of the Company.
Copies of these filings must be furnished to the Company. To the Company's
knowledge, based solely on review of the copies of such reports furnished to the
Company and written representations that no other reports were required, during
the Company's most recent fiscal year all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10% beneficial
owners have been met.
STOCKHOLDER PROPOSALS
Stockholders who wish to present proposals for action at the 2000 Annual
Meeting of Stockholders should submit their proposals in writing to the
Secretary of the Company at the address of the Company set forth on the first
page of this Proxy Statement. Proposals must be received by the Secretary no
later than April 2, 2000 for inclusion in next year's proxy statement and proxy
card. In addition, the Company's Bylaws provide that a stockholder's notice must
be received by the Company not less than 60 nor more than 90 days prior to the
date of such annual meeting in order for the proposal to be considered at the
meeting; provided, however, that in the event that the first public disclosure
of the date of the annual meeting is made less than 70 days prior to the date of
such meeting, proposals must be received not later than the close of business on
the tenth day following the day on which such public disclosure was first made.
ANNUAL REPORT TO STOCKHOLDERS
The Annual Report to Stockholders of the Company for the fiscal year ended
March 28, 1999, including audited consolidated financial statements, has been
mailed to the stockholders concurrently herewith, but such report is not
incorporated in this Proxy Statement and is not deemed to be a part of the proxy
solicitation material.
OTHER MATTERS
The Management of the Company does not know of any other matters which are
to be presented for action at the Meeting. Should any other matters come before
the Meeting or any adjournment thereof, the persons named in the enclosed proxy
will have the discretionary authority to vote all proxies received with respect
to such matters in accordance with their judgment.
26
<PAGE> 29
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission (exclusive of Exhibits), will be furnished by
first class mail within one business day of receipt of request without charge to
any person from whom the accompanying proxy is solicited upon written request to
Investor Relations, QLogic Corporation, 3545 Harbor Boulevard, Costa Mesa,
California 92626. If Exhibit copies are requested, a copying charge of $.20 per
page will be made.
BY ORDER OF THE BOARD OF DIRECTORS
Michael R. Manning
Secretary
Costa Mesa, California
August 23, 1999
STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND TO DATE, SIGN, AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL
AND YOUR COOPERATION WILL BE APPRECIATED.
27
<PAGE> 30
PROXY PROXY
QLOGIC CORPORATION
3545 HARBOR BOULEVARD -- COSTA MESA, CALIFORNIA 92626
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints H.K. Desai and George D. Wells as
Proxies, each with full power to appoint substitutes, and hereby authorizes them
or either of them to represent and to vote as designated below, all the shares
of common stock of QLogic Corporation held of record by the undersigned on
August 9, 1999, at the Annual Meeting of Stockholders to be held on September
28, 1999, or any adjournments thereof.
PLEASE READ, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE> 31
QLOGIC CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
<TABLE>
<S> <C> <C> <C>
For All
1. ELECTION OF DIRECTORS For Withheld Except 4. APPROVAL OF INCREASE IN AWARD For Against Abstain
FOR ALL EXCEPT NOMINEES CROSSED [ ] [ ] [ ] GRANTS TO NON-EMPLOYEE [ ] [ ] [ ]
OUT. DIRECTORS AND NON-EMPLOYEE
H.K. Desai Carol L. Miltner CHAIRMAN OF THE BOARD
George D. Wells Larry R. Carter
5. RATIFICATION OF SELECTION OF For Against Abstain
2. APPROVAL OF INCREASE IN For Against Abstain INDEPENDENT PUBLIC ACCOUNTANTS [ ] [ ] [ ]
AUTHORIZED SHARES FROM 50,000,000 TO [ ] [ ] [ ]
150,000,000 AND TO CHANGE PAR VALUE 6. IN THEIR DISCRETION, THE PROXIES For Against Abstain
FROM $0.05 TO $0.001. ARE AUTHORIZED TO VOTE UPON SUCH [ ] [ ] [ ]
OTHER BUSINESS AS MAY PROPERLY
3. APPROVAL OF INCREASE IN MAXIMUM For Against Abstain COME BEFORE THE MEETING.
NUMBER OF SHARES IN QLOGIC STOCK [ ] [ ] [ ]
AWARDS PLAN BY 3,000,000
</TABLE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3, 4 and 5.
Please sign exactly as name appears below. When shares are held by joint tenant,
both should sign. When signing as attorney, as executor, administrator, trustee,
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated:_____________________________, 1999
_________________________________________
Signature
