<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 2000
REGISTRATION NO. 333-38516
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
QLOGIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3674 33-0537669
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
<TABLE>
<S> <C>
26600 LAGUNA HILLS DRIVE H.K. DESAI
ALISO VIEJO, CALIFORNIA 92656 26600 LAGUNA HILLS DRIVE
(949) 389-6000 ALISO VIEJO, CALIFORNIA 92656
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (949) 389-6000
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
PRINCIPAL EXECUTIVE OFFICES) NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
</TABLE>
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PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
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<S> <C>
NICK E. YOCCA, ESQ. WILLIAM B. PAYNE, ESQ.
K.C. SCHAAF, ESQ. DORSEY & WHITNEY LLP
STRADLING YOCCA CARLSON & RAUTH 220 SOUTH SIXTH STREET
A PROFESSIONAL CORPORATION MINNEAPOLIS, MINNESOTA 55402
660 NEWPORT CENTER DRIVE (612) 340-2600
NEWPORT BEACH, CALIFORNIA 92660 FAX: (612) 340-8738
(949) 725-4000
FAX: (949) 725-4100
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]____________
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, $0.001 par value(4)... 16,908,358 $24.32 $782,693,260.48 $206,631.44(3)
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(1) Based upon the maximum number of shares of the Registrant's common stock
expected to be issued in connection with the merger described herein to
holders of shares of common stock of Ancor Communications, Incorporated at
the effective time of the merger.
(2) Estimated solely for the purposes of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"). This fee has been computed pursuant to Rules 457(f)(1)
and (c) and is based on (i) $24.32, the average of the high and low sales
price per share of common stock, par value $0.01 per share of Ancor
Communications, Incorporated ("Ancor common stock") on The Nasdaq National
Market on May 26, 2000, and (ii) 30,800,414, the number of shares of Ancor
common stock estimated to be acquired by QLogic Corporation in the merger
pursuant to the initial filing of this Registration Statement on June 2,
2000; and (iii) $26.83, the average of the high and low sales price per
share of Ancor common stock on The Nasdaq National Market on June 19, 2000
and (iv) 1,253,343, the additional number of shares of Ancor common stock to
be acquired by QLogic in the merger and accounted for pursuant to this
Amendment No. 1.
(3) A registration fee of $197,753.44 was paid on June 2, 2000 pursuant to the
initial filing of this Registration Statement. A registration fee of $8,878
is being paid at the time of the filing of this Amendment No. 1.
(4) Includes corresponding rights to acquire shares of QLogic Corporation common
stock pursuant to the Rights Agreement, dated as of June 4, 1996, as
amended, between QLogic Corporation and Harris Trust Company of California.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
[LETTERHEAD OF QLOGIC CORPORATION]
, 2000
Dear QLogic Stockholders:
I am pleased to forward the enclosed joint proxy statement/prospectus
regarding an opportunity for Amino Acquisition Corp., a Minnesota corporation
and a wholly owned subsidiary of QLogic to merge with Ancor Communications,
Incorporated, a Minnesota corporation. Following the merger, Ancor will be the
surviving corporation and a wholly owned subsidiary of QLogic. We believe that
the proposed merger has many strategic benefits and synergies for the customers,
employees and stockholders of the companies involved which will strengthen our
combined teams of people to better assist our customers in meeting their goals.
Upon completion of the merger, each outstanding share of Ancor common
stock, other than shares held by Ancor or by QLogic or Ancor's or QLogic's
subsidiaries and other than shares for which dissenters' rights have been
effectively asserted and not withdrawn or lost, will be canceled and converted
into the right to receive 0.5275 of a share of QLogic common stock, par value
$.001 per share. QLogic common stock is traded on The Nasdaq National Market
under the trading symbol "QLGC" and on , 2000, QLogic common stock
closed at $ per share. We believe the merger offers significant value to our
stockholders.
Before we can merge, stockholders of QLogic must vote to approve a proposal
that will allow the merger to take place. The proposal will be approved if
stockholders of QLogic holding at least a majority of the shares voting on the
proposal vote for its approval. This proposal involves the approval of the
merger agreement related to the merger, including the issuance of shares of
QLogic common stock in the merger. Only stockholders who hold shares of QLogic
common stock at the close of business on June 23, 2000, will be entitled to vote
at the special meeting.
Your board of directors has carefully considered the terms and conditions
of the merger and unanimously agrees that the terms are fair to, and in the best
interests of, our stockholders. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT, THE MERGER AND THE ISSUANCE OF QLOGIC COMMON STOCK IN THE
MERGER AND RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER AGREEMENT, THE MERGER
AND THE ISSUANCE OF QLOGIC COMMON STOCK IN THE MERGER.
This joint proxy statement/prospectus provides you with detailed
information concerning Amino Acquisition Corp., Ancor and the merger. Please
give all of the information contained in this joint proxy statement/ prospectus
your careful attention. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE
DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS" ON PAGE 15 OF THIS PROXY
STATEMENT/PROSPECTUS.
YOUR VOTE IS VERY IMPORTANT. TO VOTE YOUR SHARES, you may use the enclosed
proxy card or attend a special stockholders meeting that will be held for this
important vote. The special meeting will be held on August 1, 2000, at 10:00
a.m., at the Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach,
California 92660. Your attendance at the special meeting is not required for you
to vote at the meeting.
TO APPROVE THE MERGER AGREEMENT, THE MERGER AND THE ISSUANCE OF QLOGIC
COMMON STOCK IN THE MERGER, YOU MUST VOTE "FOR" THE PROPOSAL BY FOLLOWING THE
INSTRUCTIONS STATED ON THE ENCLOSED PROXY CARD.
On behalf of the QLogic board of directors, I thank you for your support
and urge you to VOTE FOR APPROVAL of the merger of Ancor and Amino Acquisition
Corp.
Sincerely,
H.K. Desai
Chairman of the Board, President and
Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE QLOGIC COMMON STOCK TO BE ISSUED IN THE MERGER OR
DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED , 2000 AND IS
FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT , 2000
<PAGE> 3
[LETTERHEAD OF ANCOR COMMUNICATIONS, INCORPORATED]
, 2000
Dear Ancor Shareholders:
I am pleased to forward the enclosed joint proxy statement/prospectus
regarding an opportunity to merge with Amino Acquisition Corp., a Minnesota
corporation and a wholly owned subsidiary of QLogic Corporation, a Delaware
corporation. Following the merger, Ancor will be the surviving corporation and a
wholly owned subsidiary of QLogic. We believe that the proposed merger has many
strategic benefits and synergies for the customers, employees and shareholders
of the companies involved which will strengthen our combined teams of people to
better assist our customers in meeting their goals.
Upon completion of the merger, each outstanding share of Ancor common
stock, other than shares held by Ancor or by QLogic or Ancor's or QLogic's
subsidiaries and other than shares for which dissenters' rights have been
effectively asserted and not withdrawn or lost, will be canceled and converted
into the right to receive 0.5275 of a share of QLogic common stock, par value
$.001 per share. QLogic common stock is traded on The Nasdaq National Market
under the trading symbol "QLGC" and on , 2000, QLogic common stock
closed at $ per share. We believe the merger offers significant value to our
shareholders.
Before we can merge, the shareholders of Ancor holding at least a majority
of the outstanding shares must vote in favor of the specific proposal that will
allow the merger to take place. This proposal involves the approval of the
merger agreement related to the merger. Only shareholders who hold shares of
Ancor common stock at the close of business on June 23, 2000, will be entitled
to vote at the special meeting.
Your board of directors has carefully considered the terms and conditions
of the merger and unanimously agrees that the terms are fair to, and in the best
interests of, our shareholders. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND MERGER AND RECOMMENDS THAT YOU VOTE TO APPROVE THE
MERGER AGREEMENT AND MERGER.
This joint proxy statement/prospectus provides you with detailed
information concerning Amino Acquisition Corp., QLogic and the merger. Please
give all of the information contained in this joint proxy statement/prospectus
your careful attention. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE
DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS" ON PAGE 15 OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
YOUR VOTE IS VERY IMPORTANT. TO VOTE YOUR SHARES, you may use the enclosed
proxy card or attend a special shareholders meeting that will be held for this
important vote. The special meeting will be held on August 1, 2000, at 10:00
a.m., at the Minneapolis Marriott Southwest, 5801 Opus Parkway, Minnetonka,
Minnesota 55343. Your attendance at the special meeting is not required for you
to vote at the meeting.
TO APPROVE THE MERGER AGREEMENT, YOU MUST VOTE "FOR" THE PROPOSAL BY
FOLLOWING THE INSTRUCTIONS STATED ON THE ENCLOSED PROXY CARD. IF YOU DO NOT VOTE
AT ALL, IT WILL, IN EFFECT, COUNT AS A VOTE AGAINST THE PROPOSAL.
On behalf of the Ancor board of directors, I thank you for your support and
urge you to VOTE FOR APPROVAL of the merger of Ancor and Amino Acquisition Corp.
Sincerely,
/s/ KENNETH E. HENDRICKSON
Kenneth E. Hendrickson
Chairman of the Board and
Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE QLOGIC COMMON STOCK TO BE ISSUED IN THE MERGER OR
DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED , 2000 AND IS
FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT , 2000
<PAGE> 4
QLOGIC CORPORATION
26600 LAGUNA HILLS DRIVE
ALISO VIEJO, CALIFORNIA 92656
(949) 389-6000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 1, 2000
To the Stockholders of QLogic Corporation:
We will hold a special meeting of stockholders of QLogic at 10:00 a.m.,
local time, on August 1, 2000 at the Sutton Place Hotel, 4500 MacArthur
Boulevard, Newport Beach, California 92660, for the following purposes:
1. To consider and vote on a proposal to approve the Agreement and Plan of
Merger by and among QLogic Corporation, Amino Acquisition Corp. and Ancor
Communications, Incorporated, dated May 7, 2000, which is referred to as the
merger agreement in the enclosed documents, including the issuance of shares of
QLogic common stock in the merger. Pursuant to the merger agreement, Amino
Acquisition Corp. will merge with and into Ancor, and Ancor will become a wholly
owned subsidiary of QLogic. Upon completion of the merger, each outstanding
share of Ancor common stock, other than shares held by Ancor or by QLogic or
Ancor's or QLogic's subsidiaries and other than shares for which dissenters'
rights have been effectively asserted and not withdrawn, will be canceled and
converted into the right to receive 0.5275 of a share of QLogic common stock.
2. To transact such other business as may properly come before the special
meeting.
We describe these items of business more fully in the joint proxy
statement/prospectus attached to this notice. You are encouraged to read the
entire document carefully.
Only stockholders of record of QLogic common stock at the close of business
on June 23, 2000 are entitled to notice of, and will be entitled to vote at, the
special meeting or any adjournment or postponement. Approval of the proposal
will require a majority of the votes cast on the proposal.
YOUR VOTE IS IMPORTANT. TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE
SPECIAL MEETING, YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING IN PERSON.
YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT
PROXY STATEMENT/ PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL
MEETING. IF YOU ATTEND THE SPECIAL MEETING YOU MAY VOTE IN PERSON EVEN IF YOU
RETURNED A PROXY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF QLOGIC COMMON STOCK TO BE
ISSUED IN THE MERGER, OR DETERMINED IF THIS JOINT PROXY STATEMENT/ PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE SPECIAL MEETING MAY BE POSTPONED OR ADJOURNED AND ANY BUSINESS THAT MAY
PROPERLY COME BEFORE THE SPECIAL MEETING MAY BE TRANSACTED AT ANY SUCH POSTPONED
OR ADJOURNED MEETING. NO NOTICE IS REQUIRED FOR POSTPONEMENT OR ADJOURNMENT
OTHER THAN SUCH NOTICE AS MAY BE GIVEN AT THE SPECIAL MEETING OR ANY
POSTPONEMENT OR ADJOURNMENT OF IT.
BY ORDER OF THE BOARD OF DIRECTORS
H.K. Desai
Chairman of the Board, President and
Chief Executive Officer
, 2000
Aliso Viejo, California
<PAGE> 5
ANCOR COMMUNICATIONS, INCORPORATED
6321 BURY DRIVE, SUITE 13
EDEN PRAIRIE, MINNESOTA 55346
(952) 932-4003
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 1, 2000
To the Shareholders of Ancor Communications, Incorporated:
We will hold a special meeting of shareholders of Ancor at 10:00 a.m.,
local time, on August 1, 2000 at the Minneapolis Marriott Southwest, 5801 Opus
Parkway, Minnetonka, Minnesota 55343, for the following purposes:
1. To consider and vote on a proposal to approve the Agreement and Plan of
Merger by and among QLogic Corporation, Amino Acquisition Corp. and Ancor
Communications, Incorporated, dated May 7, 2000, which is referred to as the
merger agreement in the enclosed documents. Pursuant to the merger agreement,
Amino Acquisition Corp. will merge with and into Ancor, and Ancor will become a
wholly owned subsidiary of QLogic. Upon completion of the merger, each
outstanding share of Ancor common stock, other than shares held by Ancor or by
QLogic or Ancor's or QLogic's subsidiaries and other than shares for which
dissenters' rights have been effectively asserted and not withdrawn, will be
canceled and converted into the right to receive 0.5275 of a share of QLogic
common stock.
2. To transact such other business as may properly come before the special
meeting.
We describe these items of business more fully in the joint proxy
statement/prospectus attached to this notice. You are encouraged to read the
entire document carefully.
Only shareholders of record of Ancor common stock at the close of business
on June 23, 2000 are entitled to notice of, and will be entitled to vote at, the
special meeting or any adjournment or postponement. Adoption of the merger
agreement will require the affirmative vote of the holders of Ancor common stock
representing a majority of the outstanding shares of Ancor common stock entitled
to vote at the special meeting.
YOUR VOTE IS IMPORTANT. TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE
SPECIAL MEETING, YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING IN PERSON.
YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT
PROXY STATEMENT/ PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE SPECIAL
MEETING. IF YOU ATTEND THE SPECIAL MEETING YOU MAY VOTE IN PERSON EVEN IF YOU
RETURNED A PROXY.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK
CERTIFICATES.
If the merger is consummated, shareholders of Ancor who do not vote in
favor of the merger and the merger agreement and who otherwise comply with
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act will be
entitled to statutory dissenters' appraisal rights. The procedures for asserting
such rights are described in the accompanying joint proxy statement/prospectus
under the heading "The Merger -- Dissenters' Appraisal Rights," and a copy of
the relevant sections of the Minnesota Business Corporation Act relating to
dissenters' rights is attached to the enclosed joint proxy statement/prospectus
as Annex E.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF QLOGIC COMMON STOCK TO BE
ISSUED IN THE MERGER, OR DETERMINED IF THIS JOINT PROXY STATEMENT/ PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 6
THE SPECIAL MEETING MAY BE POSTPONED OR ADJOURNED AND ANY BUSINESS THAT MAY
PROPERLY COME BEFORE THE SPECIAL MEETING MAY BE TRANSACTED AT ANY SUCH POSTPONED
OR ADJOURNED MEETING. NO NOTICE IS REQUIRED FOR POSTPONEMENT OR ADJOURNMENT
OTHER THAN SUCH NOTICE AS MAY BE GIVEN AT THE SPECIAL MEETING OR ANY
POSTPONEMENT OR ADJOURNMENT OF IT.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ STEVEN E. SNYDER
Steven E. Snyder
Secretary and Chief Financial Officer
, 2000
Eden Prairie, Minnesota
2
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: Our merger will result in Ancor shareholders becoming stockholders of QLogic
through the exchange of their Ancor common stock for QLogic common stock on what
the QLogic board of directors and the Ancor board of directors believe are
favorable terms. By combining QLogic and Ancor, both companies can benefit from:
- an expanded portfolio of products based on fibre channel technology;
- complementary customer relationships which will allow the combined company
to further penetrate the market with an expanded offering of fibre channel
solutions;
- being able to deliver to the marketplace an expanded portfolio of hardware
interconnect products for storage area network, or SAN, solutions;
- decreasing the time-to-market deployment of new products;
- achieving efficiencies in manufacturing, development, sales and
administrative activities; and
- an increase in financial resources which will allow the combined company to
compete more effectively.
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: Both the QLogic stockholders and Ancor shareholders are being asked to
approve the proposed merger of QLogic and Ancor. As part of the merger proposal,
QLogic stockholders are also being asked to approve issuing QLogic common stock
in the merger.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this joint proxy statement/prospectus, indicate
on your proxy card how you want to vote, and sign and mail it in the enclosed
prepaid return envelope as soon as possible, so that your shares may be
represented and voted at the appropriate special meeting. If you sign and send
the proxy card without indicating how you want to vote, we will count your proxy
card as a vote in favor of the merger. The boards of directors of QLogic and
Ancor recommend voting for the merger. If you are an Ancor shareholder and you
do not return your proxy card or otherwise vote your shares, or if you do not
instruct your broker how to vote any shares held for you in "street name," the
effect will be the same as a vote against the merger. If you are a QLogic
stockholder and you do not return your proxy card or otherwise vote your shares,
or if you do not instruct your broker how to vote any shares held for you in
"street name," it will have no effect on the proposal to approve the merger
agreement and the merger, including the issuance of QLogic common stock.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide your broker with
instructions on how to vote. You should follow the directions provided by your
broker regarding how to instruct your broker to vote your shares. Without
instructions, your shares will not be voted on the proposed merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. There are three ways in which you may revoke your proxy and change your
vote. First, you may send a written notice to the party to whom you submitted
your proxy stating that you would like to revoke your proxy. Second, you may
complete and submit a new proxy card. Third, you may attend the QLogic special
meeting or the Ancor special meeting, as applicable, and vote in person. Simply
attending the special meeting, however, will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow directions received
from your broker to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. We will send Ancor shareholders separate written instructions for
exchanging their stock certificates no later than 10 days after the date that
the merger is completed. QLogic stockholders will keep their existing stock
certificates.
i
<PAGE> 8
WHO CAN HELP ANSWER MY QUESTIONS?
IF YOU WOULD LIKE ADDITIONAL COPIES OF THIS DOCUMENT, OR
IF YOU HAVE MORE QUESTIONS ABOUT THE MERGER, INCLUDING THE
PROCEDURES FOR VOTING YOUR SHARES, PLEASE CONTACT:
IF YOU ARE A QLOGIC STOCKHOLDER:
QLOGIC CORPORATION
26600 LAGUNA HILLS DRIVE
ALISO VIEJO, CALIFORNIA 92656
ATTENTION: CHIEF FINANCIAL OFFICER
(949) 389-6000
OR
IF YOU ARE AN ANCOR SHAREHOLDER:
ANCOR COMMUNICATIONS, INCORPORATED
6321 BURY DRIVE, SUITE 13
EDEN PRAIRIE, MINNESOTA 55346
ATTENTION: CHIEF FINANCIAL OFFICER
(952) 932-4000
THIS DOCUMENT INCORPORATES BY REFERENCE IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT QLOGIC AND ANCOR FROM OTHER DOCUMENTS FILED WITH THE SEC. YOU
ALREADY MAY HAVE BEEN SENT SOME OF THESE DOCUMENTS, WHICH ARE LISTED UNDER THE
HEADING "WHERE YOU CAN FIND MORE INFORMATION," BUT YOU CAN OBTAIN ANY OF THEM
FROM QLOGIC OR ANCOR, AS APPROPRIATE, OR THE SEC. THE DOCUMENTS INCORPORATED BY
REFERENCE ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST TO THE
PERSONS IDENTIFIED ABOVE. IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM QLOGIC,
PLEASE DO SO BY JULY 25, 2000 TO RECEIVE THEM BEFORE THE QLOGIC SPECIAL MEETING.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM ANCOR, PLEASE DO SO BY JULY 25, 2000
TO RECEIVE THEM BEFORE THE ANCOR SPECIAL MEETING.
ii
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
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PAGE
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Questions and Answers About the Merger...................... i
Cautionary Statement Regarding Forward-Looking Statements... 1
Summary..................................................... 2
The Companies............................................. 2
The Special Meetings...................................... 2
The Merger................................................ 3
Selected Historical Consolidated Financial Data of QLogic
Corporation and Subsidiaries.............................. 9
Selected Historical Financial Data of Ancor Communications,
Incorporated.............................................. 10
Selected Unaudited Pro Forma Combined Financial Data of
QLogic Corporation and Subsidiaries and Ancor
Communications, Incorporated.............................. 11
Comparative Per Share Data.................................. 12
Market Price and Dividend Information....................... 13
Risk Factors................................................ 15
Risks Related to the Merger............................... 15
Risks Related to the Business of QLogic................... 18
Risks Related to the Business of Ancor.................... 26
QLogic Special Meeting...................................... 34
Date, Time and Place of the Special Meeting............... 34
Matters to be Considered at the Special Meeting........... 34
Record Date and Shares Entitled to Vote................... 34
Voting of Proxies and Revocation of Proxies............... 34
Vote Required............................................. 35
Quorum and Abstentions and Broker Non-Votes............... 35
Expenses of Solicitation.................................. 35
Board Recommendation...................................... 35
Ancor Special Meeting....................................... 36
Date, Time and Place of the Special Meeting............... 36
Matters to be Considered at the Special Meeting........... 36
Record Date and Shares Entitled to Vote................... 36
Voting of Proxies and Revocation of Proxies............... 36
Vote Required............................................. 37
Quorum and Abstentions and Broker Non-Votes............... 37
Expenses of Solicitation.................................. 37
Dissenters' Appraisal Rights.............................. 38
Board Recommendation...................................... 38
The Merger.................................................. 39
General................................................... 39
Merger Consideration...................................... 39
Background of the Merger.................................. 40
QLogic's Reasons for the Merger and Recommendation of the
QLogic Board of Directors.............................. 42
Ancor's Reasons for the Merger and Board of Directors
Recommendation......................................... 44
Opinion of QLogic's Financial Advisor..................... 45
Opinion of Ancor's Financial Advisor...................... 52
Completion and Effectiveness of the Merger................ 58
Operations Following the Merger........................... 58
Indemnification and Insurance............................. 58
Interests of Certain Persons in the Merger................ 59
Regulatory Matters........................................ 60
Accounting Treatment...................................... 60
Federal Income Tax Considerations......................... 61
Dissenters' Appraisal Rights.............................. 62
</TABLE>
iii
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
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Restrictions on Sale of Shares by Affiliates of Ancor and
QLogic................................................. 64
Stock Market Listing...................................... 65
The Merger Agreement........................................ 66
Structure of the Merger and Conversion of Ancor Common
Stock.................................................. 66
Treatment of Ancor Stock Options.......................... 66
Treatment of Ancor Warrants............................... 66
Exchange of Ancor Stock Certificates for QLogic Stock
Certificates........................................... 67
Representations and Warranties............................ 67
Concept of Material Adverse Effect........................ 69
Ancor's Conduct of Business Before Completion of the
Merger................................................. 69
No Solicitation of Transactions........................... 70
Conditions to the Merger.................................. 70
Termination of the Merger Agreement....................... 71
Payment of Fees and Expenses.............................. 72
Amendments, Extension and Waivers......................... 73
Stock Option Agreement...................................... 74
Unaudited Pro Forma Condensed Combined Financial
Information............................................... 75
Comparison of Rights of Stockholders of QLogic and
Shareholders of Ancor..................................... 81
Shareholder Meetings...................................... 81
Right to Call Special Meetings............................ 81
Actions by Written Consent of Shareholders................ 82
Rights of Dissenting Shareholders......................... 82
Board of Directors........................................ 83
Filling Vacancies on the Board of Directors............... 83
Preemptive Rights......................................... 84
Advance Notice Requirement of Shareholder Proposals and
Directors Nominations.................................. 84
Amendments to Bylaws and Articles......................... 85
Indemnification of Directors, Officers and Employees...... 86
Liabilities of Directors.................................. 87
Approval of Merger........................................ 87
Business Combinations, Control Share Acquisitions and
Anti-Takeover Provisions............................... 88
Experts..................................................... 89
Legal Matters............................................... 89
Future Shareholder Proposals................................ 90
Where You Can Find More Information......................... 91
Incorporation of Certain Documents By Reference............. 92
</TABLE>
ANNEX A -- Agreement and Plan of Merger, dated as of May 7, 2000, among QLogic
Corporation, Amino Acquisition Corp. and Ancor Communications,
Incorporated
ANNEX B -- Fairness Opinion of SG Cowen Securities Corporation dated May 6, 2000
ANNEX C -- Fairness Opinion of Goldman, Sachs & Co., dated May 7, 2000
ANNEX D -- Stock Option Agreement, dated as of May 7, 2000, between QLogic
Corporation and Ancor Communications, Incorporated
ANNEX E -- Sections 471 and 473 of the Minnesota Business Corporation Act
addressing Dissenters' Appraisal Rights
ANNEX F -- QLogic Corporation and subsidiaries Consolidated Financial Statements
as of April 2, 2000 and March 28, 1999, and for each of the years in
the three-year period ended April 2, 2000
iv
<PAGE> 11
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains some "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 with respect to the financial condition, results of operations and
business of each of QLogic and Ancor. These statements may be made directly in
this document or may be "incorporated by reference" from other documents filed
with the SEC by QLogic or Ancor. You can find many of these statements by
looking for words such as "believes," "expects," "anticipates," "estimates" or
similar expressions in this joint proxy statement/prospectus or in documents
incorporated by reference herein.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties, and the Private Securities Litigation Reform Act provides a
"safe harbor" for these statements. Factors that may cause actual results to
differ from those contemplated by the forward-looking statements include, among
others, the following possibilities:
- Competitive pressures in the industries served by the companies may
increase significantly.
- Unanticipated changes in operating expenses and capital expenditures.
- Customer business conditions.
- Financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission and similar agencies with regulatory oversight.
- Developments in technology resulting in competitive disadvantages and
potentially impairing existing assets.
- General economic or business conditions including inflation and capital
market conditions, both domestic and foreign, may be less favorable than
expected, resulting in, among other things, lower than expected revenues.
- Costs or difficulties related to the integration of the businesses of
QLogic and Ancor may be greater than expected.
- Legislative or regulatory changes may adversely affect the businesses in
which QLogic and Ancor are engaged.
- Adverse changes may occur in the securities markets.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date of this joint proxy
statement/prospectus or, in the case of documents incorporated by reference, the
date of such documents.
All subsequent written and oral forward-looking statements attributable to
QLogic or Ancor or any person acting on their behalf are expressly qualified in
their entirety by the cautionary statements contained or referred to in this
section. Neither QLogic nor Ancor undertakes any obligation to release publicly
any revisions to such forward-looking statements to reflect events or
circumstances after the date of this joint proxy statement/prospectus or to
reflect the occurrence of unanticipated events.
1
<PAGE> 12
SUMMARY
This summary highlights information from this joint proxy
statement/prospectus. Because it is a summary, it does not contain all of the
information that may be important to you. We urge you to read carefully the
entire joint proxy statement/prospectus and the other documents to which this
document refers to obtain a full understanding of the merger.
THE COMPANIES
QLogic Corporation
26600 Laguna Hills Drive
Aliso Viejo, California 92656
(949) 389-6000
QLogic is a leading designer and supplier of semiconductor and board level
input/output, or I/O, and enclosure management products. QLogic's I/O products
provide a high performance interface between computer systems and their attached
data storage peripherals, such as hard disk and tape drives, removable disk
drives and redundant array of independent disks, or RAID, subsystems. QLogic
provides complete I/O technology solutions by designing and marketing single
chip controller and adapter board products for both sides of the
computer/peripheral device interlink, or "bus." In addition, QLogic provides
enclosure management products that monitor and communicate management
information related to components that are critical to computer system and
storage subsystem reliability and availability. Historically, QLogic has
targeted the high performance sector of the I/O market, focusing primarily on
the small computer system interface, or SCSI industry standard. QLogic is
utilizing its I/O expertise to develop products for emerging I/O standards, such
as fibre channel. Fibre channel is experiencing early industry acceptance as a
higher performance solution that maintains signal integrity while allowing for
increased connectivity between a computer system and its data storage
peripherals.
Ancor Communications, Incorporated
6321 Bury Drive, Suite 13
Eden Prairie, Minnesota 55346
(952) 932-4000
Ancor provides a wide range of fibre channel switching solutions for
storage area networks, or SANs, which are networks that connect a company's data
storage systems and computer servers. Ancor's SANBox brand of fibre channel
switches enables a company to cost-effectively manage growth of its data storage
requirements, improve the data transfer performance between its servers and data
storage systems, increase user access to data, increase the size and scope of
its SAN, and improve the performance of its local area network, or LAN, by
offloading data storage applications to the SAN. Ancor sells its fibre channel
switching solutions primarily to original equipment manufacturers or OEMs, and
its customers include Advanced Digital Information Corp, EMC Corporation,
Forefront Graphics, Hitachi Data Systems, INRANGE Technologies, MTI Technology,
Sun Microsystems and Thomson Broadcast.
THE SPECIAL MEETINGS
The QLogic special meeting will be held on August 1, 2000 at 10:00 a.m.,
local time, at the Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach,
California 92660. At the QLogic special meeting, QLogic stockholders will be
asked to approve the merger agreement, including the issuance of shares of
QLogic common stock.
The Ancor special meeting will be held on August 1, 2000 at 10:00 a.m.,
local time, at the Minneapolis Marriott Southwest, 5801 Opus Parkway,
Minnetonka, Minnesota 55343. At the Ancor special meeting, Ancor shareholders
will be asked to approve the merger agreement.
2
<PAGE> 13
Record date and vote required (Pages 34 to 37)
You are entitled to vote at your special meeting if you owned shares at the
close of business on June 23, 2000, which is the record date for the special
meetings. On June 23, 2000, there were shares of QLogic common
stock and shares of Ancor common stock issued and outstanding and
entitled to vote. You can cast one vote for each share of QLogic common stock or
Ancor common stock that you owned on the record date.
Approval by QLogic stockholders of the merger agreement and the issuance of
shares of QLogic common stock in the merger requires the favorable vote of at
least a majority of the votes cast on the proposal.
Approval by Ancor shareholders of the merger agreement requires the
favorable vote of holders of at least a majority of the shares of Ancor common
stock outstanding on the record date.
Boards of director recommendations (Pages 42 and 44)
QLogic's board of directors believes that the merger is fair to QLogic and
to you as a QLogic stockholder and in your best interests, and unanimously
recommends that you vote "FOR" the proposal to approve the merger agreement,
including the issuance of shares of QLogic common stock in the merger.
Ancor's board of directors believes that the merger is fair to Ancor and to
you as an Ancor shareholder and in your best interests, and unanimously
recommends that you vote "FOR" the proposal to approve the merger agreement.
THE MERGER
We have attached the merger agreement to this document as Annex A. Please
read the merger agreement in its entirety. It is the legal document that governs
this transaction.
Structure of the merger (Page 66)
We propose a merger in which Amino Acquisition Corp., a wholly owned
subsidiary of QLogic, will merge with and into Ancor, with Ancor surviving as a
wholly owned subsidiary of QLogic. After the merger, Ancor's shareholders will
own approximately 18% of QLogic and QLogic stockholders will own the remainder.
At the completion of the merger, QLogic shall use its commercially reasonable
best efforts to expand the size of the QLogic board of directors to six
directors and to elect Kenneth E. Hendrickson, Ancor's chief executive officer,
to fill the resulting vacancy. We hope to complete the merger during the third
quarter of 2000.
What you will receive (Page 66)
If you are a QLogic stockholder, each of your shares of QLogic common stock
will remain issued and outstanding. However, you will own shares of a larger,
more diversified company.
If you are an Ancor shareholder, you will receive, for each share of Ancor
common stock that you own, 0.5275 shares of QLogic common stock. On page 66 of
this joint proxy statement/prospectus, we provide a more detailed discussion of
the per share merger consideration.
Opinions of financial advisors (Pages 45 and 52)
SG Cowen Securities Corporation, which has served as QLogic's financial
advisor in connection with the merger, delivered its written opinion dated May
6, 2000 to the QLogic board of directors, that, as of such date, the exchange
ratio was fair, from a financial point of view, to QLogic. The opinion of
3
<PAGE> 14
SG Cowen Securities Corporation does not constitute an opinion as to the merits
of the merger or a recommendation to any stockholder as to how to vote on the
proposed merger.
THE FULL TEXT OF THE WRITTEN OPINION OF SG COWEN SECURITIES CORPORATION,
DATED MAY 6, 2000, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
OTHER MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW OF SG COWEN SECURITIES
CORPORATION IN CONNECTION WITH THE MERGER, IS ATTACHED AS ANNEX B AND IS
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. HOLDERS OF
QLOGIC COMMON STOCK ARE URGED TO READ THE OPINION IN ITS ENTIRETY.
Goldman, Sachs & Co. delivered its oral opinion to the board of directors
of Ancor on May 7, 2000 that, as of such date, the exchange ratio was fair from
a financial point of view to the holders of Ancor common stock. Goldman Sachs
subsequently confirmed its oral opinion by delivery of its written opinion dated
May 7, 2000. The opinion of Goldman Sachs does not constitute a recommendation
as to how any holder of Ancor common stock should vote with respect to the
merger.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED MAY 7, 2000,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX C AND IS
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/ PROSPECTUS. YOU SHOULD
READ THE OPINION IN ITS ENTIRETY.
U.S. Federal Income Tax consequences of the merger (Page 61)
Since the merger is expected to qualify as a reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended, which is referred to in
this joint proxy statement/prospectus as the "Code," neither QLogic nor Ancor
will recognize any gain or loss as a result of the merger. The Ancor
shareholders will receive shares of QLogic common stock in the merger and will
not recognize any gain or loss, except for any gain or loss attributable to cash
received in lieu of fractional shares.
Interests of certain persons in the merger (Page 59)
You should note that some of Ancor's directors and executive officers may
have interests in the merger that are different from, or in addition to, the
interests of Ancor shareholders generally.
Antitrust approval required to complete the merger (Page 60)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires us to
furnish information and materials to the Antitrust Division of the Department of
Justice and the Federal Trade Commission and requires a specified waiting period
to expire or be terminated before the merger can be completed. Even after the
waiting period expires or terminates, the Antitrust Division of the Department
of Justice and the Federal Trade Commission will have the authority to challenge
the merger on antitrust grounds before or after the merger is completed. QLogic
and Ancor filed the antitrust notification and report forms on June 2, 2000.
QLogic and Ancor received notice that the required waiting period was terminated
early as of June 13, 2000.
Share ownership of management and directors
On June 23, 2000, directors and executive officers of QLogic and their
affiliates held and were entitled to vote 1,318,378 shares of QLogic common
stock, or approximately 1.7% of the shares of QLogic common stock outstanding on
the record date for the special meeting.
On June 23, 2000, directors and executive officers of Ancor and their
affiliates held and were entitled to vote 134,316 shares of Ancor common stock,
or approximately 0.5% of the shares of Ancor common stock outstanding on the
record date for the special meeting. Some of Ancor's directors and executive
4
<PAGE> 15
officers have already agreed to vote their shares in favor of the merger, as
described in the discussion below regarding the voting agreement.
Dissenters' appraisal rights (Page 62)
Under Delaware law, QLogic stockholders are not entitled to dissenters' or
appraisal rights in connection with the merger.
Ancor shareholders may exercise dissenters' appraisal rights in connection
with the merger. Any shareholder exercising dissenters' appraisal rights will be
required to follow the procedures prescribed under Minnesota law and will
receive cash for the shareholder's Ancor shares. If a shareholder fails to
follow the proper procedure for exercising dissenters' appraisal rights, these
rights may be terminated or waived.
Some individuals have entered into a voting agreement
Some of Ancor's officers and directors have entered into a voting agreement
with QLogic. The voting agreement requires, among other things, that these Ancor
shareholders vote all of the shares they beneficially own in favor of the merger
agreement. These Ancor shareholders were not paid additional consideration to
enter into the voting agreement. The Ancor shareholders who entered into the
voting agreements collectively held approximately 0.5% of the outstanding Ancor
common stock as of May 7, 2000.
Stock Option Agreement (See page 74)
Ancor entered into a stock option agreement with QLogic that granted QLogic
the option to buy up to 5,828,667 shares of Ancor common stock, which represents
19.9% of the shares of Ancor common stock outstanding on May 7, 2000. The
exercise price of the option is $52.717 per share.
QLogic required Ancor to grant the option as a prerequisite to entering
into the merger agreement. The stock option agreement could have the effect of
making an acquisition of Ancor by a third party more costly because of the need
to acquire in any such transaction the option shares issued under the option
agreement and could also jeopardize the ability of a third party to acquire
Ancor in a transaction to be accounted for as a pooling-of-interests.
The option is not currently exercisable and may only be exercised by QLogic
if (i) any person or group acquires or has the right to acquire 20% or more of
the outstanding shares of common stock of Ancor; or (ii) an event occurs that
would entitle QLogic to receive a termination fee under the merger agreement.
Otherwise, the option will terminate and may not be exercised by QLogic.
You are urged to read the stock option agreement in its entirety, a copy of
which is attached hereto as Annex D.
Conditions to completion of the merger (Page 70)
The completion of the merger depends on a number of conditions being
satisfied, including the following:
- approval of the merger by at least a majority of the votes of QLogic cast
on the proposal.
- approval of the merger by the holders of at least a majority of the
shares of Ancor common stock outstanding on the record date;
- expiration or termination of the Hart-Scott-Rodino waiting period;
- the absence of any legal restraint blocking the merger;
5
<PAGE> 16
- receipt of a legal opinion to the effect that the merger will qualify as
a "reorganization" within the meaning of Section 368(a) of the Code;
- QLogic must be advised in writing by its independent accountants that the
merger qualifies as a pooling-of-interests for accounting purposes;
- the amount of dissenting Ancor common stock shall not exceed 5% of the
common stock outstanding;
- Ancor's representations and warranties to QLogic, as set forth in the
merger agreement, shall be true and correct, except where the failure to
be true and correct would not have a material adverse effect on Ancor;
and
- QLogic's and Amino Acquisition Corp.'s representations and warranties to
Ancor, as set forth in the merger agreement, shall be true and correct,
except where the failure to be true and correct would not have a material
adverse effect on QLogic.
IF THE LAW PERMITS, EITHER QLOGIC OR ANCOR COULD CHOOSE TO WAIVE A
CONDITION TO ITS OBLIGATION TO COMPLETE THE MERGER EVEN THOUGH THAT CONDITION
HAS NOT BEEN SATISFIED. HOWEVER, THE PARTIES DO NOT CURRENTLY INTEND TO WAIVE
THE CONDITIONS ABOVE RELATING TO THE RECEIPT OF THE TAX AND ACCOUNTING OPINIONS.
IN THE UNLIKELY EVENT THAT THE PARTIES DO DECIDE TO WAIVE EITHER OF THESE
CONDITIONS, THE PARTIES WILL RECIRCULATE THIS DOCUMENT TO DISCLOSE THE WAIVER OF
THE CONDITION AND ALL RELATED DISCLOSURES, INCLUDING THE RISKS TO QLOGIC
STOCKHOLDERS OR ANCOR SHAREHOLDERS RESULTING FROM THE WAIVER, AND WILL RESOLICIT
PROXIES FROM THE STOCKHOLDERS AND SHAREHOLDERS OF BOTH COMPANIES TO APPROVE THE
MERGER.
Ancor stock options (Page 66)
When we complete the merger, each unexercised stock option to buy Ancor
common stock outstanding under Ancor's stock option plans will become an option
to purchase QLogic common stock. The number of shares of QLogic common stock
subject to each new option, as well as the exercise price of each new option,
will be adjusted to reflect the applicable terms of the merger.
Ancor warrants (Page 66)
When we complete the merger, each unexercised warrant to buy Ancor common
stock outstanding will become a warrant to purchase QLogic common stock. The
number of shares of QLogic common stock subject to each new warrant, as well as
the exercise price of each new warrant, will be adjusted to reflect the
applicable terms of the merger.
Accounting treatment (Page 60)
QLogic intends to account for the merger as a pooling-of-interests business
combination. It is a condition to completion of the merger that QLogic's
independent accountants advise QLogic in writing that the merger can properly be
accounted for as a pooling-of-interests business combination. Under the
pooling-of-interests method of accounting, each of Ancor's historical recorded
assets and liabilities will be carried forward to QLogic at their recorded
amounts. In addition, the operating results of QLogic will include Ancor's
operating results for the entire fiscal year in which the merger is completed
and the historical reported operating results of both companies for prior
periods will be combined and restated as the operating results of QLogic.
Termination of the merger agreement (Page 71)
We may agree in writing to terminate the merger agreement at any time
without completing the merger, even after the stockholders and shareholders of
both our companies have approved it.
6
<PAGE> 17
In addition, the merger agreement may be terminated by either QLogic or
Ancor under certain circumstances, at any time before the completion of the
merger, including:
- if the merger is not completed, without the fault of the terminating
party, by November 30, 2000;
- if the QLogic stockholders do not approve the merger agreement and the
issuance of shares of QLogic common stock in the merger at the special
meeting;
- if the Ancor shareholders do not approve the merger agreement at the
special meeting;
- if Ancor enters into an acquisition proposal or understanding with a
third party which Ancor's board of directors determines in good faith to
be more favorable than the terms of the merger with QLogic.
Among other reasons, the merger agreement may be terminated by QLogic if
Ancor's board of directors or any of its committees withdraws or modifies, in a
manner adverse to QLogic, its recommendation of the merger to Ancor's
shareholders, or approves or recommends an acquisition proposal other than the
merger with QLogic. The merger agreement may be terminated by Ancor if QLogic's
board of directors or any of its committees withdraws or modifies, in a manner
adverse to Ancor, its recommendation of the merger to QLogic's stockholders.
Termination fee (Page 72)
Ancor shall pay to QLogic a termination fee of $55,000,000 in cash if:
- Ancor or QLogic terminates the merger agreement because Ancor does not
obtain shareholder approval, except if immediately prior to Ancor
shareholder meeting, an event or condition exists that would result in a
material adverse effect on QLogic; or
- QLogic terminates the merger agreement because Ancor breached its
representations and warranties or failed to perform any of its covenants
under the merger agreement and, Ancor enters into an agreement to be
acquired within twelve months; or
- Ancor or QLogic terminates the merger agreement because Ancor enters into
a merger, acquisition or other agreement to effect a superior proposal;
or
- QLogic terminates the merger agreement because Ancor's board of directors
has withdrawn or modified its approval of the merger or the merger
agreement, except if such withdrawal or modification occurs after the
occurrence of a material adverse effect on QLogic.
The payment by Ancor of this termination fee is in lieu of any obligation
under the merger agreement or liquidated damages. It is not a penalty or
forfeiture.
QLogic shall pay to Ancor a termination fee of $55,000,000 in cash if:
- Ancor or QLogic terminates the merger agreement because QLogic did not
obtain stockholder approval, except if immediately prior to the QLogic
stockholder meeting, an event or condition exists that would result in a
material adverse effect on Ancor; or
- Ancor terminates the merger agreement because QLogic's board of directors
has withdrawn or modified its approval of the merger or the merger
agreement, except if the withdrawal or modification occurs after a
material adverse effect on Ancor.
The payment by QLogic of this termination fee is in lieu of any obligation
under the merger agreement or liquidated damages. It is not a penalty or
forfeiture.
Proxies
If you are a QLogic stockholder, you may use the accompanying proxy if you
are unable to attend the QLogic special meeting in person or wish to have your
shares voted by proxy even if you do attend the
7
<PAGE> 18
QLogic special meeting. All shares of QLogic common stock represented by valid
proxies received pursuant to this solicitation, and not revoked before they are
exercised, will be voted in the manner specified therein. Proxies that do not
contain voting instructions will be voted in favor of approval of the merger
agreement and the issuance of shares of QLogic common stock in the merger. If
you do not return your proxy card or otherwise vote your shares, or if you do
not instruct your broker how to vote any shares held for you in "street name,"
it will have no effect on these proposals.
If you are an Ancor shareholder, you may use the accompanying proxy if you
are unable to attend the Ancor special meeting in person or wish to have your
shares voted by proxy even if you do attend the Ancor special meeting. All
shares of Ancor common stock represented by valid proxies received pursuant to
this solicitation, and not revoked before they are exercised, will be voted in
the manner specified therein. Proxies that do not contain voting instructions
will be voted in favor of approval of the merger agreement and the issuance of
shares of Ancor common stock in the merger. If you do not return your proxy card
or otherwise vote your shares, or if you do not instruct your broker how to vote
any shares held for you in "street name," the effect will be the same as a vote
against these proposals.
Comparison of rights of Ancor shareholders and QLogic stockholders (Page 81)
The rights of Ancor's shareholders are currently governed by Ancor's
articles of incorporation, bylaws and the Minnesota Business Corporation Act,
whereas the rights of QLogic stockholders are governed by QLogic's certificate
of incorporation, bylaws and the Delaware General Corporation Law. Upon the
completion of the merger, Ancor shareholders will become stockholders of QLogic,
and therefore their rights will be governed by QLogic's certificate of
incorporation, bylaws and the Delaware General Corporation Act. As a result of
these differences, Ancor shareholders will have different rights as holders of
QLogic common stock than they currently have as holders of Ancor common stock.
8
<PAGE> 19
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
OF QLOGIC CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical consolidated financial data should be
read in conjunction with QLogic's consolidated financial statements and related
notes thereto and QLogic's "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included or incorporated by reference in
this document. The consolidated statements of income data for each of the four
years ended April 2, 2000, and the consolidated balance sheet data at April 2,
2000, March 28, 1999 and March 29, 1998, are derived from the consolidated
financial statements of QLogic which are included or incorporated by reference
in this document. The consolidated statement of income data for the fiscal year
ended March 31, 1996 and the consolidated balance sheet data at March 30, 1997
and March 31, 1996, are derived from the audited consolidated financial
statements of QLogic which are not included or incorporated by reference in this
document. Historical results are not necessarily indicative of the results to be
expected in the future.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------
APRIL 2, MARCH 28, MARCH 29, MARCH 30, MARCH 31,
2000 1999 1998 1997 1996
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENTS OF INCOME DATA:
Net revenues......................................... $203,143 $117,182 $ 81,393 $68,927 $53,779
Cost of revenues..................................... 64,241 42,603 34,049 38,151 34,413
-------- -------- -------- ------- -------
Gross profit....................................... 138,902 74,579 47,344 30,776 19,366
-------- -------- -------- ------- -------
Operating expenses:
Engineering and development........................ 39,993 24,358 15,601 10,422 7,191
Selling and marketing.............................. 16,724 11,062 8,707 6,372 6,490
General and administrative......................... 8,140 5,794 4,550 4,628 4,501
-------- -------- -------- ------- -------
Total operating expenses......................... 64,857 41,214 28,858 21,422 18,182
-------- -------- -------- ------- -------
Operating income................................... 74,045 33,365 18,486 9,354 1,184
Interest expense..................................... 19 84 109 125 153
Interest and other income............................ 7,722 5,657 3,453 602 172
-------- -------- -------- ------- -------
Income before income taxes......................... 81,748 38,938 21,830 9,831 1,203
Income tax provision................................. 27,795 13,239 8,422 3,983 537
-------- -------- -------- ------- -------
Net income........................................... $ 53,953 $ 25,699 $ 13,408 $ 5,848 $ 666
======== ======== ======== ======= =======
Basic net income per share........................... $ 0.74 $ 0.37 $ 0.22 $ 0.13 $ 0.02
-------- -------- -------- ------- -------
Diluted net income per share......................... $ 0.70 $ 0.34 $ 0.21 $ 0.12 $ 0.02
-------- -------- -------- ------- -------
SELECTED BALANCE SHEET DATA:
Working capital...................................... $153,162 $110,687 $ 90,749 $19,811 $13,334
Total assets......................................... 267,156 172,923 136,242 36,963 28,539
Long-term capitalized lease obligations, excluding
current installments............................... -- -- 141 352 576
Other non-current liabilities........................ -- -- 466 924 2,016
Total stockholders' equity........................... 242,969 152,684 118,049 24,353 16,277
</TABLE>
9
<PAGE> 20
SELECTED HISTORICAL FINANCIAL DATA
OF ANCOR COMMUNICATIONS, INCORPORATED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical financial data should be read in
conjunction with Ancor's financial statements and related notes thereto and
Ancor's "Management's Discussion and Analysis of Financial Condition and Results
of Operations" incorporated by reference in this document. The statements of
operations data for each of the three years ended December 31, 1999, and the
balance sheet data at December 31, 1999 and 1998, are derived from the financial
statements of Ancor which are incorporated herein by reference. The statements
of operations data for the years ended December 31, 1996 and 1995, and the
balance sheet data at December 31, 1997, 1996 and 1995, are derived from audited
financial statements of Ancor not included or incorporated by reference in this
document. Historical results are not necessarily indicative of the results to be
expected in the future.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- --------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENTS OF OPERATIONS DATA:
Gross sales......................................... $ 7,205 $ 1,520 $ 13,718 $ 4,393 $ 7,924 $ 6,258 $ 4,673
Sales discounts..................................... 320 -- 767 -- -- -- --
------- ------- -------- -------- -------- ------- -------
Net sales........................................... 6,885 1,520 12,951 4,393 7,924 6,258 4,673
Cost of sales....................................... 3,581 665 6,741 6,431 5,991 3,566 2,533
------- ------- -------- -------- -------- ------- -------
Gross profit (loss)............................... 3,304 855 6,210 (2,038) 1,933 2,692 2,140
Operating expenses
Selling, general and administrative............... 4,174 1,752 8,961 7,195 7,685 4,944 2,785
Research and development.......................... 3,218 1,326 7,458 5,451 4,271 3,198 2,542
------- ------- -------- -------- -------- ------- -------
Total operating expenses........................ 7,392 3,078 16,419 12,646 11,956 8,142 5,327
------- ------- -------- -------- -------- ------- -------
Operating loss...................................... (4,088) (2,223) (10,209) (14,684) (10,023) (5,450) (3,187)
Interest expense.................................. 2 6 19 34 19 64 153
Other income, primarily interest income........... 1,416 67 1,495 220 219 224 71
------- ------- -------- -------- -------- ------- -------
Net loss............................................ (2,674) (2,162) (8,733) (14,498) (9,823) (5,290) (3,269)
Accretion on convertible preferred stock............ -- (8) (12) (762) (345) (331) --
------- ------- -------- -------- -------- ------- -------
Net loss attributable to common shareholders........ $(2,674) $(2,170) $ (8,745) $(15,260) $(10,168) $(5,621) $(3,269)
======= ======= ======== ======== ======== ======= =======
Basic and diluted net loss per share................ $ (0.09) $ (0.09) $ (0.34) $ (1.04) $ (0.93) $ (0.60) $ (0.44)
------- ------- -------- -------- -------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
AT AT DECEMBER 31,
MARCH 31, --------------------------------------------------
2000 1999 1998 1997 1996 1995
--------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital........................................... $84,450 $ 86,219 $ 5,598 $ 4,432 $ 6,384 $ 1,561
Total assets.............................................. 95,936 96,467 12,738 10,164 12,262 5,773
Long-term debt, less current maturities................... 6 7 111 130 178 200
Total shareholders' equity................................ 84,479 85,406 5,208 8,316 9,907 2,759
</TABLE>
10
<PAGE> 21
SELECTED UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA OF QLOGIC CORPORATION AND SUBSIDIARIES
AND ANCOR COMMUNICATIONS, INCORPORATED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected unaudited pro forma combined financial data reflects the
merger using the pooling-of-interests method of accounting. Since the fiscal
years for QLogic and Ancor differ, Ancor will change its fiscal year to coincide
with QLogic upon consummation of the merger. The unaudited pro forma condensed
combined statements of income combine QLogic's consolidated statements of income
data for the fiscal years ended April 2, 2000, March 28, 1999 and March 29, 1998
with Ancor's statements of operations data for the calendar years ended December
31, 1999, 1998 and 1997, respectively. The unaudited selected pro forma combined
balance sheet data combines QLogic's consolidated balance sheet data as of April
2, 2000 with Ancor's balance sheet data as of March 31, 2000. The selected
unaudited pro forma combined financial data have been derived from information
contained in the most recent annual and quarterly financial statements of QLogic
and Ancor, which are included or incorporated herein by reference.
The selected unaudited pro forma combined financial data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the merger had been
consummated at the beginning of the periods indicated, nor is such information
indicative of the future operating results or financial position of QLogic after
the merger.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------
APRIL 2, 2000 MARCH 28, 1999 MARCH 29, 1998
------------- -------------- --------------
<S> <C> <C> <C>
SELECTED PRO FORMA COMBINED STATEMENTS OF INCOME DATA:
Net revenues................................................ $216,094 $121,575 $89,317
Cost of revenues............................................ 70,982 49,034 40,040
-------- -------- -------
Gross profit.............................................. 145,112 72,541 49,277
-------- -------- -------
Operating expenses:
Engineering and development............................... 47,451 29,809 19,872
Selling and marketing..................................... 22,622 15,248 12,540
General and administrative................................ 11,203 8,803 8,402
-------- -------- -------
Total operating expenses............................ 81,276 53,860 40,814
-------- -------- -------
Operating income.......................................... 63,836 18,681 8,463
Interest expense............................................ 38 118 128
Interest and other income................................... 9,217 5,877 3,672
-------- -------- -------
Income before income taxes................................ 73,015 24,440 12,007
Income tax provision........................................ 24,700 8,310 4,984
-------- -------- -------
Net income.................................................. 48,315 16,130 7,023
Accretion on convertible preferred stock.................... 12 762 345
-------- -------- -------
Net income attributable to common shareholders.............. $ 48,303 $ 15,368 $ 6,678
======== ======== =======
Basic net income per share.................................. $ 0.56 $ 0.20 $ 0.10
-------- -------- -------
Diluted net income per share................................ $ 0.52 $ 0.18 $ 0.09
-------- -------- -------
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic..................................................... 86,485 77,823 66,515
-------- -------- -------
Diluted................................................... 92,533 87,232 71,108
-------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
AT
APRIL 2, 2000
-------------
<S> <C> <C> <C>
SELECTED PRO FORMA COMBINED BALANCE SHEET DATA:
Working capital............................................. $260,551
Total assets................................................ 396,230
Long-term debt, less current maturities..................... 6
Total stockholders' equity.................................. 360,586
</TABLE>
11
<PAGE> 22
COMPARATIVE PER SHARE DATA
In the following tables, we provide you with certain historical per share
data and combined per share data on an unaudited pro forma basis after giving
effect to the merger assuming that 0.5275 shares of QLogic common stock are
issued in exchange for each share of Ancor common stock. This data should be
read along with the selected historical financial data and the historical
consolidated financial statements of QLogic and the historical financial
statements of Ancor and the notes thereto that are included or incorporated by
reference in this document. The pro forma information is presented for
illustrative purposes only. You should not rely on the pro forma financial
information as an indication of the combined financial position or results of
operations of future periods or the results that actually would have been
realized had the entities been a single entity during the periods presented.
<TABLE>
<CAPTION>
ANCOR
HISTORICAL EQUIVALENT
------------------ PRO FORMA PRO FORMA
QLOGIC ANCOR(4) COMBINED(1) (1)(2)(3)
------ -------- ----------- ----------
<S> <C> <C> <C> <C>
DILUTED NET INCOME (LOSS) PER SHARE(1)
Fiscal Year ended April 2, 2000................ $0.70 $(0.34) $0.52 $0.27
Fiscal Year ended March 28, 1999............... $0.34 $(1.04) $0.18 $0.09
Fiscal Year ended March 29, 1998............... $0.21 $(0.93) $0.09 $0.05
BOOK VALUE PER SHARE AT(2)(3)
April 2, 2000 (Fiscal Year).................... $3.27 $ 2.89 $4.02 $2.12
----- ------ ----- -----
</TABLE>
---------------
(1) The unaudited pro forma combined information per share combines financial
information of QLogic for the fiscal years ended April 2, 2000, March 28,
1999 and March 29, 1998 with the financial information of Ancor for the
twelve months ended December 31, 1999, 1998 and 1997.
(2) The unaudited Ancor equivalent pro forma per share amounts are calculated by
multiplying the respective pro forma combined per share amounts by the
exchange ratio.
(3) Historical book value per share is computed by dividing total stockholders'
equity by the number of common shares outstanding at the end of each period
presented. Pro forma combined book value per share is computed by dividing
pro forma total stockholders' equity by the pro forma number of common
shares outstanding at April 2, 2000 for QLogic and March 31, 2000 for Ancor.
The Ancor equivalent pro forma book value per share is calculated by
multiplying the pro forma combined book value per share amount by the
exchange ratio.
(4) Historical Ancor net loss per share is reflected as of Ancor's calendar
years ended December 31, 1999, 1998 and 1997, respectively.
12
<PAGE> 23
MARKET PRICE AND DIVIDEND INFORMATION
RECENT CLOSING PRICES
The table below presents the closing price per share of QLogic common stock
and Ancor common stock on The Nasdaq National Market on May 5, 2000, the last
full trading day immediately preceding the public announcement of the proposed
merger, and on , 2000, the most recent practicable date prior to the
mailing of this document, as well as the "equivalent stock price" of shares of
Ancor common stock on such dates. The "equivalent stock price" of shares of
Ancor common stock represents the closing sales price per share for QLogic's
common stock on the Nasdaq National Market at such specified date, multiplied by
the exchange ratio of 0.5275. Keep in mind that because of market price
fluctuations the "equivalent stock price" may be greater than or less than the
value of the QLogic common stock and cash in lieu of fractional shares that an
Ancor shareholder will receive for each share of Ancor common stock in
connection with the merger. You should obtain current market quotations for
shares of QLogic common stock and Ancor common stock prior to making any
decision with respect to the merger.
<TABLE>
<CAPTION>
ANCOR
QLOGIC ANCOR EQUIVALENT
COMMON STOCK COMMON STOCK STOCK PRICE
(PRICE PER SHARE) (PRICE PER SHARE) (PRICE PER SHARE)
----------------- ----------------- -----------------
<S> <C> <C> <C>
May 5, 2000................................... $99.94 $31.19 $52.72
, 2000............................ $ $ $
</TABLE>
HISTORICAL MARKET PRICE DATA
Ancor's common stock is quoted on the Nasdaq National Market under the
symbol "ANCR." QLogic's common stock is quoted on the Nasdaq National Market
under the symbol "QLGC."
The following table sets forth the high and low sales prices per share of
Ancor common stock for the periods indicated:
<TABLE>
<CAPTION>
ANCOR
COMMON STOCK
--------------------
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1998
First Quarter ended March 31, 1998.......................... $ 9.13 $ 4.44
Second Quarter ended June 30, 1998.......................... 7.31 2.50
Third Quarter ended September 30, 1998...................... 4.00 1.00
Fourth Quarter ended December 31, 1998...................... 4.44 1.06
FISCAL 1999
First Quarter ended March 31, 1999.......................... $ 9.13 $ 3.97
Second Quarter ended June 30, 1999.......................... 32.75 4.75
Third Quarter ended September 30, 1999...................... 38.50 15.63
Fourth Quarter ended December 31, 1999...................... 94.13 21.75
FISCAL 2000
First Quarter ended March 31, 2000.......................... $72.00 $ 32.00
Second Quarter ended June 30, 2000 (through May 26, 2000)... 45.69 14.25
</TABLE>
13
<PAGE> 24
The following table sets forth the high and low sales prices per share of
QLogic common stock (retroactively adjusted for the two-for-one stock splits
effective February 1999, August 1999 and February 2000).
<TABLE>
<CAPTION>
QLOGIC
COMMON STOCK
-----------------
HIGH LOW
------- ------
<S> <C> <C>
FISCAL 1999
First Quarter ended June 28, 1998........................... $ 5.89 $ 4.38
Second Quarter ended September 27, 1998..................... 8.85 3.49
Third Quarter ended December 27, 1998....................... 16.78 6.31
Fourth Quarter ended March 28, 1999......................... 20.38 11.63
FISCAL 2000
First Quarter ended June 27, 1999........................... $ 34.22 $14.38
Second Quarter ended September 26, 1999..................... 49.75 31.25
Third Quarter ended December 26, 1999....................... 83.75 32.50
Fourth Quarter ended April 2, 2000.......................... 203.25 68.06
FISCAL 2001
First Quarter ended June 2, 2000 (through May 26, 2000)..... $131.75 $39.69
</TABLE>
DIVIDEND INFORMATION
Neither QLogic nor Ancor has ever declared or paid a cash dividend. Both
companies anticipate that they will continue to retain any earnings for the
foreseeable future for use in the operation of their respective businesses.
NUMBER OF HOLDERS OF RECORD
As of June 23, 2000, there were approximately shareholders
of record for Ancor common stock. As of June 23, 2000, there were approximately
stockholders of record for QLogic common stock.
SHARES HELD BY DIRECTORS AND EXECUTIVE OFFICERS
As of June 23, 2000, 0.5% of the outstanding shares of Ancor common stock
were held by directors and executives officers of Ancor and their affiliates,
and 1.7% of the outstanding shares of QLogic common stock were held by directors
and executive officers of QLogic and their affiliates. Approval of the merger
agreement by Ancor's shareholders requires the affirmative vote of the holders
of at least a majority of the shares of Ancor common stock outstanding and
entitled to vote at the special meeting, and approval of the merger agreement
and the issuance of QLogic common stock in the merger by QLogic stockholders
requires at least a majority of the votes cast on the proposal.
14
<PAGE> 25
RISK FACTORS
By voting in favor of the merger, Ancor's shareholders will be choosing to
invest in QLogic common stock and QLogic's stockholders will be choosing to
issue additional shares of common stock of QLogic. In addition to the other
information included in or incorporated by reference into this joint proxy
statement/prospectus, you should carefully read and consider the following
factors in evaluating the proposals to be voted on at your company's special
meeting.
RISKS RELATED TO THE MERGER
ALTHOUGH QLOGIC AND ANCOR EXPECT THAT THE MERGER WILL RESULT IN BENEFITS, THOSE
BENEFITS MAY NOT BE REALIZED AND QLOGIC'S STOCK PRICE MAY DECLINE AS A RESULT.
Achieving the benefits of the merger will depend in part on QLogic's and
Ancor's ability to integrate the technology, operations and personnel of the two
companies in a timely and efficient manner so as to minimize the risk that the
merger will result in the loss of customers or key employees. Integrating QLogic
and Ancor will be a complex, time consuming and expensive process and may
disrupt QLogic's and Ancor's business if not completed in a timely and efficient
manner.
Integrating two companies like QLogic and Ancor involves a number of risks,
including:
- diverting management's attention from ongoing operations;
- difficulties and expenses in combining the operations, technology and
systems of the two companies;
- difficulties and expenses in assimilating and retaining employees,
including integrating teams that have not previously worked together;
- difficulties in creating and maintaining uniform standards, controls,
procedures and policies;
- different geographic locations of the principal operations of QLogic and
Ancor;
- challenges in attracting new customers;
- difficulties in demonstrating to existing customers that the merger will
not result in adverse changes to product quality, lead time for product
deliveries or customer service standards; and
- potential adverse short-term effects on operating results, primarily as a
result of increased costs resulting from the integration of the two
businesses.
QLogic and Ancor may not be able to successfully integrate their businesses
or realize any of the anticipated benefits of a merger. A failure to do so could
have a material adverse effect on QLogic's business, financial conditions and
operating results.
COMPETITORS OF QLOGIC AND ANCOR MAY INCREASE THEIR COMPETITIVE PRESSURES ON THE
INTEGRATED BUSINESSES, OR MAKE ANNOUNCEMENTS CHALLENGING THE EXPECTED BENEFITS
OF THE MERGER, CAUSING QLOGIC'S STOCK PRICE TO DECLINE.
As integrated businesses, QLogic and Ancor will face the combined
competitive pressure from existing competitors of both companies. Some of these
competitors may see the integrated businesses as a new threat and exert greater
competitive pressures than either company currently faces. Some competitors may
join together, through agreements or acquisitions, to face the challenge or
perceived challenge that the QLogic and Ancor merger presents. If QLogic and
Ancor are not able to adequately respond to this increased competition, the
15
<PAGE> 26
companies' integrated businesses, financial conditions and operating results
would be adversely affected.
In addition, competitors may make public announcements that challenge or
question QLogic and Ancor's expectation that the merger will result in benefits.
Such announcements could cause QLogic's stock price to decline. In addition, if
such announcements require a response from QLogic and Ancor, such announcements
could disrupt and delay QLogic's and Ancor's attempts to integrate the two
companies, which could have a material adverse effect on QLogic's business,
financial condition and operating results.
ANCOR SHAREHOLDERS WILL RECEIVE 0.5275 SHARES OF QLOGIC COMMON STOCK FOR EACH
SHARE OF ANCOR COMMON STOCK DESPITE CHANGES IN THE MARKET VALUE OF ANCOR COMMON
STOCK OR QLOGIC COMMON STOCK WHICH COULD BE CAUSED BY A NUMBER OF FACTORS.
Upon completion of the merger, each share of Ancor common stock will be
exchanged for 0.5275 shares of QLogic common stock. There will be no adjustment
for changes in the market price of either Ancor common stock or QLogic common
stock, and Ancor and QLogic are not permitted to "walk away" from the merger or
resolicit the vote of Ancor's shareholders solely because of changes in the
market price of QLogic common stock. Accordingly, the specific dollar value of
QLogic common stock to be received by Ancor shareholders upon completion of the
merger will depend on the market value of QLogic common stock at the time of
completion of the merger. No prediction can be made as to the market price of
QLogic common stock at the completion of the merger or as to the market price of
QLogic common stock after the completion of the merger.
The market price of QLogic common stock could fluctuate widely and affect
the amount of profit, if any, which you may realize from any sale of QLogic
common stock. From January 1, 2000 through June 21, 2000, the market price has
ranged from a low of $39.69 per share to a high of $203.25 per share.
Fluctuations may occur, among other reasons, in response to:
- operating results;
- announcements by QLogic or its competitors;
- economic changes;
- general market conditions; and
- other risk factors described in this joint proxy statement/prospectus.
The trading price of QLogic's common stock could continue to be subject to
wide fluctuations in response to the factors set forth above and other factors,
many of which are beyond QLogic's control. The stock market in recent years has
experienced extreme price and trading volume fluctuations that often have been
unrelated or disproportionate to the operating performance of individual
companies.
FAILURE TO QUALIFY FOR POOLING-OF-INTERESTS ACCOUNTING TREATMENT MAY HARM THE
FUTURE OPERATING RESULTS OF QLOGIC.
QLogic intends to account for the merger as a pooling-of-interests business
combination. It is a condition to completion of the merger that QLogic be
advised by its independent accountants that they concur with QLogic management's
conclusion that the transaction contemplated by the merger agreement can
properly be accounted for as a pooling-of-interests business combination. Under
the pooling-of-interests method of accounting, each of QLogic's and Ancor's
historical recorded assets and liabilities will be carried forward to QLogic at
their recorded amounts. In addition, the operating results of QLogic will
include QLogic's and Ancor's operating results for the entire fiscal year in
which the merger is completed and
16
<PAGE> 27
QLogic's and Ancor's historical reported operating results for prior periods
will be combined and restated as the operating results of QLogic.
After completion of the merger, if events occur that cause the merger to no
longer qualify for pooling-of-interests accounting treatment, the purchase
method of accounting would apply. Under that method, QLogic would record the
estimated fair value of QLogic common stock, stock options and warrants issued
in the merger as the cost of acquiring the business of Ancor. That cost would be
allocated to the net assets acquired, with the excess of the estimated fair
value of QLogic common stock, stock options and warrants over the fair value of
net assets acquired recorded as goodwill or other intangible assets. To the
extent goodwill and other intangibles are recorded on QLogic's financial
statements, QLogic would be required to take a noncash charge to earnings for a
number of years until the full values of the goodwill and other intangibles have
been fully amortized. The estimated fair value of QLogic common stock, stock
options and warrants to be issued in the merger is expected to be much greater
than the historical net book value at which Ancor carries its assets in its
accounts. Therefore, purchase accounting treatment would reduce the reported
income and earnings per share of the combined company for several years into the
future as compared to pooling-of-interests accounting treatment.
THE SALE OF A SUBSTANTIAL AMOUNT OF QLOGIC COMMON STOCK AFTER THE MERGER COULD
ADVERSELY AFFECT THE MARKET PRICE OF QLOGIC COMMON STOCK.
All of the shares of QLogic common stock that Ancor shareholders receive in
the merger may be sold immediately, except for those shares received by
affiliates of Ancor within the meaning of Rule 145 of the Securities Act of
1933. Substantially all of the outstanding shares of QLogic common stock are
freely tradable, subject to Rule 144 restrictions in the case of QLogic
affiliates. The sale of a substantial amount of QLogic common stock after the
merger could adversely affect its market price. It could also impair QLogic's
ability to raise money through the sale of more stock or other forms of capital.
In addition, the sale of authorized but unissued shares of QLogic common stock
by QLogic after the merger could adversely affect its market price. Based on
certain assumptions, it is expected that there will be approximately 90 million
shares of QLogic common stock outstanding after the merger, excluding QLogic
shares issuable upon the exercise of outstanding options, warrants and
convertible securities. QLogic's certificate of incorporation authorizes the
issuance of up to 150 million shares of QLogic common stock. The management of
QLogic intends to propose to stockholders that they vote to increase the
authorized number of shares of common stock at QLogic's next annual meeting of
stockholders.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT QLOGIC'S STOCK PRICE AND
FUTURE BUSINESS AND OPERATIONS.
If the merger is not completed, QLogic may be subject to a number of
material risks, including the following:
- QLogic may be required to pay Ancor a termination fee of $55 million
under some circumstances;
- the price of QLogic common stock may decline to the extent that the
current market price of QLogic common stock reflects a market assumption
that the merger will be completed;
- costs related to the merger, such as legal, accounting and financial
advisory fees, must be paid even if the merger is not completed;
17
<PAGE> 28
- the ability of QLogic to complete future transactions may be impaired
because potential partners may view QLogic as having an unfavorable
reputation in its ability to complete transactions as a result of the
failure to complete the merger.
In addition, QLogic's customers may, in response to the announcement of the
merger, delay or defer purchasing decisions. Any delay or deferral in purchasing
decisions by QLogic customers could have a material adverse effect on QLogic'
business, regardless of whether or not the merger is ultimately completed.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT ANCOR'S STOCK PRICE AND
FUTURE BUSINESS AND OPERATIONS.
If the merger is not completed, Ancor may be subject to a number of
material risks, including the following:
- Ancor may be required to pay QLogic a termination fee of $55 million
under some circumstances;
- the option granted to QLogic by Ancor may become exercisable under some
circumstances;
- the price of Ancor common stock may decline to the extent that the
current market price of Ancor common stock reflects a market assumption
that the merger will be completed;
- costs related to the merger, such as legal, accounting and financial
advisory fees, must be paid even if the merger is not completed; and
- the ability of Ancor to complete future transactions may be impaired
because potential partners may view Ancor as having an unfavorable
reputation in its ability to complete transactions as a result of the
failure to complete the merger.
In addition, Ancor's customers may, in response to the announcement of the
merger, delay or defer purchasing decisions. Any delay or deferral in purchasing
decisions by Ancor customers could have a material adverse effect on Ancor's
business, regardless of whether or not the merger is ultimately completed.
Similarly, current and prospective Ancor employees may experience uncertainty
about their future role with QLogic until QLogic's strategies with regard to
Ancor are executed. This may adversely affect Ancor's ability to attract and
retain key management, sales, marketing and technical personnel.
Further, if the merger is terminated and Ancor's board of directors
determines to seek another merger or business combination, Ancor may not be able
to find a partner willing to pay an equivalent or more attractive price than
that which would be paid in the merger. In addition, while the merger agreement
is in effect, subject to limited exceptions described on page 70 of this joint
proxy statement/prospectus, Ancor is prohibited from soliciting, initiating or
encouraging or entering into a transaction with any party other than QLogic that
would result in the acquisition of Ancor. Furthermore, if QLogic exercises its
option to purchase Ancor common stock, Ancor may not be able to account for a
future transaction as a pooling-of-interests.
RISKS RELATED TO THE BUSINESS OF QLOGIC
QLOGIC'S OPERATING RESULTS FLUCTUATE SIGNIFICANTLY WHICH COULD CAUSE ITS STOCK
PRICE TO DECLINE IF IT FAILS TO MEET INVESTORS' AND ANALYSTS' EXPECTATIONS.
QLogic has experienced, and expects to continue to experience, fluctuations
in sales and operating results from quarter to quarter. As a result, QLogic
believes that period-to-period
18
<PAGE> 29
comparisons of its operating results are not necessarily meaningful, and that
such comparisons cannot be relied upon as indicators of future performance. In
addition, there can be no assurance that QLogic will maintain its current
profitability in the future. A significant portion of QLogic's net revenues in
each fiscal quarter result from orders booked in that quarter. In the past, a
significant percentage of QLogic's quarterly bookings and sales to major
customers occurred during the last month of the quarter, and there can be no
assurance that this trend will not return in the future. Orders placed by major
customers are typically based on their forecasted sales and inventory levels for
QLogic's products. Material fluctuations in quarterly operating results may be
the result of:
- changes in purchasing patterns by one or more of QLogic's major
customers;
- customer order changes or rescheduling;
- gain or loss of significant customers;
- customer policies pertaining to desired inventory levels of QLogic's
products;
- negotiations of rebates and extended payment terms; or
- changes in the ability of QLogic to anticipate in advance the mix of
customer orders.
Some large original equipment manufacturer customers may require QLogic to
maintain higher levels of inventory or field warehouses in an attempt to
minimize their own inventories. In addition, QLogic must order its products and
build inventory substantially in advance of product shipments, and because the
markets for QLogic's products are subject to rapid technological and price
changes, there is a risk QLogic will forecast incorrectly and produce excess or
insufficient inventory of particular products. If QLogic produces excess or
insufficient inventory or is required to hold excess inventory, QLogic's
operating results could be adversely affected.
Other factors that could cause QLogic's sales and operating results to vary
significantly from period to period include:
- the time, availability and sale of new products;
- seasonal original equipment manufacturer customer demand;
- changes in the mix of products having differing gross margins;
- variations in manufacturing capacities, efficiencies and costs;
- the availability and cost of components, including silicon wafers;
- warranty expenses;
- variations in product development and other operating expenses;
- revenue adjustments related to product returns; or
- adoption of new accounting pronouncements and/or changes in QLogic
policies and general economic and other conditions effecting the timing
of customer orders and capital spending.
QLogic's quarterly results of operations are also influenced by competitive
factors, including the pricing and availability of QLogic's and its competitors'
products. Although QLogic does not maintain its own wafer manufacturing
facility, a large portion of QLogic's expenses is fixed and difficult to reduce
in a short period of time. If net revenues do not meet QLogic's expectations,
QLogic's fixed expenses would exacerbate the effect on net income of such
shortfall in net revenues. Furthermore, announcements by QLogic, its competitors
or others regarding new products and technologies could cause customers to defer
or cancel purchases of QLogic's products. Order deferrals by QLogic's customers,
delays in QLogic's
19
<PAGE> 30
introduction of new products and longer than anticipated design-in cycles for
QLogic's products have in the past adversely effected QLogic's quarterly results
of operations. Due to these factors, as well as other unanticipated factors, it
is likely that in some future quarter or quarters QLogic's operating results
will be below the expectations of public market analysts or investors, and as a
result, the price of QLogic's common stock could significantly decrease.
QLOGIC DEPENDS ON A LIMITED NUMBER OF CUSTOMERS AND ANY DECREASE IN REVENUE FROM
ANY ONE OF ITS CUSTOMERS COULD CAUSE QLOGIC'S STOCK PRICE TO DECLINE.
A small number of customers account for a substantial portion of QLogic's
net revenues, and QLogic expects that a limited number of customers will
continue to represent a substantial portion of QLogic's net revenues for the
foreseeable future. The loss of any of QLogic's major customers would have a
material adverse effect on its business, financial condition and results of
operations. Some of these customers are based in the Pacific Rim, which is
subject to economic and political uncertainties. In addition, a majority of
QLogic's customers order QLogic's products through written purchase orders as
opposed to long-term supply contracts and, therefore, such customers are
generally not obligated to purchase products from QLogic for any extended
period. Major customers also have significant leverage over QLogic and may
attempt to change the terms, including pricing, upon which QLogic and such
customers do business, which could materially adversely effect QLogic's
business, financial condition and results of operations. This risk is increased
due to the potential for some of these customers merging or acquiring other
customers of QLogic. As QLogic's original equipment manufacturer customers are
pressured to reduce prices as a result of competitive factors, QLogic may be
required to contractually commit to price reductions for its products before it
knows how, or if, cost reductions can be obtained. If QLogic is unable to
achieve such cost reductions, QLogic's gross margins could decline and such
decline could have a material adverse effect on QLogic's business, financial
condition and results of operations. In addition, QLogic provides some customers
with price protection in the event that QLogic reduces the prices of its
products. While QLogic maintains reserves for this price protection, the impact
of future price reductions by QLogic could exceed QLogic's reserves in any
specific fiscal period. Any price protection in excess of recorded reserves
could have a negative impact on QLogic's business, financial condition and
results of operations.
COMPETITION WITHIN QLOGIC'S PRODUCT MARKETS IS INTENSE AND INCLUDES NUMEROUS
ESTABLISHED COMPETITORS.
The markets for both peripheral and host computer products are highly
competitive and are characterized by short product life cycles, price erosion,
rapidly changing technology, frequent product performance improvements and
evolving industry standards. QLogic currently competes primarily with Adaptec,
Inc., LSI Logic, and Cirrus Logic, Inc. in the SCSI sector of the I/O market. In
the Fibre Channel sector of the I/O market, QLogic competes primarily with
Agilent Technologies, LSI Logic, Emulex Corporation, JNI Corporation and
Adaptec, Inc. In the integrated drive electronics, or IDE sector, QLogic
competes with STMicroelectronics and Cirrus Logic, Inc. In the enclosure
management sector, QLogic competes primarily with LSI Logic and Vitesse
Semiconductor. QLogic may compete with some of its larger disk drive and
computer systems customers, some of which have the capability to develop I/O
controller integrated circuits for use in their own products. At least one large
original equipment manufacturer customer in the past has decided to vertically
integrate and has therefore stopped purchasing from QLogic.
QLogic will need to continue to develop products appropriate to its markets
to remain competitive as its competitors continue to introduce products with
improved performance characteristics. While QLogic continues to devote
significant resources to research and development, these efforts may not be
successful or may not be developed and introduced in a
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timely manner. Further, several of QLogic's competitors have greater resources
devoted to securing semiconductor foundry capacity because of long-term
agreements regarding supply flow, equity or financing agreements or direct
ownership of a foundry. In addition, while relatively few competitors offer a
full range of SCSI and other I/O products, additional domestic and foreign
manufacturers may increase their presence in these markets. QLogic may not be
able to compete successfully against these competitors.
Competition typically occurs at the design stage, where the customer
evaluates alternative design approaches. Because of short product life cycles
and even shorter design cycles, QLogic's competitors have increasingly frequent
opportunities to achieve design wins in next generation systems. A design win
usually ensures a customer will purchase the product until a higher performance
standard is available or a competitor can demonstrate a significant price/
performance advantage. Most of QLogic's products compete with products available
from several companies, many of which have substantially greater research and
development, long term guaranteed supply capacity, marketing and financial
resources, manufacturing capability and customer support organizations than
those of QLogic. Because of the complexity of its products, QLogic has
experienced delays from time to time in completing products on a timely basis.
If QLogic is unable to design, develop and introduce competitive new products on
a timely basis, its future operating results will be materially and adversely
affected.
QLOGIC DEPENDS ON ITS RELATIONSHIPS WITH WAFER SUPPLIERS AND OTHER
SUBCONTRACTORS AND A LOSS OF THESE RELATIONSHIPS MAY LEAD TO UNPREDICTABLE
CONSEQUENCES WHICH MAY HARM ITS RESULTS OF OPERATIONS IF ALTERNATIVE SUPPLY
SOURCES ARE NOT AVAILABLE.
QLogic currently relies on several independent foundries to manufacture its
semiconductor products either in finished form or wafer form. Generally, QLogic
conducts business with some of its foundries through written purchase orders as
opposed to long-term supply contracts. Therefore, these foundries are generally
not obligated to supply products to QLogic for any specific period, in any
specific quantity or at any specified price. If a foundry terminates its
relationship with QLogic or if QLogic's supply from a foundry is otherwise
interrupted, QLogic may not have a sufficient amount of time to replace the
supply of products manufactured by that foundry. As a result, QLogic may not be
able to meet customer demands which could harm its business.
Historically, there have been periods when there has been a worldwide
shortage of advanced process technology foundry capacity. The manufacture of
semiconductor devices is subject to a wide variety of factors, including the
availability of raw materials, the level of contaminants in the manufacturing
environment, impurities in the materials used, and the performance of personnel
and equipment. QLogic is continuously evaluating potential new sources of
supply. However, the qualification process and the production ramp-up for
additional foundries has in the past taken, and could in the future take, longer
than anticipated. New supply sources may not be able or willing to satisfy
QLogic's wafer requirements on a timely basis or at acceptable quality or unit
prices.
QLogic uses multiple sources of supply for some of its products, and this
may require customers to perform separate product qualifications. QLogic has not
developed alternate sources of supply for all of its products and its newly
introduced products are typically produced initially by a single foundry until
alternate sources can be qualified. In particular, QLogic's integrated single
chip Fibre Channel controller is manufactured by LSI Logic and integrates LSI
Logic's transceiver technology. In the event that LSI Logic is unable or
unwilling to satisfy QLogic's requirements for this technology, QLogic's
marketing efforts related to Fibre Channel products would be delayed and, as
such, its results of operations could be materially and adversely effected. The
requirement that a customer perform separate product qualifications or a
customer's inability to obtain a sufficient supply of products from QLogic may
cause that customer to satisfy its product requirements from QLogic's
competitors.
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QLogic's ability to obtain satisfactory wafer and other supplies is subject
to a number of other risks. These risks include the possibility that QLogic's
suppliers may be subject to injunctions arising from alleged violations of third
party intellectual property rights. The enforcement of this kind of injunction
could impede a supplier's ability to provide wafers, components or packaging
services to QLogic. In addition, QLogic's flexibility to move production of any
particular product from one foundry to another is limited because such a move
can require significant re-engineering, which may take several quarters. These
efforts also divert engineering resources that could otherwise be dedicated to
new product development, which would adversely affect new product development
schedules. Therefore, QLogic's production could be constrained even though
capacity is available at one or more foundries. In addition, QLogic could
encounter supply shortages if sales grow substantially. QLogic uses domestic and
offshore subcontractors for die assembly of its semiconductor products purchased
in wafer form, and for assembly of its host adapter board products. QLogic's
reliance on independent subcontractors to provide these services involves a
number of risks, including the absence of guaranteed capacity and reduced
control over delivery schedules, quality assurance and costs. QLogic is also
subject to the risks of shortages and increases in the cost of raw materials
used in the manufacture or assembly of QLogic's products. In addition, QLogic
may receive orders for large volumes of products to be shipped within short
periods, and QLogic may not have sufficient testing capacity to fill these
orders. Constraints or delays in the supply of QLogic's products, whether
because of capacity constraints, unexpected disruptions at QLogic's foundries or
subcontractors, delays in obtaining additional production at the existing
foundries or in obtaining production from new foundries, shortages of raw
materials or other reasons, could result in the loss of customers.
QLOGIC MAY NEED TO ENGAGE IN FINANCIALLY RISKY TRANSACTIONS TO GUARANTEE IT HAS
PRODUCTION CAPACITY WHICH MAY REQUIRE QLOGIC TO SEEK ADDITIONAL FINANCING AND
RESULT IN DILUTION TO ITS STOCKHOLDERS.
QLogic and the semiconductor industry have, in the past, experienced
shortages of available foundry capacity. Accordingly, in order to secure an
adequate supply of wafers, especially wafers manufactured using advanced process
technologies, QLogic may consider various possible transactions, including the
use of "take or pay" contracts that commit QLogic to purchase specified
quantities of wafers over extended periods or equity investments in, or advances
to, wafer manufacturing companies in exchange for guaranteed production
capacity, or the formation of joint ventures to own and operate or construct
foundries or to develop certain products. Any of these transactions would
involve financial risk to QLogic and could require QLogic to commit a
substantial amount of its funds or provide technology licenses in return for
guaranteed production capacity. The need to commit its own funds may require
QLogic to seek additional equity or debt financing. The sale or issuance of
additional equity or convertible debt securities could result in dilution to
QLogic's stockholders. This kind of additional financing, if necessary, may not
be available on terms acceptable to QLogic.
QLOGIC RELIES ON THE HIGH PERFORMANCE COMPUTER AND COMPUTER PERIPHERAL MARKETS
AND ANY UNPREDICTABLE FLUCTUATIONS OR REDUCTIONS IN DEMAND FOR PRODUCTS IN THESE
MARKETS MAY ADVERSELY EFFECT QLOGIC'S RESULTS OF OPERATION.
A significant portion of QLogic's host adapter board products and hard disk
drive controller products are ultimately used in high-performance file servers,
workstations and other office automation products. QLogic's growth has been
supported by increasing demand for sophisticated I/O solutions which support
database systems, servers, workstations, Internet/ Intranet applications,
multimedia and telecommunications. If the demand for these systems slows,
QLogic's business could be adversely affected.
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As a supplier of controller products to manufacturers of computer
peripherals such as disk drives and other data storage devices, a portion of
QLogic's business is dependent on the overall market for computer peripherals.
This market is itself dependent on the market for computers, and has
historically been characterized by periods of rapid growth followed by periods
of oversupply and contraction. As a result, suppliers to the computer
peripherals industry from time to time experience large and sudden fluctuations
in demand for their products as their customers adjust to changing conditions in
their markets. If these fluctuations are not accurately anticipated, such
suppliers, including QLogic, could produce excessive or insufficient inventories
of various components, which could have a negative impact on QLogic's business.
QLOGIC'S FINANCIAL CONDITION WILL BE MATERIALLY HARMED IF IT DOES NOT MAINTAIN
AND GAIN MARKET OR INDUSTRY ACCEPTANCE OF ITS PRODUCTS.
The markets in which QLogic and its competitors compete involve rapidly
changing technology, evolving industry standards and continuing improvements in
products and services. QLogic's future success depends on its ability to do the
following:
- enhance its current products and to develop and introduce in a timely
manner new products that keep pace with technological developments and
industry standards;
- compete effectively on the basis of price and performance; and
- adequately address original equipment manufacturer customer and end-user
customer requirements and achieve market acceptance.
QLogic believes that to remain competitive in the future it will need to
continue to develop new products, which will require a significant investment in
new product development. In anticipation of the implementation of fibre channel
data transfer interface technologies, QLogic has invested, and will continue to
invest, significant resources in developing its integrated circuit single chip
peripheral computer interface, or PCI to fibre channel controllers. However,
fibre channel may not be adopted as a predominant industry standard. QLogic is
aware of products for alternative I/O standards and enabling technologies being
developed by its competitors. QLogic believes that some competitors, including
Adaptec, Inc., have extensive development efforts related to products based on
new parallel SCSI I/O technology. If this kind of alternative standard is
adopted by the industry, QLogic may not be able to develop products for the new
standard in a timely manner. Further, even if fibre channel is adopted, QLogic's
integrated PCI to fibre channel controller may not be fully developed in time to
be accepted for use in fibre channel technology. If it is developed on time,
QLogic may not be able to manufacture it at competitive prices in sufficient
volumes. In the event that fibre channel is not adopted as an industry standard,
or QLogic's integrated circuit PCI to fibre channel controllers are not timely
developed or do not gain market acceptance, QLogic's business could be
materially and adversely affected.
QLogic's fibre channel products have been designed to conform to a standard
that has yet to be uniformly adopted. QLogic's products must be designed to
operate effectively with a variety of hardware and software products supplied by
other manufacturers, including microprocessors, operating system software and
peripherals. QLogic depends on significant cooperation with these manufacturers
in order to achieve its design objectives and produce products that interoperate
successfully. While QLogic believes that it generally has good relationships
with leading microprocessor, systems and peripheral suppliers, there can be no
assurance that these suppliers will not make it more difficult for QLogic to
design its products for successful interoperability. If industry acceptance of
these standards was to decline or if they were replaced with new standards, and
if QLogic did not anticipate these changes and develop new products, QLogic's
business could be adversely affected.
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QLOGIC ANTICIPATES ENGAGING IN ACQUISITIONS, HOWEVER THESE ACQUISITIONS MAY
ADVERSELY AFFECT QLOGIC'S RESULTS OF OPERATIONS AND STOCK PRICE IF THEY DO NOT
COMPLEMENT QLOGIC'S BUSINESS.
QLogic anticipates that its future growth may depend in part on its ability
to identify and acquire complementary businesses, technologies or product lines
that are compatible with those of QLogic. Acquisitions involve numerous risks,
including:
- uncertainties in identifying and pursuing acquisitions;
- difficulties in the assimilation of the operations, technologies and
products of the acquired companies;
- the diversion of management's attention from other business concerns;
- risks associated with entering markets or conducting operations with
which QLogic has no or limited direct prior experience;
- the potential loss of current customers and/or retention of the acquired
company's customers; and
- the potential loss of key employees of the acquired company.
Further, QLogic may never enjoy the perceived benefits of an acquisition.
QLogic may not be effective in identifying and completing attractive
acquisitions or managing future growth. Future acquisitions by QLogic could
dilute stockholders, and cause QLogic to incur debt and contingent liabilities
and amortization expenses related to goodwill and other intangible assets, all
of which could materially adversely affect QLogic's business. With respect to
recording future business combinations, the Financial Accounting Standards
Board, or FASB, has announced it may abolish the pooling-of-interests accounting
treatment. The standard, as currently proposed would affect transactions after
January 1, 2001. If the FASB does eliminate pooling-of-interests accounting
treatment, QLogic may not be able to complete a business combination without
incurring goodwill or other intangible assets, which would reduce QLogic's
reported earnings.
IF QLOGIC IS UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL IT MAY NOT BE ABLE TO
SUSTAIN OR GROW ITS BUSINESS.
The future success of QLogic largely depends on its key engineering, sales,
marketing and executive personnel, including highly skilled semiconductor design
personnel and software developers. QLogic also must identify and hire additional
personnel. If QLogic loses the services of key personnel, QLogic's business
would be adversely affected. QLogic believes that the market for key personnel
in the industries in which it competes is highly competitive. In particular,
periodically QLogic has experienced difficulty in attracting and retaining
qualified engineers and other technical personnel and anticipates that
competition for such personnel will increase in the future. QLogic may not be
able to attract and retain key personnel with the skills and expertise necessary
to develop new products in the future, or to manage QLogic's business, both in
the United States and abroad.
BECAUSE QLOGIC DEPENDS ON FOREIGN CUSTOMERS AND SUPPLIERS, IT IS SUBJECT TO
INTERNATIONAL ECONOMIC, REGULATORY AND POLITICAL RISKS WHICH COULD HARM ITS
FINANCIAL CONDITION.
QLogic expects that export revenues will continue to account for a
significant percentage of QLogic's net revenues for the foreseeable future. As a
result, QLogic is subject to several risks, which include:
- a greater difficulty of administering its business globally;
- compliance with multiple and potentially conflicting regulatory
requirements, such as export requirements, tariffs and other barriers;
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- differences in intellectual property protections;
- difficulties in staffing and managing foreign operations;
- potentially longer accounts receivable cycles;
- currency fluctuations;
- export control restrictions;
- overlapping or differing tax structures;
- political and economic instability; and
- general trade restrictions.
A significant number of QLogic's customers and suppliers are located in
Japan. Recently, the Asian markets have suffered property price deflation. This
asset deflation has taken place especially in countries that have had a collapse
in both their currency and stock markets. These deflationary pressures have
reduced liquidity in the banking systems of the affected countries and, when
coupled with spare industrial production capacity, could lead to widespread
financial difficulty among the companies in this region. QLogic's export sales
are invoiced in U.S. dollars and, accordingly, if the relative value of the U.S.
dollar in comparison to the currency of QLogic's foreign customers should
increase, the resulting effective price increase of QLogic's products to such
foreign customers could result in decreased sales. There can be no assurance
that any of the foregoing factors will not have a material adverse effect on
QLogic's business, financial condition and results of operations.
QLOGIC'S PROPRIETARY RIGHTS MAY BE INADEQUATELY PROTECTED AND INFRINGEMENT
CLAIMS OR ADVERSE JUDGMENTS COULD HARM QLOGIC'S COMPETITIVE POSITION.
Although QLogic has patent protection on some aspects of its technology in
some jurisdictions, it relies primarily on trade secrets, copyrights and
contractual provisions to protect its proprietary rights. There can be no
assurance that these protections will be adequate to protect its proprietary
rights, that others will not independently develop or otherwise acquire
equivalent or superior technology or that QLogic can maintain such technology as
trade secrets. There also can be no assurance that any patents QLogic possesses
will not be invalidated, circumvented or challenged. In addition, the laws of
certain countries in which QLogic's products are or may be developed,
manufactured or sold, including various countries in Asia, may not protect
QLogic's products and intellectual property rights to the same extent as the
laws of the United States or at all. If QLogic fails to protect its intellectual
property rights, QLogic's business would be negatively impacted.
Intellectual property claims have been made against QLogic in the past, and
patent or other intellectual property infringement claims could be made against
QLogic in the future. Although patent and intellectual property disputes may be
settled through licensing or similar arrangements, costs associated with these
arrangements may be substantial and the necessary licenses or similar
arrangements may not be available to QLogic on satisfactory terms or at all. As
a result, QLogic could be prevented from manufacturing and selling some of its
products. In addition, if QLogic litigates these kinds of claims, the litigation
could be expensive and time consuming and could divert management's attention
from other matters. QLogic's business could suffer regardless of the outcome of
the litigation. QLogic's supply of wafers and other components can also be
interrupted by intellectual property infringement claims against its suppliers.
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QLOGIC'S STOCK PRICE MAY BE VOLATILE WHICH COULD AFFECT THE VALUE OF YOUR
INVESTMENT.
The market price of QLogic's common stock has fluctuated substantially, and
there can be no assurance that such volatility will not continue. From January
1, 2000 through June 21, 2000, the market price has ranged from a low of $39.69
per share to a high of $203.25 per share. Future announcements concerning QLogic
or its competitors or customers, quarterly variations in operating results, the
introduction of new products or changes in product pricing policies by QLogic or
its competitors, conditions in the semiconductor industry, changes in earnings
estimates by analysts, market conditions for high technology stocks in general,
and the potential for a stockholder lawsuit, or changes in accounting policies,
among other factors, could cause the market price of the common stock to
fluctuate substantially. In addition, stock markets have experienced extreme
price and volume volatility in recent years and stock prices of technology
companies have been especially volatile. This volatility has had a substantial
effect on the market prices of securities of many smaller public companies for
reasons frequently unrelated to the operating performance of the specific
companies. These broad market fluctuations could adversely affect the market
price of QLogic's common stock.
QLOGIC'S CHARTER DOCUMENT AND SHAREHOLDER RIGHTS PLAN MAY DISCOURAGE COMPANIES
FROM ACQUIRING QLOGIC AND OFFERING QLOGIC STOCKHOLDERS A PREMIUM FOR THEIR
STOCK.
Pursuant to QLogic's certificate of incorporation, the board of directors
is authorized to approve the issuance of shares of currently undesignated
preferred stock, to determine the price, powers, preferences and rights and the
qualifications, limitations or restrictions granted to or imposed on any
unissued series of the preferred stock, and to fix the number of shares
constituting any such series and the designation of such series, without any
vote or future action by the stockholders. Pursuant to this authority, in June
1996 the board of directors adopted a shareholder rights plan and declared a
dividend of a right to purchase one one-hundreths of a share of preferred stock
for each outstanding share of QLogic's common stock. After adjustment for each
of the three two-for-one stock splits effected by QLogic to date, QLogic's
common stock now carries one-eighth of the preferred stock purchase right per
share. The shareholder rights plan, the undesignated preferred stock and certain
provisions of the Delaware law may have the effect of delaying, deferring or
preventing a change in control of QLogic, may discourage bids for QLogic's
common stock at a premium over the market price of the common stock and may
adversely affect the market price of the common stock.
RISKS RELATED TO THE BUSINESS OF ANCOR
BECAUSE ANCOR EXPECTS TO INCUR SIGNIFICANT PRODUCT DEVELOPMENTS, SALES,
MARKETING AND ADMINISTRATIVE EXPENSES, ANCOR MAY NOT BECOME PROFITABLE.
Ancor has incurred significant losses since inception and expects to incur
losses in the future. Ancor expects to incur significant product development and
sales costs and, as a result, Ancor will need to generate substantially more
revenue than it has to date to achieve and maintain profitability. There is a
risk that Ancor will not be able to realize sufficient revenues to achieve
profitability in the future.
IF A SIGNIFICANT MARKET FOR FIBRE CHANNEL BASED SANS AND SAN SWITCHING PRODUCTS
DOES NOT CONTINUE TO DEVELOP, ANCOR'S BUSINESS MAY BE ADVERSELY AFFECTED.
Ancor's growth will be limited if fibre channel based SAN technology and
solutions do not become widely accepted. Ancor's product development and
marketing efforts are focused on the SAN market, which continues to develop.
Organizations often implement SANs in connection with their deployment of new
storage systems and server markets. Potential end-user customers who have
invested substantial resources in their existing data storage and management
systems
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may be reluctant or slow to adopt SANs. Ancor's current products are based on
the implementation of fibre channel based solutions. If an alternative
technology such as Gigabit Ethernet emerges as a standard for interconnecting
servers and storage subsystems and Ancor is not able to respond with competitive
product offerings, Ancor's business would be adversely affected. Ancor cannot be
sure that SANs will ever achieve widespread market acceptance or that the market
will develop as quickly as anticipated.
Ancor's success also depends in part upon market acceptance of its SAN
switching solutions as an alternative to the use of hubs or other interconnect
devices in SANs. In general, hubs are priced lower than switches. Ancor
currently expects that substantially all of its future revenue will be derived
from sales of its fibre channel switches. Because this market is developing, it
is difficult to predict its potential size or future growth rate. If the market
does not continue to accept the use of SAN switches as alternatives to hubs,
Ancor's business could be adversely affected.
IF ANCOR'S RELATIONSHIP WITH SUN MICROSYSTEMS FAILS, ITS BUSINESS WOULD BE
ADVERSELY AFFECTED.
In June 1999, Ancor announced an original equipment manufacturing agreement
with Sun Microsystems. Under this agreement, Ancor expects to sell fibre channel
switches to Sun for incorporation into Sun's SAN products. However, like other
original equipment manufacturer agreements, its agreement with Sun does not
provide Ancor with any assurance that it will continue to sell its products to
Sun. The agreement does not require Sun to purchase any volume of products from
Ancor, and Sun could incorporate a competitor's fibre channel switch into Sun's
products. In addition, there are risks that Sun may decide to incorporate
technology other than fibre channel switches into its products, or may
experience problems integrating Ancor's fibre channel switches with other
components of Sun's products, either of which would result in Sun failing to
purchase products from Ancor at current or increasing levels.
In addition to the revenue Ancor expects to generate by selling its
products to Sun, this agreement is extremely important to Ancor's business
because it is viewed by the market as a validation of Ancor's technology, its
products and its ability to service a significant original equipment
manufacturer. If Ancor's relationship with Sun were harmed in any way, it could
significantly negatively impact the market's perception of Ancor and its
products, and Ancor's revenues could be significantly reduced.
IF ANCOR FAILS TO DEVELOP AND MAINTAIN RELATIONSHIPS WITH SUCCESSFUL ORIGINAL
EQUIPMENT MANUFACTURERS, IT MAY BE UNABLE TO BECOME PROFITABLE.
To succeed in the SAN market, Ancor needs to sell its products directly to
original equipment manufacturers. Ancor cannot be certain that its original
equipment manufacturer customers will continue to develop, market and sell
products that incorporate Ancor's technology, nor can Ancor control their
ability or willingness to do so. Ancor sells its products through original
equipment manufacturers who compete in highly competitive markets, and Ancor's
success will depend on the success of these customers. If Ancor fails to develop
and manage relationships with original equipment manufacturers or if Ancor's
customers fail to sell its products, Ancor may be unable to achieve
profitability.
COMPETITION IN THE SAN MARKET MAY LEAD TO REDUCED SALES OF ANCOR'S PRODUCTS, AND
REDUCED MARKET SHARE AND MAY PREVENT ANCOR FROM ATTAINING PROFITABLE OPERATIONS.
Because of the intense competition to provide components to the SAN market,
Ancor's business may not develop as significantly as expected or Ancor may lose
current or potential customers. Alternatively, Ancor's profitability could be
impaired by pricing pressure from intense competition. Ancor's primary
competitor in the fibre channel switch market, Brocade Communications, currently
sells significantly more switches than Ancor does, and Brocade's
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emergence as a high volume switch supplier in the SAN market may adversely
affect Ancor's ability to develop new customer relationships. Other companies
are also providing fibre channel switches and other products to the SAN market,
including Emulex, Gadzoox, McData and Vixel, and their products could become
more widely accepted than Ancor's products. Ancor anticipates that these and
other companies may introduce additional fibre channel products, including
switches, in the future. To the extent that these companies have current
supplier relationships with Ancor's potential customers, it may be more
difficult for Ancor to win business from these potential customers. If fibre
channel technology gains wider market acceptance, it is likely that an
increasing number of competitors will begin developing and marketing fibre
channel products. Some of the companies that produce or may produce competitive
fibre channel products have substantially greater resources, greater name
recognition and access to larger customer bases than Ancor does. As a result,
Ancor's competitors may succeed in adapting more rapidly and effectively to
changes in technology or the market. If Ancor fails to compete effectively, it
would not generate sufficient sales to attain profitable operations.
ANCOR'S REVENUE WILL BE MATERIALLY REDUCED AS A RESULT OF THE WARRANT IT GRANTED
TO SUN MICROSYSTEMS.
As part of its agreement with Sun, Ancor granted a warrant to Sun to
purchase up to 1.5 million shares of its common stock at an exercise price of
$7.30 per share. In order for the warrant shares to vest, Sun must purchase
products from Ancor. The warrant shares are earned at the rate of one share for
each $67.00 of revenue Ancor receives from Sun through September 30, 2002. In
each period in which the warrant shares are earned, a non-cash sales discount
will be recorded. The amount of the non-cash sales discount is the fair value of
the warrant shares which are earned in the period. Fair value of the warrant
shares is calculated by using the Black-Scholes option pricing model. The
primary component in the Black-Scholes calculation is the value of Ancor's
common stock at that time. The value of the warrant shares, and the
corresponding sales discount, increases as Ancor's stock price increases.
Conversely, the value of the warrant shares, and the corresponding sales
discount, decreases as Ancor's stock price decreases. Since the price of Ancor's
stock cannot be estimated, it is not possible to estimate the amount of the
non-cash sales discount that could be recorded, but it could be significant.
Depending on Ancor's stock price, this sales discount could cause it to report a
negative gross margin on sales to Sun. For example, on March 31, 2000, the
closing price of Ancor's stock was $41.125. The value of a warrant share was
$39.269 based on the Black-Scholes option pricing model. This means that for
each $67.00 in gross revenue to Sun, Ancor would record a non-cash sales
discount of $39.27.
None of the warrant shares will vest until Ancor has received a total of
$10,000,000 in revenue from Sun. During this period, any warrant shares earned
in one quarter will be revalued in subsequent quarters using the then-current
Black-Scholes option pricing model, and an additional non-cash sales discount
will be recorded if the value of the warrant shares increases or a non-cash
sales credit will be recorded if the value of the warrant shares decreases. In
the quarter in which Ancor achieves an aggregate of $10,000,000 in revenues from
Sun, Ancor will perform a final Black-Scholes calculation for the warrant shares
earned through the end of that quarter, which will result in a final adjustment
to the non-cash sales discount. Thereafter, warrant shares will vest as they are
earned, and Ancor will record a non-cash discount quarterly based on the
Black-Scholes calculation, as described above. No subsequent revaluations will
be recorded. Upon completion of the merger, this warrant will be assumed by
QLogic and converted into a warrant to acquire QLogic common stock on the same
terms and conditions, except that the number of shares and exercise price will
be adjusted to reflect the exchange ratio.
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THE MARKET FOR SANS AND FOR ANCOR'S PRODUCTS MAY BE IMPAIRED IF SUFFICIENT
INTEROPERABILITY IS NOT ACHIEVED AND MAINTAINED.
Given that organizations want products that they purchase from different
vendors to work together, the ability of the various components that comprise a
SAN, such as adapter cards, hubs and switches, to interoperate is an important
factor in the development of the SAN market. Currently, manufacturers of these
various components have not established a complete interoperability standard and
may never do so. If manufacturers of fibre channel SAN products do not
manufacture products that interoperate effectively with the products of other
manufacturers, the development of the SAN market may be limited. In addition, if
interoperability standards are not agreed upon, its products could fail to
achieve the desired level of market acceptance because potential customers may
believe that a competitor's products represents the standard that will more
likely prevail.
In addition, Ancor's products are designed to conform to the fibre channel
interconnect protocol and other industry standards. There is a risk that fibre
channel, or the other standards Ancor has employed, may not be widely adopted,
and competing standards may emerge that will be preferred by original equipment
manufacturers or end-users. If end-users and original equipment manufacturers do
not adopt the standards Ancor has adopted for its products, its growth may be
limited.
IF ANCOR IS UNABLE TO DEVELOP NEW AND ENHANCED PRODUCTS THAT MEET CUSTOMER NEEDS
AND ACHIEVE WIDESPREAD MARKET ACCEPTANCE, ITS RESULTS OF OPERATIONS COULD BE
NEGATIVELY IMPACTED.
The data storage markets are subject to rapid technological change,
including changes in customer requirements, frequent new product introductions
and enhancements and progressing industry standards. Ancor's success depends in
part on its ability to keep pace with technological developments and emerging
industry standards. Ancor must also respond to developing customer requirements
by enhancing its current products and developing and introducing new products.
There is a risk that if Ancor fails to anticipate or respond rapidly to advances
in technology by adapting its products appropriately, its products could become
obsolete. If this occurs, Ancor's business could be adversely affected.
Ancor currently relies on INRANGE Technologies to supply the 64 port switch
product which it resells to its customers. Ancor and INRANGE have a mutual
dependency for the technical support and enhancement of this product. If either
Ancor or INRANGE are not able to meet customer expectations for the support and
enhancement of the 64 port switch product, Ancor's growth may be limited.
As Ancor introduces new or enhanced products, it will also need to manage
successfully the transition from older products to minimize disruption in its
customers' ordering patterns, to avoid excessive levels of older product
inventories and to ensure that enough supplies of new products can be delivered
to meet Ancor's customers' demands. If Ancor fails to develop and introduce
successfully new products and product enhancements, its revenue would be
reduced, or it could incur substantial charges.
BECAUSE ANCOR'S BUSINESS IS DEPENDENT ON A SMALL NUMBER OF CUSTOMERS, THE LOSS
OF ANY ONE OF THEM WOULD MATERIALLY REDUCE ITS REVENUES.
Ancor derives a substantial portion of its revenue from original equipment
manufacturers. To date, Ancor has agreements with only eleven original equipment
manufacturers, and anticipates that a small number of customers will account for
a significant portion of its future revenues. In 1998 sales from two customers
accounted for 72% of total revenues. In 1999 sales from four customers accounted
for 73% of total revenues. Ancor's agreements with original equipment
manufacturers do not provide any assurance of future sales to these customers.
Original equipment manufacturers can stop purchasing and marketing Ancor's
products at any
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time and Ancor's agreements are not exclusive and do not require any minimum
purchases. If Ancor loses any significant customers or if a significant customer
materially reduces its purchases of Ancor's products, Ancor's revenues might
decline.
NEW PRODUCTS ANCOR DEVELOPS MAY CONTAIN UNDETECTED HARDWARE AND SOFTWARE ERRORS,
WHICH COULD REQUIRE SIGNIFICANT EXPENDITURES OF TIME AND MONEY TO CORRECT, HARM
ITS RELATIONSHIPS WITH EXISTING CUSTOMERS, AND NEGATIVELY IMPACT ITS REPUTATION
IN THE INDUSTRY.
Like other products as complex as Ancor's, its SAN switches may contain
undetected hardware or software errors when Ancor first introduces new products
or releases new versions of existing products. Despite Ancor's testing and
quality control efforts, it anticipates that errors may be found from time to
time in its new or enhanced products after commercial introduction. In addition,
Ancor's products are combined with products from other vendors. As a result,
when problems occur, it may be difficult to identify the source of the problem.
If Ancor is unable to rapidly correct any errors, it could result in the
following consequences, among others:
- delay or loss of market acceptance of Ancor's products;
- significant warranty or other liability claims;
- diversion of engineering and other resources from product development
efforts;
- significant customer relations problems;
- loss of credibility in the market; and
- inability to sell Ancor's products until any errors are corrected.
Moreover, the occurrence of hardware and software errors, whether caused by
Ancor's products or another vendor's SAN products, could delay the development
of the SAN market. Ancor's growth depends on its SAN products and if any of the
above events occur, its business could be seriously harmed.
IF ANCOR'S SUBCONTRACTORS DO NOT MEET THEIR MANUFACTURING NEEDS, ANCOR MAY NOT
BE ABLE TO PRODUCE AND SELL ITS PRODUCTS.
Ancor subcontracts its production activities, including the manufacture,
assembly and testing of its products. Ancor currently depends upon LSI Logic for
the manufacture of its application specific integrated circuits, or ASICs, and
Pemstar and INRANGE Technologies for the manufacture and assembly of its switch
products. Ancor depends on these and other subcontractors to deliver
high-quality products in a timely manner, but Ancor cannot assure you that they
will. Ancor currently does not have a long-term supply contract with any of its
subcontractors. Ancor's subcontractors are not obligated to supply products to
it for any specific period, or in any specific quantity, except as may be
provided in a particular purchase order. Ancor generally places orders with its
subcontractors between one and three months before scheduled delivery of
products to its customers. Accordingly, if Ancor inaccurately forecasts demand
for its products, it may be unable to obtain adequate manufacturing capacity
from its subcontractors to meet its customers' delivery requirements, or it may
accumulate excess inventories. Poor performance by one of Ancor's subcontractors
would have a material adverse effect on Ancor's business until Ancor finds an
alternate subcontractor. Ancor cannot assure you that it would be able to find
an alternate subcontractor to deliver quality products at an acceptable price.
If Ancor experiences problems with one of its subcontractors, its business could
be materially adversely affected.
In addition, future growth may cause Ancor to increase the orders to its
subcontractors. If this happens, Ancor may not be able to accurately forecast
its needs or manage its relationship with its subcontractors during the
transition. Significant increases in the volume of product
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Ancor orders will also place increased demands on its subcontractors, including
the need to secure adequate supplies of the components needed for its products
and to successfully begin large scale production of a new line of products.
Frequently, manufacturers encounter delays or difficulties in beginning volume
production of new products lines. If Ancor or its subcontractors are not able to
effectively manage the anticipated increase in production volumes, its business
could suffer.
ANCOR'S DEPENDENCE ON A LIMITED NUMBER OF SUPPLIERS AND THE POSSIBLE
UNAVAILABILITY OF SOME KEY COMPONENTS MAY PREVENT IT FROM BEING ABLE TO PRODUCE
ITS PRODUCTS.
Some of the components Ancor uses in its products are available only from a
single supplier, or from a limited number of suppliers. For example, Ancor
purchases ASICs and microprocessors from single sources, and power supplies and
other specific electronic components used in its products from limited sources.
Other components may occasionally be in short supply or temporarily be available
from only a single supplier. The following factors could each have a material
adverse effect on Ancor's ability to obtain components for its products:
- scarce quantities of components;
- a reduction or interruption in component supply;
- a disruption of existing supplier relationships;
- an inability to develop alternative sources; and
- a significant increase in the price of components.
If Ancor is unable to buy components on a timely basis, it will not be able
to produce its products.
AS ANCOR'S BUSINESS GROWS, IT WILL PLACE INCREASED DEMANDS ON ITS MANAGEMENT,
OPERATIONAL AND PRODUCTION CAPABILITIES THAT ANCOR MAY NOT BE ABLE TO ADEQUATELY
ADDRESS. IF ANCOR IS UNABLE TO MEET THESE INCREASED DEMANDS, ANCOR'S BUSINESS
WILL BE HARMED.
Unless Ancor manages its growth effectively, it may make mistakes in
operating its business, such as inaccurate sales forecasting and material
planning. Future growth of Ancor's operations may place significant demands on
its management, operational and production resources. In order to manage growth
effectively, Ancor must implement and improve its operational systems,
procedures and controls on a timely basis. If Ancor cannot manage growth
effectively, its business could suffer.
IF ANCOR FAILS TO COMPLY WITH EVOLVING REGULATORY APPROVALS OR GOVERNMENT
REGULATIONS OR THE EMERGING FIBRE CHANNEL STANDARD, IT MAY BE UNABLE TO SELL ITS
PRODUCTS.
If Ancor fails to comply with evolving regulatory approvals or government
regulations, it may be unable to sell its products. Similarly, if it fails to
comply with the emerging fibre channel standards, Ancor may be unable to sell
its products. Ancor's products must comply with various regulations and
standards defined by the Federal Communications Commission and Underwriters
Laboratories in the United States. Internationally, products that Ancor develops
will also be required to comply with standards established by authorities in
various countries.
LOSS OF KEY PERSONNEL OR THE INABILITY TO HIRE ADDITIONAL QUALIFIED PERSONNEL
COULD NEGATIVELY IMPACT ANCOR'S BUSINESS.
The loss of the services of any Ancor's key management employees, its
inability to attract and retain qualified personnel or delays in hiring required
personnel, particularly engineers and
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sales personnel, could delay the development and introduction of, and negatively
impact its ability to sell, its products. In addition to Ancor's key management
personnel, Ancor's success depends on Ancor's ability to attract and retain
highly skilled managerial, engineering, sales and marketing and other personnel.
Competition for these personnel is intense. In recent years, there has been
great demand for qualified employees in the Minneapolis area, where Ancor's main
operations are located, and in other areas where it operates. There is a risk
that Ancor will be unsuccessful in attracting and retaining the personnel it
needs for its businesses.
ANCOR'S BUSINESS IS DEPENDENT ON ANCOR'S INTELLECTUAL PROPERTY, AND ITS
INABILITY TO PROTECT ITS INTELLECTUAL PROPERTY COULD NEGATIVELY AFFECT ITS
ABILITY TO COMPETE.
Ancor's success will depend on its ability to protect its intellectual
property rights, such as copyrights, trademarks and patents. To establish and
protect its intellectual property rights, Ancor relies on a combination of
patent, copyright, trademark and trade secret laws and restrictions on
disclosure and know how. Ancor also enters into confidentiality or license
agreements with its consultants, customers and corporate partners. Ancor cannot
be certain that the steps it takes to protect its intellectual property will
adequately protect its proprietary rights, or that others will not independently
develop or otherwise acquire equivalent or superior technology. In addition, the
laws of some of the countries in which Ancor's products are or may be sold may
not protect Ancor's proprietary rights as fully as the laws of the United
States.
ANCOR MAY BE A PARTY TO INTELLECTUAL PROPERTY LITIGATION, WHICH MAY RESULT IN
SIGNIFICANT COSTS AND BE TIME CONSUMING.
In the future, Ancor may be a party to intellectual property litigation,
either to protect its intellectual property from an infringement by some other
party, or to defend a lawsuit brought about as a result of an alleged
infringement of others' intellectual property. Any litigation or dispute,
regardless of its success, would likely result in substantial costs and be time
consuming. An adverse determination could:
- subject Ancor to significant liabilities to third parties;
- invalidate its proprietary rights;
- require Ancor to seek licenses from or pay royalties to third parties;
- require Ancor to develop appropriate alternative technology; or
- require Ancor to stop using the challenged intellectual property or stop
selling its products that incorporate it.
Any of these events could have a material adverse effect on Ancor's business,
financial condition and results of operations.
ANCOR MAY NOT BE SUCCESSFUL IN ITS INTERNATIONAL SALES ACTIVITIES, WHICH COULD
ADVERSELY AFFECT ITS GROWTH.
Ancor's international sales will be limited if it is unable to establish
and maintain relationships with international distributors and original
equipment manufacturers. Even if Ancor increases its international sales
efforts, it cannot be certain that demand will increase for its products in
these markets. Ancor's international operations are subject to a number of
risks, including:
- longer sales cycles;
- difficulty in collecting accounts receivable;
- political and economic instability;
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- reduced protection of intellectual property rights;
- protectionist laws and business practices that favor local competition;
and
- dependence on local vendors.
To date, none of Ancor's international revenues and costs has been
denominated in foreign currencies. As a result, an increase in the value of the
U.S. dollar relative to foreign currencies could make Ancor's products more
expensive and therefore less competitive in foreign markets. A portion of
Ancor's international revenues may be denominated in foreign currencies in the
future, which would subject it to risks associated with fluctuations in those
foreign currencies.
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QLOGIC SPECIAL MEETING
This joint proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of QLogic common stock by the QLogic
board of directors for use at the special meeting of QLogic stockholders.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting will be held on August 1, 2000 at 10:00 a.m., local
time, at the Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach,
California 92660.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, stockholders of QLogic will be asked to consider
and vote upon a proposal to approve the merger agreement, including the issuance
of shares of QLogic common stock in the merger and to transact such other
business as may properly come before the special meeting or any postponements or
adjournments thereof. Adoption of the merger agreement will also constitute
approval of the merger and the other transactions contemplated by the merger
agreement.
RECORD DATE AND SHARES ENTITLED TO VOTE
QLogic's board of directors has fixed the close of business on June 23,
2000, as the record date for determination of QLogic stockholders entitled to
notice of and to vote at the special meeting. As of the close of business on
June 23, 2000, there were shares of QLogic common stock
outstanding and entitled to vote, held of record by approximately
stockholders. A majority of these shares, present in person or represented by
proxy, will constitute a quorum for the transaction of business. If a quorum is
not present, it is expected that the special meeting will be adjourned or
postponed to solicit additional proxies. Each QLogic stockholder is entitled to
one vote for each share of QLogic common stock held as of the record date.
VOTING OF PROXIES AND REVOCATION OF PROXIES
If you are a QLogic stockholder, you are requested to complete, date and
sign the accompanying proxy and promptly return it in the accompanying envelope
or otherwise mail it to QLogic. If your shares are held in "street name" by your
broker, your broker will vote your shares for you only if you provide
instructions on how to vote. Your broker will provide you directions regarding
how to instruct your broker to vote your shares. All properly executed proxies
received by QLogic prior to the vote at the special meeting, and that are not
revoked, will be voted in accordance with the instructions indicated on the
proxies or, if no direction is indicated, to approve the merger agreement,
including the issuance of shares of QLogic common stock in the merger. QLogic's
board of directors does not presently intend to bring any other business before
the special meeting and, so far as is presently known to QLogic's board of
directors, no other matters are to be brought before the special meeting. As to
any business that may properly come before the special meeting, however, it is
intended that proxies, in the form enclosed, will be voted in accordance with
the judgment of the persons voting such proxies.
QLogic stockholders may also use a toll-free telephone line to authorize
the voting of shares or submit a proxy by the Internet in lieu of returning an
executed proxy card. Specific instructions for telephone and Internet voting are
contained in the enclosed proxy card and can also be obtained by calling
Corporate Investor Communications, Inc. at 800-346-7885. The telephone and
Internet voting procedures are designed to authenticate a stockholder's
identity, to allow a stockholder to vote its shares and to confirm that a
stockholder's instructions have been properly recorded. If your QLogic shares
are held in an account with a bank or broker participating in the ADP Investor
Communication Services Program, you may choose to vote your shares via the
Internet at the ADP Investor Communication Services voting website
(www.proxyvote.com) or by telephone, using the instructions on your voting card.
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QLogic stockholders may revoke their proxies at any time prior to their use
by delivering to the Secretary of QLogic a signed notice of revocation or a
later-dated, signed proxy, or by attending the special meeting and voting in
person. Attendance at the special meeting does not in itself constitute the
revocation of a proxy. If you voted by telephone or via the Internet, you can
change your vote by any of these methods or you can revoke by following the
instructions on your voting card or provided by Corporate Investor
Communications. In all cases, the latest dated proxy revokes an earlier dated
proxy, regardless of which voting method is used to give or revoke a proxy or if
different methods are used to give and revoke a proxy.
VOTE REQUIRED
Approval of the merger agreement, including the issuance of shares of
QLogic common stock in the merger, by QLogic's stockholders is required by the
Nasdaq National Market corporate governance rules. Such approval requires at
least a majority of the votes cast on the proposal. As of the record date and
the date of this joint proxy statement/prospectus, Ancor owns no shares of
QLogic common stock.
QUORUM AND ABSTENTIONS AND BROKER NON-VOTES
The required quorum for the transaction of business at the special meeting
is a majority of the shares of QLogic common stock issued and outstanding on the
record date. Abstentions and broker non-votes each will be included in
determining the number of shares present and voting at the meeting for the
purpose of determining the presence of a quorum but will not be considered as
voting. Accordingly, abstentions and broker non-votes will have no effect on the
outcome. THE ACTIONS PROPOSED IN THIS JOINT PROXY STATEMENT/ PROSPECTUS ARE NOT
MATTERS THAT CAN BE VOTED ON BY BROKERS HOLDING SHARES FOR BENEFICIAL OWNERS
WITHOUT THE OWNERS' SPECIFIC INSTRUCTIONS. ACCORDINGLY, YOU ARE URGED TO RETURN
THE ENCLOSED PROXY CARD MARKED TO INDICATE YOUR VOTE.
EXPENSES OF SOLICITATION
QLogic will assume the cost of solicitation of proxies from you and by
Corporate Investor Communications estimated to be $7,500 plus reasonable
out-of-pocket expenses. In addition to solicitation by mail, the directors,
officers and employees of QLogic may solicit proxies from stockholders by
telephone, facsimile or in person. Following the original mailing of the proxies
and other soliciting materials, QLogic will request brokers, custodians,
nominees and other record holders to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of QLogic common stock
and to request authority for the exercise of proxies. In such cases, QLogic,
upon the request of the record holders, will reimburse such holders for their
reasonable expenses.
BOARD RECOMMENDATION
THE QLOGIC BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE MERGER, AND THE ISSUANCE OF QLOGIC COMMON STOCK IN THE MERGER AND
RECOMMENDS THAT QLOGIC STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT,
THE MERGER, AND THE ISSUANCE OF QLOGIC COMMON STOCK IN THE MERGER.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF QLOGIC. ACCORDINGLY, YOU ARE URGED TO READ AND CAREFULLY
CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND
TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
QLOGIC STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. QLOGIC STOCKHOLDERS WILL NOT EXCHANGE THEIR STOCK CERTIFICATES IN
CONNECTION WITH THE MERGER.
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ANCOR SPECIAL MEETING
This joint proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of Ancor common stock by the Ancor
board of directors for use at the special meeting of Ancor shareholders.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting will be held on August 1, 2000 at 10:00 a.m., local
time, at the Minneapolis Marriott Southwest, 5801 Opus Parkway, Minnetonka,
Minnesota 55343.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, shareholders of Ancor will be asked to consider and
vote upon a proposal to approve the merger agreement and to transact such other
business as may properly come before the special meeting or any postponements or
adjournments thereof. Approval of the merger agreement will also constitute
approval of the merger and the other transactions contemplated by the merger
agreement.
RECORD DATE AND SHARES ENTITLED TO VOTE
The Ancor board of directors has fixed the close of business on June 23,
2000, as the record date for determination of Ancor shareholders entitled to
notice of and to vote at the special meeting. As of the close of business on
June 23, 2000, there were shares of Ancor common stock
outstanding and entitled to vote, held of record by approximately
shareholders. A majority of these shares, present in person or represented by
proxy, will constitute a quorum for the transaction of business. If a quorum is
not present, it is expected that the special meeting will be adjourned or
postponed to solicit additional proxies. Each Ancor shareholder is entitled to
one vote for each share of Ancor common stock held as of the record date.
VOTING OF PROXIES AND REVOCATION OF PROXIES
If you are an Ancor shareholder, you are requested to complete, date and
sign the accompanying proxy and promptly return it in the accompanying envelope
or otherwise mail it to Ancor. If your shares are held in "street name" by your
broker, your broker will vote your shares for you only if you provide
instructions on how to vote. Your broker will provide you directions regarding
how to instruct your broker to vote your shares. All properly executed proxies
received by Ancor prior to the vote at the special meeting, and that are not
revoked, will be voted in accordance with the instructions indicated on the
proxies or, if no direction is indicated, to approve the merger agreement. The
Ancor board of directors does not presently intend to bring any other business
before the special meeting and, so far as is presently known to the Ancor board
of directors, no other matters are to be brought before the special meeting. As
to any business that may properly come before the special meeting, however, it
is intended that proxies, in the form enclosed, will be voted in accordance with
the judgment of the persons voting such proxies.
Ancor shareholders may also use a toll-free telephone line to authorize the
voting of shares or submit a proxy by the Internet in lieu of returning an
executed proxy card. Specific instructions for telephone and Internet voting are
contained in the enclosed proxy card and can also be obtained by calling
MacKenzie Partners, Inc. at 800-322-2885. The telephone and Internet voting
procedures are designed to authenticate a shareholder's identity, to allow a
shareholder to vote its shares and to confirm that a shareholder's instructions
have been properly recorded. If your Ancor shares are held in an account with a
bank or broker participating in the ADP Investor Communication Services Program,
you may choose to vote
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your shares via the Internet at the ADP Investor Communication Services voting
website (www.proxyvote.com) or by telephone, using the instructions on your
voting card.
Ancor shareholders may revoke their proxies at any time prior to their use
by delivering to the Secretary of Ancor a signed notice of revocation or a
later-dated, signed proxy, or by attending the special meeting and voting in
person. Attendance at the special meeting does not in itself constitute the
revocation of a proxy. If you voted by telephone or via the Internet, you can
change your vote by any of these methods or you can revote by following the
instructions on your voting card or provided by MacKenzie Partners. In all
cases, the latest dated proxy revokes an earlier dated proxy, regardless of
which voting method is used to give or revoke a proxy or if different methods
are used to give and revoke a proxy.
VOTE REQUIRED
The Minnesota Business Corporation Act requires approval of the merger
agreement by Ancor shareholders. Such approval requires the affirmative vote of
the holders of at least a majority of the shares of Ancor common stock
outstanding and entitled to vote at the special meeting. As of the record date
and the date of this joint proxy statement/prospectus, QLogic owns no shares of
Ancor common stock. Shareholders of Ancor holding 0.5% of the outstanding shares
of Ancor common stock have entered into a voting agreement with QLogic agreeing
to vote all shares of Ancor common stock held by them in favor of the proposal
to approve the merger agreement.
QUORUM AND ABSTENTIONS AND BROKER NON-VOTES
The required quorum for the transaction of business at the special meeting
is a majority of the shares of Ancor common stock issued and outstanding on the
record date. Abstentions and broker non-votes each will be included in
determining the number of shares present and voting at the meeting for the
purpose of determining the presence of a quorum. Because approval of the merger
agreement and the consummation of the merger requires the affirmative vote of a
majority of the outstanding shares of Ancor common stock entitled to vote,
abstentions and broker non-votes will have the same effect as votes against the
merger agreement and the consummation of the merger. In addition, a failure of
an Ancor shareholder to return a proxy will have the effect of a vote against
the approval of the merger agreement. THE ACTIONS PROPOSED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS ARE NOT MATTERS THAT CAN BE VOTED ON BY BROKERS HOLDING
SHARES FOR BENEFICIAL OWNERS WITHOUT THE OWNERS' SPECIFIC INSTRUCTIONS.
ACCORDINGLY, YOU ARE URGED TO RETURN THE ENCLOSED PROXY CARD MARKED TO INDICATE
YOUR VOTE.
EXPENSES OF SOLICITATION
Ancor will assume the cost of solicitation of proxies from you and by
MacKenzie Partners estimated to be $8,500 plus reasonable out-of-pocket
expenses. In addition to solicitation by mail, the directors, officers and
employees of Ancor may solicit proxies from shareholders by telephone, facsimile
or in person. Following the original mailing of the proxies and other soliciting
materials, Ancor will request brokers, custodians, nominees and other record
holders to forward copies of the proxy and other soliciting materials to persons
for whom they hold shares of Ancor common stock and to request authority for the
exercise of proxies. In such cases, Ancor, upon the request of the record
holders, will reimburse such holders for their reasonable expenses.
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DISSENTERS' APPRAISAL RIGHTS
In connection with the proposal to approve the merger agreement and the
merger, the shareholders of record of Ancor may, under certain circumstances and
by following procedures prescribed by the Minnesota law, exercise dissenters'
appraisal rights and receive cash for their shares of Ancor common stock. The
failure of a dissenting shareholder of Ancor to follow the appropriate
procedures may result in the termination or waiver of such rights. See "The
Merger -- Dissenters' Appraisal Rights" for a summary of dissenters' appraisal
rights and the procedures to follow to assert these rights.
BOARD RECOMMENDATION
THE ANCOR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT ANCOR SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE SHAREHOLDERS OF ANCOR. ACCORDINGLY, YOU ARE URGED TO READ AND CAREFULLY
CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND
TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
ANCOR SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR ANCOR COMMON STOCK WILL BE MAILED TO YOU AS SOON AS PRACTICAL
AFTER COMPLETION OF THE MERGER.
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THE MERGER
The following describes some aspects of the proposed merger. Because this
discussion is a summary, it may not contain all of the information that is
important to you. To understand the merger fully, and for a more complete
description of the legal terms of the merger, you are urged to read the merger
agreement carefully. A copy of the merger agreement is attached as Annex A to
this document and is incorporated in this document by reference.
GENERAL
The merger agreement provides for the merger of Amino Acquisition Corp., a
wholly owned subsidiary of QLogic with and into Ancor, with Ancor surviving as a
wholly owned subsidiary of QLogic. The merger will become effective at the
effective time in accordance with the articles of merger to be filed with the
Secretary of State of the State of Minnesota. It is anticipated that this filing
will be made as soon as practicable after the last of the conditions to the
merger, as set forth in the merger agreement, has been satisfied or waived.
When the merger is completed:
- Ancor will survive as a wholly owned subsidiary of QLogic;
- Ancor shareholders will become stockholders of QLogic;
- the rights of Ancor shareholders will be different since the internal
affairs of QLogic are governed by QLogic's certificate of incorporation,
bylaws and the Delaware General Corporation Law (see "Comparison of
Rights of Stockholders of QLogic and Shareholders of Ancor");
- QLogic, as the sole owner of Ancor, will succeed to all of Ancor's assets
and liabilities;
- shareholders of Ancor who receive QLogic common stock in the merger will
own approximately 18% of QLogic and QLogic's stockholders would own the
remainder; and
- QLogic shall use its commercially reasonable best efforts to expand the
size of the QLogic board of directors from five to six and to elect
Kenneth E. Hendrickson, Ancor's current chief executive officer, to fill
the resulting vacancy.
We hope to complete this transaction during the third quarter of 2000.
MERGER CONSIDERATION
Upon completion of the merger, each outstanding share of Ancor common
stock, other than shares held by Ancor or by QLogic or by Ancor's or QLogic's
subsidiaries and other than shares for which dissenters' appraisal rights have
been effectively asserted and not withdrawn or lost (see "The
Merger -- Dissenters' Appraisal Rights"), will be canceled and converted into
the right to receive 0.5275 of a share of QLogic common stock. Each share of
QLogic common stock issued will carry one-eighth of one preferred stock purchase
right under QLogic's shareholder rights plan, as amended. The number of shares
of QLogic common stock issuable in the merger will be proportionately adjusted
for any future stock split, stock dividend or similar event with respect to
Ancor common stock or QLogic common stock effected between the date of the
merger agreement and the completion of the merger.
No fractional shares of QLogic common stock will be issued in connection
with the merger. Instead, you will receive an amount of cash in lieu of a
fraction of a share of QLogic common stock equal to the product of such fraction
multiplied by the closing price for a share of QLogic common stock on the Nasdaq
National Market on the last full trading day prior to the effective time of the
merger.
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<PAGE> 50
Each share of QLogic common stock outstanding immediately prior to the
completion of the merger will remain outstanding and unchanged as a result of
the merger.
BACKGROUND OF THE MERGER
H.K. Desai, the chairman of the board and chief executive officer of QLogic
and Kenneth E. Hendrickson, the chairman of the board and chief executive
officer of Ancor, had previously worked together for a prior employer and had
from time to time discussed generally and informally various matters about the
industry in which QLogic and Ancor participate. During the last year, industry
participants have on occasion made informal suggestions to Ancor as to the
possibility of a consolidation. As described below, some of those suggestions
have resulted in further exploration of that possibility.
On November 16, 1999, Mr. Hendrickson met with the chief executive officer
of an industry participant, referred to in this section as company A, at a trade
show, who suggested that a merger of equals between the two companies be
considered. On November 30, Mr. Hendrickson, along with Calvin G. Nelson,
Ancor's president and chief operating officer, and Steven E. Snyder, its chief
financial officer, met with the chief executive officer and chief financial
officer of company A in Chicago, Illinois to further explore a combination of
the two businesses. Among other things, the question of the relative valuation
of the companies and management of the combined enterprise were discussed. The
two teams did not reach agreement on valuation or how to provide management
depth for the highly complex combined enterprise.
Following that meeting, Ancor engaged in discussions with an investment
banker concerning a possible combination with company A. The investment banker
made a presentation at a special meeting of the Ancor board of directors on
December 13, exploring the state of the industry, likely merger candidates and
details with respect to company A. At the end of the meeting, the board of
directors determined that a merger with company A would not be in the best
interests of Ancor's shareholders.
On January 17, 2000, Mr. Hendrickson met with the chief executive officer
of, and an outside investor in, company A. The question of relative valuation
and management depth was again discussed. At a regular board meeting on January
19, Mr. Hendrickson reported to the board the discussions of January 17.
On January 26, an executive of another industry participant, referred to in
this section as company B, contacted Mr. Hendrickson and suggested the
possibility of a merger.
On March 2, Mr. Desai telephoned Mr. Hendrickson and suggested that a
combination of Ancor and QLogic should be considered. On March 8, Ancor signed a
non-disclosure agreement prepared by QLogic dated March 6. Pursuant to that
agreement, the parties for a period of time exchanged information about their
respective businesses. There were numerous telephone conversations between
representatives of Ancor and QLogic concerning their respective businesses and
prospects.
On March 10, the chief executive officer of a third industry participant,
referred to in this section as company C, discussed the possibility of a merger
with Ancor, and Mr. Hendrickson suggested that there be a meeting of the
executives and technical management of the two companies. On March 27, there was
a meeting between representatives of company C and representatives of Ancor. Mr.
Hendrickson concluded that because of a substantial product overlap and cultural
differences between the two companies, a merger with company C was not in the
best interests of Ancor.
On March 29, there was a meeting between management teams of QLogic and
Ancor in San Jose, California, at which the benefits of a merger were discussed.
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During the week of March 30, Mr. Desai had telephone conversations with
certain members of the QLogic board of directors discussing the benefits and
risks of the merger. The consensus was that QLogic management should continue
discussions with Ancor.
On April 4, at a meeting between Mr. Hendrickson and Mr. Nelson of Ancor
and executives of company B, there was further discussion about a possible
merger, but Ancor's management determined that structural difficulties with
company B appeared to present insurmountable problems.
On April 5, at the request of the chief executive officer of company A, Mr.
Hendrickson had a dinner meeting with the chief operating officer of company A.
On April 12, a team of Ancor's executives, having been invited by a fourth
industry participant, referred to in this section as company D, made a
presentation to it concerning Ancor and the future of the industry. Company D
later scheduled a meeting with Ancor at Ancor's headquarters, but then canceled
the meeting.
On April 14, Mr. Hendrickson advised each board member by telephone of the
developments that had occurred over the past several weeks.
On April 17, Ancor engaged the services of Goldman Sachs in connection with
a possible merger of QLogic and Ancor.
On April 19, the Ancor board of directors met to hear a presentation by
Goldman Sachs concerning the industry and possible merger partners. The sense of
the board was that a merger with QLogic made the most strategic sense and
encouraged Ancor management to continue exploration of a merger with QLogic.
On April 20, Mr. Hendrickson met with the chief executive officer and chief
financial officer of company A in Chicago to again discuss a possible merger.
On April 21, the QLogic board of directors held a telephonic meeting with
members of QLogic management to discuss, among other things, the potential
strategic and financial benefits and risks of a merger with Ancor. Pursuant to
the discussions, the board authorized QLogic management to continue negotiations
with Ancor. After completion of the meeting, QLogic engaged SG Cowen Securities
Corporation as its financial advisor in connection with a possible merger of
QLogic and Ancor.
During the week of April 24, at the request of their respective clients,
the financial advisors for QLogic and Ancor had discussions regarding major
terms of a possible merger. On April 29 and April 30, there were discussions
between Mr. Desai and Mr. Hendrickson, and it appeared that progress was being
made toward a possible merger.
On May 1, the QLogic board of directors held a telephonic meeting with
members of QLogic management to discuss the status of negotiations. Topics
discussed, among others, included the potential strategic and financial benefits
and risks of a merger with Ancor, as well as the potential for Ancor to enter
into an exclusive period of negotiation. During this meeting, SG Cowen
Securities Corporation made a presentation regarding its preliminary financial
analysis in connection with the proposed merger. Subsequent to the meeting,
QLogic proposed to Ancor that it be granted an exclusive period to negotiate the
merger agreement and began preparation of a draft merger agreement.
On May 2, QLogic presented a draft of the merger agreement, an exclusivity
agreement and a detailed due diligence list to Ancor. After some discussion, and
after Ancor was satisfied that the proposed form of the merger agreement
provided a reasonable basis for negotiations, QLogic and Ancor entered into an
exclusivity agreement on May 3, providing QLogic with an exclusive period to
negotiate with Ancor toward a possible merger through May 9. QLogic
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continued its due diligence review of Ancor, and the parties began negotiations
of the merger agreement. Negotiations continued on May 4 and May 5.
On May 3, an investment banker for company A called a representative of
Goldman Sachs and proposed a merger of company A and Ancor. The investment
banker for company A indicated that the proposal would remain outstanding until
the end of the day on May 3. On the evening of May 3, a representative from
Goldman Sachs called the investment banker for company A and indicated that
Ancor could not move forward with company A at that time. The investment banker
for company A subsequently called a representative from Goldman Sachs indicating
that the proposal by company A had been withdrawn.
On the evening of May 4, the Ancor board of directors held a telephonic
meeting to consider the status of the negotiations. The board concluded that a
merger with QLogic made sound strategic sense and was more attractive than a
combination with company A. There was no interest in delaying a transaction with
QLogic in the hope that an offer from company A might emerge after the end of
the exclusive period. Mr. Hendrickson was directed to continue discussions with
QLogic.
At a special telephonic QLogic board of directors meeting on the morning of
May 6, the board of directors thoroughly reviewed the merger agreement and each
of the related documents with QLogic's legal counsel and received SG Cowen
Securities Corporation's financial presentation. The board thoroughly discussed
the merger with Ancor and authorized the execution of the merger agreement and
related documents. See "-- QLogic's reasons for the merger and recommendation of
the QLogic board of directors." The merger agreement and related documents were
signed on the evening of May 7, after the special Ancor board of directors
meeting referred to in the following paragraph.
At a special Ancor board of directors meeting on the evening of May 7, the
board of directors thoroughly reviewed the merger agreement and option agreement
with Ancor's legal counsel and received Goldman Sachs' financial presentation.
The board thoroughly discussed the merger with QLogic and authorized the
execution of the merger agreement and option agreement. See "-- Ancor's reasons
for the merger and board of directors recommendation." The merger agreement and
related documents were signed that evening.
QLOGIC'S REASONS FOR THE MERGER AND RECOMMENDATION OF THE QLOGIC BOARD OF
DIRECTORS
In reaching its determination to recommend approval and adoption of the
merger agreement and the merger and the issuance of shares of QLogic common
stock in the merger, the QLogic board of directors considered a number of
factors, including that the combined companies can benefit from the following:
- an expanded portfolio of products based on fibre channel technology;
- complementary customer relationships will allow the combined company to
further penetrate the market with an expanded offering of fibre channel
solutions;
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- being able to deliver to the marketplace an expanded portfolio of
hardware interconnect components for storage area network, or SAN,
solutions and diversify QLogic's business mix;
- decreasing the time-to-market deployment of new products;
- achieving efficiencies in manufacturing, development, sales and
administrative activities; and
- an increase in financial resources which will allow the combined company
to compete more effectively.
In addition, the combination of Ancor and QLogic will provide the combined
company an opportunity to capitalize on:
- new sales opportunities, since there is limited customer overlap, and
many of each company's current customers are prospective customers of the
other company's products;
- the ability to offer end-to-end storage solutions;
- enhanced technical leadership;
- sales, marketing and channel benefits;
- manufacturing efficiencies; and
- powerful strategic alliances with third parties.
The QLogic board of directors instructed QLogic's senior management to
conduct a detailed due diligence review of Ancor, its business operations,
strategies and goals and its prospects for future performance. In addition, the
QLogic board of directors sought advice and analysis from its independent
financial, legal and accounting advisers regarding due diligence and the
structure of the merger and fairness of the exchange ratio. The QLogic board of
directors also considered, among other things:
- the terms and conditions of the merger agreement;
- information relating to the business, management and prospects of Ancor;
- current financial market conditions and historical market prices,
volatility and trading information with respect to both QLogic's and
Ancor's common stock;
- the expectation that the merger will be tax-free for federal income tax
purposes;
- the expectation that the merger will be accounted for as a
pooling-of-interests;
- the fact that the merger is subject to the approval of both Ancor
shareholders and QLogic stockholders; and
- the opinion of SG Cowen Securities Corporation delivered on May 6, 2000,
that, as of such date, the exchange ratio was fair, from a financial
point of view, to QLogic (see the section of this joint proxy
statement/prospectus entitled "Opinion of QLogic's financial advisor").
In view of the variety of factors and the amount of information considered,
the QLogic board of directors did not find it practicable to, and did not, make
specific assessments of, quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. The determination was
made after consideration of all of the factors as a whole. In addition,
individual members of the QLogic board of directors may have given different
weight to different factors.
FOR THE REASONS DISCUSSED ABOVE, THE QLOGIC BOARD HAS APPROVED THE MERGER
AGREEMENT, THE MERGER AND THE ISSUANCE OF SHARES OF QLOGIC COMMON STOCK IN THE
MERGER AND
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RECOMMENDS THAT THE QLOGIC STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT, THE MERGER AND THE ISSUANCE OF SHARES OF QLOGIC COMMON STOCK IN THE
MERGER.
ANCOR'S REASONS FOR THE MERGER AND BOARD OF DIRECTORS RECOMMENDATION
Ancor believes that the strategic rationale for the merger is several fold:
- it better positions Ancor to capitalize on the growth potential of
storage area networks in that QLogic is well established in the market
for interconnect components of SAN, its products are complementary to
those of Ancor and both Ancor and QLogic are regarded as technology
leaders;
- it addresses Ancor's need to gain critical mass;
- it allows Ancor to compete more effectively with larger competitors with
greater resources;
- it results in a diversification of business mix;
- it allows Ancor's shareholders to participate in the expected synergies
through ownership in QLogic stock; and
- it enhances Ancor shareholder liquidity because of QLogic's significantly
larger market capitalization, float and volume.
In addition, the combination of Ancor and QLogic would provide the combined
company an opportunity to capitalize on:
- new sales opportunities, since there is limited customer overlap, and
many of each company's current customers are prospective customers of the
other company's products;
- the ability to offer end-to-end storage solutions;
- enhanced technical leadership;
- sales, marketing and channel benefits;
- manufacturing efficiencies; and
- powerful strategic alliances with third parties.
In reaching its determination to approve the merger agreement and the
merger and to recommend the approval of the merger agreement, the Ancor board of
directors, in consultation with Ancor's management and with Ancor's financial
advisor, Goldman Sachs also considered the following material factors:
- the terms and conditions of the merger agreement, including the form of
consideration to be received by Ancor's shareholders, the exchange ratio
and the fact that the exchange ratio is fixed, conditions to closing and
termination provisions;
- the fixed nature of the exchange ratio, which would preserve the benefit
of possible appreciation in the combined company's market value for
Ancor's shareholders;
- the expected qualification of the merger as a reorganization for federal
income tax purposes;
- based upon the closing sale price of the Ancor and QLogic's common stocks
on May 5, 2000, the exchange ratio represented a premium of approximately
69% over the average price of Ancor's common stock on The Nasdaq National
Market;
- the expected availability of "pooling-of-interests" accounting;
- the possibility of a superior offer from a third party;
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<PAGE> 55
- the "no shop" clause contained in the merger agreement would not preclude
Ancor from participating in discussions or negotiating with or providing
information to a person from whom Ancor received an unsolicited proposal
if the Ancor board of directors, after consultation with its independent
financial advisor, determines in good faith that the proposal is more
favorable to Ancor's shareholders from a financial point of view than the
merger and, after receiving advice of independent counsel, reasonably
believes that the failure to do so is inconsistent with the board's
fiduciary duties under applicable law, subject to the termination fee
provisions of the merger agreement;
- information relating to the business, management and prospects of QLogic;
- historical market prices and volatility of the Ancor common stock;
- historical market prices, volatility and volume of the QLogic common
stock, as well as analysts' views, street estimates and management
estimates for QLogic;
- market prices and financial data related to selected companies engaged in
businesses similar to each of Ancor and QLogic or otherwise participating
in the industry;
- the oral advice of Goldman Sachs, after Goldman Sachs reviewed with the
board of directors many of the factors referred to above, that the merger
is fair, from a financial point of view, to the Ancor shareholders;
- the risk that exercise of the option to purchase up to 19.9% of Ancor's
common stock might affect Ancor's ability to combine with another party
in a pooling-of-interests, which risk was alleviated by the board's
belief that other possible acquirors would not require a
pooling-of-interests accounting;
- the fact that the exchange ratio is fixed; and
- the fact that the merger is subject to the approval of QLogic's
stockholders.
In view of the number of material factors, the Ancor board did not find it
practical to, and did not quantify or otherwise assign relative weights to the
specific factors by it. The determination was made after consideration of all of
the factors as a whole.
FOR THE REASONS DISCUSSED ABOVE, THE ANCOR BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT ANCOR SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
In considering the recommendation of Ancor's board of directors with
respect to the merger agreement, you should be aware that certain directors and
officers of Ancor may have certain interests in the merger that are different
from, or are in addition to, the interests of Ancor shareholders generally,
which are discussed in "-- Interests of Certain Persons in the Merger."
OPINION OF QLOGIC'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated April 21, 2000, QLogic retained SG
Cowen Securities Corporation to act as exclusive financial advisor to QLogic in
connection with the merger.
On May 6, 2000, SG Cowen delivered certain of its written analyses and its
oral opinion to the QLogic board, subsequently confirmed in writing as of the
same date, to the effect that, as of that date, and subject to the various
assumptions set forth therein, the exchange ratio was fair, from a financial
point of view, to QLogic.
THE FULL TEXT OF THE WRITTEN OPINION OF SG COWEN, DATED MAY 6, 2000, IS
ATTACHED HERETO AS ANNEX B AND IS INCORPORATED BY REFERENCE. HOLDERS OF QLOGIC
COMMON STOCK ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, OTHER MATTERS
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CONSIDERED AND LIMITS OF THE REVIEW BY SG COWEN. THE SUMMARY OF THE WRITTEN
OPINION OF SG COWEN SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION. SG COWEN'S ANALYSES AND OPINION WERE PREPARED
FOR AND ADDRESSED TO THE QLOGIC BOARD AND ARE DIRECTED ONLY TO THE FAIRNESS,
FROM A FINANCIAL POINT OF VIEW, TO QLOGIC OF THE EXCHANGE RATIO, AND DO NOT
CONSTITUTE AN OPINION AS TO THE MERITS OF THE MERGER OR A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW TO VOTE ON THE PROPOSED MERGER. THE EXCHANGE RATIO WAS
DETERMINED THROUGH NEGOTIATIONS BETWEEN QLOGIC AND ANCOR AND NOT PURSUANT TO
RECOMMENDATIONS OF SG COWEN.
In arriving at its opinion, SG Cowen reviewed and considered such financial
and other matters as it deemed relevant, including, among other things:
- a draft of the merger agreement dated May 5, 2000;
- certain publicly available information for QLogic, including its annual
reports filed on Form 10-K for each of the years ended March 28, 1999,
March 29, 1998 and March 30, 1997, and its quarterly reports filed on
Form 10-Q for each of the quarters ended December 26, 1999, September 26,
1999 and June 27, 1999, and certain other relevant financial and
operating data furnished to SG Cowen by QLogic management;
- certain publicly available information for Ancor, including its annual
reports filed on Form 10-K for each of the years ended December 31, 1999,
1998 and 1997, a press release dated April 25, 2000 containing certain
Ancor financial and operating data for the fiscal quarter ended March 31,
2000, and certain other relevant financial and operating data furnished
to SG Cowen by Ancor management;
- certain internal financial analyses, financial forecasts, reports and
other information concerning QLogic prepared by the management of QLogic,
and certain internal financial analyses, financial forecasts, reports and
other information concerning Ancor, prepared by the management of Ancor
as amended by the management of QLogic;
- First Call estimates for each of QLogic and Ancor;
- discussions SG Cowen had with certain members of the managements of each
of QLogic and Ancor concerning the historical and current business
operations, financial conditions and prospects of QLogic and Ancor, and
such other matters SG Cowen deemed relevant;
- certain operating results and the reported price and trading histories of
QLogic and Ancor common stock as compared to operating results and the
reported price and trading histories of certain publicly traded companies
SG Cowen deemed relevant;
- certain financial terms of the merger as compared to the financial terms
of certain selected business combinations SG Cowen deemed relevant;
- certain pro forma financial effects of the merger on an
accretion/dilution basis; and
- such other information, financial studies, analyses and investigations
and such other factors that SG Cowen deemed relevant for the purposes of
its opinion.
In conducting its review and arriving at its opinion, SG Cowen, with
QLogic's consent, assumed and relied, without independent investigation, upon
the accuracy and completeness of all financial and other information provided to
it by QLogic and Ancor or which was publicly available. SG Cowen did not
undertake any responsibility for the accuracy, completeness or reasonableness
of, or to independently verify, this information. In addition, SG Cowen did not
conduct any physical inspection of the properties or facilities of QLogic or
Ancor. SG Cowen further relied upon the assurance of management of QLogic that
they were unaware of any facts that would make the information provided to SG
Cowen incomplete or misleading in any respect. SG Cowen, with QLogic's consent,
assumed that the financial forecasts (such financial
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forecasts referred to above) which were provided to SG Cowen were reasonably
prepared by the managements of QLogic and Ancor and reflected the best available
estimates and good faith judgments of such managements as to the future
performance of QLogic and Ancor. Management of each of QLogic and Ancor
confirmed to SG Cowen, and SG Cowen assumed, with QLogic's consent, that each of
the financial forecasts and the First Call estimates with respect to QLogic and
Ancor provided a reasonable basis for its opinion. In view that the financial
forecasts provided by Ancor did not include forecasts beyond the calendar year
ended 2001, SG Cowen did not take into consideration the results of a discounted
cash flow analysis in reaching its opinion.
SG Cowen did not make or obtain any independent evaluations, valuations or
appraisals of the assets or liabilities of QLogic or Ancor, nor was SG Cowen
furnished with these materials. With respect to all legal matters relating to
QLogic and Ancor, SG Cowen relied on the advice of legal counsel to QLogic. SG
Cowen's opinion was necessarily based upon economic and market conditions and
other circumstances as they existed and could be evaluated by SG Cowen on the
date of its opinion. It should be understood that although subsequent
developments may affect its opinion, SG Cowen does not have any obligation to
update, revise or reaffirm its opinion and SG Cowen expressly disclaims any
responsibility to do so.
In rendering its opinion, SG Cowen assumed, in all respects material to its
analysis, that the representations and warranties of each party contained in the
merger agreement are true and correct, that each party will perform all of the
covenants and agreements required to be performed by it under the merger
agreement and that all conditions to the consummation of the merger will be
satisfied without waiver thereof. SG Cowen assumed that the final form of the
merger agreement would be substantially similar to the last draft received by SG
Cowen prior to rendering its opinion. SG Cowen also assumed that all
governmental, regulatory and other consents and approvals contemplated by the
merger agreement would be obtained and that, in the course of obtaining any of
those consents, no restrictions will be imposed or waivers made that would have
an adverse effect on the contemplated benefits of the merger. QLogic informed SG
Cowen, and SG Cowen assumed, that the merger (i) will be recorded as a
pooling-of-interests under generally accepted accounting principles and (ii)
will be treated as a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended.
SG Cowen's opinion does not constitute a recommendation to any stockholder
as to how the stockholder should vote on the proposed merger. SG Cowen's opinion
does not imply any conclusion as to the likely trading range for QLogic common
stock following consummation of the merger or otherwise, which may vary
depending on numerous factors that generally influence the price of securities.
SG Cowen's opinion is limited to the fairness, from a financial point of view,
to QLogic of the exchange ratio. SG Cowen expresses no opinion as to the
underlying business reasons that may support the decision of the QLogic board to
approve, or QLogic's decision to consummate, the merger.
The following is a summary of the principal financial analyses performed by
SG Cowen to arrive at its opinion. Some of the summaries of financial analyses
include information presented in tabular format. In order to fully understand
the financial analyses, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. Considering the data set forth in the tables without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses. SG Cowen performed
certain procedures, including each of the financial analyses described below,
and reviewed with the management of QLogic and Ancor the assumptions on which
such analyses were based and other factors, including the historical and
projected financial results of QLogic and Ancor. No limitations were imposed by
the QLogic
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board with respect to the investigations made or procedures followed by SG Cowen
in rendering its opinion.
STOCK TRADING HISTORY. To provide contextual data and comparative market
data, SG Cowen reviewed the historical market prices of Ancor common stock from
May 6, 1997 to May 4, 2000 and for the twelve month period ended May 4, 2000. SG
Cowen noted that over the indicated periods the high and low prices for shares
of Ancor were $94.13 and $1.00, and $94.13 and $6.13, respectively.
SG Cowen also reviewed the historical market prices of QLogic common stock
from May 6, 1997 to May 4, 2000 and for the twelve month period ended May 4,
2000. SG Cowen noted that over the indicated periods the high and low prices for
split-adjusted shares of QLogic common stock were $203.25 and $2.81, $203.25 and
$17.41, respectively.
HISTORICAL EXCHANGE RATIO ANALYSIS. SG Cowen analyzed the ratios of the
closing prices of Ancor common stock to those of QLogic common stock over
various periods ending May 4, 2000. The table below illustrates the ratios for
those periods and the premium or discount of the 0.5275 exchange ratio in the
merger to those historical exchange ratios.
<TABLE>
<CAPTION>
PREMIUM / (DISCOUNT)
% IMPLIED BY
PERIOD EXCHANGE RATIO EXCHANGE RATIO
------ -------------- --------------------
<S> <C> <C>
Latest twelve months average............. 0.6203 (15.0)%
Latest six months average................ 0.6061 (13.0)%
High (latest twelve months).............. 1.4555 (63.8)%
Low (latest twelve months)............... 0.2457 114.7%
May 4, 2000.............................. 0.3308 59.5%
</TABLE>
CONTRIBUTION ANALYSIS. SG Cowen analyzed the respective contributions of
latest reported twelve month, or LTM, revenues, operating income and earnings,
and calendar year 2000 and calendar year 2001 estimated revenues and earnings of
QLogic and Ancor to the combined company, based upon the historical and
projected financial results of QLogic and Ancor (based upon the financial
forecasts which were prepared by the managements of QLogic and Ancor as referred
to above).
<TABLE>
<CAPTION>
% OF COMBINED COMPANY
----------------------------
QLOGIC ANCOR
CONTRIBUTION CONTRIBUTION
------------ ------------
<S> <C> <C>
Operating Results
LTM
Revenue....................................... 90.5% 9.5%
Operating Income.............................. NM NM
Earnings...................................... NM NM
CY 2000
Revenue....................................... 83.5% 16.5%
Earnings...................................... NM NM
CY 2001
Revenue....................................... 68.2% 31.8%
Earnings...................................... 82.3% 17.7%
</TABLE>
ANALYSIS OF PREMIUMS PAID IN SELECTED TRANSACTIONS. SG Cowen reviewed the
premium of the offer price over the trading prices one trading day and four
weeks prior to the announcement date of 19 representative acquisition
transactions in the data networking industry and other similar technology
industries announced since March 30, 1997.
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The following table presents the premium of the offer prices over the
trading prices one day and four weeks prior to the announcement date for the
representative transactions, and the premiums implied for Ancor, based on the
exchange ratio. The information in the table is based on the closing stock price
of QLogic and Ancor stock on May 4, 2000.
<TABLE>
<CAPTION>
PREMIUMS PAID FOR
REPRESENTATIVE PREMIUM IMPLIED BY
TRANSACTIONS EXCHANGE RATIO
------------------ ------------------
<S> <C> <C> <C>
Premiums Paid to Stock Price: Median Mean
One day prior to announcement................ 34.6% 33.2% 59.5%
Four weeks prior to announcement............. 84.1% 72.5% 43.4%
</TABLE>
ANALYSIS OF SELECTED TRANSACTIONS. SG Cowen reviewed the financial terms,
to the extent publicly available, of the representative transactions in the data
networking industry and other similar technology industries. These transactions
were (listed as acquiror/target):
- Corning Inc. / NetOptix Corp.
- Lucent Technologies Inc. / Ortel Corp.
- JDS Uniphase Corp. / E-TEK Dynamics, Inc.
- Corning Inc. / Oak Industries Inc.
- Cisco Systems, Inc. / Aironet Wireless Comm., Inc.
- JDS Uniphase Corp. / Optical Coating Lab., Inc.
- Intel Corp. / DSP Comm., Inc.
- Lucent Technologies Inc. / Excel Switching Corp.
- EMC Corp. / Data General Corp.
- IBM Corp. / Mylex Corp.
- General Electric Company, p.l.c. / FORE Systems, Inc.
- Intel Corp. / Level One Comm., Inc.
- Alcatel / Xylan Corp.
- Lucent Technologies Inc. / Ascend Comm., Inc.
- Cisco Systems, Inc. / Summa Four, Inc.
- Northern Telecom Ltd. / Bay Networks, Inc.
- Alcatel / DSC Comm. Corp.
- Lucent Technologies Inc. / Yurie Systems, Inc.
- Ascend Comm., Inc. / Cascade Comm. Corp.
SG Cowen reviewed the market capitalization of common stock plus total debt
less cash and equivalents, or Enterprise Value, paid in the representative
transactions as a multiple of latest reported twelve month, or LTM, revenues,
last reported quarter annualized, or LQA, revenues, latest reported twelve month
earnings before interest expense, income taxes, depreciation, and amortization,
or LTM EBITDA, and latest reported twelve month earnings before interest expense
and income taxes, or LTM EBIT, and also examined the multiples of equity value
paid in the representative transactions to book value and LTM earnings.
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<PAGE> 60
The following table presents, for the periods indicated, the multiples
implied by the ratio of Enterprise Value to LTM revenues, LQA revenues, LTM EBIT
and LTM EBITDA, and the ratio of equity value to book value and LTM earnings.
The information in the table is based on the closing stock price of QLogic on
May 4, 2000.
<TABLE>
<CAPTION>
MULTIPLES FOR
REPRESENTATIVE TRANSACTIONS
------------------------------- MULTIPLE IMPLIED
LOW MEAN MEDIAN HIGH BY EXCHANGE RATIO
---- ---- ------ ----- -----------------
<S> <C> <C> <C> <C> <C>
Enterprise Value as a ratio of:
LTM Revenues..................... 0.7x 18.5x 8.3x 132.5x 80.8x
LQA Revenues..................... 0.7x 15.8x 6.9x 107.5x 52.3x
LTM EBITDA....................... 11.8x 35.4x 33.9x 67.1x NM
LTM EBIT......................... 30.4x 56.6x 47.0x 132.9x NM
Equity Value as a ratio of:
Book Value....................... 2.3x 14.9x 9.4x 66.9x 18.6x
LTM Earnings..................... 28.8x 68.2x 58.9x 113.1x NM
</TABLE>
Although the representative transactions were used for comparison purposes,
none of those transactions is directly comparable to the merger, and none of the
companies in those transactions is directly comparable to QLogic or Ancor.
Accordingly, an analysis of the results of such a comparison is not purely
mathematical, but instead involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of the companies involved and other factors that could affect
the acquisition value of such companies or Ancor to which they are being
compared.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. To provide contextual data
and comparative market information, SG Cowen compared selected historical
operating and financial data and ratios for Ancor to the corresponding financial
data and ratios of selected other companies in the data networking industry and
other similar technology industries whose securities are publicly traded and
which SG Cowen believes have operating, market valuation and trading valuations
similar to what might be expected of Ancor. These companies were:
- Brocade Comm. Systems, Inc.
- Crossroads Systems, Inc.
- EMC Corp.
- Emulex Corp.
- Finisar Corp.
- Gadzoox Networks, Inc.
- QLogic Corp.
- JNI Corp.
- Vixel Corp.
The data and ratios included the Enterprise Value of the selected companies
as multiples of LTM revenues, calendar year 2000 projected revenue and calendar
year 2001 projected revenue. SG Cowen also examined the ratios of the current
share prices of the selected companies to the LTM earnings per share, or EPS,
estimated calendar year 2000 EPS and estimated calendar year 2001 EPS (in each
case, as available from research analyst reports or, if not so available, First
Call) for the selected companies.
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The following table presents, for the periods indicated, the multiples
implied by the ratio of Enterprise Value to LTM revenues and estimates for
calendar year 2000 and 2001 revenues, and the ratio of equity value to LTM
earnings and estimates for calendar year 2000 and 2001 earnings. The information
in the table is based on the closing stock price of QLogic on May 4, 2000.
<TABLE>
<CAPTION>
SELECTED COMPANY MULTIPLES
-------------------------------- MULTIPLE IMPLIED
LOW MEAN MEDIAN HIGH BY EXCHANGE RATIO
---- ----- ------ ----- -----------------
<S> <C> <C> <C> <C> <C>
Enterprise Value as a ratio of:
LTM Revenues.................... 5.8x 47.2x 21.4x 141.9x 80.8x
CY00 Revenues................... 5.8x 25.7x 17.7x 55.4x 30.0x
CY01 Revenues................... 3.8x 16.4x 15.5x 34.0x 10.2x
Equity Value as a ratio of:
LTM Earnings.................... 87.8x 263.0x 142.5x 770.4x NM
CY00 Earnings................... 72.8x 160.4x 95.1x 318.0x NM
CY01 Earnings................... 61.6x 119.4x 84.7x 256.5x 56.9x
</TABLE>
Although the selected companies were used for comparison purposes, none of
those companies is directly comparable to Ancor. Accordingly, an analysis of the
results of such a comparison is not purely mathematical, but instead involves
complex considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the selected companies and
other factors that could affect the public trading value of the selected
companies or Ancor to which they are being compared.
PRO FORMA EARNINGS ANALYSIS. SG Cowen analyzed the potential effect of the
proposed merger on the projected combined statement of operations of QLogic and
Ancor for the calendar years ending December 31, 2000 and 2001. This analysis
was based upon (1) the projected financial results of QLogic and Ancor (based
upon the financial forecasts which were prepared by the managements of QLogic
and Ancor as referred to above) and (2) 33,053,807 fully-diluted common shares
outstanding for Ancor. This analysis indicated that the proposed merger could
decrease QLogic's projected earnings per share, on an after-tax basis, for the
calendar year ending December 31, 2000 by approximately 19.9% and could decrease
QLogic's projected earnings per share, on an after-tax basis, for the calendar
year ending December 31, 2001 by approximately 0.3%. SG Cowen's pro forma
earnings analysis did not take into account the possible effect of cost savings,
synergies or Ancor's net operating loss carryforwards in the proposed merger.
The table below summarizes the results.
<TABLE>
<CAPTION>
ACCRETION/
AFTER-TAXES EARNINGS PER SHARE (DILUTION)%
------------------------------ -----------
<S> <C>
Calendar year 2000.......................... (19.9)%
Calendar year 2001.......................... (0.3)%
</TABLE>
PRO FORMA OWNERSHIP ANALYSIS. SG Cowen analyzed the pro forma ownership in
the combined company by the holders of QLogic and Ancor and noted that holders
of Ancor common stock would own approximately 18% of the combined company.
The summary set forth above does not purport to be a complete description
of all the analyses performed by SG Cowen. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analyses and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. SG Cowen did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, notwithstanding the separate factors summarized above, SG
Cowen believes, and has advised the QLogic board, that its analyses must be
considered as a whole and that selecting portions
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<PAGE> 62
of its analyses and the factors considered by it, without considering all
analyses and factors, could create an incomplete view of the process underlying
its opinion. In performing its analyses, SG Cowen made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of QLogic and Ancor. These
analyses performed by SG Cowen are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of
businesses do not purport to be appraisals or to reflect the prices at which
businesses or securities may actually be sold. Accordingly, such analyses and
estimates are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties or their respective
advisors. None of QLogic, Ancor, SG Cowen or any other person assumes
responsibility if future results are materially different from those projected.
The analyses supplied by SG Cowen and its opinion were among several factors
taken into consideration by the QLogic board in making its decision to enter
into the merger agreement and should not be considered as determinative of such
decision.
SG Cowen was selected by the QLogic board to render an opinion to the
QLogic board because SG Cowen is a nationally recognized investment banking firm
and because, as part of its investment banking business, SG Cowen is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. SG Cowen is providing financial services for QLogic for
which it will receive customary fees. In addition, in the ordinary course of its
business, SG Cowen and its affiliates trade the equity securities of QLogic and
Ancor for their own account and for the accounts of their customers, and,
accordingly, may at any time hold a long or short position in such securities.
SG Cowen and its affiliates in the ordinary course of business have from time to
time provided, and in the future may continue to provide, commercial and
investment banking services to QLogic, including serving as a financial advisor
on potential acquisitions and as an underwriter on equity offerings, and have
received and may in the future receive fees for the rendering of such services.
In particular, in August 1997, SG Cowen acted as lead manager of QLogic's
follow-on offering.
Pursuant to the SG Cowen engagement letter, if the merger is consummated,
SG Cowen will be entitled to receive a transaction fee equal to $6,000,000.
QLogic has also agreed to pay a fee of $350,000 to SG Cowen for rendering its
opinion, which fee shall be credited against any transaction fee paid.
Additionally, QLogic has agreed to reimburse SG Cowen for its out-of-pocket
expenses, including attorneys' fees, and has agreed to indemnify SG Cowen
against certain liabilities, including liabilities under the federal securities
laws. The terms of the fee arrangement with SG Cowen, which are customary in
transactions of this nature, were negotiated at arm's length between QLogic and
SG Cowen, and the QLogic board was aware of the arrangement, including the fact
that a significant portion of the fee payable to SG Cowen is contingent upon the
completion of the merger.
OPINION OF ANCOR'S FINANCIAL ADVISOR
On May 7, 2000, Goldman Sachs delivered its oral opinion to the board of
directors of Ancor that, as of such date, the exchange ratio was fair from a
financial point of view to the holders of Ancor common stock. Goldman Sachs
subsequently confirmed its oral opinion by delivery of its written opinion dated
May 7, 2000.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED MAY 7, 2000,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX C AND IS
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. IT IS NOT A
RECOMMENDATION TO ANY HOLDER OF ANCOR COMMON STOCK AS TO HOW ANY SHAREHOLDER
SHOULD VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE
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<PAGE> 63
GOLDMAN SACHS OPINION BELOW IS QUALIFIED BY ITS FULL TEXT. YOU SHOULD READ THE
OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- annual reports to shareholders and annual reports on Form 10-K of Ancor
for the five years ended December 31, 1999;
- annual reports to stockholders and annual reports on Form 10-K of QLogic
for the five fiscal years ended March 31, 1999;
- interim reports to stockholders and quarterly reports on Form 10-Q of
Ancor and QLogic;
- other communications from Ancor and QLogic to their respective
stockholders; and
- internal financial analyses and forecasts for Ancor and QLogic prepared
by their respective managements.
Goldman Sachs also held discussions with members of the senior management
of Ancor and QLogic regarding their assessment of the strategic rationale for,
and the potential benefits of, the merger and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, Goldman Sachs:
- reviewed the reported price and trading activity for the Ancor common
stock and QLogic common stock, which like many stocks have been and are
likely to continue to be subject to significant short-term price and
trading volatility;
- compared financial and stock market information for Ancor and QLogic with
similar information for other companies the securities of which are
publicly traded;
- reviewed the financial terms of recent business combinations in the
communications equipment industry specifically, and in other industries
generally; and
- performed other studies and analyses Goldman Sachs considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and assumed
such accuracy and completeness for purposes of rendering its opinion. Goldman
Sachs did not make an independent evaluation or appraisal of the assets and
liabilities of Ancor or QLogic or any of their subsidiaries and was not
furnished with any such evaluation or appraisal. Goldman Sachs has assumed, with
the consent of Ancor's board of directors, that the merger will be accounted for
as a pooling-of-interests under generally accepted accounting principles. The
advisory services and opinion of Goldman Sachs were provided for the information
and assistance of the board of directors of Ancor in connection with its
consideration of the merger, and the opinion does not constitute a
recommendation as to how any holder of Ancor common stock should vote with
respect to the merger.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to Ancor's board of
directors on May 7, 2000.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
(1) Historical Stock Price Performance and Trading Volume. Goldman Sachs
reviewed the relationship between movements in the closing price of Ancor common
stock for the one-year period ended May 5, 2000 and movements in the closing
price of (i) QLogic common stock and (ii) an index of storage area networks, or
SAN, companies consisting of Crossroads Systems Inc., Gadzoox Networks, Inc.,
Brocade Communications Systems Inc. and Vixel
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<PAGE> 64
Corporation for the one-year period ended May 5, 2000. Goldman Sachs also
reviewed the relationship between movements in the trading volume and closing
price of Ancor common stock with QLogic common stock for the ten-day period
ended May 5, 2000.
(2) Purchase Price Analysis. Goldman Sachs calculated the price Ancor would
receive in the merger based on the terms of the merger agreement and the $99.94
closing price per share of QLogic common stock on May 5, 2000. That price
implied a price per share of Ancor common stock of $52.72, which represented a
69% premium over the $31.19 closing price per share of Ancor common stock on May
5, 2000.
Goldman Sachs calculated the aggregate equity consideration paid by QLogic
as a multiple of Ancor's estimated revenue and net income in the years 2000 and
2001. This analysis indicated that:
- for the year 2000, based on Needham & Company, Inc. revenue estimates,
the multiple was 39.7x, and based on Ancor management revenue estimates,
the multiple was 27.7x;
- for the year 2001, based on Needham & Company, Inc. revenue estimates,
the multiple was 22.8x, and based on Ancor management revenue estimates,
the multiple was 12.2x; and
- for the year 2001, based on Ancor management net income estimates
including the benefit of net operating loss carry forwards, or NOLs, the
multiple was 61.3x, and based on net income estimates excluding the
benefit of NOLs, the multiple was 92.9x.
(3) Exchange Ratio and Price Premium Analysis. Goldman Sachs calculated (i)
the ratio of the market price of Ancor common stock to the market price of
QLogic common stock and (ii) the implied exchange ratio premium and implied
price premium being paid in the merger based on the ratio of the market price of
Ancor common stock to the market price of QLogic common stock on selected dates.
Goldman Sachs also calculated (i) the ratio of the average market price of Ancor
common stock to the average market price of QLogic common stock and (ii) the
implied exchange ratio premium and implied price premium being paid in the
merger based on the ratio of the average market price of Ancor common stock to
the average market price of QLogic common stock over selected time periods
ending on May 5, 2000. The results are shown below:
<TABLE>
<CAPTION>
0.5275X EXCHANGE RATIO
-----------------------------
ANCOR SHARE QLOGIC SHARE IMPLIED EXCHANGE
PERIOD PRICE/AVERAGE PRICE/AVERAGE EXCHANGE RATIO RATIO PREMIUM PRICE PREMIUM
------ ------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
May 5, 2000 Closing Price.... $31.19 $ 99.94 0.31x 69% 69%
52 Week High................. $85.88 $190.44 0.45x 17% (39)%
52 Week Low.................. $ 6.50 $ 18.25 0.36x 48% 711%
Last Ten Days................ $29.62 $ 89.40 0.33x 59% 78%
Last Month................... $27.86 $ 87.98 0.32x 67% 89%
Last Three Months............ $40.76 $119.70 0.34x 55% 29%
Last Six Months.............. $49.99 $ 94.94 0.53x 0% 5%
Last Year.................... $36.87 $ 65.81 0.56x (6)% 43%
Last Two Years............... $20.41 $ 38.62 0.53x 0% 158%
Last Three Years............. $16.10 $ 27.18 0.59x (11)% 227%
</TABLE>
(4) Contribution Analysis. Goldman Sachs reviewed selected historical and
estimated future operating and financial information for Ancor, QLogic and the
combined company resulting from the merger. The information with respect to the
combined company did not take into account any possible effects of the merger on
Ancor or QLogic, or any possible synergies that may result from the merger. The
estimated year 2000 operating and financial information is based (i) on Ancor
and QLogic managements' forecasts and (ii) on street forecasts of Needham &
Company, Inc. for Ancor and Robertson Stephens research for QLogic. The
estimated year 2001 operating and financial information is based on Ancor and
QLogic
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managements' forecasts. The analysis indicated the following contributions by
Ancor and QLogic:
<TABLE>
<CAPTION>
ANCOR QLOGIC
----- ------
<S> <C> <C>
Fully Diluted Proposed Ownership............................ 18.4% 85.6%
Fully Diluted Market Capitalization (May 5, 2000)........... 11.7% 88.3%
1999 Revenues (actual)...................................... 7.1% 92.9%
2000 Revenues (street estimates)............................ 14.7% 85.3%
2000 Revenues (managements' estimates)...................... 20.4% 79.6%
2001 Revenues (managements' estimates)...................... 31.8% 68.2%
1999 Gross Profits (actual)................................. 5.4% 94.6%
2000 Gross Profits (street estimates)....................... 10.8% 89.2%
2000 Gross Profits (managements' estimates)................. 15.8% 84.2%
2001 Gross Profits (managements' estimates)................. 26.1% 73.9%
2001 Operating Profits (managements' estimates)*............ 17.0% 83.0%
2000 Net Income (managements' estimates)*................... 0.8% 99.2%
2001 Net Income (managements' estimates).................... 24.6% 75.4%
2001 Taxed Net Income (managements' estimates).............. 17.7% 82.3%
</TABLE>
---------------
* The results of the analysis of gross profits and net income for calendar year
1999 and 2000 were not meaningful.
(5) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses of
the financial impact of the merger to QLogic stockholders using both Ancor and
QLogic managements' estimates and Needham & Company, Inc. and Robertson Stephens
research estimates.
Goldman Sachs compared the 2000 and 2001 estimated earnings per share of
QLogic common stock on a standalone basis to the 2000 and 2001 estimated
earnings per share of the common stock of the combined company on a pro forma
basis excluding potential cost savings. Based on such analysis, the merger would
be dilutive to stockholders of QLogic on an earnings per share basis in 2000 and
slightly dilutive in 2001. The results of this analysis are summarized as
follows:
<TABLE>
<CAPTION>
2001 MANAGEMENT
2000 STREET 2000 MANAGEMENT ESTIMATES
ESTIMATES ESTIMATES (AFTER TAXES)
----------- --------------- ---------------
<S> <C> <C> <C>
QLogic Earnings Per Share
Accretion/(Dilution)..................... (28.0)% (17.5)% (0.3)%
</TABLE>
(6) Selected Company Comparison. Goldman Sachs reviewed and compared
selected financial information, ratios and multiples for Ancor to corresponding
financial information, ratios and multiples for five storage area networks
companies, three components companies, four enterprise storage companies and two
storage management software companies.
<TABLE>
<CAPTION>
STORAGE AREA ENTERPRISE STORAGE STORAGE MANAGEMENT
NETWORKS COMPANIES COMPONENTS COMPANIES COMPANIES SOFTWARE COMPANIES
------------------ -------------------- ------------------ ------------------
<S> <C> <C> <C>
Brocade Communications Adaptec, Inc. EMC Corporation Legato Systems Inc.
Systems Inc. Emulex Corporation Network Appliance Inc. Veritas Software Corp.
Crossroads Systems QLogic Corporation Storage Technology Corp.
Inc. Sun Microsystems, Inc.
Gadzoox Networks, Inc.
JNI Corporation
Vixel Corporation
</TABLE>
The selected companies were chosen because they are publicly-traded high
technology companies with operations that for purposes of analysis may be
considered similar to Ancor. The multiples and ratios were calculated using the
closing price for the common stock of Ancor and each of the selected companies
on May 5, 2000 and were based on the most recent
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<PAGE> 66
publicly available information. Goldman Sachs' analyses of the selected
companies compared the following to the results for Ancor:
- May 5, 2000 closing share price as a percentage of 52-week high share
price;
- equity market capitalization, which is the fully diluted market value of
equity, as a multiple of estimated revenue according to various Wall
Street analyst research reports for calendar years 2000 and 2001;
- estimated 5-year growth rate (provided by Institutional Brokers Estimate
System, or IBES);
- estimated calendar years 2000 and 2001 price/earnings ratios (estimated
earnings per share provided by IBES); and
- ratio of calendar year 2001 estimated price/earnings ratio to IBES
long-term growth estimate.
The results of these analyses are summarized as follows:
<TABLE>
<CAPTION>
STORAGE
STORAGE AREA ENTERPRISE MANAGEMENT
NETWORKS COMPONENTS STORAGE SOFTWARE
COMPANIES COMPANIES COMPANIES COMPANIES
-------------- ------------- -------------- ----------
ANCOR MEAN MEDIAN MEAN MEDIAN MEAN MEDIAN MEAN
----- ----- ------ ---- ------ ----- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 5, 2000 closing share price as a
percentage of 52-week high share
price............................. 36.3% 43.7% 40.0% 38.4% 33.9% 72.7% 72.2% 37.6%
Equity market capitalization as a
multiple of estimated revenue for
calendar year 2000................ 22.3x 30.8x 13.7x 15.5x 14.2x 13.6x 13.0x 22.2x
Equity market capitalization as a
multiple of estimated revenue for
calendar year 2001................ 12.8x 18.6x 9.9x 5.9x 5.9x 9.4x 9.5x 14.8x
Estimated 5-year growth rate........ 45.0% 37.0% 40.0% 26.7% 30.0% 27.5% 25.0% 49.5%
Estimated calendar year 2000 price/
earnings ratios................... NM 213.2x 192.2x 66.4x 75.8x 115.7x 88.8x 112.2x
Estimated calendar year 2001 price/
earnings ratios................... NM 157.4x 162.5x 32.5x 32.5x 82.9x 69.4x 78.3x
Ratio of calendar year 2001
estimated price/earnings ratio to
IBES long-term growth estimate.... NM 4.1x 4.2x 1.1x 1.1x 2.7x 2.9x 1.6x
</TABLE>
(7) Selected Transaction Analysis. Goldman Sachs analyzed certain
information relating to thirty-three selected transactions in the communications
equipment industry since 1996, including:
- aggregate levered consideration as a multiple of last 12 months sales;
- aggregate equity consideration as a multiple of last 12 months net
income;
- aggregate equity consideration as a multiple of one year forward net
income; and
- the premium of the aggregate equity consideration over the closing market
value of the acquired company.
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The results of these analyses are summarized as follows:
<TABLE>
<CAPTION>
COMMUNICATIONS EQUIPMENT
INDUSTRY TRANSACTIONS
(RANGE)
------------------------
<S> <C>
Aggregate levered consideration as a multiple of last
12 months sales.................................... 2.0x - 677.3
Aggregate equity consideration as a multiple of last
12 months net income............................... 34.5x - 414.6x
Aggregate equity consideration as a multiple of one
year forward net income............................ 19.1x - 470.3x
Premium of the aggregate equity consideration over
the closing market value of the acquired company
for the five trading days prior to announcement of
the merger agreement............................... -7.5% - 109.8%
</TABLE>
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Ancor or QLogic or the contemplated merger.
The analyses were prepared solely for purposes of providing an opinion to
the Ancor board of directors as to the fairness from a financial point of view
of the exchange ratio to the holders of Ancor common stock. The analyses do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control the parties or their respective advisors,
none of Ancor, QLogic, Goldman Sachs or any other person assumes responsibility
if future results are materially different from those forecast.
As described above, Goldman Sachs' opinion to the Ancor board of directors
was one of many factors taken into consideration by the Ancor board of directors
in making its determination to approve the merger. The foregoing summary does
not purport to be a complete description of the analyses performed by Goldman
Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Ancor having acted as its financial advisor in connection with,
and having participated in certain of the negotiations leading to, the merger
agreement. Goldman Sachs provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of Ancor or QLogic for its own account and for the accounts of
customers.
Pursuant to a letter agreement dated April 13, 2000, Ancor engaged Goldman
Sachs to act as its financial advisor in connection with the possible sale of
all or a portion of Ancor.
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Pursuant to the terms of this letter agreement, Ancor has agreed to pay Goldman
Sachs a transaction fee based on the outcome of the transactions as follows:
- if 50% or more of the outstanding common stock or the assets of Ancor are
acquired in one or more transactions, Goldman Sachs will receive a
transaction fee of 0.76% of the aggregate consideration paid in the
transactions; or
- if less than 50% of the outstanding common stock or the assets of Ancor
are acquired in one or more transactions, Goldman Sachs will receive a
mutually agreed upon transaction fee of not less than 0.76% of the
aggregate consideration paid in the transactions.
Ancor also has agreed to reimburse Goldman Sachs for their reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including approval of the merger agreement
by the stockholders of QLogic and the shareholders of Ancor. The merger will
become effective upon the filing of the articles of merger with the Secretary of
the State of the State of Minnesota.
We are working towards completing the merger as quickly as possible. We
hope to complete the merger during the third quarter of 2000. However, we cannot
predict the exact timing.
OPERATIONS FOLLOWING THE MERGER
Following the merger, Ancor will continue its operations as a wholly owned
subsidiary of QLogic. Upon consummation of the merger, the current members of
Ancor's board of directors will resign and the new members will be designated by
QLogic. The shareholders of Ancor will become stockholders of QLogic, and their
rights as stockholders will be governed by QLogic's certificate of
incorporation, bylaws and the Delaware General Corporation Law. See "Comparison
of Rights of Ancor Stockholders and QLogic Stockholders" for a discussion of
some of the differences in the rights of shareholders of Ancor and stockholders
of QLogic.
Following the merger, current directors and executive officers of QLogic
will continue to serve in their present capacities. QLogic will use its
commercially reasonable best efforts to increase the size of the QLogic board of
directors to six, and to elect Kenneth E. Hendrickson, Ancor's chief executive
officer, to fill the resulting vacancy. Information with respect to the business
experience of QLogic's directors and executive officers, compensation of
QLogic's executive officers and certain relationships and related transactions
involving QLogic's directors and executive officers, as well as information with
respect to QLogic's voting securities and principal holders thereof, is included
in QLogic's Annual Report on Form 10-K for the fiscal year ended March 28, 1999,
and is incorporated by reference herein.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that QLogic will, for a period of six years
after the completion of the merger, indemnify and hold harmless the present and
former officers and directors of Ancor and its subsidiaries in each case to the
fullest extent such person is permitted to be indemnified under applicable law,
Ancor's articles of incorporation or Ancor's bylaws or certain indemnification
agreements to which Ancor is a party, in each case as in effect on May 7, 2000.
The merger agreement also provides that, for six years after the completion of
the merger, QLogic will maintain Ancor's policies of directors' and officers'
liability insurance or substitute comparable policies.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain executive officers and directors of Ancor have interests in the
merger that are different from and in addition to their interests as Ancor
shareholders generally. The Ancor board of directors was aware of these
interests and considered them in approving the merger agreement.
Employment and Consulting Agreements. On May 7, 2000, QLogic entered into a
consulting agreement with Kenneth E. Hendrickson, Ancor's chief executive
officer and chairman of the board, and Ancor entered into employment agreements
with Steven E. Snyder, Ancor's vice president and chief financial officer, and
Calvin G. Nelson, Ancor's president. Mr. Hendrickson's consulting agreement has
a one-year term, and Mr. Snyder and Mr. Nelson's respective employment
agreements have six-month terms, all of which begin on the effective date of the
merger. Mr. Hendrickson's consulting agreement provides for QLogic to use its
commercially reasonable best efforts to elect Mr. Hendrickson to the QLogic
board of directors, a consulting fee, a stock option grant to purchase 36,000
shares of QLogic's common stock and other benefits, including a pro-rated
payment amount for Mr. Hendrickson's participation in Ancor's executive
incentive program up to the effective date of the merger. Mr. Hendrickson's
consulting agreement also provides that in the event he is not elected to the
QLogic board of directors within 30 days of the effective date of the merger,
vesting of his options will accelerate. Mr. Snyder and Mr. Nelson's respective
employment agreements each provide for an annual base salary and other benefits.
The employment agreements also provide that upon expiration of the term of
employment, or earlier if employment is terminated by QLogic without cause, by
the employee for good reason or as a result of death or disability, QLogic will
pay as severance pay an amount equal to the annualized base salary over a
twelve-month period following the termination date. In the case of death or
disability, the severance pay will be reduced by the amount of any death or
disability benefits paid. Each of the consulting and employment agreements
includes non-competition, confidentiality and non-disclosure provisions, and
each of the individuals have concurrently entered into QLogic's standard form of
invention and non-disclosure agreement.
Reimbursement for Excise Taxes. Payments or other benefits, including
acceleration of the exercisability of options, may be compensatory payments that
are contingent on a change in control and when made to certain defined
individuals will be "parachute payments" within the meaning of Section 280G of
the Code. Section 280G of the Code provides that if "parachute payments" to an
employee equal or exceed three times such employee's "base amount" (average
annual compensation over the five taxable years preceding the taxable year in
which the change in control occurs), the excess of such "parachute payments"
over such employee's "base amount" will not be deductible by the employer and
will be subject to an excise tax payable by the employee.
The value of the acceleration of vesting under Ancor's stock option plans
may result in excess parachute payments to some Ancor employees under Section
280G of the Code. Ancor's board of directors has adopted a resolution that will
provide payments to these employees in an amount that, after deducting all
federal, state and local taxes and the excise tax, will equal the excise tax
payable by the employees. The purpose of these resolutions is to assure that
employees retain the economic value of the stock options granted by Ancor.
Stock-Based Rights. In the merger, each outstanding option to purchase
shares of Ancor common stock will be converted into an option to acquire, on
substantially the same terms and conditions as applied to the Ancor option, a
number of shares of QLogic common stock to be determined by multiplying the
number of shares of Ancor common stock subject to such option immediately prior
to the merger by the exchange ratio of 0.5275 QLogic shares rounded down to the
nearest whole share, at a price per share equal to the per share price at which
the Ancor option is exercisable divided by such exchange ratio rounded up to the
nearest whole cent. The
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following table sets forth, as of June 1, 2000, the number of shares of Ancor
common stock covered by options held by Ancor's directors and executive officers
and the number of shares of QLogic common stock into which such options will be
converted as a result of the merger:
<TABLE>
<CAPTION>
SHARES COVERED BY SHARES TO BE COVERED
NAME OF DIRECTOR OR EXECUTIVE OFFICER ANCOR OPTIONS BY QLOGIC OPTIONS
------------------------------------- ----------------- -----------------------
<S> <C> <C>
Kenneth E. Hendrickson................. 438,860 231,498
Calvin G. Nelson....................... 375,000 197,812
Steven E. Snyder....................... 177,570 93,668
Amyl Ahola............................. 42,000 22,155
Gerald Bestler......................... 16,000 8,440
John F. Carlson........................ 42,000 22,155
Thomas F. Hunt, Jr..................... 42,000 22,155
Michael Huntley........................ 30,000 15,825
Paul F. Lidsky......................... 42,000 22,155
</TABLE>
All such options granted to Ancor's directors and executive officers will
become fully vested and exercisable at the effective time of the merger. The
number of shares of Ancor common stock covered by unvested options held by
directors and executive officers as of June 1, 2000, was 628,500 shares.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the
rules promulgated under the Hart-Scott-Rodino Act, QLogic and Ancor cannot
complete the merger until they notify and furnish information to the Federal
Trade Commission and the Antitrust Division of the U.S. Department of Justice
and specified waiting period requirements are satisfied. QLogic and Ancor filed
notification and report forms under the Hart-Scott-Rodino Act with the FTC and
the Antitrust Division on June 2, 2000. QLogic and Ancor received notice that
the required waiting period was terminated early as of June 13, 2000.
At any time before or after completion of the merger, the Antitrust
Division or the FTC could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the merger or seeking divestiture of substantial assets of
QLogic or Ancor. Private parties may also bring actions under the antitrust laws
under certain circumstances. Although QLogic and Ancor believe that the merger
is legal under the antitrust laws, there can be no assurance that a challenge to
the merger on antitrust grounds will not be made or, if such a challenge is
made, that it would not be successful.
Neither Ancor nor QLogic is aware of any other material governmental or
regulatory approval required for completion of the merger.
ACCOUNTING TREATMENT
QLogic intends to account for the merger as a pooling-of-interests business
combination. Under the pooling-of-interests method of accounting, the historical
recorded assets and liabilities of QLogic and Ancor will be carried forward to
QLogic at their recorded amounts. In addition, the operating results of QLogic
will include the operating results of both companies for the entire fiscal year
in which the merger is completed and the historical reported operating results
of both companies for prior periods will be combined and restated as the
operating results of QLogic. It is a condition to consummation of the merger
that QLogic shall have received a letter from its independent accountants dated
as of the effective date, stating that, based in part on a letter from Ancor's
independent accountants stating that Ancor will qualify as a party to a
pooling-of-interests transaction, and its familiarity with QLogic, the merger
will qualify as a pooling-of-interests transaction under Accounting Principles
Board Opinion No. 16 and applicable regulations of the Securities and Exchange
Commission.
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To help ensure that Ancor and QLogic meet the prerequisites for
pooling-of-interests accounting treatment, the affiliates of Ancor and the
affiliates of QLogic will each execute a letter agreement to the effect that
such person will not sell, transfer or otherwise dispose of, or reduce such
person's interest in or risk relating to, any of Ancor's common stock or shares
of QLogic common stock from the date that is 30 days prior to the effective time
of the merger or the termination of the merger agreement, and thereafter will
not sell any shares of QLogic common stock received in the transaction or
otherwise beneficially owned by such person until QLogic publicly releases
financial results which reflect 30 days of combined operations of QLogic and
Ancor.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material anticipated federal income tax
consequences of the merger to Ancor shareholders who hold Ancor common stock as
a capital asset. The summary is based on the Internal Revenue Code, Treasury
regulations under the Code and administrative rulings and court decisions in
effect as of the date of the merger agreement, all of which are subject to
change at any time, possibly with retroactive effect. This summary does not
consider the particular facts and circumstances of the tax situation of each
shareholder of Ancor. This summary also does not discuss all of the consequences
that may be relevant to Ancor shareholders subject to special treatment under
United States federal income tax law, including, for example, foreign persons,
financial institutions, dealers in securities, insurance companies, tax-exempt
entities, holders who acquired their Ancor common stock pursuant to the exercise
of employee stock options or otherwise as compensation and holders who hold
Ancor common stock as part of a hedge, straddle or conversion transaction, or
the tax consequences of transactions effected prior or subsequent to, or
concurrently with the merger. The following summary is not a complete analysis
of all potential tax effects of the transactions contemplated by the merger
agreement or the merger itself. No information is provided herein with respect
to the tax consequences, if any, of the merger under state, local or foreign tax
laws.
EACH ANCOR SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX
ADVISOR AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER, AND ALSO AS TO
ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES, BASED ON SUCH SHAREHOLDER'S
OWN PARTICULAR FACTS AND CIRCUMSTANCES.
QLogic and Ancor expect that the merger will be treated as a tax-free
reorganization within the meaning of Section 368(a) of the Code and that for
federal income tax purposes no gain or loss will be recognized by Ancor
shareholders who exchange their shares of Ancor common stock solely for shares
of QLogic common stock pursuant to the merger, except upon the receipt of cash
by holders in lieu of fractional shares of QLogic common stock. The Internal
Revenue Service has not been and will not be asked to rule upon the tax
consequences of the merger. Instead, Ancor will rely upon the opinion of Dorsey
& Whitney LLP, its counsel, as to certain federal income tax consequences of the
merger to the Ancor shareholders. The opinion of Dorsey & Whitney LLP will be
based upon the facts described in this joint proxy statement/prospectus, the
representations and covenants made in the merger agreement and other
representations made by Ancor and QLogic, and is subject to various assumptions
and qualifications. The opinion of Dorsey & Whitney LLP will also be based upon
the Code, regulations now in effect thereunder, current administrative rulings
and practice, and judicial authority, all of which are subject to change,
possibly with retroactive effect. Unlike a ruling from the IRS, an opinion of
counsel is not binding on the IRS and there can be no assurance, and none is
hereby given, that the IRS will not take a position contrary to one or more
positions reflected herein or that the opinion will be upheld by the courts if
challenged by the IRS.
Based upon the facts described in this joint proxy statement/prospectus,
various representations and covenants made by Ancor, QLogic and certain Ancor
shareholders, and subject to various assumptions and qualifications, Dorsey &
Whitney LLP will deliver an
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opinion, at and as of the effective time of the merger that the following
federal income tax consequences will result from the merger:
- the merger will constitute a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code and Ancor, QLogic and
Amino Acquisition Corp. each will be a party to the reorganization within
the meaning of Section 368(b) of the Code;
- no income, gain or loss will be recognized by Ancor or QLogic as a result
of the consummation of the merger;
- subject to the last item below, no gain or loss will be recognized by the
holders of Ancor common stock upon the exchange of Ancor common stock
solely for QLogic common stock pursuant to the merger;
- the tax basis of the QLogic common stock received by an Ancor shareholder
pursuant to the merger, including any fractional shares deemed received
as described in the last item below, will be the same as the tax basis of
the Ancor common stock surrendered in exchange therefor;
- the holding period of the QLogic common stock received by a shareholder
of Ancor pursuant to the merger will include the period during which the
Ancor common stock surrendered in exchange therefor was held by such
Ancor shareholder, provided the Ancor common stock is a capital asset in
the hands of the Ancor shareholder at the time of the merger; and
- cash received by an Ancor shareholder in lieu of a fractional share
interest in QLogic common stock will generally be treated as received in
redemption of such fractional share interest, and an Ancor shareholder
will generally recognize gain or loss, subject to the provisions and
limitations of Section 302 of the Code, which gain or loss will be
capital gain or loss provided the Ancor common stock was a capital asset
in the hands of the Ancor shareholder at the time of the merger. For
United States federal income tax purposes, the gain or loss is measured
by the difference between the amount of cash received and the portion of
the tax basis of the share of Ancor common stock allocable to such
fractional share interest.
DISSENTERS' APPRAISAL RIGHTS
Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act
provide each shareholder of Ancor the right to dissent from the merger, and
obtain payment for the "fair value" of the shareholder's shares following the
consummation of the merger.
The following summary of the applicable provisions of sections 302A.471 and
302A.473 of Minnesota law does not purport to be a complete statement of the
provisions and is qualified in its entirety by reference to the full texts of
these sections attached as Annex E to this joint proxy statement/prospectus. Any
shareholder who wishes to exercise dissenters' appraisal rights, or who wishes
to preserve the right to do so, should review these sections carefully since
failure to comply with the procedures set forth in the sections will result in
the loss of dissenters' appraisal rights.
Under Minnesota law, shareholders of Ancor have the right, by fully
complying with the applicable provisions of sections 302A.471 and 302A.473, to
dissent with respect to the merger and to receive from Ancor payment in cash of
the "fair value" of their shares after the merger is completed. The term "fair
value" means the value of the shares immediately before the effective date of
the merger without any appreciation or depreciation in anticipation of the
merger.
All references in sections 302A.471 and 302A.473 and in this summary to a
"shareholder" are to a record holder of the shares as to which dissenters'
appraisal rights are asserted. A
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record holder is a shareholder who held Ancor common stock at the close of
business on June 23, 2000. A person having beneficial ownership of shares that
are held of record in the name of another person, such as a broker, nominee,
trustee or custodian, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner in order to perfect any
dissenters' appraisal rights the beneficial owner may have.
Shareholders of record who desire to exercise their dissenters' appraisal
rights must satisfy all of the following conditions. A written notice of intent
to demand fair value for shares must be mailed or delivered to the executive
offices of Ancor before the taking of the shareholder vote to approve the merger
agreement. This written demand must be in addition to and separate from any
proxy or vote against approval of the merger agreement. Voting against,
abstaining from voting or failing to vote to approve the merger agreement does
not constitute a demand for appraisal within the meaning of Minnesota law.
Shareholders electing to exercise their dissenters' appraisal rights under
Minnesota law must not vote for approval of the merger agreement. A
shareholder's failure to vote against approval of the merger agreement will not
constitute a waiver of dissenters' appraisal rights. However, if a shareholder
returns a signed proxy but does not specify a vote against approval of the
merger agreement or direction to abstain, the proxy will be voted for approval
of the merger agreement, and the shareholder's dissenters' appraisal rights will
be waived.
A shareholder may not assert dissenters' appraisal rights as to less than
all of the shares registered in such holder's name except where certain shares
are beneficially owned by another person but registered in such holder's name.
If a record owner, such as a broker, nominee, trustee or custodian, wishes to
dissent with respect to shares beneficially owned by another person, such
shareholder must dissent with respect to all of such shares and must disclose
the name and address of the beneficial owner on whose behalf the dissent is
made. A beneficial owner of shares who is not the record owner of such shares
may assert dissenters' appraisal rights as to shares held on such person's
behalf, provided that such beneficial owner submits a written consent of the
record owner to Ancor at or before the time such rights are asserted.
A shareholder who elects to exercise dissenters' appraisal rights must mail
or deliver a written demand, before the taking of the vote on approval of the
merger agreement to the Secretary of Ancor at 6321 Bury Drive, Suite 13, Eden
Prairie, Minnesota 55346. The written demand should specify the shareholder's
name and mailing address, the number of shares owned and that the shareholder
intends to demand the fair value of its, his or her shares.
After approval of the merger agreement by the shareholders at the special
meeting, Ancor will send a written notice to each shareholder who delivered a
written demand for dissenters' appraisal rights. The notice will contain the
address to which the shareholder must send a demand for payment and the stock
certificates in order to obtain payment and the date by which they must be
received and other related information.
In order to receive fair value for its, his or her shares, a dissenting
shareholder must, within 30 days after the date Ancor gives the notice described
in the preceding paragraph, demand payment and send its, his or her stock
certificates, and all other information specified in the notice from Ancor, to
the address specified in the notice. A dissenting shareholder will retain all
rights as a shareholder until the effective date of the merger. After a valid
demand for payment and the related stock certificates and other information are
received, or after the effective date of the merger, whichever is later, Ancor
will remit to each dissenting shareholder who has complied with statutory
requirements the amount that Ancor estimates to be the fair value of the
dissenting shareholder's shares, with interest starting five days after the
effective date of the merger at a rate prescribed by statute. Ancor will also
send its closing balance sheet and statement of income for a fiscal year ending
not more than 16 months before the effective date of the merger, together with
the latest available interim financial statements, an estimate of the fair value
of the shareholder's shares and a brief description of the method used to reach
the
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estimate, a brief description of the procedure to be followed if the dissenting
shareholder decides to make a demand for a supplemental payment and copies of
sections 302A.471 and 302A.473.
If the dissenting shareholder believes that the amount remitted by Ancor is
less than the fair value of such holder's shares plus interest, the shareholder
may mail or deliver written notice to Ancor of such holder's own estimate of the
fair value of the shares, plus interest, within 30 days after the mailing date
of the remittance and demand payment of the difference. Such notice must be
delivered to the executive offices of Ancor at the address set forth above. A
shareholder who fails to give such written notice within this time period is
entitled only to the amount remitted by Ancor.
Within 60 days after receipt of a demand for supplemental payment, Ancor
must either pay the shareholder the amount demanded or agreed to by the
shareholder after discussion with Ancor, or petition a court for the
determination of the fair value of the shares, plus interest. The petition must
name as parties all shareholders who have demanded supplemental payment and have
not reached an agreement with Ancor. The court, after determining that the
shareholder or shareholders in question have complied with all statutory
requirements, may use any valuation method or combination of methods it deems
appropriate to use, whether or not used by Ancor or the dissenting shareholder,
and may appoint appraisers to recommend the amount of the fair value of the
shares. The court's determination will be binding on all shareholders who
properly exercised dissenters' appraisal rights and did not agree with Ancor as
to the fair value of the shares. Dissenting shareholders are entitled to
judgment for the amount by which the court-determined fair value per share, plus
interest, exceeds the amount per share, plus interest, remitted to the
shareholders by Ancor. The shareholders will not be liable to Ancor for any
amounts paid by Ancor that exceed the fair value of the shares as determined by
the court, plus interest. The costs and expenses of such a proceeding, including
the expenses and compensation of any appraisers, will be determined by the court
and assessed against Ancor, except that the court may, in its discretion, assess
part or all of those costs and expenses against any shareholder whose action in
demanding supplemental payment is found to be arbitrary, vexatious or not in
good faith. The court may award fees and expenses to an attorney for the
dissenting shareholders out of the amount, if any, awarded to such shareholders.
Fees and expenses of experts or attorneys may also be assessed against any
person who acted arbitrarily, vexatiously or not in good faith in bringing the
proceeding.
Shareholders considering exercising dissenters' appraisal rights should
bear in mind that the fair value of their shares determined under sections
302A.471 and 302A.473 of Minnesota law could be more than, the same as or less
than the consideration they would receive pursuant to the merger agreement if
they did not seek appraisal of their shares.
Cash received pursuant to the exercise of dissenters' appraisal rights may
be subject to federal or state income tax. ANY HOLDER WHO FAILS TO COMPLY FULLY
WITH THE STATUTORY PROCEDURE SUMMARIZED ABOVE WILL FORFEIT ALL RIGHTS OF DISSENT
AND INSTEAD EACH OUTSTANDING SHARE OF ANCOR COMMON STOCK HELD BY SUCH HOLDER
WILL BE CANCELED AND CONVERTED INTO THE RIGHT TO RECEIVE 0.5275 OF A SHARE OF
QLOGIC COMMON STOCK.
RESTRICTIONS ON SALE OF SHARES BY AFFILIATES OF ANCOR AND QLOGIC
All shares of QLogic common stock received by Ancor shareholders in the
merger will be freely transferable, except for QLogic common stock received by
persons who are deemed to be "affiliates", as such term is defined in Rule 145
under the Securities Act, of Ancor. Shares of QLogic common stock received by
affiliates of Ancor may be resold by them only in transactions permitted by the
resale provisions of Rule 145 under the Securities Act or Rule 144 under the
Securities Act in the case of such persons who become affiliates of QLogic
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or as otherwise permitted under the Securities Act. Persons who may be deemed to
be "affiliates" of Ancor or QLogic generally include individuals or entities
that control, are controlled by or are under common control with, such party and
may include certain officers and directors of such party.
Pursuant to the terms of the merger agreement, Ancor agreed to deliver to
QLogic a list of names of those persons who are "affiliates" of Ancor within the
meaning of Rule 145 under the Securities Act. Ancor has agreed to deliver from
each person who is identified as an "affiliate" in the list referred to above,
to QLogic, prior to the merger, an affiliate letter in the form attached to the
merger agreement. Such affiliate letter shall provide that the Ancor affiliate
will agree not to sell, transfer or otherwise dispose of any shares of QLogic
common stock to be received by such person in or pursuant to the merger, except
in compliance with applicable provisions of the Securities Act.
This joint proxy statement/prospectus cannot be used in connection with
resales of QLogic common stock received in the merger by any person who may be
deemed to be an "affiliate" of Ancor under the Securities Act.
STOCK MARKET LISTING
An application will be filed for listing the shares of QLogic common stock
to be issued in the merger on The Nasdaq National Market. If the merger is
completed, Ancor common stock will be delisted from The Nasdaq National Market
and will be deregistered under the Securities Exchange Act of 1934.
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THE MERGER AGREEMENT
The following is a summary of the merger agreement. This summary does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the merger agreement, which is incorporated by reference and
attached to this joint proxy statement/prospectus as Annex A.
STRUCTURE OF THE MERGER AND CONVERSION OF ANCOR COMMON STOCK
In accordance with the merger agreement and Minnesota law, Amino
Acquisition Corp., a newly formed, wholly owned subsidiary of QLogic, will be
merged with and into Ancor. As a result of the merger, the separate corporate
existence of Amino Acquisition Corp. will cease and Ancor will survive as a
wholly owned subsidiary of QLogic.
Upon completion of the merger, each outstanding share of Ancor common
stock, other than shares held by Ancor or by QLogic or by Ancor's or QLogic's
subsidiaries and other than shares for which dissenters' appraisal rights have
been effectively asserted and not withdrawn or lost (see "The
Merger -- Dissenters' appraisal rights"), will be canceled and converted into
the right to receive 0.5275 of a share of QLogic common stock. Each share of
QLogic common stock issued will carry one-eighth of one preferred stock purchase
right under QLogic's shareholder rights plan, as amended. The number of shares
of QLogic common stock issuable in the merger will be proportionately adjusted
for any future stock split, stock dividend or similar event with respect to
Ancor common stock or QLogic common stock effected between the date of the
merger agreement and the completion of the merger.
No fractional shares of QLogic common stock will be issued in connection
with the merger. Instead, Ancor shareholders who are entitled to a fraction of a
share will receive an amount of cash in lieu of a fraction of a share of QLogic
common stock equal to the product of that fraction multiplied by the closing
price for a share of QLogic common stock on The Nasdaq National Market on the
last full trading day prior to the effective time of the merger.
TREATMENT OF ANCOR STOCK OPTIONS
At the effective time, each outstanding option to purchase shares of Ancor
common stock, whether vested or unvested, will be assumed by QLogic and
converted into an option to acquire, on substantially the same terms and
conditions as were applicable under such Ancor stock option. The number of
shares of QLogic common stock equal to the number of shares of Ancor common
stock that were issuable upon exercise of such option immediately prior to the
effective time of the merger multiplied by 0.5275, rounded down to the nearest
whole number of shares, and the per share exercise price of the shares of QLogic
common stock issuable upon exercise of such QLogic stock options will be equal
to the exercise price per share at which the Ancor stock option was exercisable
immediately prior to the effective time of the merger divided by 0.5275, rounded
up to the nearest whole cent. QLogic has agreed to cause the QLogic common stock
issuable upon exercise of the QLogic stock options to be listed on The Nasdaq
National Market. Within five business days following the effective time, QLogic
will file a registration statement on Form S-8 with the Securities and Exchange
Commission with respect to the QLogic common stock underlying such QLogic stock
options.
TREATMENT OF ANCOR WARRANTS
At the effective time, each outstanding warrant to purchase shares of Ancor
common stock will be assumed by QLogic and converted into a warrant to acquire,
on substantially the same terms and conditions as were applicable under such
Ancor warrant, the number of shares of QLogic common stock equal to the number
of shares of Ancor common stock that were issuable upon exercise of such option
immediately prior to the effective time of the merger multiplied by 0.5275,
rounded down to the nearest whole number of shares, and the per share
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exercise price of the shares of QLogic common stock issuable upon exercise of
such QLogic stock options will be equal to the exercise price per share at which
the Ancor stock option was exercisable immediately prior to the effective time
of the merger divided by 0.5275, rounded up to the nearest whole cent.
EXCHANGE OF ANCOR STOCK CERTIFICATES FOR QLOGIC STOCK CERTIFICATES
Within ten business days after the merger is completed, QLogic will cause
to be mailed to each Ancor shareholder a letter of transmittal and instructions
for use in surrendering your Ancor stock certificates in exchange for QLogic
stock certificates. When you deliver your Ancor stock certificates to the
exchange agent along with a properly executed letter of transmittal and any
other required documents, your Ancor stock certificates will be canceled and you
will receive QLogic stock certificates representing the number of full shares of
QLogic common stock, and cash in lieu of fractional shares, to which you are
entitled under the merger agreement.
YOU SHOULD NOT SUBMIT YOUR STOCK CERTIFICATES FOR
EXCHANGE UNTIL YOU HAVE RECEIVED
THE LETTER OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE.
QLogic will only issue a QLogic stock certificate or a check in lieu of a
fractional share in a name other than the name in which a surrendered Ancor
stock certificate is registered if you present QLogic's exchange agent with all
documents required to show and effect the unrecorded transfer of ownership and
show that you paid any applicable stock transfer taxes.
REPRESENTATIONS AND WARRANTIES
Ancor and QLogic each made a number of representations and warranties in
the merger agreement regarding our authority to enter into the merger agreement
and to consummate the other transactions contemplated by the merger agreement,
and with regard to aspects of our business, financial condition, structure and
other facts pertinent to the merger. Once the merger has been completed, the
representations and warranties do not have any legal force or effect.
The representations given by Ancor cover the following topics, as they
relate to Ancor and its subsidiaries:
- Ancor's organization, qualification and power to do business;
- Ancor's ownership of its subsidiaries;
- capitalization of Ancor;
- authority of Ancor relative to the merger agreement;
- no conflict with charter documents, certain contracts or applicable law;
- required filings and consents;
- Ancor's filings and reports with the Securities and Exchange Commission;
- Ancor's financial statements;
- changes in Ancor's business since December 31, 1999;
- litigation involving Ancor;
- Ancor's title to the properties it owns and leases;
- matters relating to material contracts;
- Ancor's compliance with applicable laws;
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<PAGE> 78
- intellectual property used and owned by Ancor;
- the effect of the Year 2000 on Ancor's business and products;
- Ancor's taxes;
- matters relating to Ancor's employees;
- Ancor's employee benefit plans;
- environmental laws that apply to Ancor;
- Ancor's insurance;
- Ancor's compliance with the Foreign Corrupt Practices Act;
- Ancor's compliance with export control laws;
- finders or brokers for the merger;
- authorization and recommendation by the Ancor board of directors of the
merger;
- the vote required of the Ancor shareholders to approve the merger;
- opinion of Ancor's financial advisor;
- ability to treat the merger as a tax-free reorganization;
- the inapplicability of state anti-takeover statutes to the merger;
- the inapplicability of Ancor's rights agreement to the merger; and
- information supplied by Ancor in this joint proxy statement/prospectus
and the related registration statement of QLogic.
The representations given by QLogic and Amino Acquisition Corp. cover the
following topics as they relate to QLogic, Amino Acquisition Corp. and QLogic's
subsidiaries:
- organization, qualification and power to do business;
- capitalization of QLogic;
- authority of QLogic relative to the merger agreement;
- no conflict with charter documents, certain contracts or applicable law;
- QLogic's filings and reports with the Securities and Exchange Commission;
- QLogic's financial statements;
- changes in QLogic's business since October 31, 1999;
- litigation involving QLogic;
- QLogic's compliance with applicable laws;
- finders or brokers for the merger;
- ability to treat the merger as a tax-free reorganization; and
- information supplied by QLogic and Amino Acquisition Corp. in this joint
proxy statement/prospectus and the related registration statement of
QLogic.
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to carefully read the articles in the
merger agreement entitled "Representations and Warranties of the Company" and
"Representations and Warranties of Merger Sub and Parent."
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<PAGE> 79
CONCEPT OF MATERIAL ADVERSE EFFECT
Many of the representations and warranties contained in the merger
agreement are qualified by the concept of "material adverse effect." This
concept also applies to some of the covenants and conditions to the merger
described under "-- Ancor's conduct of business before completion of the merger"
and "-- Conditions to the merger" below. For purposes of the merger agreement,
the concept of "material adverse effect" means any change, effect, event or
condition that has a material adverse effect on the assets, business or
financial condition of Ancor or QLogic, as the case may be, taken as a whole
with their respective subsidiaries other than any such change, effect, event or
condition that arises as a result of the transactions contemplated by the merger
agreement, or would prevent or materially delay its ability to complete the
merger.
ANCOR'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Ancor agreed that, until termination of the merger agreement or the
completion of the merger, or unless QLogic consents in writing, Ancor and its
subsidiaries will operate its businesses consistent with past practices, and
will use commercially reasonable efforts to preserve its business organization,
keep available the services of its officers and employees and to maintain
satisfactory relationships with suppliers, distributors and customers. Further,
Ancor agreed not to take any action which would adversely affect the ability of
the parties to complete the merger. Ancor also agreed that, until the completion
of the merger or unless QLogic consents in writing, Ancor and its subsidiaries
will conduct their businesses in compliance with specific restrictions or
prohibitions relating to the following:
- modification of Ancor's articles of incorporation or bylaws;
- the issuance of securities, except for limited grants of stock options
under Ancor's stock option plans and issuances in connection with Ancor's
employee stock purchase plan;
- modification of existing capital stock;
- the incurrence of indebtedness other than in the ordinary course;
- employee benefits and severance arrangements;
- entrance into or modification of material contracts;
- disposition of property or assets other than in the ordinary course of
business or sales of assets which do not exceed $500,000;
- acquisition of assets or equity in another business entity, except as
otherwise agreed;
- alteration of the corporate structure of Ancor or its subsidiaries;
- authorization of any material capital expenditures not reflected in the
budget previously provided to QLogic;
- change in accounting methods;
- elections under United States or foreign tax laws;
- actions that would prevent the merger from being accounted for as a
pooling-of-interests;
- settlement of any legal actions requiring payment in excess of $200,000;
and
- payment of any claims other than in the ordinary course of business.
The agreements related to the conduct of Ancor's business in the merger
agreement are complicated and not easily summarized. You are urged to carefully
read the article in the merger agreement entitled "Covenants and Agreements."
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<PAGE> 80
NO SOLICITATION OF TRANSACTIONS
Until the merger agreement is terminated, Ancor, subject to limited
exceptions, will not, nor will it permit any of its subsidiaries to, nor will it
authorize or permit any of its officers, directors or employees or any
investment bankers, attorneys or other agents or representatives retained by or
acting on behalf of Ancor to, whether directly or indirectly:
- initiate, solicit or encourage, directly or indirectly, any inquiries or
acquisition proposals;
- engage or participate in negotiations or discussions with, or furnish any
information or data to, or facilitate any inquiries or proposals by, a
third party relating to an acquisition proposal;
- enter into any agreement with respect to an acquisition proposal or
approve an acquisition proposal; or
- make any statement, recommendation or solicitation in support of any
possible acquisition proposal.
However, prior to the special meeting of Ancor shareholders, Ancor may
participate in discussions or negotiations with or furnish information to any
third party making an unsolicited acquisition proposal or approve or recommend
an unsolicited acquisition proposal if:
- a majority of Ancor's disinterested directors determines in good faith,
after consultation with its independent financial advisor, that Ancor has
received a proposal which is more favorable to Ancor's shareholders from
a financial point of view than the merger and which the potential
acquiror is financially capable of consummating; and
- a majority of Ancor's disinterested directors determines in good faith,
after consultation with its outside legal counsel that the failure to
participate in discussions or negotiations, or to furnish information or
approve or recommend the unsolicited acquisition proposal, is
inconsistent with the Ancor board of director's fiduciary duties under
applicable law.
Additionally, Ancor's board of directors is not prohibited from taking and
disclosing to Ancor's shareholders a position with respect to a tender offer
pursuant to Rules 14d-9 and 14e-2 promulgated under the Securities Exchange Act,
after consultation with its outside legal counsel, that such disclosure is
required by applicable law. Ancor has agreed to provide QLogic with detailed
information about any acquisition proposal it receives. In addition, Ancor has
agreed not to enter into any agreement concerning an acquisition proposal until
three business days after Ancor has given a copy of the acquisition proposal to
QLogic.
An acquisition proposal is any proposal made by a party other than QLogic
to acquire 20% or more of the assets of, or 20% or more of the outstanding
capital stock of, Ancor or any of its subsidiaries.
For purposes of the foregoing, any violation of the restrictions described
above by any director or officer of Ancor or any of its subsidiaries, or any
financial advisor, attorney or other advisor or representative of Ancor, whether
or not such person is purporting to act on behalf of Ancor or any of its
subsidiaries, is deemed to be a breach of the relevant restriction by Ancor.
CONDITIONS TO THE MERGER
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of certain conditions. If either QLogic or Ancor waives
any conditions, Ancor and QLogic will consider the facts and circumstances at
that time and make a determination whether a resolicitation of proxies from
their respective shareholders is appropriate. The
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<PAGE> 81
following conditions, among others, must be satisfied or waived before the
completion of the merger:
- the merger agreement must be approved by Ancor's shareholders;
- the merger agreement, including the issuance of QLogic common stock in
the merger, must be approved by QLogic's stockholders;
- no action or proceeding by a governmental entity seeking to prevent the
merger or asserting its illegality may be in effect;
- no judgment, order, statute or rule may be in effect that would prevent
the merger or impose material sanctions, or otherwise impose material
limitations on QLogic's ability to combine and operate the business and
assets of Ancor or require QLogic to divest any significant portion of
its or Ancor's business, assets or property;
- all necessary governmental consents must be obtained where the failure to
obtain the consents would have a material adverse effort on QLogic,
including expiration or termination of the applicable waiting periods
under U.S. antitrust laws;
- our respective representations and warranties in the merger agreement
must continue to be true and correct, except where the failure would not
have a material adverse effect on the party making the representations
and warranties;
- we must comply with our respective obligations in the merger agreement;
- Ancor must receive an opinion of its tax counsel to the effect that the
merger will qualify as a tax-free reorganization;
- Ancor and QLogic must be advised in writing by their independent auditors
that the merger qualifies as a pooling-of-interests for accounting
purposes; and
- the aggregate number of dissenting shares shall not exceed five percent
of the Ancor common stock on a fully diluted, as converted basis.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated by mutual consent, or by either
QLogic or Ancor under certain circumstances, at any time before the completion
of the merger, as summarized below:
- if the merger is not completed, without the fault of the terminating
party, by November 30, 2000;
- if Ancor's shareholders or QLogic's stockholders do not approve the
merger agreement at their special meetings;
- if a governmental restraint prohibiting the merger is issued and is not
appealable; or
- if Ancor commits to or enters into an acquisition proposal from a third
party which Ancor's board of directors determines in good faith to be
superior to the terms of the merger with QLogic, and QLogic has not,
within three business days of receiving notice, proposed comparable
amendments to the merger agreement.
The merger agreement may be terminated by Ancor:
- if QLogic has breached any of its representations and warranties which
would have a material adverse effect on QLogic or if QLogic failed to
perform any of its covenants and the breach or failure to perform has not
been cured within 30 days following receipt of notice of the breach; or
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<PAGE> 82
- if QLogic's board of directors or any of its committees withdraws or
modifies, in a manner adverse to Ancor, its recommendation of the merger
to QLogic's stockholders.
The merger agreement may be terminated by QLogic:
- if Ancor has breached any of its representations and warranties which
would have a material adverse effect on Ancor, or if Ancor failed to
perform any of its covenants and the breach or failure to perform has not
been cured within 30 days following receipt of notice of the breach; or
- if Ancor's board of directors or any of its committees withdraws or
modifies, in a manner adverse to QLogic, its recommendation of the merger
to Ancor's shareholders, or approves or recommends an acquisition
proposal other than the merger with QLogic.
PAYMENT OF FEES AND EXPENSES
Except as described below, QLogic and Ancor will pay their own costs and
expenses incurred in connection with the merger agreement and the merger,
whether or not the merger is consummated. However, QLogic and Ancor will share
equally the registration and filing fees incurred in connection with the
registration statement of which this joint proxy statement/prospectus is a part.
Termination due to breach:
- QLogic will be entitled to receive damages from Ancor, including
out-of-pocket fees and expenses incurred or paid in connection with the
merger agreement, if QLogic terminates the merger agreement because Ancor
has breached any of its representations and warranties or failed to
perform any of its covenants and fails to cure the breach in a timely
manner; or
- Ancor shall be entitled to receive damages from QLogic, including
out-of-pocket fees and expenses incurred or paid in connection with the
merger agreement, if Ancor terminates the merger agreement because QLogic
has breached any of its representations and warranties or failed to
perform any of its covenants and fails to cure the breach in a timely
manner.
However, none of the damages described above will be payable if a
termination fee is paid as described below.
Ancor shall pay to QLogic a termination fee of $55,000,000 in cash if:
- Ancor or QLogic terminates the merger agreement because Ancor does not
obtain shareholder approval, except if immediately prior to Ancor
shareholder meeting, an event or condition exists that would result in a
material adverse effect on QLogic; or
- QLogic terminates the merger agreement because Ancor breached its
representations and warranties or failed to perform any of its covenants
under the merger agreement and, Ancor enters into an agreement to be
acquired within twelve months; or
- Ancor or QLogic terminates the merger agreement because Ancor enters into
a merger, acquisition or other agreement to effect a superior proposal;
or
- QLogic terminates the merger agreement because Ancor's board of directors
has withdrawn or modified its approval of the merger or the merger
agreement, except if such withdrawal or modification occurs after the
occurrence of a material adverse effect on QLogic.
The payment by Ancor of this termination fee is in lieu of any obligation
under the merger agreement or liquidated damages. It is not a penalty or
forfeiture.
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<PAGE> 83
QLogic shall pay to Ancor a termination fee of $55,000,000 in cash if:
- Ancor or QLogic terminates the merger agreement because QLogic did not
obtain stockholder approval, except if immediately prior to the QLogic
stockholder meeting, an event or condition exists that would result in a
material adverse effect on Ancor; or
- Ancor terminates the merger agreement because QLogic's board of directors
has withdrawn or modified its approval of the merger or the merger
agreement, except if the withdrawal or modification occurs after a
material adverse effect on Ancor.
The payment by QLogic of this termination fee is in lieu of any obligation
under the merger agreement or liquidated damages. It is not a penalty or
forfeiture.
AMENDMENTS, EXTENSION AND WAIVERS
The merger agreement may be amended by the parties at any time before or
after the special meeting of Ancor or QLogic, provided that any amendment made
after the special meeting that would otherwise require approval of the
shareholders of Ancor or the stockholders of QLogic under applicable law must be
submitted to the stockholders of QLogic or the shareholders of Ancor. All
amendments to the merger agreement must be in a writing signed by each party. At
any time prior to the effective time of the merger, any party to the merger
agreement may, to the extent legally allowed:
- extend the time for the performance of any of the obligations or other
acts of the other parties to the merger agreement;
- waive any inaccuracies in the representations and warranties of the other
parties contained in the merger agreement; and
- waive compliance by the other parties with any of the agreements or
conditions contained in the merger agreement.
All extensions and waivers must be in writing and signed by the party
against whom the waiver is to be effective.
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STOCK OPTION AGREEMENT
The following is a brief summary of the stock option agreement. This
summary does not purport to be complete and is qualified in its entirety by the
stock option agreement, which is incorporated in this joint proxy
statement/prospectus by reference. The stock option agreement is attached to
this joint proxy statement/prospectus as Annex D.
Pursuant to the stock option agreement, QLogic has the right, under the
circumstances described below, to acquire up to 5,828,667 of the authorized but
unissued shares of Ancor common stock, or approximately 19.9% of the outstanding
shares as of May 7, 2000, at a per share exercise price of $52.717, payable in
cash. The stock option agreement could have the effect of making an acquisition
of Ancor by a third party more costly because of the need to acquire in any such
transaction the option shares issued under the option agreement and could also
jeopardize the ability of a third party to acquire Ancor in a transaction to be
accounted for as a pooling-of-interests.
The option may be exercised by QLogic, in whole or in part, at any time or
from time to time after the occurrence of an event that would entitle QLogic,
upon termination of the merger agreement, to receive payment of the termination
fee (as described in "The Merger Agreement -- Payment of Fees and Expenses") and
in certain other circumstances in which a third party acquires, commences a
tender offer for, announces the acquisition of or receives an option to acquire
more than 20% of the outstanding common stock of Ancor. In lieu of the payment
of the option price and the receipt of the option shares, under certain
circumstances, QLogic may require Ancor to repurchase the option at a cash
purchase price equal to the product determined by multiplying (A) the number of
option shares as to which the option has not yet been exercised by (B) the
excess of (i) the fair market value of the common stock of Ancor, as determined
in accordance with the terms of the option agreement, over (ii) the exercise
price.
The option agreement further provides that if QLogic desires to sell any of
the option shares and such sale requires the registration of such shares under
the Securities Act, Ancor will be required to prepare and file, subject to
certain limitations, a registration statement under the Securities Act for the
purpose of permitting such sale of shares by QLogic.
Notwithstanding any other provision of the option agreement, in no event
shall QLogic's Total Profit, as defined below, exceed $55,000,000 and, if it
otherwise would exceed such amount, QLogic, at its sole election, shall either
(1) deliver to Ancor for cancellation option shares previously acquired by
QLogic, (2) pay cash or other consideration to Ancor or (3) undertake any
combination thereof, in each case, so that QLogic's Total Profit does not exceed
$55,000,000. "Total Profit" means the sum, before taxes, of the following:
- the amount of cash received by QLogic pursuant to the repurchase of the
option by Ancor;
- the net cash amounts received by QLogic pursuant to the sale of option
shares, or any other securities into which such option shares are
converted or exchanged, to any unaffiliated party, less the aggregated
option price paid for all option shares acquired by QLogic; and
- any termination fee received pursuant to the merger agreement.
The stock option agreement will terminate upon the earliest of the
effective time of the merger, at such time the termination fee is paid to QLogic
and at such time following termination of the merger agreement that the
termination fee can no longer under any circumstances be payable to QLogic.
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UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Financial Information
is based on the historical financial statements of QLogic and Ancor and has been
prepared to illustrate the effect of the merger. The Unaudited Pro Forma
Condensed Combined Financial Information has been prepared assuming that the
merger will be accounted for as a pooling of interests, whereby QLogic will
restate its historical consolidated financial statements to include the assets,
liabilities, stockholders' equity and results of operations of Ancor for all
periods.
The Unaudited Pro Forma Condensed Combined Balance Sheet at April 2, 2000
gives effect to the merger and the related transactions as if they had occurred
on April 2, 2000, and was prepared based upon the consolidated balance sheet of
QLogic as of April 2, 2000 and the unaudited balance sheet of Ancor as of March
31, 2000.
The Unaudited Pro Forma Condensed Combined Statements of Income for each of
the years in the three year period ended April 2, 2000, give effect to the
merger as of April 1, 1997. The Unaudited Pro Forma Condensed Combined Statement
of Income for the fiscal year ended April 2, 2000 was prepared based upon the
consolidated statement of income of QLogic for the fiscal year ended April 2,
2000 and the statement of operations of Ancor for the fiscal year ended December
31, 1999. The Unaudited Pro Forma Condensed Combined Statement of Income for the
fiscal year ended March 28, 1999 was prepared based upon the consolidated
statement of income of QLogic for the fiscal year ended March 28, 1999 and the
statement of operations of Ancor for the fiscal year ended December 31, 1998.
The Unaudited Pro Forma Condensed Combined Statement of Income for the fiscal
year ended March 29, 1998 was prepared based upon the consolidated statement of
income of QLogic for the fiscal year ended March 29, 1998 and the statement of
operations of Ancor for the fiscal year ended December 31, 1997.
The Unaudited Pro Forma Condensed Combined Financial Information is based
on certain assumptions and adjustments described in the notes to the Unaudited
Pro Forma Condensed Combined Financial Information included in this joint proxy
statement/prospectus and should be read in conjunction with the historical
financial statements and accompanying disclosures contained in QLogic's April 2,
2000 consolidated financial statements and notes thereto, QLogic's March 28,
1999 Form 10-K, Ancor's March 31, 2000 Form 10-Q and Ancor's December 31, 1999
Form 10-K, which are incorporated by reference or appear elsewhere in this joint
proxy statement/prospectus.
The Unaudited Pro Forma Condensed Combined Financial Information presented
below does not reflect future events that may occur after the merger. QLogic
believes that operating expense synergies between QLogic and Ancor will be
realized after the merger. However, for purposes of the Unaudited Pro Forma
Condensed Combined Financial Information presented below, these synergies have
not been reflected because there can be no assurances that such synergies, if
any, will be achieved.
As a result of these assumptions, estimates and uncertainties, the
accompanying Unaudited Pro Forma Condensed Combined Financial Information does
not purport to describe the actual financial condition or results of operations
that would have been achieved had the merger in fact occurred on the dates
indicated, nor does it purport to predict QLogic's future financial condition or
results of operations.
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QLOGIC CORPORATION AND SUBSIDIARIES
ANCOR COMMUNICATIONS, INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF APRIL 2, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
QLOGIC ANCOR
APRIL 2, MARCH 31, MERGER PRO FORMA
2000 2000 ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 64,134 $ 22,755 $ -- $ 86,889
Short term investments.............. 58,671 59,091 -- 117,762
Accounts and notes receivable,
net.............................. 21,647 5,842 -- 27,489
Inventories......................... 22,330 2,762 -- 25,092
Deferred income taxes............... 9,211 -- 22,939(a)(b) 32,150
Prepaid expenses and other current
assets........................... 1,356 360 -- 1,716
-------- -------- -------- --------
Total current assets............. 177,349 90,810 22,939 291,098
Long term investments............... 39,797 -- -- 39,797
Property and equipment, net......... 45,775 4,758 -- 50,533
Other assets........................ 4,235 368 10,199(a)(b) 14,802
-------- -------- -------- --------
$267,156 $ 95,936 $ 33,138 $396,230
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long term
debt............................. $ -- $ 29 $ -- $ 29
Accounts payable.................... 5,743 2,215 -- 7,958
Accrued liabilities................. 18,444 4,116 -- 22,560
-------- -------- -------- --------
Total current liabilities........ 24,187 6,360 -- 30,547
Long term unearned revenue, less
current.......................... -- 5,091 -- 5,091
Long term debt, less current
maturities....................... -- 6 -- 6
Stockholders' equity:
Preferred stock..................... -- -- -- --
Common stock........................ 74 292 (277)(e) 89
Additional paid-in capital.......... 145,067 137,426 11,499(a)(e) 293,992
Retained earnings (accumulated
deficit)......................... 97,828 (52,998) 21,916(b) 66,746
Other comprehensive loss............ -- (241) -- (241)
-------- -------- -------- --------
Total stockholders' equity....... 242,969 84,479 33,138 360,586
-------- -------- -------- --------
$267,156 $ 95,936 $ 33,138 $396,230
======== ======== ======== ========
</TABLE>
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QLOGIC CORPORATION AND SUBSIDIARIES
ANCOR COMMUNICATIONS, INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 2, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
QLOGIC ANCOR
YEAR ENDED YEAR ENDED
APRIL 2, DECEMBER 31, MERGER PRO FORMA
2000 1999 ADJUSTMENTS COMBINED
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net revenues..................... $203,143 $ 12,951 $ -- $216,094
Cost of revenues................. 64,241 6,741 -- 70,982
-------- -------- -------- --------
Gross profit................... 138,902 6,210 -- 145,112
-------- -------- -------- --------
Operating expenses:
Engineering and development.... 39,993 7,458 -- 47,451
Selling and marketing.......... 16,724 5,898 -- 22,622
General and administrative..... 8,140 3,063 -- 11,203
-------- -------- -------- --------
Total operating expenses.... 64,857 16,419 -- 81,276
-------- -------- -------- --------
Operating income (loss).......... 74,045 (10,209) -- 63,836
Interest expense................. 19 19 -- 38
Interest and other income........ 7,722 1,495 -- 9,217
-------- -------- -------- --------
Income (loss) before income
taxes.......................... 81,748 (8,733) -- 73,015
Income tax provision............. 27,795 -- (3,095)(b) 24,700
-------- -------- -------- --------
Net income (loss)................ 53,953 (8,733) 3,095 48,315
Accretion on convertible
preferred stock................ -- (12) -- (12)
-------- -------- -------- --------
Net income (loss) attributable to
common shareholders............ $ 53,953 $ (8,745) $ 3,095 $ 48,303
======== ======== ======== ========
Net income (loss) per share:
Basic.......................... $ 0.74 $ (0.34) $ -- $ 0.56
-------- -------- -------- --------
Diluted........................ $ 0.70 $ (0.34) $ -- $ 0.52
-------- -------- -------- --------
Number of shares used in per
share computations:
Basic.......................... 72,950 25,659 (12,124)(c) 86,485
-------- -------- -------- --------
Diluted........................ 77,497 25,659 (10,623)(d) 92,533
-------- -------- -------- --------
</TABLE>
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QLOGIC CORPORATION AND SUBSIDIARIES
ANCOR COMMUNICATIONS, INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 28, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
QLOGIC ANCOR
YEAR ENDED YEAR ENDED
MARCH 28, DECEMBER 31, MERGER PRO FORMA
1999 1998 ADJUSTMENTS COMBINED
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net revenues...................... $117,182 $ 4,393 $ -- $121,575
Cost of revenues.................. 42,603 6,431 -- 49,034
-------- -------- ------- --------
Gross profit (loss)............. 74,579 (2,038) -- 72,541
-------- -------- ------- --------
Operating expenses:
Engineering and development..... 24,358 5,451 -- 29,809
Selling and marketing........... 11,062 4,186 -- 15,248
General and administrative...... 5,794 3,009 -- 8,803
-------- -------- ------- --------
Total operating expenses..... 41,214 12,646 -- 53,860
-------- -------- ------- --------
Operating income (loss)........... 33,365 (14,684) -- 18,681
Interest expense.................. 84 34 -- 118
Interest and other income......... 5,657 220 -- 5,877
-------- -------- ------- --------
Income (loss) before income
taxes........................... 38,938 (14,498) -- 24,440
Income tax provision.............. 13,239 -- (4,929)(b) 8,310
-------- -------- ------- --------
Net income (loss)................. 25,699 (14,498) 4,929 16,130
Accretion on convertible preferred
stock........................... -- (762) -- (762)
-------- -------- ------- --------
Net income (loss) attributable to
common shareholders............. $ 25,699 $(15,260) $ 4,929 $ 15,368
======== ======== ======= ========
Net income (loss) per share:
Basic........................... $ 0.37 $ (1.04) $ -- $ 0.20
-------- -------- ------- --------
Diluted......................... $ 0.34 $ (1.04) $ -- $ 0.18
-------- -------- ------- --------
Number of shares used in per share
computations:
Basic........................... 70,047 14,741 (6,965)(c) 77,823
-------- -------- ------- --------
Diluted......................... 74,760 14,741 (2,269)(d) 87,232
-------- -------- ------- --------
</TABLE>
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QLOGIC CORPORATION AND SUBSIDIARIES
ANCOR COMMUNICATIONS, INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 29, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
QLOGIC ANCOR
YEAR ENDED YEAR ENDED
MARCH 29, DECEMBER 31, MERGER PRO FORMA
1998 1997 ADJUSTMENTS COMBINED
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Net revenues....................... $81,393 $ 7,924 $ -- $89,317
Cost of revenues................... 34,049 5,991 -- 40,040
------- -------- ------- -------
Gross profit..................... 47,344 1,933 -- 49,277
------- -------- ------- -------
Operating expenses:
Engineering and development...... 15,601 4,271 -- 19,872
Selling and marketing............ 8,707 3,833 -- 12,540
General and administrative....... 4,550 3,852 -- 8,402
------- -------- ------- -------
Total operating expenses...... 28,858 11,956 -- 40,814
------- -------- ------- -------
Operating income (loss)............ 18,486 (10,023) -- 8,463
Interest expense................... 109 19 -- 128
Interest and other income.......... 3,453 219 -- 3,672
------- -------- ------- -------
Income (loss) before income
taxes............................ 21,830 (9,823) -- 12,007
Income tax provision............... 8,422 -- (3,438)(b) 4,984
------- -------- ------- -------
Net income (loss).................. 13,408 (9,823) 3,438 7,023
Accretion on convertible preferred
stock............................ -- (345) -- (345)
------- -------- ------- -------
Net income (loss) attributable to
common shareholders.............. $13,408 $(10,168) $ 3,438 $ 6,678
======= ======== ======= =======
Net income (loss) per share:
Basic............................ $ 0.22 $ (0.93) $ -- $ 0.10
------- -------- ------- -------
Diluted.......................... $ 0.21 $ (0.93) $ -- $ 0.09
------- -------- ------- -------
Number of shares used in per share
computations:
Basic............................ 60,732 10,963 (5,180)(c) 66,515
------- -------- ------- -------
Diluted.......................... 64,792 10,963 (4,647)(d) 71,108
------- -------- ------- -------
</TABLE>
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NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The adjustments to arrive at the unaudited pro forma condensed combined
financial information are as follows:
(a) To reflect the elimination of Ancor's deferred tax asset valuation
allowance related to stock option deductions available as a result of the
pro forma combined net income.
(b) To reflect the elimination of Ancor's deferred tax asset valuation
allowance related to Ancor's net operating loss carryforwards available as
a result of the pro forma combined net income.
(c) Represents the reduction in Ancor's weighted average common shares
that would have been outstanding to reflect the exchange ratio.
(d) Represents the reduction in Ancor's weighted average common shares
and potential dilutive shares that would have been outstanding to reflect
the exchange ratio offset by the addition of the potential dilutive shares
of Ancor as a result of the merger.
(e) Represents the reduction in Ancor's common stock that would have
been outstanding to reflect the exchange ratio and the related par value
effect.
The pro forma combined financial information excludes the effects of the
cash costs of the merger, primarily financial advisor, legal, accounting and
printing fees, which will be charged to operations upon consummation of the
merger.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF QLOGIC
AND SHAREHOLDERS OF ANCOR
This section of the joint proxy statement/prospectus describes certain
differences between the rights of holders of Ancor common stock and the rights
of holders of QLogic common stock. While we believe that the description covers
the material differences between the two, this summary may not contain all of
the information that is important to you. You should carefully read this entire
document and refer to the other documents discussed below for a more complete
understanding of the differences between being a shareholder of Ancor and being
a stockholder of QLogic.
As a shareholder of Ancor, Ancor's second amended and restated articles of
incorporation, Ancor's bylaws and the Minnesota Business Corporation Act govern
your rights. After completion of the merger, you will become a stockholder of
QLogic. QLogic's common stock is quoted on the Nasdaq National Market under the
symbol "QLGC." As a QLogic stockholder, QLogic's certificate of incorporation,
bylaws and the Delaware General Corporation Law will govern your rights. QLogic
is incorporated in Delaware while Ancor is incorporated in Minnesota. Although
the rights and privileges of stockholders of a Delaware corporation are in many
instances comparable to those of shareholders of a Minnesota corporation, there
are also differences.
The following discussion of similarities and material differences between
the rights of Ancor shareholders under the articles of incorporation and bylaws
of Ancor and the rights of QLogic stockholders under QLogic's certificate of
incorporation and bylaws is only a summary of some provisions and is not a
complete description of these similarities and differences. This discussion is
qualified in its entirety by reference to the Minnesota law and Delaware law,
the common law thereunder and the full text of the certificate of incorporation
and bylaws of QLogic and the articles of incorporation and bylaws of Ancor.
SHAREHOLDER MEETINGS
Delaware law and QLogic's bylaws require that stockholders be provided
prior written notice no more than 60 days nor less than 10 days prior to the
date of any meeting of stockholders. Delaware law provides that notice must be
given at least 20 days prior to a meeting at which the stockholders will be
asked to approve an agreement relating to the merger of the corporation.
Under Minnesota law, shareholders are entitled to at least 10 days' prior
written notice for each regular meeting and special meeting to consider any
matter, unless a shorter time is provided for in the articles or bylaws. The
bylaws of Ancor require that the shareholders be given at least five days'
written notice prior to each regular meeting and special meeting. However,
Minnesota law also requires that notice of a meeting at which an agreement of
merger or exchange is to be considered shall be mailed to shareholders of
record, whether entitled to vote or not, at least 14 days prior to such meeting.
RIGHT TO CALL SPECIAL MEETINGS
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by such person or persons as may be authorized by the
certificate of incorporation or by the bylaws. QLogic's bylaws authorize the
calling of a special meeting of stockholders by the board of directors, the
chairman of the board or the president. Stockholders of QLogic do not have the
right to call a special meeting of stockholders.
Under Minnesota law and Ancor's bylaws, a special meeting of shareholders
may be called by the chief executive officer, the chief financial officer, any
two or more directors, a person authorized in the articles or bylaws to call
special meetings, or a shareholder or shareholders
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holding 10% or more of all shares entitled to vote, except that a special
meeting called by a shareholder for the purpose of considering any action to
facilitate, directly or indirectly, or effect a business combination, including
any action to change or otherwise affect the composition of the board of
directors for that purpose, must be called by 25% or more of the voting power of
all shares entitled to vote.
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS
Under Delaware law and QLogic's bylaws, stockholders may act by a written
consent in lieu of a meeting provided the written consent is signed by the
holders of outstanding stock having at least the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present.
Under Minnesota law, any action required or permitted to be taken in a
meeting of the shareholders may be taken without a meeting by a written action
signed by all of the shareholders entitled to vote on that action.
RIGHTS OF DISSENTING SHAREHOLDERS
Under both Minnesota and Delaware law, shareholders may exercise a right of
dissent from certain corporate actions and obtain payment of the fair value of
their shares. Generally, under Minnesota law, the categories of transactions
subject to dissenter's rights are broader than those under Delaware law. For
example, if Ancor were governed by Delaware law, Ancor shareholders would not
have dissenters' rights in connection with the merger.
Appraisal rights are available under Delaware law with respect to the
shares of any class of stock of a constituent corporation to a merger or
consolidation unless such shares were listed on a national securities exchange,
designated on a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or held of
record by more than 2,000 stockholders. Notwithstanding the foregoing, appraisal
rights are available under Delaware law with respect to the shares of any class
of stock of a constituent corporation if the terms of a merger or consolidation
requires the holders of the stock to exchange their stock for anything other
than (a) shares of the surviving corporation; (b) shares of another corporation
that will be listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 holders; (c) cash in lieu of fractional shares of any such corporation; or
(d) any combination of such shares and cash in lieu of fractional shares.
Subject to the preceding sentences, appraisal rights are also available under
Delaware law, to the extent so provided in the certificate of incorporation, in
connection with amendments to the certificate of incorporation, any merger or
consolidation in which the corporation is a constituent corporation, or sales of
all or substantially all of the assets of a corporation. Stockholders who desire
to exercise their dissenters' rights must satisfy all of the conditions and
requirements under Delaware law in order to maintain such rights and obtain such
payment.
Shareholders of a Minnesota corporation may exercise dissenter's rights in
connection with:
- an amendment of the articles of incorporation that materially and
adversely affects the rights and preferences of the shares of the
dissenting shareholder in certain respects;
- a sale or transfer of all or substantially all of the assets of the
corporation;
- a plan of merger to which the corporation is a constituent party;
- a plan of exchange of shares to which the corporation is a party; and
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- any other corporate action with respect to which the corporation's
articles of incorporation or bylaws give dissenting shareholders the
right to obtain payment for their shares.
Unless the articles, the bylaws, or a resolution approved by the board of
directors otherwise provide, such dissenters' rights do not apply to a
shareholder of the surviving corporation in a merger, if the shares of the
shareholder are not entitled to be voted on the merger. Ancor's articles of
incorporation, bylaws and board resolutions do not grant any other dissenters'
rights. Shareholders who desire to exercise their dissenters' rights must
satisfy all of the conditions and requirements under Minnesota law in order to
maintain such rights and obtain such payment.
BOARD OF DIRECTORS
Delaware law states that the board of directors shall consist of one or
more members with the number of directors to be fixed as provided in the bylaws
of the corporation, unless the certificate of incorporation fixes the number of
directors, in which case a change in the number of directors shall be made only
by amendment of the certificate of incorporation. QLogic's bylaws provide that
the number of directors constituting the whole board shall not be less than four
or more than seven, until changed by a bylaw duly adopted by the stockholders or
the board. QLogic currently has five directors.
Delaware law states that any director or the entire board of directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors, with an exception for
corporations with cumulative voting. In the case of a corporation whose board is
classified, holders may only remove a director for cause unless the certificate
of incorporation provides otherwise. QLogic's certificate of incorporation does
not provide for cumulative voting or for a staggered board.
Minnesota law provides that the board of directors of a Minnesota
corporation shall consist of one or more directors as fixed by the articles of
incorporation or bylaws. Ancor's articles of incorporation provide that the
number of directors of Ancor shall initially be four and shall be fixed after
that from time to time by the board of directors or by the affirmative vote of
the holders of at least a majority of the voting power of the outstanding common
stock of the corporation. Ancor's articles of incorporation provide that the
board is divided into three classes. Ancor currently has seven directors.
Minnesota law provides that, unless modified by the articles or bylaws of
the corporation or by shareholder agreement, the directors may be removed with
or without cause by the affirmative vote of that proportion or number of the
voting power of the shares of the classes or series the director represents
which would be sufficient to elect such director, with an exception for
corporations with cumulative voting. Ancor's bylaws require the affirmative vote
of the shareholders holding a majority of the shares entitled to vote at an
election of directors to remove directors with or without cause. Ancor's bylaws
also provide that a director named by the board of directors to fill a vacancy
may be removed at any time, with or without cause, by the affirmative vote of
the remaining directors if the shareholders have not elected directors in the
interim between the time of appointment to fill such vacancy and the time of
removal. Ancor's articles of incorporation provide that shareholders of Ancor do
not have the right to cumulative voting.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Delaware law provides that, unless otherwise provided in the certificate of
incorporation or bylaws, vacancies and newly created directorships, resulting
from any increase in the authorized number of directors elected by all the
stockholders having the right to vote as a class, may be filled by a majority of
the directors then in office, although less than a quorum, or by a sole
remaining director. Further, if, at the time of filling any vacancy or newly
created directorship,
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the directors then in office shall constitute less than a majority of the whole
board, the Court of Chancery may, upon application of any stockholder or
stockholders holding at least 10% of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office. QLogic's
bylaws provide that vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director. QLogic's bylaws also provide that stockholders may elect a director at
any time to fill a vacancy or vacancies not filled by the directors.
Furthermore, if the board accepts the resignation of any director tendered to
take effect at a future time, the board or the stockholders have the power to
elect a successor to take office when the resignation is to become effective.
Under Minnesota law, unless different rules for filling vacancies are
provided for in the articles of incorporation or bylaws, vacancies resulting
from the death, resignation, removal or disqualification of a director may be
filled by the affirmative vote of a majority of the remaining directors, even
though less than a quorum, and vacancies resulting from a newly created
directorship may be filled by the affirmative vote of a majority of the
directors serving at the time of the increase. The shareholders may also elect a
new director to fill a vacancy that is created by the removal of a director by
the shareholders. Ancor's articles of incorporation provide that vacancies on
the board of directors may be filled by the majority vote of the directors then
in office, though less than a quorum.
PREEMPTIVE RIGHTS
A preemptive right allows a shareholder to maintain its proportionate share
of ownership of a corporation by permitting such shareholder the right to
purchase a proportionate share of any new stock issuance and thereby protecting
the shareholder from dilution of value and control upon new stock issuances.
Unless the certificate of incorporation provides otherwise, under Delaware
law, stockholders of a corporation have no preemptive rights. QLogic's
certificate of incorporation does not provide for preemptive rights.
Minnesota law provides that all shareholders are entitled to preemptive
rights unless the articles of incorporation specifically deny or limit
preemptive rights. Ancor's articles of incorporation provide that the
shareholders have no preemptive rights to purchase securities of any class, kind
or series.
ADVANCE NOTICE REQUIREMENT OF SHAREHOLDER PROPOSALS AND DIRECTORS NOMINATIONS
QLogic's bylaws provide that for a stockholder proposal to be timely made
by a stockholder with respect to an annual meeting, QLogic must receive written
notice of the proposal from the stockholder not less than 60 nor more than 90
days before the annual meeting. However, if public disclosure of the annual
meeting is made less than 70 days before the meeting, QLogic must receive the
notice from the stockholder not later than the close of business on the 10th day
following the first day of public disclosure. For a stockholder proposal to be
timely made with respect to a special meeting, QLogic must receive the
stockholder's notice of the proposal not later than the close of business on the
10th day following the first day of public disclosure.
QLogic's bylaws provide that for a director nomination to be timely made by
a stockholder, QLogic must receive written notice of the nomination not less
than 60 nor more than 90 days before the date of the meeting in which the
directors are to be elected. However, if the first public disclosure of the date
of the meeting is made less than 70 days before the
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meeting, the notice must be received by QLogic not later than the close of
business on the 10th day following the first day of public disclosure.
Ancor's bylaws provide that for a shareholder proposal to be properly made
by a shareholder at a regular meeting, the shareholder must give written notice
of the proposal. Ancor's bylaws also provide that for a nomination of a director
to be properly made by a shareholder at a regular meeting, the shareholder must
give written notice of the nomination. In both cases, Ancor must receive the
relevant notice at least 120 days before the anniversary of the date of the
proxy statement from the previous year's regular meeting.
AMENDMENTS TO BYLAWS AND ARTICLES
Delaware law requires a resolution of the corporation's board of directors
followed by the affirmative vote of a majority of the outstanding stock of each
class entitled to vote for any amendment to the certificate of incorporation,
unless the certificate of incorporation requires a greater level of approval.
Further, Delaware law states that if an amendment would increase or decrease the
aggregate number of authorized shares of such class, increase or decrease the
par value of shares of such class or alter or change the powers, preferences or
special rights of a particular class or series of stock so as to affect them
adversely, the class or series shall be given the power to vote as a class
notwithstanding the absence of any specifically enumerated power in the
certificate of incorporation. Delaware law also states that the stockholders
have the power to adopt, amend or repeal the bylaws of a corporation, provided
that the corporation in its certificate of incorporation may confer such power
on the board of directors in addition to the stockholders. QLogic's certificate
of incorporation expressly authorizes the board of directors to make, adopt,
amend, rescind or repeal QLogic's bylaws.
Minnesota law provides that unless reserved by the articles of
incorporation to the shareholders, the power to adopt, amend or repeal the
bylaws is vested in the board, subject to the power of the shareholders to
adopt, amend or repeal bylaws adopted, amended or repealed by the board. Under
Minnesota law, a shareholder or shareholders holding 3% or more of the voting
shares entitled to vote may propose a resolution to amend or repeal bylaws
adopted, amended or repealed by the board, in which event such resolutions must
be brought before the shareholders for their consideration pursuant to the
procedures for amending the articles of incorporation. Under Minnesota law and
Ancor's bylaws, the board of directors shall not make or alter any bylaws fixing
a quorum for meetings of shareholders, prescribing procedures for removing
directors or filling vacancies in the board of directors, or fixing the number
of directors or their classifications, qualifications or terms of office.
However, Minnesota law and Ancor's bylaws do provide that the board of directors
may adopt or amend a bylaw to increase the number of directors.
Minnesota law provides that a proposal to amend the articles of
incorporation may be presented to the shareholders of a Minnesota corporation by
a resolution either approved by the affirmative vote of a majority of the
directors present or proposed by a shareholder or shareholders holding 3% or
more of the voting shares entitled to vote thereon. Under Minnesota law, any
such amendment must be approved by the affirmative vote of a majority of the
shareholders entitled to vote thereon, except that the articles may provide for
a specified proportion or number larger than a majority. Ancor's articles of
incorporation do not provide for a specified proportion or larger number. In
addition, under Minnesota law, the holders of the outstanding shares or a class
or series are entitled to vote as a class or series on a proposed amendments to
the articles of incorporation, whether or not such class or series would
otherwise be entitled to vote, if the amendment would:
- alter the aggregate number of authorized shares of the applicable class
or series;
- effect an exchange, reclassification or cancellation of all or part of
the class or series;
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- effect an exchange or create a right of exchange of all or a part of
another class or series for the shares of the applicable class or series;
- change the rights or preferences of the shares of the applicable class or
series;
- change the shares of the class or series into the same or a different
number of shares of another class or series;
- create a new class or series with rights or preferences prior and
superior to the shares of the applicable class or series or increase the
rights and preferences or the number of authorized shares of a class or
series having rights and preferences prior or superior to the shares of
the applicable class or series;
- divide the shares of the applicable class into series and determine the
designation of each series and the variations in the relative rights and
preferences between the shares of each series, or authorize the board to
do so;
- limit or deny any existing preemptive rights of the shares of the
applicable class or series; or
- cancel or otherwise affect distributions on the shares of the applicable
class or series that have accrued but have not been declared.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
Minnesota law and Delaware law both contain provisions setting forth
conditions under which a corporation may indemnify its directors, officers and
employees. While indemnification is permitted only if statutory standards of
conduct are met, Minnesota law and Delaware law are substantially similar in
providing for indemnification if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. The statutes differ,
however, with respect to whether indemnification is permissive or mandatory,
where there is a distinction between third-party actions and actions by or in
the right of the corporation, and whether, and to what extent, reimbursement of
judgments, fines, settlements, and expenses is allowed. The major difference
between Minnesota law and Delaware law is that while indemnification of
officers, directors and employees is mandatory under Minnesota, indemnification
is permissive under Delaware law, except that a Delaware corporation must
indemnify a person who is successful on the merits or otherwise in the defense
of certain specified actions, suits or proceedings for expenses and attorney's
fees actually and reasonably incurred in connection therewith.
Although indemnification is permissive in Delaware, a corporation may,
through its certificate of incorporation, bylaws or other intracorporate
agreements, make indemnification mandatory. Pursuant to this authority, QLogic's
bylaws provide that QLogic shall indemnify its officers, directors, employees or
agents or those serving at the request of QLogic as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses, including attorney fees and the advancement
of reimbursement expenses, judgments, fines and amounts paid in settlement to
the fullest extent permitted under the Delaware law.
In addition, QLogic has entered into indemnification agreements with its
officers and directors containing provisions that require QLogic, among other
things, to indemnify its officers and directors against liabilities that may
arise because of their status or service as directors or officers, other than
liabilities arising from willful misconduct of a culpable nature, to advance
their expenses incurred as a result of any proceeding against them or to which
they could be indemnified and to cover them under any of QLogic's liability
insurance policies applicable to directors and officers.
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Minnesota law requires a corporation to indemnify any director, officer or
employee who is made or threatened to be made party to a proceeding by reason of
the former or present official capacity of the director, officer or employee,
against judgments, penalties, fines, settlements and reasonable expenses.
Minnesota law permits a corporation to prohibit indemnification by so providing
in its articles of incorporation or its bylaws. Ancor has not limited the
statutory indemnification in its articles of incorporation or bylaws. Ancor
bylaws state that Ancor shall indemnify all officers and directors of the
corporation for such expenses and liabilities, including the advancement of
reimbursement of expenses, to such extent as permitted by statute.
LIABILITIES OF DIRECTORS
Under Delaware law, a certificate of incorporation may contain a provision
limiting or eliminating a director's personal liability to the corporation or
its stockholders for monetary damages for a director's breach of fiduciary duty
subject to certain limitations. QLogic's certificate of incorporation provides
that the corporation's directors shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability:
- for any breach of the director's duty of loyalty to the corporation or
its stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law, which provides
for unlawful payment of dividend or unlawful stock purchase or
redemption; or
- for any transaction from which the director derived an improper personal
benefit.
QLogic's certificate of incorporation also provides that if Delaware law is
amended to authorize further elimination of the personal liability of directors,
then the liability of QLogic directors shall be limited to the fullest extent
permitted by Delaware law, as so amended.
Under Minnesota law, a director's personal liability to the corporation or
its shareholders for monetary damages for breach of fiduciary duty as a director
may be eliminated or limited in the articles except that the articles cannot
limit the liability of a director:
- for any breach of the director's duty of loyalty to the corporation or
its shareholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a known violation of the law;
- under section 302A.559 of the Minnesota Business Corporation Act or
section 80A.23 of the Minnesota Regulation of Securities Act, which
provide for liability for illegal distributions and civil liability;
- for any transaction from which the directors derived an improper benefit;
or
- for any act or omission occurring prior to the date when the provision in
the articles eliminating liability becomes effective.
APPROVAL OF MERGER
In order to effect a merger under Delaware law, a corporation's board of
directors must adopt an agreement of merger and recommend it to the
stockholders. The agreement must be approved and adopted by holders of a
majority of the outstanding shares of the corporation entitled to vote thereon.
The certificate of incorporation may require a higher stockholder vote; QLogic's
certificate of incorporation does not specify a higher vote.
Minnesota law provides that a resolution containing a plan of merger or
exchange must be approved by the affirmative vote of a majority of the directors
present at a meeting and
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submitted to the shareholders and approved by the affirmative vote of the
holders of a majority of the voting power of all shares entitled to vote. Unlike
Delaware law, Minnesota law requires that any class of shares of a Minnesota
corporation must be given the right to approve the plan if it contains a
provision which, if contained in a proposed amendment to the corporation's
articles of incorporation, would entitle such a class to vote as a class.
BUSINESS COMBINATIONS, CONTROL SHARE ACQUISITIONS AND ANTI-TAKEOVER PROVISIONS
Delaware law prohibits, in certain circumstances, a "business combination"
between the corporation and an "interested stockholder" within three years of
the stockholder becoming an "interested stockholder." An "interested
stockholder" is a holder who, directly or indirectly, controls 15% or more of
the outstanding voting stock or is an affiliate of the corporation and was the
owner of 15% or more of the outstanding voting stock at any time within the
prior three-year period. A "business combination" includes a merger or
consolidation, a sale or other disposition of assets having an aggregate market
value equal to 10% or more of the consolidated assets of the corporation or the
aggregate market value of the outstanding stock of the corporation and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation. This provision does not apply where:
- either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the date the interested
stockholder acquired such 15% interest;
- upon the consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the outstanding voting stock of the
corporation excluding for the purposes of determining the number of
shares outstanding shares held by persons who are directors and also
officers and by employee stock plans in which participants do not have
the right to determine confidentiality whether shares held subject to the
plan will be tendered;
- the business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the outstanding votes
entitled to be cast by disinterested stockholders at an annual or special
meeting;
- the corporation does not have a class of voting stock that is listed on a
national securities exchange, authorized for quotation on the Nasdaq
Stock Market, or held of record by more than 2,000 stockholders unless
any of the foregoing results from action taken, directly or indirectly,
by an interested stockholder or from a transaction in which a person
becomes an interested stockholder;
- the stockholder acquires a 15% interest inadvertently and divests itself
of such ownership and would not have been a 15% stockholder in the
preceding 3 years but for the inadvertent acquisition of ownership;
- the stockholder acquired the 15% interest when these restrictions did not
apply; or
- the corporation has opted out of this provision. QLogic has not opted out
of this provision.
Minnesota law prohibits certain "business combinations" (as defined in the
Minnesota Business Corporation Act) between a Minnesota corporation with at
least 100 shareholders, or a publicly held corporation that has at least 50
shareholders, and an "interested shareholder" for a four-year period following
the share acquisition date by the interested shareholder, unless certain
conditions are satisfied or an exemption is found. An "interested shareholder"
is generally defined to include a person who beneficially owns at least 10% of
the votes that all shareholders would be entitled to cast in an election of
directors of the corporation. Minnesota law also limits the ability of a
shareholder who acquires beneficial ownership of more than
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certain thresholds of the percentage voting power of a Minnesota corporation,
starting at 20%, from voting those shares in excess of the threshold unless such
acquisition has been approved in advance by a majority of the voting power held
by shareholders unaffiliated with such shareholder.
Minnesota law provides that during any tender offer a publicly held
corporation may not enter into or amend an agreement, whether or not subject to
contingencies, that increases the current or future compensation of any officer
or director. In addition, under Minnesota law, a publicly held corporation is
prohibited from purchasing any voting shares owned for less than two years from
a 5% shareholder for more than the market value unless the transaction has been
approved by the affirmative vote of the holders of a majority of the voting
power of all shares entitled to vote or unless the corporation makes a
comparable offer to all holders of shares of the class or series of stock held
by the 5% shareholder and to all holders of any class or series into which such
securities may be converted.
The provisions of Ancor's articles of incorporation and bylaws providing
for a staggered board of directors and requiring the request of holders of at
least 25% of the outstanding shares to call a special meeting of shareholders
involving a business combination, or any change in the composition of the board
of directors as a result of such business combination, make it more difficult to
effect a change in control of Ancor and may discourage or deter a third party
from attempting a takeover.
EXPERTS
The consolidated financial statements and schedule of QLogic Corporation
and subsidiaries as of April 2, 2000, March 28, 1999 and March 29, 1998, and for
each of the years in the four-year period ended April 2, 2000, have been
included in and incorporated by reference herein and in the registration
statement in reliance upon the reports of KPMG LLP, independent certified public
accountants, included in and incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements and schedule of Ancor Communications, Incorporated
at December 31, 1999 and 1998, and for the years then ended incorporated by
reference in this joint proxy statement/prospectus have been audited by KPMG
LLP, independent certified public accountants, as set forth in their report
included in Ancor's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999. The statement of operations for the year ended December 31,
1997 of Ancor incorporated by reference in this joint proxy statement/prospectus
have been audited by McGladrey & Pullen LLP, independent certified public
accountants. Such financial statements and schedules are incorporated herein by
reference in reliance upon such report given upon the authority of such firms as
experts in accounting and auditing.
Representatives of KPMG LLP are expected to be present at both the QLogic
special meeting and the Ancor special meeting. The representatives will have the
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
LEGAL MATTERS
The validity of the shares of QLogic common stock offered by this joint
proxy statement/prospectus will be passed upon for QLogic by Stradling Yocca
Carlson & Rauth, a professional corporation, Newport Beach, California. Certain
legal matters with respect to federal income tax consequences in connection with
the merger will be passed upon for Ancor by Dorsey & Whitney LLP, Minneapolis,
Minnesota.
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<PAGE> 100
FUTURE SHAREHOLDER PROPOSALS
Any QLogic stockholder who intends to present a proposal at this special
meeting must provide notice of such proposal, which must be received by QLogic
not later than the close of business on the tenth day following public
disclosure of the special meeting. Any QLogic stockholder who intends to present
a proposal at QLogic's next annual meeting of stockholders must deliver or mail
a notice to QLogic's corporate secretary, together with a brief description of
the business desired to be brought before the meeting. If the stockholder's
notice is not timely given, QLogic may exercise discretionary voting with
respect to the proxies to be solicited by QLogic's board of directors and
delivered to QLogic in connection with that meeting. To be timely, this notice
must be received at QLogic's principal executive offices not less than 60 days
nor more than 90 days prior to the meeting, if at least 70 days notice or prior
public disclosure of the date of the meeting is given or made to QLogic's
stockholders. Otherwise, the stockholder's notice will be timely if received not
later than the close of business on the tenth day following the date on which
notice of the date of the next annual meeting is mailed or such public
disclosure was made.
Ancor will hold an annual meeting in the year 2001 only if the merger is
not completed. If such meeting is held, in order to be eligible for inclusion in
the Ancor's proxy solicitation materials, a shareholder proposal must be
received at Ancor's principal executive offices no later than January 16, 2001.
Pursuant to Ancor's bylaws, in order for business to be properly brought before
the 2001 annual meeting by a shareholder, the shareholder must give written
notice of its intent to bring a matter for the annual meeting no later than
January 16, 2001. Each notice should be sent to the Secretary of Ancor and must
set forth certain information with respect to the shareholder who intends to
bring such matter before the meeting and the business desired to be conducted.
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<PAGE> 101
WHERE YOU CAN FIND MORE INFORMATION
QLogic and Ancor file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information we file at
the SEC's public reference rooms located at 450 Fifth Street, NW, Washington,
D.C., 20549. Public reference rooms are also located in New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from commercial document retrieval services and at the Internet website
maintained by the SEC at http://www.sec.gov.
QLogic has filed a registration statement on Form S-4 to register the
shares of QLogic common stock to be issued to Ancor shareholders in the merger.
This joint proxy statement/prospectus is a part of that registration statement
and constitutes the prospectus of QLogic as well as the joint proxy statement of
QLogic and Ancor for the QLogic and Ancor special meetings.
QLogic has supplied all the information contained in this joint proxy
statement/prospectus relating to QLogic and Ancor has supplied all such
information relating to Ancor. As allowed by SEC rules, this joint proxy
statement/prospectus does not contain all of the information relating to QLogic
and Ancor you can find in this registration statement or the exhibits to this
registration statement.
Some of the important business and financial information relating to QLogic
and Ancor that you may want to consider in deciding how to vote is not included
in this joint proxy statement/prospectus, but rather is "incorporated by
reference" to documents that have been previously filed by QLogic and Ancor with
the SEC. The information incorporated by reference is deemed to be a part of
this joint proxy statement/prospectus, except for any information superseded by
information contained directly in this joint proxy statement/prospectus.
If you are a stockholder of QLogic or shareholder of Ancor, you can obtain
any of the documents incorporated by reference through QLogic, Ancor or the SEC.
Documents incorporated by reference are available from QLogic or Ancor without
charge, excluding all exhibits. You may obtain documents incorporated by
reference in this joint proxy statement/ prospectus by requesting them orally or
in writing to the following addresses or by telephone:
<TABLE>
<S> <C>
QLogic Corporation Ancor Communications, Incorporated
26600 Laguna Hills Drive 6321 Bury Drive, Suite 13
Aliso Viejo, California 92656 Eden Prairie, Minnesota 55346
(949) 389-6000 (952) 932-4000
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/ PROSPECTUS TO VOTE ON THE MERGER. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT
PROXY STATEMENT/PROSPECTUS IS DATED , 2000. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS
JOINT PROXY STATEMENT/PROSPECTUS TO YOU NOR THE ISSUANCE OF QLOGIC COMMON STOCK
IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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<PAGE> 102
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by QLogic with the Securities and Exchange
Commission (File No. 0-23298) are incorporated by reference in this joint proxy
statement/prospectus:
1. QLogic's Annual Report on Form 10-K for the fiscal year ended March 28,
1999, including certain information in QLogic's definitive proxy
statement for its 1999 Annual Meeting of Stockholders and certain
information in QLogic's Annual Report to Stockholders for the fiscal
year ended March 29, 1999.
2. QLogic's Amended Annual Report on Form 10-K/405A filed July 26, 1999.
3. QLogic's Quarterly Report on Form 10-Q for the quarterly period ended
July 27, 1999.
4. QLogic's Quarterly Report on Form 10-Q for the quarterly period ended
September 26, 1999.
5. QLogic's Quarterly Report on Form 10-Q for the quarterly period ended
December 26, 1999.
6. QLogic's Current Report on Form 8-K dated January 10, 2000 (filed on
January 13, 2000).
7. QLogic's Current Report on Form 8-K dated January 19, 2000 (filed on
January 24, 2000).
8. QLogic's Current Report on Form 8-K dated May 8, 2000 (filed on May 11,
2000).
9. The description of QLogic's capital stock contained in QLogic's
Registration Statement on Form 10 filed February 15, 1994, including
any amendment or report filed for the purpose of updating such
description.
10. The description of QLogic's capital stock contained in QLogic's Form
8-A12G dated June 19, 1996.
11. The description of QLogic's capital stock contained in Form 8-A12G/A
dated November 25, 1997.
12. The description of QLogic's capital stock contained in Form 8-A12G/A
dated June 1, 2000.
13. Information relating to QLogic's Executive Officers and Directors,
Executive Compensation, and Certain Relationships and Related
Transactions contained in QLogic's Form 10-K for the fiscal year ended
March 28, 1999.
The following documents filed by Ancor (File No. 1-2982) with the
Securities and Exchange Commission are incorporated by reference in this joint
proxy statement/prospectus:
- Ancor's Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
- Ancor's quarterly report on Form 10-Q for the quarter ended March 31,
2000.
- Ancor's current report on Form 8-K dated May 8, 2000 (filed May 23,
2000).
- the description of Ancor common stock contained in the registration
statement on Form 8-A, dated March 11, 1994, and any amendment or report
filed to update such description.
- the description of Ancor's shareholder rights plan contained in the
registration statement on Form 8-A, dated November 4, 1998, as amended on
Form 8-A/A-1, dated July 22, 1999, and any amendment or report filed to
update such description.
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<PAGE> 103
All reports and definitive proxy or information statements filed by QLogic
and Ancor pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act subsequent to the date of this joint proxy statement/prospectus and
prior to the date of the special meeting shall be deemed to be incorporated by
reference into this joint proxy statement/prospectus from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated herein shall be deemed to be modified or superseded for purposes
of this joint proxy statement/prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this joint proxy
statement/prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED
WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL HOLDER OF ANCOR COMMON
STOCK, TO WHOM A JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON ORAL OR
WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL DOCUMENTS INCORPORATED
BY REFERENCE HEREIN (EXCLUDING EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN). YOU CAN OBTAIN DOCUMENTS INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS BY REQUESTING THEM IN WRITING
OR BY TELEPHONE FROM QLOGIC OR ANCOR, AS THE CASE MAY BE, AT THE FOLLOWING
ADDRESSES AND TELEPHONE NUMBERS:
<TABLE>
<S> <C>
QLogic Corporation Ancor Communications, Incorporated
26600 Laguna Hills Drive 6321 Bury Drive, Suite 13
Aliso Viejo, California Eden Prairie, Minnesota 55346
(949) 389-6000 (952) 932-4000
</TABLE>
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SPECIAL MEETING TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS RELATES, ANY SUCH
REQUEST SHOULD BE MADE BY JULY 25, 2000.
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<PAGE> 104
ANNEX A
AGREEMENT
AND PLAN OF MERGER
BY AND AMONG
QLOGIC CORPORATION,
AMINO ACQUISITION CORP.
AND
ANCOR COMMUNICATIONS, INCORPORATED
------------------------
MAY 7, 2000
------------------------
<PAGE> 105
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER............................................... A-2
1.1. The Merger.................................................. A-2
1.2. Effect of Merger............................................ A-2
1.3. Effective Time.............................................. A-2
1.4. Articles of Incorporation; Bylaws........................... A-2
1.5. Directors and Officers...................................... A-2
1.6. Taking of Necessary Action; Further Action.................. A-3
1.7. The Closing................................................. A-3
ARTICLE II CONVERSION OF SECURITIES................................ A-3
2.1. Conversion of Securities.................................... A-3
2.2. Stock Options............................................... A-5
2.3. Warrants.................................................... A-6
2.4. Employee Stock Purchase Plan................................ A-6
2.5. Exchange of Certificates.................................... A-6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........
A-8
3.1. Organization and Qualification.............................. A-8
3.2. Capital Stock of Subsidiaries............................... A-8
3.3. Capitalization.............................................. A-9
3.4. Authority Relative to this Agreement........................ A-10
3.5. No Conflict; Required Filings and Consents.................. A-10
3.6. SEC Filings; Financial Statements........................... A-11
3.7. Absence of Changes or Events................................ A-11
3.8. Litigation.................................................. A-12
3.9. Title to Properties......................................... A-12
Certain Contracts...........................................
3.10. A-12
Compliance with Law.........................................
3.11. A-13
Intellectual Property Rights; Year 2000.....................
3.12. A-13
Taxes.......................................................
3.13. A-15
Employees...................................................
3.14. A-16
Employee Benefit Plans......................................
3.15. A-16
Environmental Matters.......................................
3.16. A-18
Insurance...................................................
3.17. A-19
Foreign Corrupt Practices Act...............................
3.18. A-19
Export Control Laws.........................................
3.19. A-19
Finders or Brokers..........................................
3.20. A-19
Board Recommendation........................................
3.21. A-19
Vote Required...............................................
3.22. A-19
Opinion of Financial Advisor................................
3.23. A-20
Tax Matters.................................................
3.24. A-20
State Takeover Statutes; Rights Agreement...................
3.25. A-20
Registration Statement; Joint Proxy Statement/Prospectus....
3.26. A-20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND
PARENT.................................................. A-21
4.1. Organization and Qualification.............................. A-21
4.2. Capitalization.............................................. A-21
4.3. Authority Relative to this Agreement........................ A-22
4.4. No Conflicts; Required Filings and Consents................. A-22
</TABLE>
i
<PAGE> 106
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
4.5. SEC Filings; Financial Statements........................... A-23
4.6. Absence of Changes or Events................................ A-23
4.7. Litigation.................................................. A-24
4.8. Compliance with Law......................................... A-24
4.9. Finders or Brokers.......................................... A-24
Tax Matters.................................................
4.10. A-24
Registration Statement; Joint Proxy Statement/Prospectus....
4.11. A-24
ARTICLE V COVENANTS AND AGREEMENTS................................. A-25
5.1. Conduct of Business of the Company Pending the Merger....... A-25
5.2. Preparation of Registration Statement; Joint Proxy
Statement/Prospectus; Blue Sky Laws......................... A-27
5.3. Company Shareholder and Parent Stockholder Meetings......... A-27
5.4. Additional Agreements, Cooperation.......................... A-28
5.5. Publicity................................................... A-29
5.6. No Solicitation............................................. A-29
5.7. Access to Information....................................... A-30
5.8. Notification of Certain Matters............................. A-31
5.9. Resignation of Officers and Directors....................... A-31
Indemnification.............................................
5.10. A-31
Shareholder Litigation......................................
5.11. A-32
Employee Benefit Plans......................................
5.12. A-32
Determination of Optionholders and Warrantholders...........
5.13. A-33
Preparation of Tax Returns..................................
5.14. A-33
Pooling Affiliates..........................................
5.15. A-33
Pooling Actions.............................................
5.16. A-34
Tax-Free Reorganization.....................................
5.17. A-34
SEC Filings; Compliance.....................................
5.18. A-34
Listing of Additional Shares................................
5.19. A-34
Rights Agreement............................................
5.20. A-34
ARTICLE VI CONDITIONS TO CLOSING................................... A-34
6.1. Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-34
6.2. Conditions to Obligations of Parent......................... A-35
6.3. Conditions to Obligations of the Company.................... A-36
ARTICLE VII TERMINATION............................................ A-37
7.1. Termination................................................. A-37
7.2. Effect of Termination....................................... A-39
7.3. Fees and Expenses........................................... A-39
ARTICLE VIII MISCELLANEOUS......................................... A-40
8.1. Nonsurvival of Representations and Warranties............... A-40
8.2. Waiver...................................................... A-40
8.3. Attorneys' Fees............................................. A-40
8.4. Notices..................................................... A-41
8.5. Counterparts................................................ A-41
8.6. Interpretation; Construction................................ A-41
8.7. Amendment................................................... A-42
8.8. No Third Party Beneficiaries................................ A-42
8.9. Governing Law............................................... A-42
Entire Agreement............................................
8.10. A-42
Validity....................................................
8.11. A-42
</TABLE>
ii
<PAGE> 107
EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
A Stock Option Agreement
B Voting Agreement
C Certificate of Merger
D Form of Company Affiliate Letter
E Form of Parent Affiliate Letter
</TABLE>
iii
<PAGE> 108
ANNEX A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated May 7, 2000, is
made and entered into by and among QLogic Corporation, a Delaware corporation
("Parent"), Amino Acquisition Corp., a Minnesota corporation and wholly owned
subsidiary of Parent ("Merger Sub"), and Ancor Communications, Incorporated, a
Minnesota corporation (the "Company"). Merger Sub and the Company are sometimes
collectively referred to as the "Constituent Corporations."
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have determined that it is advisable and in the best interests of the
respective corporations and their shareholders that Merger Sub be merged with
and into the Company in accordance with the Minnesota Business Corporation Act
(the "MBCA") and the terms of this Agreement, pursuant to which the Company will
be the surviving corporation and will be a wholly owned subsidiary of Parent
(the "Merger"); and
WHEREAS, for financial reporting purposes the parties intend that the
Merger shall be accounted for as a "pooling of interests." The Company believes,
after consultation with its independent accountants, KPMG LLP, that the Company
will qualify as a party to a pooling-of-interests transaction under Opinion 16
of the Accounting Principles Board and applicable rules and regulations of the
Securities and Exchange Commission (collectively, "Opinion 16"), and shall
provide to Parent an opinion letter from its independent accountants, KPMG LLP,
addressed to the Company, stating that, based on its familiarity with the
Company, the Company will qualify as a party to a pooling-of-interests
transaction under Opinion 16. Parent believes, after consultation with its
independent accountants, KPMG LLP, that Parent will qualify as a party to a
pooling-of-interests transaction under Opinion 16, and shall provide to the
Company an opinion letter from its independent accountants, KPMG LLP, addressed
to Parent, stating that, as of the date of such letter, based on its familiarity
with Parent, Parent will qualify as a party to a pooling-of-interests
transaction under Opinion 16; and
WHEREAS, for United States federal income tax purposes, the parties intend
that the Merger shall qualify as a "reorganization" under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement
constitute a "plan of reorganization" within the meaning of the Code; and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants, and agreements in connection with, and
establish various conditions precedent to, the Merger; and
WHEREAS, as a condition to, and immediately after the execution of, this
Agreement, Parent and the Company are concurrently entering into a Stock Option
Agreement (the "Company Option Agreement"), in substantially the form attached
hereto as Exhibit A, pursuant to which the Company will grant Parent an option
exercisable upon the occurrence of certain events;
WHEREAS, as a condition to, and upon the execution of, this Agreement,
certain officers of the Company are entering into employment agreements with the
Company, and the Chief Executive Officer of the Company is entering into a
consulting agreement with Parent; and
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<PAGE> 109
WHEREAS, as an inducement to Parent to enter into this Agreement, certain
shareholders of the Company are concurrently herewith entering into a Voting
Agreement (the "Voting Agreement") in substantially the form attached hereto as
Exhibit B, whereby each such shareholder agrees to vote in favor of the Merger
and all other transactions contemplated by this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth in this Agreement and in the Articles of
Merger (as defined in Section 1.3 hereof), the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. At the Effective Time (as defined in Section 1.3 hereof),
subject to the terms and conditions of this Agreement and the Articles of Merger
(as defined in Section 1.3 hereof), Merger Sub shall be merged with and into the
Company, the separate existence of Merger Sub shall cease, and the Company shall
continue as the surviving corporation. The Company, in its capacity as the
corporation surviving the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2. Effect of Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Articles of Merger and the
applicable provisions of the MBCA. Without limiting the generality of the
foregoing, the Surviving Corporation shall succeed to and possess all the
properties, rights, privileges, immunities, powers, franchises and purposes, and
be subject to all the duties, liabilities, debts, obligations, restrictions and
disabilities, of the Constituent Corporations, all without further act or deed.
1.3. Effective Time. Subject to the terms and conditions of this Agreement,
the parties hereto will cause the Articles of Merger, the form of which is
attached hereto as Exhibit C (the "Articles of Merger") to be executed,
delivered and filed with the Secretary of State of the State of Minnesota in
accordance with the applicable provisions of the MBCA at the time of the Closing
(as defined in Section 1.7 hereof). The Merger shall become effective upon
filing of the Articles of Merger with the Secretary of State of the State of
Minnesota, or at such later time as may be agreed to by the parties and set
forth in the Articles of Merger. The time of effectiveness is herein referred to
as the "Effective Time." The day on which the Effective Time shall occur is
herein referred to as the "Effective Date."
1.4. Articles of Incorporation; Bylaws. From and after the Effective Time
and until further amended in accordance with applicable law, the Articles of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation, as
amended as set forth in an exhibit to the Articles of Merger. From and after the
Effective Time and until further amended in accordance with law, the Bylaws of
Merger Sub as in effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation.
1.5. Directors and Officers. From and after the Effective Time, the
directors of the Surviving Corporation shall be the persons who were the
directors of Merger Sub immediately prior to the Effective Time, and the
officers of the Surviving Corporation shall be the persons who were the officers
of Merger Sub immediately prior to the Effective Time. Said directors and
officers of the Surviving Corporation shall hold office for the term specified
in, and subject to the provisions contained in, the Articles of Incorporation
and Bylaws of the Surviving Corporation and applicable law. If, at or after the
Effective Time, a vacancy shall exist on the Board of Directors or in any of the
offices of the Surviving Corporation, such vacancy shall be
A-2
<PAGE> 110
filled in the manner provided in the Articles of Incorporation and Bylaws of the
Surviving Corporation.
1.6. Taking of Necessary Action; Further Action. Parent, Merger Sub and the
Company, respectively, shall each use its or their commercially reasonable best
efforts to take all such action as may be necessary or appropriate to effectuate
the Merger under the MBCA at the time specified in Section 1.3 hereof. If, at
any time after the Effective Time, any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all properties, rights,
privileges, immunities, powers and franchises of either of the Constituent
Corporations, the officers of the Surviving Corporation are fully authorized in
the name of each Constituent Corporation or otherwise to take, and shall take,
all such lawful and necessary action.
1.7. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Stradling Yocca
Carlson & Rauth, P.C., 660 Newport Center Drive, Suite 1600, Newport Beach,
California, within three business days after the date on which the last of the
conditions set forth in Article VI shall have been satisfied or waived, or at
such other place and on such other date as is mutually agreeable to Parent and
the Company (the "Closing Date"). The Closing will be effective as of the
Effective Time.
ARTICLE II
CONVERSION OF SECURITIES
2.1. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Sub, the Company,
the holder of any shares of Company Common Stock (as defined below) or the
holder of any options, warrants or other rights to acquire or receive shares of
Company Common Stock, the following shall occur:
(a) Conversion of Company Common Stock. At the Effective Time, each
share of common stock, par value $.01 per share, of the Company (the
"Company Common Stock") issued and outstanding immediately prior to the
Effective Time (other than any shares of Company Common Stock to be
canceled pursuant to Section 2.1(b) and any Dissenting Shares (as defined
in Section 2.1(g) below)) will be canceled and extinguished and be
converted automatically into the right to receive 0.5275 shares (the
"Exchange Ratio") of common stock, par value $.001 per share, of the Parent
(the "Parent Common Stock"). All references in this Agreement to Parent
Common Stock to be issued pursuant to the Merger shall be deemed to include
the corresponding rights to purchase shares of Parent Common Stock pursuant
to the Parent SRP Plan (defined in Section 4.2 hereof), except where the
context otherwise requires.
(b) Cancellation of Company Common Stock Owned by Parent or
Company. At the Effective Time, all shares of Company Common Stock that are
owned by the Company as treasury stock and each share of Company Common
Stock owned by Parent or any direct or indirect wholly owned subsidiary of
Parent or of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) Company Stock Option Plans. At the Effective Time, the Company's
1990 Stock Plan, 1994 Long-Term Incentive and Stock Option Plan and the
Company's Non-Employee Director Stock Option Plan (collectively, the
"Company Stock Option Plans") and all options to purchase Company Common
Stock then outstanding under the Company Stock Option Plans shall be
assumed by Parent in accordance with Section 2.2 hereof.
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<PAGE> 111
(d) Capital Stock of Merger Sub. At the Effective Time, each share of
common stock, $.01 par value, of Merger Sub ("Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, $.01 par value, of the Surviving
Corporation, and the Surviving Corporation shall be a wholly owned
subsidiary of Parent. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted in the event of (i) any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into
Parent Common Stock or Company Common Stock), reorganization,
recapitalization, combination, exchange of shares, adjustment or other like
change with respect to Parent Common Stock or Company Common Stock
occurring after the date hereof and prior to the Effective Time or (ii) any
increase in the number of shares of Company Common Stock on a fully
diluted, as-converted basis (i.e., assuming issuance of all shares of
Common Stock issuable upon the exercise or conversion of all securities
outstanding immediately prior to the Effective Time which are convertible
into or exercisable for shares of Company Common Stock, whether or not
vested), other than increases resulting from transactions permitted in
Section 5.1 hereof, so as to provide holders of Company Common Stock and
Parent the same economic effect as contemplated by this Agreement prior to
such stock split, reverse split, stock dividend, reorganization,
recapitalization, combination, exchange of shares, adjustment or like
change or increase.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common
Stock to be received by such holder) shall receive from Parent an amount of
cash without interest (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the closing sale price for
a share of Parent Common Stock on the Nasdaq National Market on the trading
day immediately prior to the Effective Time.
(g) Dissenting Shares. (i) Notwithstanding anything in this Agreement
to the contrary, if Section 302A.471 of the MCBA shall be applicable to the
Merger, shares of Company Common Stock that are issued and outstanding
prior to the Effective Date and which are held by shareholders who (A) have
not voted such shares in favor of the Merger, (B) shall have delivered,
prior to any vote on the Merger, a written demand for the fair value of
such shares in the manner provided in Section 302A.473 of the MBCA and (C)
as of the Effective Time, shall not have effectively withdrawn or lost such
right to dissenters' rights ("Dissenting Shares"), shall not be converted
into or represent a right to receive the shares of Parent Common Stock
pursuant to Section 2.1 hereof, but the holders thereof shall be entitled
only to such rights as are granted by Section 302A.473 of the MBCA. Each
holder of Dissenting Shares who becomes entitled to payment for such shares
pursuant to Sections 302A.471 and 302A.473 of the MBCA shall receive
payment therefor from the Surviving Corporation in accordance with the
MBCA; provided, however, that if any such holder of Dissenting Shares shall
have effectively withdrawn such holder's demand for appraisal of such
shares or lost such holder's right to appraisal and payment of such shares
under Section 302A.473 of the MBCA, such holder or holders (as the case may
be) shall forfeit the right of appraisal of such shares and each such share
shall thereupon be deemed to have been canceled, extinguished and
converted, as of the Effective Time, into and represent the right to
receive payment from the Surviving Corporation of the applicable shares of
Parent Common Stock, as provided in Section 2.1 hereof.
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(ii) The Company shall give Parent (A) prompt notice of any written
demand for fair value, any withdrawal of a demand for fair value and any
other instrument served pursuant to Section 302A.473 of the MBCA received
by the Company, and (B) the opportunity to direct all negotiations and
proceedings with respect to demands for fair value under Section 302A.473
of the MBCA. The Company shall not, except with the prior written consent
of Parent, voluntarily make any payment with respect to any demand for fair
value or offer to settle or settle any such demand.
2.2. Stock Options.
(a) At the Effective Time, each outstanding option to purchase shares of
Company Common Stock under the Company Stock Option Plans (each, a "Company
Option"), whether vested or unvested immediately prior to the Effective Time,
shall be assumed by Parent and converted into an option (each, a "Parent
Option") to acquire, on substantially the same terms and conditions, including
but not limited to any performance criteria with respect to the Company's
business operations set forth in the applicable stock option agreements as were
applicable under such Company Option, the number of whole shares of Parent
Common Stock equal to the number of shares of Company Common Stock that were
issuable upon exercise of such Company Option immediately prior to the Effective
Time multiplied by the Exchange Ratio, as adjusted pursuant to Section 2.1(e)
above (rounded down to the nearest whole number of shares of Parent Common
Stock), and the per share exercise price of the shares of Parent Common Stock
issuable upon exercise of such Parent Option shall be equal to the exercise
price per share of Company Common Stock at which such Company Option was
exercisable immediately prior to the Effective Time divided by the Exchange
Ratio, as adjusted pursuant to Section 2.1(e) above (rounded up to the nearest
whole cent). Other than pursuant to the terms of existing commitments (all of
which commitments are identified in Section 2.2 of the Company Disclosure Letter
(as defined in the preamble to Article III hereof)), the Company shall not, and
shall cause any Company Stock Option Plan administrator not to, take any action
prior to the Effective Time that will extend the exercise period of any Company
Option or cause the vesting period of any Company Option to accelerate under any
circumstances, regardless of whether such circumstances are to occur before or
after the Effective Time, or otherwise amend the terms of outstanding Company
Options.
(b) All outstanding rights of the Company which it may hold immediately
prior to the Effective Time to repurchase unvested shares of Company Common
Stock (the "Repurchase Options") shall continue in effect following the Merger
and shall continue to be exercisable by the Parent upon the same terms and
conditions in effect immediately prior to the Effective Time, except that the
shares purchasable pursuant to the Repurchase Options and the purchase price per
shall be adjusted to reflect the conversion to Parent Common Stock and the
Exchange Ratio.
(c) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of the Parent Options and to file all documents required to be filed to
cause the shares of Parent Common Stock issuable upon exercise of the Parent
Options to be listed on the Nasdaq National Market. As soon as practicable after
the Effective Time, but no later than five business days after the Effective
Time, Parent shall file a registration statement with the U.S. Securities and
Exchange Commission (the "SEC") on Form S-8 (or any successor form) or another
appropriate form with respect to the Parent Common Stock subject to such Parent
Options, and shall use all commercially reasonable best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Parent Options remain outstanding. As soon as practicable
after the Effective Time, Parent shall inform in writing the holders of Company
Options of their rights pursuant to the Company Stock Option Plans and the
agreements
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evidencing the grants of such Company Options shall continue in effect on the
same terms and conditions (subject to the adjustments required by Section 2.2(a)
hereof), after giving effect to the Merger and the assumption by Parent of the
Company Options as set forth herein.
(d) In the case of any Company Option to which Section 421 of the Code
applies by reason of Section 422 of the Code ("Incentive Stock Options"), the
option exercise price, the number of shares of Parent Common Stock purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall be determined in order to comply with Section 424(a) of the Code.
(e) Parent will make good faith efforts to ensure, to the extent permitted
by the Code and to the extent required by and subject to the terms of any such
Incentive Stock Options, that Company Options which qualified as Incentive Stock
Options prior to the Closing Date continue to qualify as Incentive Stock Options
of Parent after the Closing.
2.3. Warrants. At the Effective Time, each warrant to purchase shares of
Company Common Stock outstanding immediately prior to the Effective Date (each,
a "Company Warrant") shall be assumed by Parent and converted into a warrant
(each a "Parent Warrant") to acquire, on substantially the same terms and
conditions, the number of whole shares of Parent Common Stock equal to the
number of shares of Company Common Stock that were issuable upon exercise of
such Company Warrant immediately prior to the Effective Time multiplied by the
Exchange Ratio, as adjusted pursuant to Section 2.1(e) above (rounded down to
the nearest whole number of shares of Parent Common Stock), and the per share
exercise price of the shares of the Parent Common Stock issuable upon exercise
of such Parent Warrant shall be equal to the exercise price per share of Company
Common Stock at which such Company Warrant was exercisable immediately prior to
the Effective Time divided by the Exchange Ratio, as adjusted pursuant to
Section 2.1(e) above (rounded up to the nearest whole cent). Other than pursuant
to the terms of existing commitments (all of which commitments are identified in
Section 2.3 of the Company Disclosure Letter), the Company shall not take any
action prior to the Effective Time that will extend the exercise period of any
Company Warrant or otherwise amend the terms of outstanding Company Warrants.
2.4. Employee Stock Purchase Plan. The parties acknowledge that the
Company's 1995 Employee Stock Purchase Plan, as amended (the "ESPP"), shall
continue to operate in accordance with its terms following the execution of this
Agreement, except as provided below. Unless previously terminated, effective as
of the date of approval of the Merger by the shareholders of the Company, each
outstanding purchase right to be exercised in accordance with the ESPP, the
Company shall cause the ESPP to terminate, and no purchase rights shall be
subsequently granted or exercised under the ESPP. The Company shall take all
actions necessary to ensure that the ESPP will not be amended or modified in any
respect after the date hereof, except to effect the terms of this Section 2.4.
Notwithstanding the foregoing, the Company shall cause such amendments to be
made to the ESPP such that, following such amendments, the operation of the ESPP
will not cause "pooling-of-interests" accounting treatment to be unavailable for
the transactions contemplated by the Agreement.
2.5. Exchange of Certificates.
(a) Prior to the Effective Time, Parent shall designate a commercial bank,
trust company or other financial institution, which may include Parent's stock
transfer agent, to act as exchange agent ("Exchange Agent") in the Merger.
(b) Promptly after the Effective Time, Parent shall make available to the
Exchange Agent for exchange in accordance with this Article II, (i) the
aggregate number of shares of Parent Common Stock issuable pursuant to Section
2.1 in exchange for outstanding shares of
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Company Common Stock, and (ii) cash in an amount sufficient to permit payment of
cash in lieu of fractional shares pursuant to Section 2.1(f) (the "Exchange
Fund").
(c) Promptly, and in any event no later than ten business days after the
Effective Time, the Parent shall cause to be mailed to each holder of record of
a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates") (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon proper
delivery of the Certificates to the Exchange Agent, and shall be in such form
and have such other provisions as Parent may reasonably specify and which shall
be reasonably acceptable to the Company) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly completed and validly executed,
and such other documents as may be reasonably required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange a certificate representing the number of whole shares of Parent Common
Stock, plus cash in lieu of fractional shares in accordance with Section 2.1(f),
to which such holder is entitled pursuant to Section 2.1, and the Certificate so
surrendered shall forthwith be canceled. Until surrendered as contemplated by
this Section 2.5, each Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the right to receive the number of full shares of Parent Common
Stock into which such shares of Company Common Stock shall have been so
converted and the right to receive an amount of cash in lieu of the issuance of
any fractional shares in accordance with Section 2.1(f).
(d) No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, at the time
of such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole shares
of Parent Common Stock.
(e) None of Parent, the Surviving Corporation or the Exchange Agent shall
be liable to any holder of shares of Company Common Stock for any amount
properly delivered to a public official in compliance with any abandoned
property, escheat or similar law.
(f) At the Effective Time, the stock transfer books of the Company shall be
closed and there shall be no further registration of transfers of shares of
Company Common Stock thereafter on the records of the Company. From and after
the Effective Time, the holders of certificates representing shares of Company
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Common Stock except as
otherwise provided in this Agreement or by law.
(g) Subject to any applicable escheat or similar laws, any portion of the
Exchange Fund that remains unclaimed by the former shareholders of the Company
for one year after the Effective Time shall be delivered by the Exchange Agent
to Parent, upon demand of Parent, and any former shareholders of the Company
shall thereafter look only to Parent for satisfaction of their claim for
certificates representing shares of Parent Common Stock in exchange for their
shares of Company Common Stock pursuant to the terms of Section 2.1 hereof.
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(h) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact, in form and substance reasonably acceptable
to the Exchange Agent, by the person claiming such Certificate to be lost,
stolen or destroyed, and complying with such other conditions as the Exchange
Agent may reasonably impose (including the execution of an indemnification
undertaking or the posting of an indemnity bond or other surety in favor of the
Exchange Agent and Parent with respect to the Certificate alleged to be lost,
stolen or destroyed), the Exchange Agent will deliver to such person, such
shares of Parent Common Stock and cash in lieu of fractional shares, if any, as
may be required pursuant to Section 2.1.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Merger Sub and Parent that the
statements contained in this Article III are true and correct, except as set
forth in the letter delivered by the Company to Merger Sub on the date hereof
(the "Company Disclosure Letter") (which Company Disclosure Letter sets forth
the exceptions to the representations and warranties contained in this Article
III under captions referencing the Sections to which such exceptions apply):
3.1. Organization and Qualification. Each of the Company and its
Subsidiaries (as defined below) is a company duly incorporated, validly existing
and, if applicable, in good standing under the laws of the jurisdiction of its
incorporation and each such entity has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of the Company and its Subsidiaries is duly
qualified or licensed to carry on its business as it is now being conducted, and
is qualified to conduct business, in each jurisdiction where the character of
its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified that would not,
individually or in the aggregate, have a Company Material Adverse Effect (as
defined below). Neither the Company nor any of its Subsidiaries is in violation
of any of the provisions of its Articles of Incorporation or other applicable
charter document (any such document of any business entity hereinafter referred
to as its "Charter Document") or its Bylaws, or other applicable organizational
document (any such documents of any business entity hereinafter referred to as
its "Governing Document"). The Company has delivered to Merger Sub accurate and
complete copies of the respective Charter Documents and Governing Documents, as
currently in effect, of each of the Company and its Subsidiaries. As used in
this Agreement, the term "Company Material Adverse Effect" means any change,
effect, event or condition that (i) has a material adverse effect on the assets,
business or financial condition of the Company and its Subsidiaries, taken as a
whole (other than any such change, effect, event or condition that arises as a
result of the transactions contemplated hereby), or (ii) would prevent or
materially impair the Company's ability to consummate the transactions
contemplated hereby. As used in this Agreement, the term "Subsidiary" when used
with respect to any party means any corporation or other organization, whether
incorporated or unincorporated, of which such party directly or indirectly owns
or controls at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of directors
or others performing similar functions.
3.2. Capital Stock of Subsidiaries. Neither the Company nor any of its
Subsidiaries owns, controls or holds with the power to vote, directly or
indirectly, of record, beneficially or otherwise, any share of capital stock or
any equity or ownership interest in any company, corporation, partnership,
association, joint venture, business, trust or other entity, except for the
Subsidiaries described in the Company SEC Reports (as defined in Section 3.6(a)
hereof) or listed in Section 3.2 of the Company Disclosure Letter, and except
for ownership of securities
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in any publicly traded company held for investment by the Company or any of its
Subsidiaries and comprising less than five percent of the outstanding stock of
such company. Except as set forth in Section 3.2 of the Company Disclosure
Letter, the Company is directly or indirectly the record and beneficial owner of
all of the outstanding shares of capital stock of each of its Subsidiaries and
no equity securities of any of such Subsidiaries are or may be required to be
issued by reason of any options, warrants, scrip, rights to subscribe for, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any capital stock of any such
Subsidiary, and there are no contracts, commitments, understandings or
arrangements by which the Company or any such Subsidiary is bound to issue,
transfer or sell any shares of such capital stock or securities convertible into
or exchangeable for such shares. Other than as set forth in Section 3.2 of the
Company Disclosure Letter, all of such shares so owned by the Company are
validly issued, fully paid and nonassessable and are owned by it free and clear
of any claim, lien, pledge, security interest or other encumbrance of any kind
(collectively "Liens") with respect thereto other than restrictions on transfer
pursuant to applicable securities laws.
3.3. Capitalization. The authorized capital stock of the Company consists
of 40,000,000 shares of Company Common Stock, $.01 par value per share, and
5,000,000 shares of preferred stock, $.01 par value per share (of which 400,000
shares are designated Series D Junior Participating Preferred Stock) (the
"Company Preferred Stock"). As of the close of business on May 5, 2000 (the
"Company Measurement Date"), (a) 29,289,786 shares of Company Common Stock were
issued and outstanding, (b) no shares of Company Preferred Stock were issued and
outstanding, (c) the Company had no shares of Company Common Stock held in its
treasury, (d) 4,621,887 shares of Company Common Stock were reserved for
issuance under the Company Stock Option Plans and the ESPP, (e) Company Options
to purchase 3,387,419 shares of Company Common Stock in the aggregate had been
granted and remained outstanding under the Company Stock Option Plans, (f)
Company Warrants to purchase 1,505,169 shares of Company Common Stock were
outstanding, (g) rights (the "Preferred Rights") to purchase 292,898 shares of
Series D Junior Participating Preferred Stock pursuant to the Company Rights
Agreement (as defined in Section 3.25) were issued and outstanding, and (h)
except for the Company Options, Company Warrants, Preferred Rights and rights to
the issuance of shares of Company Common Stock under the ESPP, there were no
outstanding Rights (defined below). Except as permitted by Section 5.1(b), since
the Company Measurement Date, no additional shares in the Company have been
issued and no Rights have been granted. Except as described in the preceding
sentence or as set forth in Section 3.3 of the Company Disclosure Letter, the
Company has no outstanding bonds, debentures, notes or other securities or
obligations the holders of which have the right to vote or which are convertible
into or exercisable for securities having the right to vote on any matter on
which any shareholder of the Company has a right to vote. All issued and
outstanding shares of Company Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. There are not as of the
date hereof any existing options, warrants, stock appreciation rights, stock
issuance rights, calls, subscriptions, convertible securities or other rights
which obligate the Company or any of its Subsidiaries to issue, exchange,
transfer or sell any shares of the capital stock of the Company or any of its
Subsidiaries, other than rights to purchase shares of Series D Junior
Participating Preferred Stock pursuant to the Company Rights Agreement, Company
Common Stock issuable under the Company Stock Option Plans, Company Warrants,
Preferred Rights and the ESPP, or awards granted pursuant thereto (collectively,
"Rights"). As of the date hereof, there are no outstanding contractual
obligations of the Company or any of its Subsidiaries to repurchase, reprice,
redeem or otherwise acquire any shares of the capital stock of the Company or
any of its Subsidiaries. As of the date hereof, there are no outstanding
contractual obligations of the Company to vote or to dispose of any shares of
the capital stock of any of its Subsidiaries.
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3.4. Authority Relative to this Agreement. The Company has the requisite
corporate power and authority to execute and deliver, and perform its
obligations under, this Agreement and the Company Option Agreement and, subject
to obtaining the necessary approval of its shareholders, to consummate the
Merger and the other transactions contemplated hereby and thereby under
applicable law. The execution and delivery of this Agreement and the Company
Option Agreement and the consummation of the Merger and other transactions
contemplated hereby and thereby have been duly and validly authorized by the
Board of Directors of the Company and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or the Company Option
Agreement or to consummate the Merger or other transactions contemplated hereby
and thereby (other than approval by the Company's shareholders required by
applicable law). This Agreement and the Company Option Agreement have been duly
and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by Parent and Merger Sub, each
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors
rights generally or by general equitable principles.
3.5. No Conflict; Required Filings and Consents.
(a) Assuming that all filings, permits, authorizations, consents and
approvals or waivers thereof have been duly made or obtained as contemplated by
Section 3.5(b) hereof, neither the execution and delivery of this Agreement or
the Company Option Agreement by the Company nor the consummation of the Merger
or other transactions contemplated hereby or thereby nor compliance by the
Company with any of the provisions hereof will (i) violate, conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or suspension of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries under, any of the terms, conditions or
provisions of (x) their respective Charter Documents or Governing Documents, (y)
any note, bond, charge, lien, pledge, mortgage, indenture or deed of trust to
which the Company or any such Subsidiary is a party or to which they or any of
their respective properties or assets may be subject, or (z) any license, lease,
agreement or other instrument or obligation to which the Company or any such
Subsidiary is a party or to which they or any of their respective properties or
assets may be subject, or (ii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its Subsidiaries or any of their respective properties or assets, except, in
the case of clauses (i) (y) and (z) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, suspensions, accelerations, rights
of termination or acceleration or creations of liens, security interests,
charges or encumbrances which would not, individually or in the aggregate, have
a Company Material Adverse Effect.
(b) No filing or registration with or notification to and no permit,
authorization, consent or approval of any court, commission, governmental body,
regulatory authority, agency or tribunal wherever located (a "Governmental
Entity") is required to be obtained, made or given by the Company in connection
with the execution and delivery of this Agreement or the Company Option
Agreement or the consummation by the Company of the Merger or other transactions
contemplated hereby or thereby except (i) (A) the filing of the Articles of
Merger as provided in Section 1.3 hereof, (B) in connection with the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (C) the filing of the Joint Proxy Statement/Prospectus
(as defined in Section 3.26 hereof) and such reports under Sections 13(a),
13(d), 15(d) or 16(a) with the SEC in accordance with the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder
(the "Exchange Act") and the Securities Act of 1933, as amended, and the rules
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and regulations promulgated thereunder (the "Securities Act"), as may be
required in connection with this Agreement, the Company Option Agreement and the
transactions contemplated hereby or thereby, or (D) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable state securities laws and the laws of any country
other than the United States, or (ii) where the failure to obtain any such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not, individually or in the aggregate, have a Company
Material Adverse Effect.
3.6. SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports, schedules, statements and
other documents required to be filed by it since January 1, 1997 to the date
hereof (collectively, as supplemented and amended since the time of filing, the
"Company SEC Reports") with the SEC. The Company SEC Reports (i) were prepared
in all material respects with all applicable requirements of the Securities Act
and the Exchange Act, as the case may be and (ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The representation in clause (ii) of the preceding sentence does
not apply to any misstatement or omission in any Company SEC Report filed prior
to the date of this Agreement which was superseded by a subsequent Company SEC
Report filed prior to the date of this Agreement. No Subsidiary of the Company
is required to file any report, form or other document with the SEC.
(b) The audited consolidated financial statements and unaudited
consolidated interim financial statements of the Company and its Subsidiaries
included or incorporated by reference in such Company SEC Reports (collectively,
the "Financial Statements") have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be otherwise indicated in the notes thereto)
and present fairly, in all material respects, the financial position and results
of operations and cash flows of the Company and its Subsidiaries on a
consolidated basis at the respective dates and for the respective periods
indicated (except, in the case of all such financial statements that are interim
financial statements, for footnotes and normal year-end adjustments).
(c) Neither the Company nor any of its Subsidiaries has any liabilities or
obligations of any nature, whether absolute, accrued, unmatured, contingent or
otherwise whether due or to become due, known or unknown, or any unsatisfied
judgments or any leases of personalty or realty or unusual or extraordinary
commitments that are required to be shown on the face of a balance sheet or
disclosed in notes to financial statements under United States generally
accepted accounting principles, except (i) liabilities recorded on the Company's
balance sheet at December 31, 1999 (the "Balance Sheet") included in the
financial statements referred in Section 3.6(a) hereof and the notes thereto, or
(ii) liabilities or obligations incurred since December 31, 1999 (whether or not
incurred in the ordinary course of business and consistent with past practice)
that would not, individually or in the aggregate, have a Company Material
Adverse Effect.
3.7. Absence of Changes or Events. Except as set forth in Section 3.7 of
the Company Disclosure Letter or in the Company SEC Reports, since December 31,
1999 through the date of this Agreement, the Company and its Subsidiaries have
not incurred any liability or obligation that has resulted or would reasonably
be expected to result in a Company Material Adverse Effect, and there has not
been any change in the business, financial condition or results of operations of
the Company or any of its Subsidiaries which has had, or would reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
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Effect, and the Company and its Subsidiaries have conducted their respective
businesses in the ordinary course consistent with their past practices.
3.8. Litigation. Except as disclosed in the Company SEC Reports or as set
forth in Section 3.8 of the Company Disclosure Letter, there is no (a) claim,
action, suit or proceeding pending or, to the Knowledge (as defined in Section
8.6 hereof) of the Company or any of its Subsidiaries, threatened against or
relating to the Company or any of its Subsidiaries, or (b) outstanding judgment,
order, writ, injunction or decree (collectively, "Orders"), or application,
request or motion therefor, in a proceeding to which the Company, any Subsidiary
of the Company or any of their respective assets was or is a party except
actions, suits, proceedings or Orders that, individually or in the aggregate,
has not had or would not reasonably be expected to have a Company Material
Adverse Effect, and neither the Company nor any Subsidiary is in default in any
material respect with respect to any such Order.
3.9. Title to Properties. The Company does not own any real property. The
Company has heretofore made available to Parent correct and complete copies of
all leases, subleases and other agreements (collectively, the "Real Property
Leases") under which the Company or any of its Subsidiaries uses or occupies or
has the right to use or occupy, now or in the future, any real property or
facility (the "Leased Real Property"), including without limitation all
modifications, amendments and supplements thereto. Except in each case where the
failure would not, individually or in the aggregate, have a Company Material
Adverse Effect or except as otherwise set forth in Section 3.9 of the Company
Disclosure Letter, (i) the Company or one of its Subsidiaries has a valid
leasehold interest in each parcel of Leased Real Property free and clear of all
Liens except liens of record and other permitted liens and each Real Property
Lease is in full force and effect, (ii) all rent and other sums and charges due
and payable by the Company or its Subsidiaries as tenants thereunder are current
in all material respects, (iii) no termination event or condition or uncured
default of a material nature on the part of the Company or any such Subsidiary
or, to the Knowledge of the Company or any such Subsidiary, the landlord, exists
under any Real Property Lease, (iv) the Company or one of its Subsidiaries is in
actual possession of each Leased Real Property and is entitled to quiet
enjoyment thereof in accordance with the terms of the applicable Real Property
Lease and applicable law, and (v) the Company and its Subsidiaries own outright
all of the personal property (except for leased property or assets for which it
has a valid and enforceable right to use) which is reflected on the Balance
Sheet, except for property since sold or otherwise disposed of in the ordinary
course of business and consistent with past practice and except for liens of
record and other permitted liens. Except where the failure would not,
individually or in the aggregate, have a Company Material Adverse Effect, the
plant, property and equipment of the Company and its Subsidiaries that are used
in the operations of their businesses are in good operating condition and
repair, subject to ordinary wear and tear, and, subject to normal maintenance,
are available for use.
3.10. Certain Contracts. Neither the Company nor any of its Subsidiaries
has breached, or received in writing any claim or notice that it has breached,
any of the terms or conditions of (i) any agreement, contract or commitment
required to be filed as an exhibit to the Company SEC Reports (including any
agreements, contracts or commitments entered into since December 31, 1999 that
will be required to be filed by the Company with the SEC in any report), (ii)
any agreements, contracts or commitments with manufacturers, suppliers, sales
representatives, distributors, or OEM strategic partners of the Company pursuant
to which the Company recognized revenues or payments in excess of $200,000 for
the twelve-month period ended December 31, 1999, or (iii) any agreements,
contracts or commitments containing covenants that limit the ability of the
Company or any of its Subsidiaries to compete in any line of business or with
any Person (as defined in Section 8.6 hereof), or that include any exclusivity
provision or involve any restriction on the geographic area in which the Company
or any of its Subsidiaries may carry on its business (collectively, "Company
Material Contracts"),
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in such a manner as, individually or in the aggregate, has had or would
reasonably be expected to have a Company Material Adverse Effect. Section 3.10
of the Company Disclosure Letter lists each Company Material Contract described
in clauses (ii) and (iii) of the preceding sentence. Each Company Material
Contract that has not expired by its terms is in full force and effect and is
the legal, valid and binding obligation of the Company and/or its Subsidiaries,
enforceable against them in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), except where the failure of such Company
Material Contract to be in full force and effect or to be legal, valid, binding
or enforceable against the Company and/or its Subsidiaries has not had and would
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. Except as set forth in Section 3.10 of the Company
Disclosure Letter, no consent, approval, waiver or authorization of, or notice
to any Person is needed in order that each such Company Material Contract shall
continue in full force and effect in accordance with its terms without penalty,
acceleration or rights of early termination by reason of the consummation of the
Merger and the other transactions contemplated by this Agreement.
3.11. Compliance with Law. Except where the failure would not have a
Company Material Adverse Effect, all activities of the Company and its
Subsidiaries have been, and are currently being, conducted in compliance in all
material respects with all applicable United States federal, state, provincial
and local and other foreign laws, ordinances, regulations, interpretations,
judgments, decrees, injunctions, permits, licenses, certificates, governmental
requirements, and Orders of any court or other Governmental Entity or any
nongovernmental self-regulatory agency, and no notice has been received by the
Company or any Subsidiary of any claims filed against the Company or any
Subsidiary alleging a violation of any such laws, regulations or other
requirements which would be required to be disclosed in any Company SEC Report
or any New SEC Report (as defined in Section 5.18 hereof). The Company Stock
Option Plans and the ESPP have been duly authorized, approved and operated in
compliance in all material respects with all applicable securities, corporate
and other laws of each jurisdiction in which participants of such plans are
located. The Company and its Subsidiaries have all permits, licenses and
franchises from Governmental Entities required to conduct their businesses as
now being conducted, except for such permits, licenses and franchises the
absence of which has not had and would not, individually or in the aggregate,
have a Company Material Adverse Effect.
3.12. Intellectual Property Rights; Year 2000.
(a) The Company and its Subsidiaries own, or are validly licensed or
otherwise possess legally enforceable rights to use, all patents, trademarks,
trade names, service marks, domain names and copyrights, any applications for
and registrations of such patents, trademarks, trade names, service marks,
domain names and copyrights, and all database rights, net lists, processes,
formulae, methods, schematics, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of the Company and its Subsidiaries
as currently conducted, or presently planned to be conducted, except for such
rights the absence of which would not be reasonably expected to have a Company
Material Adverse Effect (the "Company Intellectual Property Rights"). The
Company and its Subsidiaries have taken all action reasonably necessary to
protect the Company Intellectual Property Rights which is customary in the
industry, including without limitation, use of reasonable secrecy measures to
protect the trade secrets included in the Company Intellectual Property Rights.
(b) The execution and delivery of this Agreement and consummation of the
transactions contemplated hereby will not result in the breach of, or create on
behalf of any third party the
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right to terminate or modify, any material license, sublicense or other
agreement relating to the Company Intellectual Property Rights, or any material
licenses, sublicenses or other agreements as to which the Company or any of its
Subsidiaries is a party and pursuant to which the Company or any of its
Subsidiaries is authorized to use any third party patents, trademarks,
copyrights or trade secrets ("Company Third Party Intellectual Property
Rights"), including software that is used in the manufacture of, incorporated
in, or forms a part of any product sold by or expected to be sold by the Company
or any of its Subsidiaries, the breach of which would, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect. The
Company Disclosure Letter, under the caption referencing this Section 3.12,
lists all royalties, license fees, sublicense fees or similar obligations
requiring payment in excess of $100,000 per year by the Company or any
Subsidiary for any Company Third Party Intellectual Property Rights that are
used in the manufacture of, incorporated in, or forms a part of any product sold
by or expected to be sold by the Company or any of its Subsidiaries.
(c) All patents, registered trademarks, service marks, domain names and
copyrights which are held by the Company or any of its Subsidiaries, the loss or
invalidity of which would reasonably be expected to cause a Company Material
Adverse Effect, are valid and subsisting. The Company (i) has not been sued in
any suit, action or proceeding, or received in writing any claim or notice,
which involves a claim of infringement or misappropriation of any patents,
trademarks, service marks, domain names, copyrights or violation of any trade
secret or other proprietary right of any third party; and (ii) has no Knowledge
that the manufacturing, marketing, licensing or sale of its products or services
infringe upon, misappropriate or otherwise come into conflict with any patent,
trademark, service mark, copyright, trade secret or other proprietary right of
any third party, which infringement, misappropriation or conflict in the cases
of clause (i) and (ii) would, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. To the Knowledge of the
Company, no other Person has interfered with, infringed upon, or otherwise come
into conflict with any Company Intellectual Property Rights or other proprietary
information of the Company or any of its Subsidiaries which has or would,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
(d) Except where the failure to do so would not have a Company Material
Adverse Effect, each employee, agent, consultant or contractor who has
materially contributed to or participated in the creation or development of any
copyrightable, patentable or trade secret material on behalf of the Company, any
of its Subsidiaries or any predecessor in interest thereto either: (i) is a
party to an agreement under which the Company or such Subsidiary is deemed to be
the original owner/author of all property rights therein; or (ii) has executed
an assignment or an agreement to assign in favor of the Company, such Subsidiary
or such predecessor in interest, as applicable, all right, title and interest in
such material.
(e) The Company and its Subsidiaries have experienced no material
disruption or interruption of their business or operations as a result of or
related to any of their information systems, data processing and other hardware,
software and other systems, facilities, programs and procedures used or sold by
the Company or any of its Subsidiaries (collectively, "Information Systems")
failing to be Y2K Compliant. "Y2K Compliant" means, with respect to any
Information System, that such Information System (i) handles date information
involving any and all dates before, during and/or after January 1, 2000,
including accepting input, providing output and performing date calculations in
whole or in part; (ii) operates accurately without interruption on and in
respect of any and all dates before, during and/or after January 1, 2000 and
without any change in performance; (iii) responds to and processes two-digit
year input without creating any ambiguity as to the century; and (iv) stores and
provides date input information without creating any ambiguity as to the
century, in each case without utilizing bridges, gateways and the like while
still preserving the level of functionality,
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usability, reliability, efficiency, performance and accessibility of such data
and associated programs as existed prior to any modification to such Information
System and its constituent elements to make the same Y2K Compliant.
3.13. Taxes.
(a) "Tax" or "Taxes" shall mean all United States federal, state,
provincial, local or foreign taxes and any other applicable duties, levies,
fees, charges and assessments that are in the nature of a tax, including income,
gross receipts, property, sales, use, license, excise, franchise, ad valorem,
value-added, transfer, social security payments, and health taxes and any
deductibles relating to wages, salaries and benefits and payments to
subcontractors for any jurisdiction in which the Company or any of its
Subsidiaries does business (to the extent required under applicable Tax law),
together with all interest, penalties and additions imposed with respect to such
amounts.
(b) Except as set forth in (or resulting from matters set forth in) Section
3.13 of the Company Disclosure Letter or as could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect:
(i) the Company and its Subsidiaries have prepared and timely filed
with the appropriate governmental agencies all franchise, income, sales and
all other material Tax returns and reports required to be filed on or
before the Effective Time (collectively "Returns"), taking into account any
extension of time to file granted to or obtained on behalf of the Company
and/or its Subsidiaries;
(ii) all Taxes of the Company and its Subsidiaries shown on such
Returns or otherwise known by the Company to be due or payable have been
timely paid in full to the proper authorities, other than such Taxes as are
being contested in good faith by appropriate proceedings or which are
adequately reserved for in accordance with generally accepted accounting
principles;
(iii) all deficiencies resulting from Tax examinations of income,
sales and franchise and all other material Returns filed by the Company and
its Subsidiaries in any jurisdiction in which such Returns are required to
be so filed have either been paid or are being contested in good faith by
appropriate proceedings;
(iv) no deficiency has been asserted or assessed against the Company
or any of its Subsidiaries which has not been satisfied or otherwise
resolved, and no examination of the Company or any of its Subsidiaries is
pending or, to the Knowledge of the Company, threatened for any material
amount of Tax by any taxing authority;
(v) no extension of the period for assessment or collection of any
material Tax is currently in effect and no extension of time within which
to file any material Return has been requested, which Return has not since
been filed;
(vi) all Returns filed by the Company and its Subsidiaries are correct
and complete in all material respects or adequate reserves have been
established with respect to any additional Taxes that may be due (or may
become due) as a result of such Returns not being correct or complete;
(vii) to the Knowledge of the Company, no Tax liens have been filed
with respect to any Taxes;
(viii) neither the Company nor any of its Subsidiaries have made since
January 1, 1997, and none will make, any voluntary adjustment by reason of
a change in their accounting methods for any pre-Merger period;
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(ix) the Company and its Subsidiaries have made timely payments of the
Taxes required to be deducted and withheld from the wages paid to their
employees;
(x) the Company and its Subsidiaries are not parties to any Tax
sharing or Tax matters agreement; and
(xi) to the Knowledge of the Company, neither the Company nor any of
its Subsidiaries is liable to be assessed for or made accountable for any
Tax for which any other person or persons may be liable to be assessed or
made accountable whether by virtue of the entering into or the consummation
of the Merger or by virtue of any act or acts done by or which may be done
by or any circumstance or circumstances involving or which may involve any
other person or persons.
(c) The Company and its Subsidiaries are not parties to any agreement,
contract, or arrangement that would, as a result of the transactions
contemplated hereby, result, separately or in the aggregate, in (i) the payment
of any "excess parachute payments" within the meaning of Section 280G of the
Code by reason of the Merger or (ii) the payment of any form of compensation or
reimbursement for any Tax incurred by any Person arising under Section 280G of
the Code.
3.14. Employees. Neither the Company nor any of its Subsidiaries is a party
to any collective bargaining agreement, arrangement or labor contract with a
labor union or labor organization, whether formal or otherwise. The Company
Disclosure Letter, under the caption referencing this Section 3.14, lists all
employment, severance and change of control agreements (or any other agreements
that may result in the acceleration of outstanding options) of the Company or
its Subsidiaries. Each of the Company and its Subsidiaries is in compliance with
all applicable laws (including, without limitation, all applicable extension
orders) respecting employment and employment practices, terms and conditions of
employment, equal opportunity, anti-discrimination laws, and wages and hours,
except where such noncompliance has not had and would not, individually or in
the aggregate, reasonably be expected to have, a Company Material Adverse
Effect. There is no labor strike, slowdown or stoppage pending (or, to the
Knowledge of the Company or any of its Subsidiaries, any unfair labor practice
complaints, labor disturbances or other controversies respecting employment
which are pending or threatened which, if they actually occurred, would
reasonably be expected to have a Company Material Adverse Effect) against the
Company or any of its Subsidiaries.
3.15. Employee Benefit Plans.
(a) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and "Plan" means every plan, fund, contract, program and arrangement
(whether written or not) which is maintained or contributed to by the Company
and its Subsidiaries for the benefit of present or former employees or with
respect to which the Company and its Subsidiaries otherwise has current or
potential liability. "Plan" includes any arrangement intended to provide: (i)
medical, surgical, health care, hospitalization, dental, vision, workers'
compensation, life insurance, death, disability, legal services, severance,
sickness, accident, or cafeteria plan benefits (whether or not defined in
Section 3(1) of ERISA), (ii) pension, profit sharing, stock bonus, retirement,
supplemental retirement or deferred compensation benefits (whether or not tax
qualified and whether or not defined in Section 3(2) of ERISA), (iii) bonus,
incentive compensation, stock option, stock appreciation right, phantom stock or
stock purchase benefits, change in control benefits or (iv) salary continuation,
unemployment, supplemental unemployment, termination pay, vacation or holiday
benefits (whether or not defined in Section 3(3) of ERISA). The Company
Disclosure Letter, under the caption referencing this Section 3.15(a), sets
forth all material Plans by name and brief description.
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(b) To the extent required (either as a matter of law or to obtain the
intended tax treatment and tax benefits), all Plans comply and have complied
with the requirements of ERISA, the Code and other applicable law, except where
such noncompliance would not, individually or in the aggregate, have a Company
Material Adverse Effect. With respect to the Plans, (i) all required
contributions which are due have been made and an accrual required by generally
accepted accounting principles has been made on the books and records of the
Company or its Subsidiaries for all future contribution obligations; (ii) there
are no actions, suits or claims pending, other than routine uncontested claims
for benefits; and (iii) there have been no nonexempt prohibited transactions (as
defined in Section 406 of ERISA or Section 4975 of the Code), except for such
transactions, if any, which have not had and would not, individually or in the
aggregate, reasonably be expected to have, a Company Material Adverse Effect.
Except as otherwise disclosed in the Company Disclosure Letter under the caption
referencing this Section 3.15(b), all benefits under the Plans (other than Code
Section 125 cafeteria plans) are payable either through a fully-funded trust or
an insurance contract and no welfare benefit Plan (as defined in Section 3(1) of
ERISA) is self-funded.
(c) Parent has received true and complete copies of (i) all Plan documents,
including related trust agreements or funding arrangements; (ii) the most recent
determination letter, if any, received by the Company or its Subsidiaries from
the Internal Revenue Service (the "IRS") regarding the Plans and any amendment
to any Plan made subsequent to any Plan amendments covered by any such
determination letter; (iii) current summary plan descriptions; and (iv) annual
returns/reports on Form 5500 and summary annual reports for the most recent plan
year. To the Knowledge of the Company, nothing has occurred that could
materially adversely affect the qualification of the Plans and their related
trusts under Section 401(a) of the Code.
(d) Except as set forth in Section 3.15 of the Company Disclosure Letter,
the Company does not maintain or contribute to (and has never contributed to)
any multi-employer plan, as defined in Section 3(37) of ERISA. Neither the
Company nor any of its Subsidiaries has any actual or potential material
liabilities under Title IV of ERISA, including under Section 4201 of ERISA for
any complete or partial withdrawal from a multi-employer plan.
(e) Neither the Company nor any of its Subsidiaries has any actual or
potential material liability for death or medical benefits after separation from
employment, other than (i) death benefits under the employee benefit plans or
programs (whether or not subject to ERISA) set forth in Section 3.15 of the
Company Disclosure Letter and (ii) health care continuation benefits described
in Section 4980B of the Code.
(f) Neither the Company nor any of its Subsidiaries, nor any of their
respective directors, officers, employees or other "fiduciaries", as such term
is defined in Section 3(21) of ERISA, has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law with respect to the
Plans which would subject the Company, Parent or any of their respective
directors, officers or employees to any liability under ERISA or any applicable
law, except for such breaches, if any, which have not had and would not,
individual or in the aggregate, reasonably be expected to have, a Company
Material Adverse Effect.
(g) There are no other trades or businesses (other than Subsidiaries of the
Company), whether or not incorporated, which, together with the Company, would
be deemed to be a "single employer" within the meaning of Code Sections 414(b),
(c) or (m).
(h) Except with respect to Taxes on benefits paid or provided, no Tax has
been waived or excused, has been paid or is owed by any person (including, but
not limited to, any Plan, any Plan fiduciary or the Company) with respect to the
operations of, or any transactions with respect to, any Plan which would,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. No action has been taken by the Company, nor has
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there been any failure by the Company to take any action, nor is any action or
failure to take action contemplated by the Company (including all actions
contemplated under this Agreement), that would subject any person or entity to
any liability or Tax imposed by the IRS or DOL in connection with any Plan,
except for such liability or Tax that has not had and would not, individually or
in the aggregate, reasonably be expected to have a Company Material Adverse
Effect. No reserve for any Taxes has been established with respect to any Plan
by the Company nor has any advice been given to the Company with respect to the
need to establish such a reserve, except for such reserves which would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
(i) There are no (i) legal, administrative or other proceedings or
governmental investigations or audits, or (ii) complaints to or by any
Governmental Entity, which are pending, anticipated or, to the Knowledge of the
Company, threatened, against any Plan or its assets, or against any Plan
fiduciary or administrator, or against the Company or its officers or employees
with respect to any Plan which would, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
(j) There are no leased employees, as defined in Section 414(n) of the
Code, providing services to the Company or its Subsidiaries, that must be taken
into account with respect to the requirements under Section 414(n)(3) of the
Code.
(k) Each Plan may be terminated directly or indirectly by Parent and the
Company, in their sole discretion, at any time before or after the Effective
Date in accordance with its terms, without causing the Parent or the Company to
incur any liability to any person, entity or government agency for any conduct,
practice or omission of the Company which occurred prior to the Effective Date,
except for (i) liabilities to, and the rights of, the employees thereunder
accrued prior to the Effective Date, or if later, the time of termination, (ii)
continuation rights required by the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, or other applicable law, and (iii) liabilities which
would not have a Company Material Adverse Effect.
3.16. Environmental Matters.
(a) The Company and its Subsidiaries (i) have been in compliance and are
presently complying in all material respects with all applicable health, safety
and Environmental Laws (defined below), and (ii) have obtained all material
permits, licenses and authorizations which are required under all applicable
health, safety and Environmental Laws and are in compliance in all material
respects with such permits, licenses and authorizations, except in each case for
such failure to comply or to obtain permits, licenses or authorizations that
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. To the Knowledge of the Company, (i) none of
the Leased Real Property (including without limitation soils and surface and
ground waters) are contaminated with any Hazardous Materials in quantities which
require investigation or remediation under Environmental Laws, (ii) neither the
Company nor any of its Subsidiaries is liable for any off-site contamination,
and (iii) there is no environmental matter which could reasonably be expected to
expose the Company or any of its Subsidiaries to a claim to clean-up any
Hazardous Materials or otherwise to remedy any pollution or damage at any of the
properties utilized in the Company's business under any Environmental Laws, that
would, with respect to any of (i), (ii) or (iii) above, be required to be
disclosed in the Company SEC Reports.
(b) For purposes of this Agreement, the term (i) "Environmental Laws" means
all applicable United States federal, state, provincial, local and other foreign
laws, rules, regulations, codes, ordinances, orders, decrees, directives,
permits, licenses and judgments relating to pollution, contamination or
protection of the environment (including, without limitation, all applicable
United States federal, state, provincial, local and other foreign laws,
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rules, regulations, codes, ordinances, orders, decrees, directives, permits,
licenses and judgments relating to Hazardous Materials in effect as of the date
of this Agreement), and (ii) "Hazardous Materials" means any dangerous, toxic or
hazardous pollutant, contaminant, chemical, waste, material or substance as
defined in or governed by any United States federal, state, provincial, local or
other foreign law, statute, code, ordinance, regulation, rule or other
requirement relating to such substance or otherwise relating to the environment
or human health or safety, including without limitation any waste, material,
substance, pollutant or contaminant that might cause any injury to human health
or safety or to the environment or might subject the Company or any of its
Subsidiaries to any imposition of costs or liability under any Environmental
Law.
3.17. Insurance. The Company is adequately covered by insurance policies
currently in force with respect to its business and properties. Except as
disclosed in Section 3.17 of the Company Disclosure Letter, there are no claims
outstanding under any insurance policy which could, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect and,
to the Knowledge of the Company or any of its Subsidiaries, neither the Company
nor any of its Subsidiaries has failed to give any notice or to present any such
claim with respect to its business under any such policy in due and timely
fashion, except where such failure would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
3.18. Foreign Corrupt Practices Act. Neither the Company nor any of its
Subsidiaries (nor any person representing the Company or any of its
Subsidiaries) has at any time during the last five years (a) made any payment in
violation of the Foreign Corrupt Practices Act or similar laws of other
countries where the Company engages in business, or (b) made any payment to any
foreign, federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
3.19. Export Control Laws. The Company has conducted its export
transactions in accordance in all material respects with applicable provisions
of United States export control laws and regulations, including but not limited
to the Export Administration Act and implementing Export Administration
Regulations.
3.20. Finders or Brokers. Except for such Persons as set forth in Section
3.20 of the Company Disclosure Letter, whose fees will be paid by the Company,
none of the Company, the Subsidiaries of the Company, the Board of Directors of
the Company (the "Company Board") or any member of the Company Board has
employed any agent, investment banker, broker, finder or intermediary in
connection with the transactions contemplated hereby who might be entitled to a
fee or any commission in connection with the Merger or the other transactions
contemplated hereby.
3.21. Board Recommendation. The Company Board has, at a meeting of such
Company Board duly held on May 7, 2000, approved and adopted this Agreement, the
Merger, the Company Option Agreement and the other transactions contemplated
hereby and thereby, declared the advisability of the Merger and recommended that
the shareholders of the Company approve the Merger and the other transactions
contemplated hereby, and has not as of the date hereof rescinded or modified in
any respect any of such actions.
3.22. Vote Required. The affirmative vote of the holders of a majority of
the shares of Company Common Stock outstanding on the record date set for the
Company Shareholders Meeting (as defined in Section 3.26 hereof) is the only
vote of the holders of any of the Company's capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
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3.23. Opinion of Financial Advisor. The Company has received the oral
opinion of Goldman, Sachs & Co. on the date of the meeting of the Company Board
referenced in Section 3.21 above, to the effect that, as of such date, the
Exchange Ratio is fair, from a financial point of view, to the holders of
Company Common Stock.
3.24. Tax Matters. Neither the Company nor, to its Knowledge, any of its
affiliates has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be taken by
Parent or any of its affiliates) would prevent the business combination to be
effected by the Merger from constituting a transaction qualifying as a
reorganization within the meaning of Section 368 of the Code.
3.25. State Takeover Statutes; Rights Agreement. The Company Board has
taken all actions so that the restrictions contained in Section 302A.673 of the
MBCA applicable to a "business combination" (as defined in Section 302A.673 of
the MBCA) will not apply to the execution, delivery of performance of this
Agreement or the Company Option Agreement or the consummation of the Merger or
the other transactions contemplated by this Agreement or by the Company Option
Agreement. The Company has taken all actions and completed all amendments, if
any, necessary or appropriate so that (a) the Rights Agreement, dated as of
November 10, 1998, as amended, between the Company and Norwest Bank Minnesota,
N.A. (the "Company Rights Agreement"), is inapplicable to the transactions
contemplated by this Agreement or the Company Option Agreement, and (b) the
execution of this Agreement or the Company Option Agreement and the consummation
of the transactions contemplated hereby or thereby, do not and will not (i)
result in Parent being an "Acquiring Person" (as such term is defined in the
Company Rights Agreement), (ii) result in the ability of any person to exercise
any Rights under the Company Rights Agreement, (iii) enable or require the
"Rights" (as such term is defined in the Company Rights Agreement) to separate
from the shares of Company Common Stock to which they are attached or to be
triggered or become exercisable, or (iv) otherwise result in the occurrence of a
"Distribution Date" or "Shares Acquisition Date" (as such terms are defined in
the Company Rights Agreement).
3.26. Registration Statement; Joint Proxy Statement/Prospectus. The
information supplied by the Company for inclusion in the registration statement
on Form S-4 (or such other or successor form as shall be appropriate) pursuant
to which the shares of Parent Common Stock to be issued in the Merger will be
registered with the SEC (the "Registration Statement") shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by the Company for
inclusion in the joint proxy statement/prospectus to be sent to the shareholders
of Company in connection with the meeting of Company's shareholders to consider
the Merger (the "Company Shareholders Meeting") and to the stockholders of
Parent in connection with the meeting of Parent's stockholders to consider the
Merger (the "Parent Stockholders Meeting") (such joint proxy
statement/prospectus as amended or supplemented is referred to herein as the
"Joint Proxy Statement/Prospectus") shall not, on the date the Joint Proxy
Statement/Prospectus is first mailed to Company's shareholders and the Parent
stockholders, at the time of the Company Shareholders Meeting and the Parent
Stockholders Meeting and at the Effective Time, contain any statement which, at
such time, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Shareholders Meeting or the Parent Stockholders Meeting
which has become false or misleading. If at any time prior to the Effective Time
any event or information should be discovered by the Company which should be set
forth in an
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amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/ Prospectus, the Company shall promptly inform Parent. Notwithstanding
the foregoing, the Company makes no representation, warranty or covenant with
respect to any information supplied by Parent or Merger Sub which is contained
in any of the foregoing documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND PARENT
Merger Sub and Parent jointly and severally represent and warrant to the
Company that the statements contained in this Article IV are true and correct:
4.1. Organization and Qualification. Parent is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Merger Sub
is a corporation validly existing and in good standing under the laws of the
State of Minnesota. Each of Merger Sub and Parent is duly qualified or licensed
to carry on its business as it is now being conducted, and is qualified to
conduct business, in each jurisdiction where the character of its properties
owned or leased or the nature of its activities makes such qualification
necessary, except for failures to be so qualified that would not, individually
or in the aggregate, have, or would not reasonably be expected to have, a Parent
Material Adverse Effect (as defined below). Neither Parent nor Merger Sub is in
violation of any of the provisions of its Charter Document or its Governing
Document. As used in this Agreement, the term "Parent Material Adverse Effect"
means any change, effect, event or condition that (i) has a material adverse
effect on the assets, business or financial condition of Parent and its
Subsidiaries, taken as a whole, or (ii) would prevent or materially delay Merger
Sub's or Parent's ability to consummate the transactions contemplated hereby.
4.2. Capitalization. The authorized capital stock of Parent consists of
150,000,000 shares of Parent Common Stock, $.001 par value per share, and
1,000,000 shares of preferred stock, $.001 par value per share (of which 200,000
shares are designated Series A Junior Participating Preferred Stock (the "Parent
Preferred Stock"). As of the close of business on May 5, 2000 (the "Parent
Measurement Date"), (a) 74,292,949 shares of Parent Common Stock were issued and
outstanding, (b) no shares of Parent Preferred Stock were issued and
outstanding, (c) 12,855,999 shares of Parent Common Stock were reserved for
issuance under the stock-based benefit plans of the Parent (the "Parent Stock
Plans"), (d) options to purchase 5,881,970 shares of Parent Common Stock in the
aggregate had been granted and remained outstanding under the Parent Stock
Plans, and (e) except for the options, rights to acquire shares of Parent Common
Stock under Parent's 1998 Employee Stock Purchase Plan (the "Parent ESPP") and
rights to acquire shares of Parent Common Stock pursuant to the Rights
Agreement, dated as of June 4, 1996, as amended, between Parent and Harris Trust
Company of California (the "Parent SRP Plan"), there were no outstanding
Parental Rights (as defined below). Since the Parent Measurement Date, no
additional shares of Parent Common Stock have been issued and are outstanding,
except pursuant to the exercise of options and the Parent ESPP, and no Parental
Rights have been granted (other than additional Parent SRP Rights issued upon
the issuance of shares of Parent Common Stock). All issued and outstanding
shares of Parent Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights created by the General Corporation
Law of the State of Delaware ("DGCL") or Parent's Charter Document or Governing
Document, or any other agreement with the Company. There are not at the date of
this Agreement any existing options, warrants, calls, subscriptions, convertible
securities or other rights which obligate Parent or any of its Subsidiaries to
issue, exchange, transfer or sell any shares of capital stock of Parent or any
of its Subsidiaries, other than shares of Parent Common Stock issuable under the
Parent Stock
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Plans and the Parent ESPP, or awards granted pursuant thereto, and other than
Parent SRP Rights issued upon the issuance of additional shares of Parent Common
Stock (collectively, "Parental Rights").
4.3. Authority Relative to this Agreement. Each of Parent and Merger Sub
has the requisite corporate power and authority to execute and deliver, and to
perform its obligations under, this Agreement and the Company Option Agreement
and, subject to obtaining the necessary approval of its stockholders, to
consummate the Merger and the other provisions contemplated hereby and thereby
under applicable law. The execution and delivery by Parent and Merger Sub of
this Agreement and the Company Option Agreement, and the consummation of the
Merger and the transactions contemplated hereby and thereby, have been duly and
validly authorized by the Board of Directors of Parent and Merger Sub and no
other corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or the Company Option Agreement or to consummate the
Merger or other transactions contemplated hereby and thereby (other than
approval by the Parent's stockholders required by applicable law). This
Agreement and the Company Option Agreement have been duly and validly executed
and delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery of this Agreement and the Company Option Agreement by the
Company, is a valid and binding obligation of Parent and Merger Sub, enforceable
against them in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors
rights generally or by general equitable principles. The shares of Parent Common
Stock to be issued by Parent pursuant to the Merger, as well as the Parent
Options and the shares of Parent Common Stock to be issued upon exercise
thereof: (i) have been duly authorized, and, when issued in accordance with the
terms of the Merger and this Agreement (or the applicable option agreements),
will be validly issued, fully paid and nonassessable and will not be subject to
preemptive rights, (ii) will, when issued in accordance with the terms of the
Merger and this Agreement (or the applicable option agreements), be registered
under the Securities Act, and registered or exempt from registration under
applicable United States "Blue Sky" laws, (iii) will, when issued in accordance
with the terms of the Merger and this Agreement (or the applicable option
agreements), be listed on the Nasdaq National Market and (iv) will be issued
free and clear of any Liens.
4.4. No Conflicts; Required Filings and Consents.
(a) Neither the execution, delivery or performance of this Agreement by
Merger Sub or Parent, nor the consummation of the transactions contemplated
hereby, nor compliance by Merger Sub or Parent with any provision hereof will
(i) violate, conflict with or result in a breach of any provision of the Charter
Documents or Governing Documents of Merger Sub or Parent, (ii) cause a default
or give rise to any right of termination, cancellation or acceleration or loss
of a material benefit under, or result in the creation of any lien, charge or
other encumbrance upon any of the properties or assets of Merger Sub or Parent
under any of the terms, conditions or provisions of any note, license, bond,
deed of trust, mortgage or indenture, or any other material instrument,
obligation or agreement to which Merger Sub or Parent is a party or by which its
properties or assets may be bound or (iii) violate any law, judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to
Merger Sub or Parent or binding upon any of its properties, except for, in the
case of clauses (ii) and (iii), such defaults or violations which would not,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
(b) No filing or registration with or notification to and no permit,
authorization, consent or approval of any Governmental Entity is required to be
obtained, made or given by Merger Sub or Parent in connection with the execution
and delivery of this Agreement or the consummation by Merger Sub of the Merger
or other transactions contemplated hereby except
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(i) (A) in connection with the applicable requirements of the HSR Act, (B) the
filing of a Registration Statement (defined in Section 3.26 hereof) with the
SEC, in accordance with the Securities Act, as further described in Section 3.26
hereof or (C) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state securities
laws and the laws of any country other than the United States, or (ii) where the
failure to obtain any such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect.
4.5. SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports, schedules, statements and other
documents required to be filed by it since January 1, 1997 to the date hereof
(collectively, as supplemented and amended since the time of filing, the "Parent
SEC Reports") with the SEC. The Parent SEC Reports (i) were prepared in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The representation in clause (ii) of the preceding sentence does not
apply to any misstatement or omission in any Parent SEC Report filed prior to
the date of this Agreement which was superseded by a subsequent Parent SEC
Report filed prior to the date of this Agreement.
(b) The audited consolidated financial statements and unaudited
consolidated interim financial statements of Parent and its Subsidiaries
included or incorporated by reference in such Parent SEC Reports have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may otherwise be indicated in the notes thereto) and present fairly, in all
material respects, the financial position and results of operations and cash
flows of Parent and its Subsidiaries on a consolidated basis at the respective
dates and for the respective periods indicated (except, in the case of all such
financial statements that are interim financial statements, for normal year-end
adjustments).
(c) Neither Parent nor any of its Subsidiaries has any liabilities or
obligations of any nature, whether absolute, accrued, unmatured, contingent or
otherwise, whether due or to become due, known or unknown, or any unsatisfied
judgments or any leases of personalty or realty or unusual or extraordinary
commitments that are required to be disclosed under United States generally
accepted accounting principles, except (i) as set forth in the Parent SEC
Reports, (ii) the liabilities recorded on Parent's consolidated balance sheet at
December 26, 1999 included in the financial statements referred in Section
4.5(a) hereof and the notes thereto, (iii) liabilities or obligations incurred
since December 26, 1999 (whether or not incurred in the ordinary course of
business and consistent with past practice) that would not, individually or in
the aggregate, reasonably be expected to have a Parent Material Adverse Effect,
or (iv) liabilities that would not be required by United States generally
accepted accounting principles to be disclosed in financial statements or in the
notes thereto and that would not, individually or in the aggregate, reasonably
be expected to have a Parent Material Adverse Effect.
4.6. Absence of Changes or Events. Except as set forth in the Parent SEC
Reports, since December 26, 1999 through the date of this Agreement, Parent and
its Subsidiaries have not incurred any liability or obligation that has resulted
or would reasonably likely be expected to result in a Parent Material Adverse
Effect, and there has not been any change in the business, financial condition
or results of operations of Parent or any of its Subsidiaries which has had, or
is reasonably expected to have, individually or in the aggregate, a Parent
Material Adverse
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Effect, and Parent and its Subsidiaries have conducted their respective
businesses in the ordinary course consistent with their past practices.
4.7. Litigation. Except as disclosed in the Parent SEC Reports, there is no
(i) claim, action, suit or proceeding pending or, to the Knowledge of Parent,
threatened against or relating to Parent or any of its Subsidiaries, or (ii)
outstanding Orders, or application, request or motion therefor, in a proceeding
to which Parent, any Subsidiary of Parent or any of their respective assets was
or is a party except actions, suits, proceedings or Orders that, individually or
in the aggregate, has not had or would not reasonably be expected to have a
Parent Material Adverse Effect, and neither Parent nor any Subsidiary is in
default in any material respect with respect to any such Order.
4.8. Compliance with Law. All activities of Merger Sub and Parent have
been, and are currently being, conducted in compliance in all material respects
with all applicable United States federal, state and local and other foreign
laws, ordinances, regulations, interpretations, judgments, decrees, injunctions,
permits, licenses, certificates, governmental requirements, Orders and other
similar items of any court or other Governmental Entity or any nongovernmental
self-regulatory agency, and no notice has been received by Parent of any claims
filed against either Merger Sub or Parent alleging a violation of any such laws,
regulations or other requirements which would be required to be disclosed in the
Parent SEC Reports. Merger Sub and Parent have all permits, licenses and
franchises from Governmental Entities required to conduct their businesses as
now being conducted, except for such permits, licenses and franchises the
absence of which would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect.
4.9. Finders or Brokers. Except for SG Cowen Securities, whose fees will be
paid by Parent, none of Parent, Merger Sub, the other Subsidiaries of Parent,
the Boards of Directors of Parent and Merger Sub or any member of such Boards of
Directors has employed any agent, investment banker, broker, finder or
intermediary in connection with the transactions contemplated hereby who might
be entitled to a fee or any commission in connection with the Merger or the
other transactions contemplated hereby.
4.10. Tax Matters. Neither Parent nor, to its Knowledge, any of its
affiliates has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be taken by
the Company or any of its affiliates) would prevent the business combination to
be effected by the Merger from constituting a transaction qualifying as a
reorganization within the meaning of Section 368 of the Code.
4.11. Registration Statement; Joint Proxy Statement/Prospectus. The
information supplied by Parent and Merger Sub for inclusion in the Joint Proxy
Statement/Prospectus shall not, at the time the Registration Statement
(including any amendments or supplements thereto) is declared effective by the
SEC, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by Parent for inclusion in the Joint Proxy Statement/Prospectus shall
not, on the date the Joint Proxy Statement/Prospectus is first mailed to the
Company's shareholders and the Parent stockholders, at the time of the Company
Shareholders Meeting and the Parent Stockholders Meeting and at the Effective
Time, contain any statement which, at such time, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
it is made, not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Company Shareholders Meeting or the Parent
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Parent or
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Merger Sub which should be set forth in an amendment to the Registration
Statement or a supplement to the Joint Proxy Statement/Prospectus, Parent or
Merger Sub will promptly inform the Company. Notwithstanding the foregoing,
Parent and Merger Sub make no representation, warranty or covenant with respect
to any information supplied by the Company which is contained in any of the
foregoing documents.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1. Conduct of Business of the Company Pending the Merger. Except as
contemplated by this Agreement or as expressly agreed to in writing by Parent,
during the period from the date of this Agreement to the earlier of (i) the
termination of this Agreement or (ii) the Effective Time, each of the Company
and its Subsidiaries will conduct their respective operations according to its
ordinary course of business consistent with past practice, and will use
commercially reasonable best efforts consistent with past practice and policies
to preserve intact its business organization, to keep available the services of
its officers and employees and to maintain satisfactory relationships with
suppliers, distributors, customers and others having business relationships with
it and will take no action which would adversely affect the ability of the
parties to consummate the transactions contemplated by this Agreement, or the
timing thereof. Without limiting the generality of the foregoing, and except as
otherwise expressly provided in this Agreement, prior to the Effective Time, the
Company will not nor will it permit any of its Subsidiaries to, without the
prior written consent of Parent:
(a) amend any of its Charter Documents or Governing Documents;
(b) authorize for issuance, issue, sell, deliver, grant any options,
warrants, stock appreciation rights, or stock issuance rights for, or
otherwise agree or commit to issue, sell, deliver, pledge, dispose of or
otherwise encumber any shares of any class of its capital stock or any
securities convertible into shares of any class of its capital stock,
except (i) pursuant to and in accordance with the terms of Company Options
outstanding on the Company Measurement Date or granted pursuant to clause
(iv) below, (ii) pursuant to the ESPP (to the extent shares of Company
Common Stock have been paid for with payroll deductions), (iii) pursuant to
and in accordance with the terms of Company Warrants outstanding on the
Company Measurement Date, or (iv) the grant of Company Options consistent
with past practices to new employees, which Company Options will represent
the right to acquire no more than 20,000 shares of Company Common Stock per
new employee; provided however, that the current form of agreement under
the Company Stock Option Plans shall be amended to no longer include any
provisions providing for acceleration of vesting upon a change of control,
and any other form used by the Company shall be in a form reasonably
acceptable to Parent;
(c) subdivide, cancel, consolidate or reclassify any shares of its
capital stock, issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, shares or property or any combination thereof) in respect of its
capital stock or purchase, redeem or otherwise acquire any shares of its
own capital stock or of any of its Subsidiaries, except as otherwise
expressly provided in this Agreement;
(d)(i) incur or assume any long-term or short-term debt or issue any
debt securities except for borrowings under existing lines of credit in the
ordinary course of business consistent with past practice; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the material obligations of any
other person (other than Subsidiaries of the Company); or (iii) make any
material loans,
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advances or capital contributions to, or investments in, any other person
(other than to Subsidiaries of the Company);
(e) except as otherwise expressly contemplated by this Agreement, (i)
increase in any manner the compensation of (A) any employee who is not an
officer of the Company or any Subsidiary (a "NonExecutive Employee"),
except in the ordinary course of business consistent with past practice or
(B) any of its directors or officers, except in the ordinary course of
business, consistent with past practice, after consultation with Parent,
(ii) pay or agree to pay any pension, retirement allowance or other
employee benefit not required, or enter into, amend or agree to enter into
or amend any agreement or arrangement with any such director or officer or
employee, whether past or present, relating to any such pension, retirement
allowance or other employee benefit, except as required to comply with law
or under currently existing agreements, plans or arrangements or with
respect to NonExecutive Employees, in the ordinary course of business
consistent with past practice; (iii) grant any rights to receive any
severance or termination pay to, or enter into or amend any employment or
severance agreement with, any employee or any of its directors or officers,
except as required by applicable law or with respect to severance or
termination pay to NonExecutive Employees in the ordinary course of
business, consistent with past practices; or (iv) except as may be required
to comply with applicable law, become obligated (other than pursuant to any
new or renewed collective bargaining agreement) under any new pension plan,
welfare plan, multiemployer plan, employee benefit plan, benefit
arrangement, or similar plan or arrangement, which was not in existence on
the date hereof, including any bonus, incentive, deferred compensation,
share purchase, share option, share appreciation right, group insurance,
severance pay, retirement or other benefit plan, agreement or arrangement,
or employment or consulting agreement with or for the benefit of any
person, or amend any of such plans or any of such agreements in existence
on the date hereof; provided, however, that this clause (iv) shall not
prohibit the Company from renewing any such plan, agreement or arrangement
already in existence on terms no more favorable to the parties to such
plan, agreement or arrangement;
(f) except as otherwise expressly contemplated by this Agreement,
enter into, amend in any material respect or terminate any Company Material
Contracts other than in the ordinary course of business consistent with
past practice;
(g) sell, lease, license, mortgage or dispose of any of its properties
or assets, other than (i) transactions in the ordinary course of business
consistent with past practice, (ii) sales of assets, for the fair market
value thereof, which sales do not individually or in the aggregate exceed
$500,000 or (iii) as may be required or contemplated by this Agreement;
(h) except as otherwise contemplated by the Merger, acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
portion of the assets of or equity in, or by any other manner, any business
or any corporation, limited liability company, partnership, association or
other business organization or division thereof or otherwise acquire or
agree to acquire any assets, other than the acquisition of assets that is
in the ordinary course of business consistent with past practice and which
are contemplated within the budget previously provided in writing by the
Company to the Parent without the prior written consent of Parent, which
consent will not be unreasonably withheld;
(i) alter (through merger, liquidation, reorganization, restructuring
or in any fashion) the corporate structure or ownership of the Company or
any Subsidiary;
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(j) authorize or commit to make any material capital expenditures not
within the budget previously provided in writing by the Company to Parent
without the prior written consent of Parent, which consent shall not be
unreasonably withheld;
(k) make any change in the accounting methods or accounting practices
followed by the Company, except as required by generally accepted
accounting principles or applicable law;
(l) make any election under any applicable Tax laws which would,
individually or in the aggregate, have a Company Material Adverse Effect;
(m) take any action that (without regard to any action taken or agreed
to be taken by Parent or any of its Affiliates) would prevent Parent from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests;
(n) settle any action, suit, claim, investigation or proceeding
(legal, administrative or arbitrative) requiring a payment by the Company
or its Subsidiaries in excess of $200,000 without the consent of Parent,
which consent shall not be unreasonably withheld or delayed;
(o) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms,
of claims, liabilities or obligations reflected or reserved against in, or
contemplated by, the most recent financial statements (or the notes
thereto) of the Company included in the Company SEC Reports or incurred in
the ordinary course of business consistent with past practice; or
(p) agree or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing; provided, however, that nothing
contained herein shall limit the ability of Parent to exercise its rights
under the Company Option Agreement.
5.2. Preparation of Registration Statement; Joint Proxy
Statement/Prospectus; Blue Sky Laws. As promptly as practicable and no later
than 20 business days after the date hereof, Parent and the Company shall
prepare, and Parent shall file with the SEC, the Registration Statement, in
which the Joint Proxy Statement/Prospectus will be included as part thereof.
Parent and the Company shall use all commercially reasonable best efforts to
have such Registration Statement declared effective under the Securities Act as
promptly as practicable after filing. The Joint Proxy Statement/Prospectus will,
when prepared pursuant to this Section 5.2 and mailed to the Company's
shareholders, comply in all material respects with the applicable requirements
of the Exchange Act and the Securities Act. The Joint Proxy Statement/Prospectus
shall be reviewed and approved by Parent and Parent's counsel prior to the
mailing of such Joint Proxy Statement/Prospectus to the Company's shareholders.
Parent shall also take any action required to be taken under any applicable
provincial or state securities laws (including "Blue Sky" laws) in connection
with the issuance of the Parent Common Stock in the Merger; provided, however,
that neither Parent nor the Company shall be required to register or qualify as
a foreign corporation or to take any action that would subject it to service of
process in any jurisdiction where any such entity is not now so subject, except
as to matters and transactions arising solely from the offer and sale of Parent
Common Stock or the Parent Options.
5.3. Company Shareholder and Parent Stockholder Meetings.
(a) The Company shall, promptly after the date hereof, take all action
necessary in accordance with the MBCA and its Articles of Incorporation and
Bylaws to convene the Company Shareholders Meeting within 45 days of the
Registration Statement being declared
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effective by the SEC, whether or not the Company Board determines at any time
after the date hereof that the Merger is no longer advisable. The adoption of
the Merger by the shareholders of the Company shall be recommended by the
Company Board unless, in the good faith judgment of the Company Board, after
consultation with outside counsel, taking such action would be inconsistent with
its fiduciary obligations under applicable law. The Company Shareholders Meeting
will be convened, held and conducted, and any proxies will be solicited, in
compliance with the MCBA and applicable securities laws. The Company shall
consult with Parent regarding the date of the Company Shareholders Meeting.
Subject to Section 5.2 and Section 5.6 hereof, the Company shall use
commercially reasonable best efforts to solicit from shareholders of the Company
proxies in favor of the Merger and shall take all other commercially reasonable
actions necessary or advisable to secure the vote or consent of shareholders
required to effect the Merger.
(b) Parent shall, promptly after the date hereof, take all action necessary
in accordance with the DGCL and its Certificate of Incorporation and Bylaws to
convene the Parent Stockholders Meeting within 45 days of the Registration
Statement being declared effective by the SEC, whether or not the Parent Board
determines at any time after the date hereof that the Merger is no longer
advisable. The approval by the stockholders of the Parent of the transactions
contemplated by this Agreement shall be recommended by the Parent Board unless,
in the good faith judgment of the Parent Board, after consultation with outside
counsel, taking such action would be inconsistent with its fiduciary obligations
under applicable law. The Parent Stockholders Meeting will be convened, held and
conducted, and any proxies will be solicited, in compliance with the DGCL and
applicable securities laws. Parent shall consult with the Company regarding the
date of the Parent Stockholders Meeting. Subject to Section 5.2 and Section 5.6
hereof, Parent shall use commercially reasonable best efforts to solicit from
stockholders of Parent proxies in favor of the Merger and shall take all other
commercially reasonable actions necessary or advisable to secure the vote or
consent of stockholders required to effect the Merger.
5.4. Additional Agreements, Cooperation.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its commercially reasonable best efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, and to cooperate,
subject to compliance with applicable law, with each other in connection with
the foregoing, including using its commercially reasonable best efforts (i) to
obtain all necessary waivers, consents and approvals from other parties to loan
agreements, material leases and other material contracts, (ii) to obtain all
necessary consents, approvals and authorizations as are required to be obtained
under any United States federal or state, foreign law or regulations, (iii) to
defend all lawsuits or other legal proceedings challenging this Agreement or the
Company Option Agreement or the consummation of the transactions contemplated
hereby or thereby, (iv) to lift or rescind any injunction or restraining order
or other order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, (v) to effect all necessary registrations and
filings and submissions of information requested by Governmental Entities, and
(vi) to fulfill all conditions to this Agreement.
(b) Each of the parties hereto agrees, subject to compliance with
applicable law, to furnish to each other party hereto such necessary information
and reasonable assistance as such other party may request in connection with its
preparation of necessary filings or submissions to any regulatory or
governmental agency or authority, including, without limitation, any filing
necessary under the provisions of the HSR Act, the Exchange Act, the Securities
Act or any other United States federal or state, or foreign statute or
regulation. Each party hereto shall promptly inform each other party of any
material communication from the U.S. Federal Trade
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Commission or any other government or governmental authority regarding any of
the transactions contemplated hereby.
5.5. Publicity. Except as otherwise required by law or the rules of any
applicable securities exchange or the Nasdaq National Market, so long as this
Agreement is in effect, Parent and the Company will not, and will not permit any
of their respective affiliates or representatives to, issue or cause the
publication of any press release or make any other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld or delayed.
Parent and the Company will cooperate with each other in the development and
distribution of all press releases and other public announcements with respect
to this Agreement and the transactions contemplated hereby, and will furnish the
other with drafts of any such releases and announcements as far in advance as
possible.
5.6. No Solicitation.
(a) Immediately upon execution of this Agreement, the Company shall (and
shall cause its officers, directors, employees, investment bankers, attorneys
and other agents or representatives to) cease all discussions, negotiations,
responses to inquiries (except as set forth in the proviso to this sentence) and
other communications relating to any potential business combination with all
third parties who, prior to the date hereof, may have expressed or otherwise
indicated any interest in pursuing an Acquisition Proposal (as hereinafter
defined) with the Company; provided that, this Section 5.6(a) shall not prohibit
activities permitted by Section 5.6(b) in response to an inquiry initiated after
the date hereof.
(b) Prior to termination of this Agreement pursuant to Article VII hereof,
the Company and its Subsidiaries shall not, nor shall the Company authorize or
permit any officers, directors or employees of, or any investment bankers,
attorneys or other agents or representatives retained by or acting on behalf of,
the Company or any of its Subsidiaries to, (i) initiate, solicit or encourage,
directly or indirectly, any inquiries or the making of any proposal that
constitutes an Acquisition Proposal, (ii) engage or participate in negotiations
or discussions with, or furnish any information or data to, or take any other
action to, facilitate any inquiries or making any proposal by, any third party
relating to an Acquisition Proposal, (iii) enter into any agreement with respect
to any Acquisition Proposal or approve an Acquisition Proposal, or (iv) make or
authorize any statement, recommendation or solicitation in support of any
possible Acquisition Proposal. Notwithstanding anything to the contrary
contained in this Section 5.6 or in any other provision of this Agreement, prior
to the Company Shareholders Meeting, the Company Board may participate in
discussions or negotiations with or furnish information to any third party
making an unsolicited Acquisition Proposal (a "Potential Acquiror") or approve
or recommend an unsolicited Acquisition Proposal if (A) a majority of the
disinterested directors of the Company Board determines in good faith, after
consultation with its independent financial advisor, that a Potential Acquiror
has submitted to the Company a written Acquisition Proposal which sets forth a
price or range of values to be paid by the Potential Acquiror and which, if
consummated, would be more favorable to the Company's shareholders, from a
financial point of view, than the Merger (a "Superior Proposal"), (B) the
Company Board has determined in good faith, based on consultation with
independent financial advisor, that such Potential Acquiror is financially
capable of consummating such Superior Proposal, and (C) a majority of the
disinterested directors of the Company Board determines in good faith, after
receiving advice from reputable outside legal counsel experienced in such
matters (and the parties hereto agree that the law firm of Dorsey & Whitney LLP
is so experienced), that the failure to participate in such discussions or
negotiations or to furnish such information or to approve or recommend such
unsolicited Acquisition Proposal is inconsistent with the Company Board's
fiduciary duties under applicable law. In the event that the Company shall
receive any Acquisition Proposal, it shall promptly (and in no event later than
48 hours after receipt
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thereof) furnish to Parent the identity of the recipient of the Acquisition
Proposal and of the Potential Acquiror, the terms of such Acquisition Proposal,
copies of such Acquisition Proposal and all information requested by the
Potential Acquiror, and shall further promptly inform Parent in writing as to
the fact such information is to be provided after compliance with the terms of
the preceding sentence. Notwithstanding the foregoing, the Company shall not
provide any non-public information to any such Potential Acquiror unless (1) it
has prior to the date thereof provided such information to Parent and Merger
Sub, and (2) the Company provides such non-public information pursuant to a
nondisclosure agreement with terms that are at least as restrictive as those
pursuant to the Confidential Information and Non-Disclosure Agreement (the
"Reciprocal Confidentiality Agreement"), dated March 6, 2000, between Parent and
the Company. Nothing contained herein shall prevent the Company from complying
with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal or making any disclosure to the Company's shareholders if,
in the good faith judgment of the Company Board, after receiving advice from
reputable outside legal counsel experienced in such matters (and the parties
hereto agree that the law firm of Dorsey & Whitney LLP is so experienced), such
disclosure is required by applicable law. Without limiting the foregoing, the
Company understands and agrees that any violation of the restrictions set forth
in this Section 5.6(b) by the Company or any of its Subsidiaries, or by any
director or officer of the Company or any of its Subsidiaries or any financial
advisor, attorney or other advisor or representative of the Company or any of
its Subsidiaries, whether or not such person is purporting to act on behalf of
the Company or any of its Subsidiaries or otherwise, shall be deemed to be a
breach of this Section 5.6(b) sufficient to enable Parent to terminate this
Agreement pursuant to Section 7.1(d)(i) hereof.
(c) In addition to the foregoing, the Company shall not enter into any
agreement concerning an Acquisition Proposal for a period of not less than three
business days after the Parent's receipt of a copy of the Acquisition Proposal.
(d) For the purposes of this Agreement, "Acquisition Proposal" shall mean
any proposal, whether in writing or otherwise, made by any person other than
Parent and its Subsidiaries to acquire "beneficial ownership" (as defined under
Rule 13(d) of the Exchange Act) of 20% or more of the assets of, or 20% or more
of the outstanding capital stock of any of the Company or its Subsidiaries
pursuant to a merger, consolidation, exchange of shares or other business
combination, sale of shares of capital stock, sales of assets, tender offer or
exchange offer or similar transaction involving the Company or its Subsidiaries.
5.7. Access to Information. From the date of this Agreement until the
Effective Time, and upon reasonable notice, the Company will give Parent and its
authorized representatives (including counsel, other consultants, accountants
and auditors) reasonable access during normal business hours to all facilities,
personnel and operations and to all books and records of it and its
Subsidiaries, will permit Parent to make such inspections as it may reasonably
require, will cause its officers and those of its Subsidiaries to furnish Parent
with such financial and operating data and other information with respect to its
business and properties as Parent may from time to time reasonably request and
confer with Parent to keep it reasonably informed with respect to operational
and other business matters relating to the Company and its Subsidiaries and the
status of satisfaction of conditions to the Closing, other than information that
may not be disclosed under applicable law or in violation of an agreement or if
such disclosure would result in a waiver of the attorney-client privilege;
provided, however, that in any such event the parties shall cooperate in good
faith to obtain waivers of such prohibitions or implement alternative methods of
disclosure of material information. All information obtained by Parent pursuant
to this Section 5.7 shall be kept confidential in accordance with the Reciprocal
Confidentiality Agreement.
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5.8. Notification of Certain Matters. The Company or Parent, as the case
may be, shall promptly notify the other of (a) its obtaining of Knowledge as to
the matters set forth in clauses (i), (ii) and (iii) below, or (b) the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be likely to cause (i) any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time, (ii) any material failure of the
Company or Parent, as the case may be, or of any officer, director, employee or
agent thereof, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement or (iii) the
institution of any claim, suit, action or proceeding arising out of or related
to the Merger or the transactions contemplated hereby; provided, however, that
no such notification shall affect the representations or warranties of the
parties or the conditions to the obligations of the parties hereunder.
5.9. Resignation of Officers and Directors. At or prior to the Effective
Time, the Company shall deliver to Parent the resignations of such officers and
directors of the Company and shall use its commercially reasonable best efforts
to deliver to Parent the resignations of such officers and directors of its
Subsidiaries (in each case, in their capacities as officers and directors, but
not as employees if any of such persons are employees of the Company or any
Subsidiary) as Parent shall specify, which resignations shall be effective at
the Effective Time.
5.10. Indemnification.
(a) As of the Effective Time and for a period of six years following the
Effective Time, Parent will indemnify and hold harmless from and against all
claims, damages, losses, obligations or liabilities ("Losses") any persons who
were directors or officers of the Company or any Subsidiary prior to the
Effective Time (the "Indemnified Persons") to the fullest extent such person
could have been indemnified for such Losses under applicable law, under the
Governing Documents of the Company or any Subsidiary or under the
indemnification agreements listed on Schedule 5.10 in effect immediately prior
to the date hereof, with respect to any act or failure to act by any such
Indemnified Person at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement).
(b) Any determination required to be made with respect to whether an
Indemnified Person's conduct complies with the standards set forth under the
MBCA or other applicable law shall be made by independent counsel selected by
Parent and reasonably acceptable to the Indemnified Persons. Parent shall pay
such counsel's fees and expenses so long as the Indemnified Persons do not
challenge any such determination by such independent counsel).
(c) In the event that Parent or any of its successors or assigns (i)
consolidates with, merges or otherwise enters a business combination into or
with any other person, and Parent or such successor or assign is not the
continuing or surviving corporation or entity of such consolidation, merger or
business combination, or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each case, proper provision
shall be made so that such person or the continuing or surviving corporation
assumes the obligations set forth in this Section 5.10 and none of the actions
described in clauses (i) and (ii) above shall be consummated until such
provision is made.
(d) Parent shall maintain in effect for not less than six years from the
Effective Time the current policies of directors' and officers' liability
insurance maintained by the Company (provided that Parent may substitute
therefor policies of at least comparable coverage containing terms and
conditions which are no less advantageous to the Indemnified Parties in all
material respects so long as no lapse in coverage occurs as a result of such
substitution) with respect to all matters (including, without limitation,
extended reporting endorsements (tail coverage) on fiduciary liability with
respect to all senior officers and directors of the Company), including the
transactions contemplated hereby, occurring prior to, and including the
Effective
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Time; provided that, in the event that any claim for any losses is asserted or
made within such six-year period, such insurance shall be continued in respect
of any such Claim until final disposition of any and all such Claims; and
provided, further, that Parent shall not be obligated to make annual premium
payments for such insurance to the extent such premiums exceed 150% of the
premiums paid as of the date hereof by the Company or any Subsidiary for such
insurance. In such case, Parent shall purchase as much coverage as possible for
150% of the premiums paid as of the date hereof for such insurance, which
coverage shall be at least as favorable in all material respects as that
provided by Parent to its directors.
(e) In the event any claim, action, suit, proceeding or investigation (a
"Claim") for which indemnification is provided under this Section 5.10 is
brought against an Indemnified Person (whether arising before or after the
Effective Time) after the Effective Time Parent shall, consistent with the terms
of any directors' and officers' liability insurance policy defend such
Indemnified Person from such claim with counsel reasonably acceptable to such
Indemnified Person; provided, however, that in the event Parent fails to provide
a defense to such Claim or it would be inappropriate due to conflicts of
interests that counsel for Parent also represent such Indemnified Person, (i)
such Indemnified Person may retain separate counsel reasonably acceptable to
Parent, (ii) the indemnifying party shall pay all reasonable fees and expenses
of such counsel for such Indemnified Person as statements therefor are received,
and (iii) the indemnifying party will use all commercially reasonable best
efforts to assist in the defense of any such matter, provided that the
indemnifying party shall not be liable for any settlement of any Claim without
its written consent, which consent shall not be unreasonably withheld, and
provided further, however, that not more than one such separate counsel may be
retained for all Indemnified Persons at the expense of the indemnifying party
(unless, and to the extent that, the joint representation of all Indemnified
Persons poses an actual conflict of interest). Any Indemnified Person desiring
to claim indemnification under this Section 5.10, upon learning of any Claim,
shall notify the indemnifying party (but the failure to so notify shall not
relieve the indemnifying party from any liability which it may have under this
Section 5.10 except to the extent such failure materially prejudices such
indemnifying party).
(f) This Section 5.10 is intended to benefit the Indemnified Persons, shall
be enforceable by each Indemnified Person and his or her heirs and
representatives.
5.11. Shareholder Litigation. The Company shall give Parent the reasonable
opportunity to participate in the defense of any shareholder litigation against
or in the name of the Company and/or its respective directors relating to the
transactions contemplated by this Agreement.
5.12. Employee Benefit Plans.
(a) 401(k) Plan. Company shall take the following steps with respect to the
Ancor Communications, Incorporated Salary Savings Plan (401(k) Plan): at least
three days prior to the Effective Time, the Company shall terminate the 401(k)
Plan pursuant to written resolutions, the form and substance of which shall be
satisfactory to Parent. Individuals employed by the Company at the Effective
Time ("Company Employees") shall be allowed to participate in Parent's 401(k)
plan effective as of the first payroll following the Effective Time; and all
service with the Company shall be considered service with Parent for purposes of
determining eligibility, vesting, and benefit accrual (i.e., any matching
contributions) under Parent's 401(k) plan. As soon as administratively feasible
after assets are distributed from the 401(k) Plan, Company Employees shall be
offered an opportunity to roll their 401(k) Plan account balances into Parent's
401(k) Plan.
(b) Welfare Plans. Company Employees shall be eligible to participate in
Parent's disability plans, group life insurance plan, medical plan, dental plan,
and Section 125 cafeteria plan as soon as administratively feasible after the
Effective Time but in no event later than
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January 1, 2001. Prior to such time, Company Employees shall remain eligible for
Company's welfare plans, as applicable, and such plans will not be amended or
changed in any material respect by Parent or Company. Parent shall include
service and prior earnings with the Company for purposes of determining
eligibility, participation, and benefit accrual under its short term disability
plan, group life insurance plan medical plan, dental plan, and Section 125
cafeteria plan. Parent shall include such service for purposes of determining
benefit eligibility or participation in Parent's disability plans; however, such
participation shall be subject to any applicable preexisting condition
exclusions.
(c) Vacation and PTO. Company Employees shall be eligible to participate in
Parent's vacation or PTO policy, as applicable, as soon as administratively
feasible after the Effective Time but in no event later than January 1, 2001.
Prior to such date Company Employees shall remain eligible for Company's
vacation pay or sick pay policies, as applicable, and such plans or policies
will not be amended or changed in any material respect by Parent or Company.
Parent shall include service with the Company for purposes of determining
eligibility, participation, and calculation of vacation pay, sick pay, or paid
time off (PTO) under Parent's vacation or PTO policy, as applicable. Subject to
the terms of the Company plans or policies, each Company Employee will be
entitled to carry over all vacation days and sick leave accrued but unused as of
the Effective Time.
(d) Executive Incentive Program. The Company's Executive Incentive Program
shall be kept in place until December 31, 2000, after which time Company
Employees may be eligible to participate in any incentive program established by
Parent from time to time.
5.13. Determination of Optionholders and Warrantholders. At least ten
business days before the Effective Time, the Company shall provide Parent with a
true and complete list, as of such date, of (a) the holders of Company Options
and Company Warrants, (b) the number of shares of Company Common Stock subject
to Company Options and Company Warrants held by each such optionholder and
warrantholder and (c) the address of each such optionholder and warrantholder as
set forth in the books and records of the Company or any Subsidiary, following
upon which there shall be no additional grants of Company Options without
Parent's prior consent. From the date such list is provided to Parent until the
Effective Time, the Company shall provide a daily option activity report to
Parent containing such information as Parent shall reasonably request.
5.14. Preparation of Tax Returns. The Company shall file (or cause to be
filed) at its own expense, on or prior to the due date thereof, all Returns
required to be filed on or before the Closing Date. The Company shall provide
Parent with a copy of appropriate workpapers, schedules, drafts and final copies
of each foreign and domestic, federal, provincial and state income Tax return or
election of the Company (including returns of all Employee Benefit Plans) at
least ten days before filing such return or election and shall consult with
Parent with respect thereto prior to such filing.
5.15. Pooling Affiliates.
(a) Promptly following the date of this Agreement, the Company shall
deliver to Parent a list of names and addresses of those persons who are
affiliates within the meaning of Rule 145 of the rules and regulations
promulgated under the Securities Act or otherwise applicable SEC accounting
releases with respect to the Company (the "Company Pooling Affiliates"). The
Company shall provide Parent such information and documents as Parent shall
reasonably request for purposes of reviewing such list. The Company shall
deliver to Parent, on or prior to the Closing, an affiliate letter in the form
attached hereto as Exhibit D, executed by each of the Company Pooling Affiliates
identified in the foregoing list. Parent shall be entitled to place legends as
specified in such affiliate letters on the certificates evidencing any of the
Parent Common Stock to be received by such Company Pooling Affiliates pursuant
to the terms of
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this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Parent Common Stock, consistent with the terms of such
letters.
(b) Parent shall procure, on or prior to the Effective Time, an affiliate
letter in the form attached hereto as Exhibit E, executed by appropriate
affiliates of Parent.
(c) For so long as resales of shares of Parent Common Stock issued pursuant
to the Merger are subject to the resale restrictions set forth in Rule 145 under
the Securities Act, Parent will use good faith efforts to comply with Rule
144(c)(1) under the Securities Act.
5.16. Pooling Actions. Between the date of this Agreement and the Effective
Time, the parties will each take all actions necessary for Parent to account for
the business combination to be effected by the Merger as a pooling of interests.
5.17. Tax-Free Reorganization. Parent and the Company shall each use all
commercially reasonable best efforts to cause the Merger to qualify as a
reorganization within the meaning of Section 368(a) of the Code. Neither Parent
nor the Company shall take or fail to take, or cause any third party to take or
fail to take, any action that would cause the Merger to fail to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code.
5.18. SEC Filings; Compliance. The Company and Parent shall each cause the
forms, reports, schedules, statements and other documents required to be filed
with the SEC by the Company and Parent, respectively, between the date of this
Agreement and the Effective Time (with respect to either the Company or Parent,
the "New SEC Reports") to be prepared in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and such New SEC Reports will not at the time they are filed contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
5.19. Listing of Additional Shares. Prior to the Effective Time, Parent
shall file with the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to the shares of Parent Common Stock to be issued
in the Merger.
5.20. Rights Agreement. Prior to the Effective Time, the Company Board
shall not take any action in contravention of the actions required by Section
3.25 of this Agreement.
ARTICLE VI
CONDITIONS TO CLOSING
6.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Effective Date of the following
conditions:
(a) Company Shareholder and Parent Stockholder Approval. This
Agreement and the Merger shall have been approved and adopted by the
requisite vote of (i) the shareholders of the Company under the MBCA and
the Company's Charter Document and Governing Documents and (ii) the
stockholders of Parent under the DGCL and the Parent's Charter Document and
Governing Document.
(b) Governmental Action; No Injunction or Restraints. No action or
proceeding shall be instituted by any Governmental Entity seeking to
prevent consummation of the Merger, asserting the illegality of the Merger
or this Agreement or seeking damages (in an amount or to the extent that,
if they were incurred or paid by the Company, would constitute a
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Company Material Adverse Effect) directly arising out of the transactions
contemplated hereby which continues to be outstanding. No judgment, order,
decree, statute, law, ordinance, rule or regulation entered, enacted,
promulgated, enforced or issued by any court or other Governmental Entity
of competent jurisdiction or other legal restraint or prohibition shall be
in effect (i) imposing or seeking to impose sanctions, damages or
liabilities (in an amount or to the extent that, if they were incurred or
paid by the Company, would constitute a Company Material Adverse Effect)
directly arising out of the Merger on the Company or any of its officers or
directors; or (ii) preventing the consummation of the Merger.
(c) Governmental Consents. All necessary authorizations, consents,
orders or approvals of, or declarations or filings with, or expiration or
waiver of waiting periods imposed by, any Governmental Entity of any
applicable jurisdiction required for the consummation of the transactions
contemplated by this Agreement shall have been filed, expired or obtained,
as to which the failure to obtain, make or occur would have the effect of
making the Merger or this Agreement or any of the transactions contemplated
hereby illegal or which, individually or in the aggregate, would have a
Parent Material Adverse Effect (assuming the Merger had taken place),
including, but not limited to: the expiration or termination of the
applicable waiting period, or any extensions thereof, pursuant to the HSR
Act.
6.2. Conditions to Obligations of Parent. The obligation of Parent to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth herein shall be true and correct both when made
and at and as of the Effective Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case
as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to materiality or material adverse effect set forth therein)
does not have, and would not, individually or in the aggregate, reasonably
be expected to have, a Company Material Adverse Effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Date.
(c) No Injunctions or Restraints. No final judgment, order, decree,
statute, law, ordinance, rule or regulation entered, enacted, promulgated,
enforced or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition shall be in effect (i)
imposing material limitations on the ability of Parent to acquire or hold
or to exercise full rights of ownership of any securities of the Company;
(ii) imposing material limitations on the ability of Parent or its
Affiliates to combine and operate the business and assets of the Company;
(iii) imposing other material sanctions, damages, or liabilities directly
arising out of the Merger on Parent or any of its officers or directors; or
(iv) requiring divestiture by Parent of any significant portion of the
business, assets or property of the Company or of Parent.
(d) Delivery of Closing Documents. At or prior to the Effective Time,
the Company shall have delivered to Parent all of the following:
(i) a certificate of the President and the Chief Financial Officer
of the Company, dated as of the Effective Date, stating that the
conditions precedent set forth in Sections 6.2(a), (b) and (c) hereof
have been satisfied; and
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(ii) a copy of (A) the Articles of Incorporation of the Company,
dated as of a recent date, certified by the Secretary of State of the
State of Minnesota, (B) the Bylaws of the Company and (C) the
resolutions of the Company Board and shareholders authorizing the Merger
and the other transactions contemplated by this Agreement, certified by
the Secretary of the Company.
(e) Pooling Letters. The Company shall have received a letter from
KPMG LLP addressed to the Company and dated as of the Effective Date,
stating that based on KPMG LLP's familiarity with the Company that the
Company will qualify as a party to a pooling of interests transaction under
Opinion 16, and Parent shall have received a letter of KPMG LLP, addressed
to the Parent and dated as of the Effective Date, stating that, in reliance
on the letter described in this paragraph (f) and based on its familiarity
with Parent, the Merger will qualify as a pooling-of-interests transaction
under Opinion 16, unless the failure to so qualify is solely as a result of
any action taken by Parent or Merger Sub on or after the date hereof and
prior to the Effective Date.
(f) Company Affiliate Letters. Parent shall have received all of the
letters described in Section 5.15(a) hereof executed by each of the Company
Pooling Affiliates.
(g) Dissenting Shares. The aggregate amount of Dissenting Shares (as
defined in Section 2.1(g) hereof) shall not exceed five percent of the
total number of shares of Company Common Stock, on a fully diluted,
as-converted basis (i.e., assuming issuance of all shares of Common Stock
issuable upon the exercise or conversion of all securities outstanding
immediately prior to the Effective Time which are convertible into or
exercisable for shares of Company Common Stock, whether or not vested),
issued and outstanding immediately prior to the Effective Time.
6.3. Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub set forth herein shall be true and correct both
when made and at and as of the Effective Date, as if made at and as of such
time (except to the extent expressly made as of an earlier date, in which
case as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to materiality or material adverse effect set forth therein)
does not have, and would not, individually or in the aggregate, reasonably
be expected to have a Parent Material Adverse Effect.
(b) Performance of Obligations of Parent. Parent shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Effective Date.
(c) Delivery of Closing Documents. At or prior to the Effective Time,
the Parent shall have delivered to the Company a certificate of the
President and the Chief Financial Officer of Parent, dated as of the
Effective Date, stating that the conditions precedent set forth in Sections
6.3(a) and (b) hereof have been satisfied.
(d) Tax Opinion. The Company shall have received an opinion from
Dorsey & Whitney LLP, counsel to the Company, dated as of the Effective
Time, substantially to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
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Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by the Company as a result
of the Merger;
(ii) No gain or loss will be recognized by the shareholders of the
Company who exchange Company Common Stock for Parent Common Stock
pursuant to the Merger (except with respect to cash received in lieu of
a fractional shares);
(iii) The tax basis of the Parent Common Stock received by the
stockholders who exchange all of their Company Common Stock in the
Merger will be the same as the tax basis of the Company Stock
surrendered in exchange therefor; and
(iv) The holding period of the Parent Common Stock received by a
shareholder of the Company pursuant to the Merger will include the
period during which the Company Common Stock surrendered therefor was
held, provided the Company Common Stock is a capital asset in the hands
of the shareholder of the Company at the time of the Merger.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Parent, the Company and others. The foregoing notwithstanding, if
Dorsey & Whitney LLP does not render such opinion, this condition shall
nonetheless be deemed satisfied if Stradling Yocca Carlson & Rauth renders such
opinion to the Company (it being agreed that Parent and the Company shall each
provide reasonable cooperation, including making reasonable representations, to
Dorsey & Whitney LLP or Stradling Yocca Carlson & Rauth, as the case may be, to
enable them to render such opinion).
ARTICLE VII
TERMINATION
7.1. Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the Company's
shareholders or the Parent's stockholders:
(a) by mutual written consent of the Company and Parent (on behalf of
Parent and Merger Sub);
(b) by either the Company or Parent (on behalf of Parent and Merger
Sub):
(i) if the Merger shall not have been completed by November 30,
2000; provided, however, that the right to terminate this Agreement
pursuant to this Section 7.1(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure of the Merger to be consummated by such time;
(ii) if shareholder approval shall not have been obtained at the
Company Shareholders Meeting duly convened therefor or at any
adjournment or postponement thereof; provided, however, that the right
to terminate this Agreement pursuant to this Section 7.1(b)(ii) shall
not be available to any party whose failure to perform any of its
obligations under this Agreement results in the failure to obtain
shareholder approval.
(iii) if stockholder approval shall not have been obtained at the
Parent Stockholders Meeting duly convened therefor or at any adjournment
or postponement
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thereof; provided, however, that the right to terminate this Agreement
pursuant to this Section 7.1(b)(iii) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure to obtain stockholder approval.
(iv) if any restraint having any of the effects set forth in
Section 6.1(b) or Section 6.2(c) hereof shall be in effect and shall
have become final and nonappealable; provided, however, that the right
to terminate this Agreement pursuant to this Section 7.1(b)(iv) shall
not be available to any party whose failure to perform any of its
obligations under this Agreement results in such restraint to continue
in effect; or
(v) if the Company enters into a merger, acquisition or other
agreement (including an agreement in principle) or understanding to
effect a Superior Proposal or the Company Board or a committee thereof
resolves to do so; provided, however, that the Company may not terminate
this Agreement pursuant to this Section 7.1(b)(v) unless (a) the Company
has delivered to Parent and Merger Sub a written notice of the Company's
intent to enter into such an agreement to effect such Acquisition
Proposal, which notice shall include, without limitation, the material
terms and conditions of the Acquisition Proposal and the identity of the
Person making the Acquisition Proposal, (b) three business days have
elapsed following delivery to Parent and Merger Sub of such written
notice by the Company and (c) during such three-business-day period, the
Company has cooperated with Parent and Merger Sub to allow Parent and
Merger Sub within such three-business-day period to propose amendments
to the terms of this Agreement to be at least as favorable as the
Superior Proposal; provided, further, that the Company may not terminate
this Agreement pursuant to this Section 7.1(b)(v) unless, at the end of
such three-business-day-period, the Company Board continues reasonably
to believe that the Acquisition Proposal constitutes a Superior
Proposal;
(c) by the Company
(i) if Parent or Merger Sub shall have breached any of its
representations and warranties contained in Article IV hereof which
breach has had or is reasonably likely to have a Parent Material Adverse
Effect or Parent or Merger Sub shall have breached or failed to perform
in any material respect any of its covenants or other agreements
contained in this Agreement, in each case, which breach or failure to
perform has not been cured by Parent or Merger Sub within thirty days
following receipt of notice thereof from the Company;
(ii) if (a) the Parent Board or any committee thereof shall have
withdrawn or modified in a manner adverse to the Company its approval or
recommendation of this Agreement, or (b) the Parent Board or any
committee thereof shall have resolved to take any of the foregoing
actions; or
(d) by Parent (on behalf of Parent and Merger Sub):
(i) if the Company shall have breached any of its representations
and warranties contained in Article III hereof which breach has had or
is reasonably likely to have a Company Material Adverse Effect or the
Company shall have breached or failed to perform in any material respect
any of its covenants or other agreements contained in this Agreement, in
each case (other than a breach of Section 5.6(b) hereof, as to which no
materiality requirement and no cure period shall apply), which breach or
failure to perform has not been cured by the Company within thirty days
following receipt of notice thereof from Parent; or
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(ii) if (a) the Company Board or any committee thereof shall have
withdrawn or modified in a manner adverse to Parent its approval or
recommendation of the Merger or this Agreement, or approved or
recommended an Acquisition Proposal, or (b) the Company Board or any
committee thereof shall have resolved to take any of the foregoing
actions.
7.2. Effect of Termination. The termination of this Agreement pursuant to
the terms of Section 7.1 hereof shall become effective upon delivery to the
other party of written notice thereof. In the event of the termination of this
Agreement pursuant to the foregoing provisions of this Article VII, there shall
be no obligation or liability on the part of any party hereto (except as
provided in Section 7.3 hereof) or its shareholders or directors or officers in
respect thereof, except for agreements which survive the termination of this
Agreement, except for liability that Parent or Merger Sub or the Company might
have to the other party or parties arising from a breach of this Agreement due
to termination of this Agreement in accordance with Sections 7.1(c)(i) or
7.1(d)(i) or due to the fraudulent or willful misconduct of such party, and
except that the termination of the Company Option Agreement shall be governed by
its terms.
7.3. Fees and Expenses.
(a) Except as provided in this Section 7.3, whether or not the Merger is
consummated, the Company, on the one hand, and Parent and Merger Sub, on the
other, shall bear their respective expenses incurred in connection with the
Merger, including, without limitation, the preparation, execution and
performance of this Agreement and the transactions contemplated hereby, and all
fees and expenses of investment bankers, finders, brokers, agents,
representatives, counsel and accountants, except that the registration and
filing fees incurred in connection with the filing under the HSR Act and the
Registration Statement and Joint Proxy Statement/Prospectus shall be shared
equally by the Company and Parent.
(b) Notwithstanding any provision in this Agreement to the contrary, if
this Agreement is terminated as a result of a breach of this Agreement in
accordance with Sections 7.1(c)(i) or 7.1(d)(i), then the nonbreaching party
shall be entitled to receive from the breaching party damages resulting from
such breach, including without limitation, all out-of-pocket fees and expenses
incurred or paid by or on behalf of the nonbreaching party or any Affiliate of
the nonbreaching party in connection with this Agreement, the Merger and
transactions contemplated herein, including all fees and expenses of counsel,
investment banking firm, accountants and consultants; provided, however, that no
payments for damages shall be payable to any party pursuant to this Section
7.3(b) if a Termination Fee is paid to such party pursuant to Section 7.3(c) or
7.3(d) below.
(c) Notwithstanding any other provision in this Agreement to the contrary,
if (x) this Agreement is terminated by the Company or Parent at a time when
Parent or the Company is entitled to terminate this Agreement pursuant to
Section 7.1(b)(ii) (except if, immediately prior to the Company Shareholder
Meeting, an event or condition exists that would result in a Parent Material
Adverse Effect or 7.1(d)(i) and, concurrently with or within twelve months after
such a termination, the Company shall enter into an agreement, or binding
arrangement or understanding with respect to an Acquisition Proposal (which
shall include, for this purpose, the commencement by a third party of a tender
offer or exchange offer or similar transaction directly with the Company's
shareholders) with a third party (collectively, a "Third Party Deal") or (y)
this Agreement is terminated pursuant to Section 7.1(b)(v), or 7.1(d)(ii)
(except, in the case of 7.1(d)(ii) only, if the Company Board's withdrawal or
modification of its approval or recommendation of this Agreement or the Merger
occurs after the occurrence of a Parent Material Adverse Effect), then, in each
case, the Company shall (in lieu of any obligation under this Agreement and as
liquidated damages and not as a penalty or forfeiture)
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pay to Parent U.S. $55,000,000 (the "Parent Termination Fee") in cash. Such
payment shall be made promptly, but in no event later than the second business
day following: (i) in the case of clause (x) relating to a termination pursuant
to Section 7.1(d)(i) as a result of a breach of Section 5.6, the later to occur
of such termination and the entry of such Third Party Deal; (ii) in the case of
clause (x) other than as set forth in the immediately preceding clause (i), the
later to occur of such termination and the consummation of such Third Party
Deal; and (iii) in the case of clause (y) such termination.
(d) Notwithstanding any other provision in this Agreement to the contrary,
if (x) this Agreement is terminated by the Company or Parent at a time when
Parent or the Company is entitled to terminate this Agreement pursuant to
Section 7.1(b)(iii) (except if immediately prior to the Parent Stockholder
Meeting, an event or condition exists that would result in a Company Material
Adverse Effect), or (y) this Agreement is terminated by the Company pursuant to
Section 7.1(c)(ii) (except if the Parent Board's withdrawal or modification of
its approval or recommendation of this Agreement occurs after a Company Material
Adverse Effect), then, in each case Parent shall (in lieu of any obligation
under this Agreement and as liquidated damages and not as a penalty or
forfeiture) pay to the Company $55,000,000 (the "Company Termination Fee") in
cash, such payment to be made promptly, but in no event later than the second
business day following such termination.
(e) The parties acknowledge that the agreements contained in Sections
7.3(b), (c) and (d) hereof are an integral part of the transactions contemplated
by this Agreement, and that, without these agreements, Parent and Merger Sub on
the one hand, and the Company on the other, would not enter into this Agreement.
Accordingly, if the Company fails promptly to pay the amounts due pursuant to
Sections 7.3(b) and/or (c) hereof, or if Parent fails promptly to pay the
amounts due pursuant to Section 7.3(b) and/or (d) hereof, (i) the party failing
to so pay shall pay interest on such amounts at the prime rate announced by
Silicon Valley Bank, Irvine, California, in effect on the date the Termination
Fee (or fees and expenses) were required to be paid, and (ii) if, in order to
obtain such payment, a party commences a suit or takes other action which
results in a judgment or other binding determination against the nonpaying party
for the fees and expenses in Sections 7.3(b), 7.3(c) or 7.3(d) hereof, the
nonpaying party shall also pay to the party entitled to receive payment its
costs and expenses (including reasonable attorneys' fees) in connection with
such suit, together with interest payable under the preceding clause (i).
ARTICLE VIII
MISCELLANEOUS
8.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
8.2. Waiver. At any time prior to the Effective Date, any party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of any other party hereto, (b) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements of any
other party or with any conditions to its own obligations contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing duly authorized by and
signed on behalf of such party.
8.3. Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit
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and not as damages, reasonable attorneys' fees to be fixed by the court
(including, without limitation, costs, expenses and fees on any appeal).
8.4. Notices.
(a) Any notice or communication to any party hereto shall be duly given if
in writing and delivered in person or mailed by first class mail and airmail, if
overseas (registered or return receipt requested), facsimile (with receipt
electronically acknowledged) or overnight air courier guaranteeing next day
delivery, to such other party's address.
If to Parent:
QLogic Corporation
26600 Laguna Hills Drive
Aliso Viejo, CA 92656
Telephone No.: (949) 389-6000
Facsimile No.: (949) 389-6488
Attention: H.K. Desai
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Telephone No.: (949) 725-4000
Facsimile No.: (949) 725-4100
Attention: Nick E. Yocca, Esq.
If to the Company:
Ancor Communications, Incorporated
6321 Bury Drive, Suite 13
Eden Prairie, Minnesota 55346-1739
Telephone No.: (952) 932-4000
Facsimile No.: (952) 932-4037
Attention: Ken Hendrickson
with copies to:
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
Telephone No.: (612) 340-2600
Facsimile No.: (612) 340-8738
Attention: William B. Payne
(b) All notices and communications will be deemed to have been duly given:
at the time delivered by hand, if personally delivered; three business days
after being deposited in the mail, if mailed; when sent, if sent by facsimile;
and one business day after timely delivery to the courier, if sent by overnight
air courier guaranteeing next day delivery.
8.5. Counterparts. This Agreement may be executed via facsimile in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.6. Interpretation; Construction. The language used in this Agreement and
the other agreements contemplated hereby shall be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party.
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The headings of articles and sections herein are for convenience of reference,
do not constitute a part of this Agreement, and shall not be deemed to limit or
affect any of the provisions hereof. As used in this Agreement, "Person" means
any individual, corporation, limited liability company, limited or general
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or other entity; "Knowledge" means the actual
knowledge of a director or any executive officer of the applicable party or any
of its Subsidiaries, as such knowledge has been obtained or would have been
obtained after reasonable inquiry by such person in the normal conduct of the
business; and all amounts shall be deemed to be stated in U.S. dollars, unless
specifically referenced otherwise.
8.7. Amendment. This Agreement may be amended by the parties at any time
before or after any required approval of matters presented in connection with
the Merger by the shareholders of the Company or the stockholders of Parent;
provided, however, that after any such approval, there shall not be made any
amendment that by law requires further approval by the shareholders of the
Company or the stockholders of Parent without obtaining such further approval.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties.
8.8. No Third Party Beneficiaries. Except for the provisions of Section
5.10 hereof (which is intended to be for the benefit of the persons referred to
therein, and may be enforced by such persons) nothing in this Agreement shall
confer any rights upon any person or entity which is not a party or permitted
assignee of a party to this Agreement.
8.9. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware. Each party hereby
irrevocably waives the right to any jury trial in connection with any action or
proceeding brought or maintained in connection with this Agreement.
8.10. Entire Agreement. This Agreement (together with the Exhibits and the
Company Disclosure Letter, and the other documents delivered pursuant hereto or
contemplated hereby) constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof, in each case other than the Company Option Agreement
and the Reciprocal Confidentiality Agreement.
8.11. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers all as of the day and year first
above written.
QLOGIC CORPORATION
By: /s/ H.K. DESAI
-----------------------------------
H.K. Desai,
President and Chief Executive
Officer
AMINO ACQUISITION CORP.
By: /s/ H.K. DESAI
-----------------------------------
H.K. Desai,
President
ANCOR COMMUNICATIONS, INCORPORATED
By: /s/ KEN HENDRICKSON
-----------------------------------
Ken Hendrickson,
Chief Executive Officer
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ANNEX B
FAIRNESS OPINION OF SG COWEN
May 6, 2000
Board of Directors
QLogic Corporation
26600 Lagunitas Hill Drive
Aliso Viejo, CA 92656
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to QLogic Corporation ("QLogic" or the "Company"), of the Exchange
Ratio (as defined below) pursuant to the terms of that certain Agreement and
Plan of Merger, to be dated as of May 7, 2000 (the "Agreement"), by and among
the Company, Ancor Communications, Inc. ("Ancor" or the "Acquiree"), and a
wholly owned subsidiary of QLogic ("Merger Sub").
As more specifically set forth in the Agreement, and subject to the terms,
conditions and adjustments thereof, the Agreement provides for the acquisition
of Ancor by QLogic through the merger of Merger Sub with and into Ancor, with
Ancor continuing as the surviving company (the "Merger") and as a wholly-owned
subsidiary of QLogic. In the Merger each share of the common stock of Ancor, par
value $0.01 per share, outstanding as of the effective time of the Merger will
be converted into the right to receive 0.5275 shares (the "Exchange Ratio") of
common stock of QLogic, par value $0.001 per share.
SG Cowen Securities Corporation ("SG Cowen"), as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of our business, we and our affiliates actively trade the
securities of the Company and Acquiree for our own account and for the accounts
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
We are acting as exclusive financial advisor to the Board of Directors of
the Company in connection with the Merger and will receive a fee from the
Company for our services pursuant to the terms of our engagement letter with the
Company, dated as of April 21, 2000, a significant portion of which is
contingent upon the consummation of the Merger. We will also receive a fee for
providing this Opinion. SG Cowen and its affiliates in the ordinary course of
business have from time to time provided, and in the future may continue to
provide, commercial and investment banking services to the Company and have
received fees for the rendering of such services.
In connection with our opinion, we have reviewed and considered such
financial and other matters as we have deemed relevant, including, among other
things:
- a draft of the Agreement dated May 5, 2000;
- certain publicly available information for Acquiree, including its annual
reports filed on Form 10-K for each of the fiscal years ended December
31, 1999, 1998 and 1997, a press release dated April 25, 2000 containing
certain Acquiree financial and operating data for the fiscal quarter
ended March 31, 2000, and certain other relevant financial and operating
data furnished to SG Cowen by Acquiree management;
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- certain publicly available information for the Company, including its
annual reports filed on Form 10-K for each of the fiscal years ended
March 28, 1999, March 29, 1998 and March 30, 1997, and its quarterly
reports filed on Form 10-Q for each of the quarters ended December 26,
1999, September 26, 1999 and June 27, 1999, and certain other relevant
financial and operating data furnished to SG Cowen by the Company
management;
- certain internal financial analyses, financial forecasts, reports and
other information concerning the Company (the "Company Forecasts")
prepared by the management of the Company, and certain internal financial
analyses, financial forecasts, reports and other information concerning
the Acquiree (the "Acquiree Forecasts"), prepared by the management of
the Acquiree as amended by the Company, respectively;
- First Call estimates ("First Call Estimates") for each of the Company and
Acquiree;
- discussions we have had with certain members of the managements of each
of the Company and Acquiree concerning the historical and current
business operations, financial conditions and prospects of the Company
and Acquiree, and such other matters we deemed relevant;
- certain operating results and the reported price and trading histories of
the shares of the common stock of the Company and Acquiree as compared to
operating results and the reported price and trading histories of certain
publicly traded companies we deemed relevant;
- certain financial terms of the Merger as compared to the financial terms
of certain selected business combinations we deemed relevant;
- certain pro forma financial effects of the Merger on an
accretion/dilution basis; and
- such other information, financial studies, analyses and investigations
and such other factors that we deemed relevant for the purposes of this
opinion.
In conducting our review and arriving at our opinion, we have, with your
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information provided to us
by the Company and Acquiree, respectively, or which is publicly available. We
have not undertaken any responsibility for the accuracy, completeness or
reasonableness of, or independently to verify, such information. In addition, we
have not conducted nor have assumed any obligation to conduct any physical
inspection of the properties or facilities of the Company or Acquiree. We have
further relied upon the assurance of management of the Company that they are
unaware of any facts that would make the information provided to us incomplete
or misleading in any respect. We have, with your consent, assumed that the
Company Forecasts and Acquiree Forecasts which we examined were reasonably
prepared by the managements of the Company and Acquiree on bases reflecting the
best currently available estimates and good faith judgments of such managements
as to the future performance of the Company and Acquiree, and such Forecasts,
and the First Call Estimates, provide a reasonable basis for our opinion. In
view that the Acquiree Forecasts did not provide us with forecasts beyond the
calendar year ended 2001, we did not take in consideration the results of a
discounted cash flow analysis in reaching our opinion.
We have not made or obtained any independent evaluations, valuations or
appraisals of the assets or liabilities of the Company or Acquiree, nor have we
been furnished with such materials. With respect to all legal matters relating
to the Company and Acquiree, we have relied on the advice of legal counsel to
the Company. Our opinion is necessarily based upon economic and market
conditions and other circumstances as they exist and can be evaluated by us on
the date hereof. It should be understood that although subsequent developments
may
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affect our opinion, we do not have any obligation to update, revise or reaffirm
our opinion and we expressly disclaim any responsibility to do so.
For purposes of rendering our opinion we have assumed in all respects
material to our analysis, that the representations and warranties of each party
contained in the Agreement are true and correct, that each party will perform
all of the covenants and agreements required to be performed by it under the
Agreement and that all conditions to the consummation of the Merger will be
satisfied without waiver thereof. We have assumed that the final form of the
Agreement will be substantially similar to the last draft reviewed by us. We
have also assumed that all governmental, regulatory and other consents and
approvals contemplated by the Agreement will be obtained and that in the course
of obtaining any of those consents no restrictions will be imposed or waivers
made that would have an adverse effect on the contemplated benefits of the
Merger. You have informed us, and we have assumed, that the Merger will be
recorded as a pooling-of-interests under generally accepted accounting
principles. You have informed us, and we have assumed, that the Merger will be
treated as a tax-free reorganization.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of the Company in its consideration of the Merger and may
not be used for any other purpose or reproduced, disseminated, quoted or
referred to at any time, in any manner or for any purpose without our prior
written consent. This letter does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the Merger or
to take any other action in connection with the Merger or otherwise. We have not
been requested to opine as to, and our opinion does not in any manner address,
the Company's underlying business decision to effect the Merger. Furthermore, we
express no view as to the price or trading range for shares of the common stock
of the Company following the consummation of the Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the Exchange Ratio is fair, from a financial point of view, to the Company.
Very truly yours,
/s/ SG COWEN SECURITIES CORPORATION
--------------------------------------
SG Cowen Securities Corporation
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ANNEX C
FAIRNESS OPINION OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
May 7, 2000
Board of Directors
Ancor Communications, Incorporated
6321 Bury Drive
Eden Prairie, MN 55346-1739
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock of Ancor
Communications, Incorporated (the "Company"), par value $0.01 per share (the
"Company Common Stock"), of the exchange ratio (the "Exchange Ratio") of 0.5275
shares of Common Stock of QLogic Corporation ("Parent"), par value $0.001 per
share (the "Parent Common Stock"), to be received by such holders pursuant to
the Agreement and Plan of Merger, dated as of May 7, 2000, among Parent, Amino
Acquisition Corp., a wholly owned subsidiary of Parent, and the Company (the
"Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of the Company or Parent for its own account and for the accounts of
customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K for
the Company for the five years ended December 31, 1999 and for Parent for the
five fiscal years ended March 31, 1999; certain interim reports to stockholders
and Quarterly Reports on Form 10-Q of the Company and Parent; certain other
communications from the Company and Parent to their respective stockholders; and
certain internal financial analyses and forecasts for the Company and Parent
prepared by their respective managements. We also have held discussions with
members of the senior management of the Company and Parent regarding their
assessment of the strategic rationale for, and the potential benefits of, the
transaction contemplated by the Agreement, and the past and current business
operations, financial condition and future prospects of their respective
companies. In addition, we have reviewed the reported price and trading activity
for the Company Common Stock and the Parent Common Stock, which like many stocks
have been and are likely to continue to be subject to significant short-term
price and trading volatility, compared certain financial and stock market
information for the Company and Parent with similar information for certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the communications
equipment industry specifically and in other industries generally and performed
such other studies and analyses as we considered appropriate.
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We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or Parent or any of their subsidiaries and we have
not been furnished with any such evaluation or appraisal. We have assumed with
your consent that the transaction contemplated by the Agreement will be
accounted for as a pooling-of-interests under generally accepted accounting
principles. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of the Company Common Stock should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the holders of the Company Common Stock.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
--------------------------------------
Goldman, Sachs & Co.
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ANNEX D
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 7, 2000 (the "Agreement"), between
QLogic Corporation, a Delaware corporation ("Optionee"), and Ancor
Communications, Incorporated, a Minnesota corporation (the "Company").
Capitalized terms which are used but not defined herein shall have the meanings
ascribed to them in the Merger Agreement (as defined below).
WITNESSETH:
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Optionee and the Company are entering into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), which provides for a
wholly owned subsidiary of Optionee to be merged with and into the Company in
accordance with the Minnesota Business Corporation Act and the terms of the
Merger Agreement, as a result of which the Company will be the surviving
corporation and a wholly owned subsidiary of Optionee;
WHEREAS, as a condition to Optionee's willingness to enter into the Merger
Agreement, Optionee has requested that the Company grant to Optionee an option
to purchase up to 5,828,667 authorized but unissued shares of the Company's
common stock, upon the terms and subject to the conditions hereof; and
WHEREAS, in order to induce Optionee to enter into the Merger Agreement,
the Company has agreed to grant Optionee the requested option.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. The Option; Exercise; Adjustments.
(a) The Company hereby grants to Optionee an irrevocable option (the
"Option") to purchase from time to time up to 5,828,667 authorized but unissued
shares of common stock, par value $.01 per share, of the Company (the "Company
Common Stock") upon the terms and subject to the conditions set forth herein
(the "Optioned Shares," which represent 19.9% of the issued and outstanding
shares of Company Common Stock as of the date hereof); provided, however, that
in no event shall the number of shares of Company Common Stock for which the
Option is exercisable exceed 19.9% of the issued and outstanding shares of
Company Common Stock at the time of exercise (excluding any such shares issued
or issuable under the Option).
(b) Subject to the terms and conditions set forth in this Agreement, the
Option may be exercised by Optionee in whole or, from time to time, in part, at
any time within 270 days after the date hereof that the conditions in Section
2(a) hereof are satisfied and prior to the termination of the Option in
accordance with Section 11 hereof. In the event Optionee wishes to exercise the
Option, Optionee shall send a written notice to the Company (the "Stock Exercise
Notice") specifying the total number of Optioned Shares it wishes to purchase
and a date for the closing of such purchase, which date shall be not less than
five days or more than 60 days after the Company's receipt of the Stock Exercise
Notice (the "Closing Date"). Optionee may revoke an exercise of the Option at
any time prior to the Closing Date by written notice to the Company. At any
Closing Date, the Company will deliver to Optionee a certificate or certificates
representing the Optioned Shares (which shall be endorsed with appropriate
restrictive legends) in the denominations designated by Optionee in its Stock
Exercise Notice, free and clear of all liens and encumbrances and subject to no
preemptive
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rights, as well as an executed new agreement with the same terms as this
Agreement evidencing the right to purchase the balance of the Optioned Shares
purchasable hereunder, if any. After payment of the Exercise Price for the
Optioned Shares covered by the Stock Exercise Notice, the Option shall be deemed
exercised to the extent of the Optioned Shares specified in the Stock Exercise
Notice as of the date such Stock Exercise Notice is given to the Company.
(c) In the event of any change in the number of issued and outstanding
shares of Company Common Stock by reason of any share dividend,
reclassification, consolidation, division, subdivision or cancellation or other
similar change in the corporate or capital structure of the Company, the number
of Optioned Shares subject to the Option and the Exercise Price (as hereinafter
defined) per Optioned Share shall be appropriately adjusted. In the event that
any additional shares of Company Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the preceding sentence
or pursuant to this Agreement), the number of Optioned Shares subject to the
Option shall be adjusted so that, after such issuance, it equals at least 19.9%
of the number of shares of Company Common Stock then issued and outstanding
(without considering any shares subject to or issued pursuant to the Option).
2. Conditions to Exercise of Option and Delivery of Optioned Shares.
(a) Optionee's right to exercise the Option is subject to the following
conditions:
(i) No preliminary or permanent injunction or other order having been
issued by any federal or state court of competent jurisdiction in the
United States invalidating the grant or prohibiting the exercise of the
Option shall be in effect; and
(ii) One or more of the following events shall have occurred on or
after the date hereof or Optionee shall have become aware on or after the
date hereof of the occurrence of any of the following: (A) any individual,
corporation, limited liability company, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or other entity or group (referred to hereinafter, singularly
or collectively, as a "Person"), other than Optionee or its "affiliates"
(as defined in Rule 12b-2 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act")), acquires or becomes the beneficial
owner of 20% or more of the outstanding shares of Company Common Stock; (B)
any new group is formed which beneficially owns 20% or more of the
outstanding shares of Company Common Stock (other than a group which
includes or may reasonably be deemed to include Optionee or any of its
affiliates); (C) any Person (other than Optionee or its affiliates) shall
have commenced a tender or exchange offer for 20% or more of the then
outstanding shares of Company Common Stock or publicly proposed any bona
fide merger, consolidation or acquisition of all or substantially all the
assets of the Company, or other similar business combination involving the
Company; (D) any Person (other than Optionee or its affiliates) is granted
any option or right, conditional or otherwise, to acquire or otherwise
become the beneficial owner of shares of Company Common Stock which,
together with all shares of Company Common Stock beneficially owned by such
Person, results or would result in such Person being the beneficial owner
of 20% or more of the outstanding shares of Company Common Stock; or (E)
any event or circumstance occurs that would entitle Optionee to receive the
Termination Fee provided for in Section 7.3(c) of the Merger Agreement. For
purposes of this subparagraph (iii), the terms "group" and "beneficial
owner" shall be defined by reference to Section 13(d) of the Exchange Act.
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(b) Optionee's obligation to purchase the Optioned Shares following the
exercise of the Option, and the Company's obligation to deliver the Optioned
Shares, are subject to the conditions that:
(i) No preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction in the United States
prohibiting the delivery of the Optioned Shares shall be in effect;
(ii) The purchase of the Optioned Shares will not violate Rule 14e-5
promulgated under the Exchange Act; and
(iii) All applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall have
expired or been terminated.
3. Exercise Price for Optioned Shares. Optionee will purchase the Optioned
Shares from the Company at a price per Optioned Share equal to $52.717 (the
"Exercise Price"), payable in cash. Any payment made by Optionee to the Company
pursuant to this Agreement shall be made by wire transfer of federal funds to a
bank account designated by the Company or a check payable in immediately
available funds.
4. Representations and Warranties of the Company. The Company represents
and warrants to Optionee as follows:
(a) Corporate Authority. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Minnesota and has all requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by the Company's Board of Directors and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement
has been duly executed and delivered by the Company and constitutes a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms except to the extent that its enforceability may
be limited to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other laws affecting creditors rights
generally and to general equitable principles.
(b) Shares Reserved for Issuance. The Company has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at
all times from the date hereof through the termination of this Agreement in
accordance with its terms, will have reserved for issuance upon exercise of
this Option, that number of Optioned Shares equal to the maximum number of
shares of Company Common Stock at any time and from time to time
purchasable upon exercise of the Option, and the Optioned Shares, when
issued and delivered by the Company to Optionee upon exercise of the
Option, will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all liens or encumbrances, free of
preemptive rights, and the Optioned Shares shall be listed on the Nasdaq
National Market.
(c) Consents; No Violations. Except as otherwise required by the HSR
Act, except for routine filings and subject to Section 7, the execution and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby do not and will not require the consent,
approval or authorization of, or filing with, any Person or public
authority and (i) will not violate, breach or conflict with the Company's
Charter Documents or Governing Documents, or (ii) result in the
acceleration or termination of, or constitute a default under, any
agreement, lease, contract, note, indenture, license,
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approval, permit, understanding or other instrument, or any statute, rule,
regulation, judgment, order or other restriction binding upon or applicable
to the Company or any of its subsidiaries or any of their respective
properties or assets, except for any such acceleration, termination or
default which would not have a Company Material Adverse Effect.
5. Representations and Warranties of Optionee. Optionee represents and
warrants to the Company as follows:
(a) Corporate Authority. The execution and delivery of this Agreement
by Optionee and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the
part of Optionee and this Agreement has been duly executed and delivered by
Optionee and constitutes a valid and binding agreement of Optionee, except
to the extent that its enforceability may be limited to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other laws affecting creditors rights generally and to general equitable
principles.
(b) Investment Representations. Optionee is acquiring the Option and,
if and when it exercises the Option, will be acquiring the Optioned Shares
issuable upon the exercise thereof, for its own account and not with a view
to distribution or resale in any manner which would be in violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any rule or
regulation under the Securities Act, and will not sell or otherwise dispose
of the Optioned Shares except pursuant to an effective registration
statement under the Securities Act or a valid exemption from registration
under the Securities Act.
6. The Closing. Any closing hereunder shall take place on the Closing Date
specified by Optionee in its Stock Exercise Notice pursuant to Section 1 at
10:00 a.m., U.S. Central Time, or the first business day thereafter on which all
of the conditions in Section 2 are met, at the executive office of the Company
located in Minneapolis, Minnesota, or at such other time and place as the
parties hereto may agree.
7. Filings Related to Optioned Shares. The Company will make such filings
with the SEC as are required by the Exchange Act, and will make all necessary
filings by the Company under the HSR Act and to list the Optioned Shares on the
Nasdaq National Market.
8. Registration Rights.
(a) Demand Registration Rights. After the date the Option becomes
exercisable pursuant to Section 1(b), the Company shall, subject to the
conditions of Section 8(c) below, if requested by Optionee within 12 months
following such date, as expeditiously as possible prepare and file a
registration statement under the Securities Act if such registration is
necessary in order to permit the sale or other disposition of any or all shares
of Company Common Stock or other securities that have been acquired by or are
issuable to the Optionee upon exercise of the Option in accordance with, and
subject to the terms and conditions of, this Section 8, with the intended method
of sale or other disposition stated by the Optionee in such request, including
without limitation a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision ("Rule 415"), and the Company shall
use its best efforts to qualify such shares or other securities for sale under
any applicable state securities laws; provided, however, that the Company shall
not be required to consent to general jurisdiction or qualify to do business in
any state where it is not otherwise required to so consent to such jurisdiction
or to so qualify to do business.
(b) Additional Registration Rights. If the Company, at any time after the
exercise of the Option, proposes to register any securities of the Company or
rights representing securities of the Company under the Securities Act, the
Company will promptly give written notice to the
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Optionee of its intention to do so and, upon the written request of any Optionee
given within thirty (30) days after receipt of any such notice (which request
shall specify the number of Shares of Company Common Stock intended to be
included in such public offering by the Optionee), the Company will cause all
such shares for which a Optionee requests participation in such registration, to
be so registered and included in such public offering; provided, however, that
the Company may elect not to cause any such shares to be so registered (i) if
such public offering is to be underwritten and the underwriters in good faith
object for valid business reasons, or (ii) in the case of a registration solely
to implement an employee benefit plan or a registration filed on Form S-4 of the
Securities Act or any successor form; provided, further, however, that such
election pursuant to (i) may only be made twice. If some but not all of the
shares of Company Common Stock with respect to which the Company shall have
received requests for registration pursuant to this Section 8(b) shall be
excluded from such registration, the Company shall make appropriate allocation
of shares to be registered among the selling shareholders desiring to register
their shares pro rata in the proportion that the number of shares requested to
be registered by each such selling shareholder bears to the total number of
shares requested to be registered by all such selling shareholders then desiring
to have shares of Company Common Stock registered for sale; provided, however,
that such allocation shall be subject to any priorities that may exist under any
registration rights agreements outstanding prior to the date of this Agreement.
(c) Conditions to Required Registration. The Company shall use all
reasonable efforts to cause each registration statement referred to in Section
8(a) above to become effective and to obtain all consents or waivers of other
parties which are required therefor and to keep such registration effective;
provided, however, that the Company may delay any registration of Optioned
Shares required pursuant to Section 8(a) above for a period not exceeding 90
days provided the Company shall in good faith determine that any such
registration would adversely affect the Company (provided that this right may
not be exercised more than once during any twelve (12) month period), and the
Company shall not be required to register Optioned Shares under the Securities
Act pursuant to Section 8(a) above:
(i) on more than one occasion during any calendar year;
(ii) on more than two occasions in total;
(iii) within ninety (90) days after the effective date of a
registration referred to in Section 8(b) above pursuant to which the
Optionee was afforded the opportunity to register such shares under the
Securities Act and such shares were registered as requested; or
(iv) if all the Optioned Shares proposed to be registered could be
sold by the Optionee in a ninety (90) day period in accordance with Rule
144.
In addition to the foregoing, the Company shall not be required to maintain
the effectiveness of any registration statement, other than a registration
statement filed under Rule 415, after the expiration of six (6) months from the
effective date of such registration statement. The Company shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Optioned Shares so registered in accordance with the intended
method of distribution for such shares; provided, however, that the Company
shall not be required to consent to general jurisdiction or qualify to do
business in any state where it is not otherwise required to so consent to such
jurisdiction or to so qualify to do business. The Optionee shall provide the
Company with all information reasonably requested by the Company that is
necessary for inclusion in any registration statement required to be filed
hereunder.
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(d) Expenses. Except where applicable state law prohibits such payments,
the Company will pay all expenses (including without limitation registration
fees, qualification fees, blue sky fees and expenses (including the fees and
expenses of counsel), legal expenses, including the reasonable fees and expenses
of one counsel to the holders whose Optioned Shares are being registered,
printing expenses and the costs of special audits or "cold comfort" letters,
expenses of underwriters, excluding discounts and commissions but including
liability insurance if the Company so desires or the underwriters so require,
and the reasonable fees and expenses of any necessary special experts) in
connection with each registration pursuant to Section 8(a) or 8(b) above
(including the related offerings and sales by holders of Optioned Shares) and
all other qualifications, notifications or exemptions pursuant to Section 8(a)
or 8(b) above.
(e) Indemnification. In connection with any registration under Section 8(a)
or 8(b) above, the Company hereby indemnifies the Optionee, and each underwriter
thereof, including each person, if any, who controls such Optionee or
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement of a material fact contained in any registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission, or alleged omission, to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon and in conformity with, information furnished in
writing to the Company by such indemnified party expressly for use therein, and
the Company and each officer, director and controlling person of the Company
shall be indemnified by Optionee, or by such underwriter, as the case may be,
for all such expenses, losses, claims, damages and liabilities caused by any
untrue, or alleged untrue, statement, that was included by the Company in any
such registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to the Company by or on behalf
of Optionee or such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 8(e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 8(e), such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it or any
liability which it may otherwise have to any indemnified party under this
Section 8(e) except to the extent the indemnified party is materially prejudiced
thereby. In case notice of commencement of any such action shall be given to the
indemnifying party as above provided, the indemnifying party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and reasonably satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel (other than reasonable costs of investigation) shall be paid by the
indemnified party unless (i) the indemnified party either agrees to pay the
same, (ii) the indemnifying party fails to assume the defense of such action
with counsel reasonably satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal defenses
may be available to the indemnifying party that may be contrary to the interest
of the indemnified party, in which case the indemnifying party shall be entitled
to assume the defense of such action notwithstanding its obligation to bear fees
and expenses of such counsel. No indemnifying party shall be liable for any
settlement entered into without its consent, which consent may not be
unreasonably withheld.
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If the indemnification provided for in this Section 8(e) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses, losses,
claims, damages or liabilities referred to herein, then the indemnifying party,
in lieu of indemnifying such party otherwise entitled to be indemnified, shall
contribute to the amount paid or payable by such party to be indemnified as a
result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Optionee and the underwriters from the offering of the securities
and also the relative fault of the Company, the Optionee and the underwriters in
connection with the statements or omissions which resulted in such expenses,
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The amount paid or payable by a party as a result of the
expenses, losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim;
provided, however, that in no case shall Optionee be responsible, in the
aggregate, for any amount in excess of the net offering proceeds attributable to
its Optioned Shares included in the offering. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Any obligation by Optionee to contribute shall be
several and not joint with other holders.
In the event of an underwritten public offering pursuant to Section 8(b),
the Company and the Optionee shall enter into an underwriting agreement
containing customary terms and provisions; provided that the contribution
provisions as they relate to Optionee shall contain substantially the same
limitations as the provisions set forth herein.
(f) Miscellaneous Reporting. The Company shall comply with all reporting
requirements and will do all other such things as may be necessary to permit the
expeditious sale at any time of any Optioned Shares by the Optionee in
accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time, including, without limitation, Rule
144. The Company shall provide the Optionee with any information necessary in
connection with the completion and filing of any reports or forms required to be
filed by them under the Securities Act or the Exchange Act, or required pursuant
to any state securities laws or the rules of any stock exchange.
(g) Issue Taxes. The Company will pay all stamp taxes in connection with
the issuance and the sale of Optioned Shares and in connection with the exercise
of the Option, and will hold the Optionee harmless, without limitation as to
time, against any and all liabilities, with respect to all such taxes.
9. Optional Put. Prior to the termination of the Option in accordance with
Section 11 hereof, if the Option has become exercisable pursuant to Section 1(b)
hereof and pursuant to the third sentence of this Section 9, Optionee shall have
the right, upon three (3) business days' prior written notice to the Company, to
require the Company to purchase the Option from Optionee (the "Put Right") at a
cash purchase price (the "Put Price") equal to the product determined by
multiplying (A) the number of Optioned Shares as to which the Option has not yet
been exercised by (B) the Spread (as defined below). As used herein, the term
"Spread" shall mean the excess, if any, of (i) the greater of (x) the highest
price (in cash or fair market value of securities or other property) per share
of Company Common stock paid or to be paid within twelve (12) months preceding
the date of exercise of the Put Right for any Company Common Stock beneficially
owned by any Person who shall have acquired or become the beneficial owner of
20% or more of the outstanding shares of Company Common Stock after the date
hereof or (y) the weighted (by volume of shares traded each day during the
measurement period described herein) average closing price of the Company Common
Stock during the 15-day period ending on the trading day immediately preceding
the written notice of exercise of the Put Right over (ii) the Exercise Price.
This Put Right shall become exercisable
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with respect to the events described in clauses (A), (B), (C) and (D) of Section
2(a)(ii) hereof only if the beneficial ownership by the Person or group
referenced in such clauses equals or exceeds 30% of the outstanding Company
Common Stock. Upon exercise of Optionee's right to receive cash pursuant to this
Section 9, the obligation of the Company to deliver Optioned Shares pursuant to
this Agreement shall terminate with respect to such number of Optioned Shares
for which Optionee shall have elected to be paid in cash under this Section 9.
10. Profit Limitation.
(a) Notwithstanding any other provision of this Agreement, in no event
shall Optionee's Total Profit (as hereinafter defined) exceed $55,000,000 and,
if it otherwise would exceed such amount, Optionee, at its sole election, shall
promptly either (i) deliver to the Company for cancellation Optioned Shares
previously acquired by Optionee pursuant to this Agreement, (ii) pay cash or
other consideration to the Company, or (iii) undertake any combination thereof,
in each case, so that Optionee's Total Profit shall not exceed $55,000,000 after
taking into account the foregoing actions.
(b) As used herein, the term "Total Profit" shall mean the sum (before
taxes) of the following: (i) the amount of cash received by Optionee pursuant to
Section 9 hereof, (ii)(A) the net cash amounts received by Optionee pursuant to
the sale of Optioned Shares (or any other securities into which such Optioned
Shares are converted or exchanged) to any unaffiliated party, less (B) the
aggregate Exercise Price paid for all Optioned Shares acquired by Optionee
hereunder, and (iii) any Termination Fee received pursuant to the Merger
Agreement.
11. Termination. This Agreement and the Option shall terminate upon the
earlier of (i) the Effective Time (as defined in the Merger Agreement); (ii) at
such time that the Company Termination Fee (as defined in the Merger Agreement)
is paid to Optionee; and (iii) at such time following the termination of the
Merger Agreement, that the Company Termination Fee can no longer under any
circumstances be payable to Optionee.
12. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise provided in Section 8 hereof
or as specified in the Merger Agreement.
13. Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement, without the necessity of
proving damages or posting any bond, and to enforce specifically the terms and
provisions hereof in any court of the United States or any state thereof having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
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14. Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended or if sent by
telex or facsimile (with receipt electronically confirmed) to the person at the
address set forth below, or such other address as may be designated in writing
hereafter, in the same manner, by such person:
(a) if to Optionee:
QLogic Corporation
26600 Laguna Hills Drive
Aliso Viejo, CA 92656
Telephone No.: (949) 389-6000
Facsimile No.: (949) 389-6488
Attention: H.K. Desai
with a copy to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Attention: Nick E. Yocca, Esq.
Facsimile No.: (949) 725-4100
Telephone No.: (949) 725-4000
(b) if to the Company:
Ancor Communications, Incorporated
6321 Bury Drive, Suite 13
Eden Prairie, Minnesota 55346-1739
Telephone No.: (952) 932-4000
Facsimile No.: (952) 932-4037
Attention: Ken Hendrickson
with a copy to:
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Attention: William B. Payne
Facsimile No.: (612) 340-8738
Telephone No.: (612) 340-2600
15. Parties in Interest. This Agreement shall inure to the benefit of and
be binding upon the parties named herein and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is intended
to confer upon any Person other than Optionee or the Company, or their permitted
successors or assigns any rights or remedies under or by reason of this
Agreement.
16. Entire Agreement; Amendments. This Agreement, together with the Merger
Agreement and the other documents referred to therein, constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings, both
written or oral, between the parties with respect to the subject matter hereof.
This Agreement may not be changed, amended or modified orally, but only by an
agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge may be sought.
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17. Assignment. No party to this Agreement may assign any of its rights or
delegate any of its obligations under this Agreement (whether by operation of
law or otherwise) without the prior written consent of the other party hereto,
except that Optionee may, without a written consent and without affecting its
obligations hereunder, assign its rights and delegate its obligations hereunder
in whole or in part to one or more of its direct or indirect wholly owned
subsidiaries.
18. Interpretation. The language used in this Agreement shall be deemed to
be the language chosen by the parties to express their mutual intent, and no
rule of strict construction shall be applied against any party. The headings of
articles and sections herein are for convenience of reference, do not constitute
a part of this Agreement, and shall not be deemed to limit or affect any of the
provisions hereof.
19. Counterparts. This Agreement may be executed via facsimile in two or
more counterparts, each of which, when executed, shall be deemed to be an
original and all of which together shall constitute one and the same document.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of laws thereof.
21. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
22. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to them in the Merger Agreement.
* * * * *
IN WITNESS WHEREOF, Optionee and the Company have caused this Stock Option
Agreement to be duly executed and delivered on the day and year first above
written.
QLOGIC CORPORATION
By: /s/ H.K. DESAI
-----------------------------------
H.K. Desai,
President and Chief Executive
Officer
ANCOR COMMUNICATIONS,
INCORPORATED
By: /s/ KEN HENDRICKSON
-----------------------------------
Ken Hendrickson,
Chief Executive Officer
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<PAGE> 166
ANNEX E
SECTIONS 471 AND 473 OF THE MINNESOTA BUSINESS CORPORATION ACT
ADDRESSING DISSENTERS' APPRAISAL RIGHTS
302A.471 Rights of dissenting shareholders. Subdivision 1. Actions
creating rights. A shareholder of a corporation may dissent from, and obtain
payment for the fair value of the shareholder's shares in the event of, any of
the following corporate actions: (a) An amendment of the articles that
materially and adversely affects the rights or preferences of the shares of the
dissenting shareholder in that it: (1) alters or abolishes a preferential right
of the shares; (2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking fund for
the redemption or repurchase of the shares; (3) alters or abolishes a preemptive
right of the holder of the shares to acquire shares, securities other than
shares, or rights to purchase shares or securities other than shares; (4)
excludes or limits the right of a shareholder to vote on a matter, or to
cumulate votes, except as the right may be excluded or limited through the
authorization or issuance of securities of an existing or new class or series
with similar or different voting rights; except that an amendment to the
articles of an issuing public corporation that provides that section 302A.671
does not apply to a control share acquisition does not give rise to the right to
obtain payment under this section; (b) A sale, lease, transfer, or other
disposition of all or substantially all of the property and assets of the
corporation, but not including a transaction permitted without shareholder
approval in section 302A.661, subdivision 1, or a disposition in dissolution
described in section 302A.725, subdivision 2, or a disposition pursuant to an
order of a court, or a disposition for cash on terms requiring that all or
substantially all of the net proceeds of disposition be distributed to the
shareholders in accordance with their respective interests within one year after
the date of disposition; (c) A plan of merger, whether under this chapter or
under chapter 322B, to which the corporation is a constituent organization,
except as provided in subdivision 3; (d) A plan of exchange, whether under this
chapter or under chapter 322B, to which the corporation is a party as the
corporation whose shares will be acquired by the acquiring corporation, if the
shares of the shareholder are entitled to be voted on the plan; or (e) Any other
corporate action taken pursuant to a shareholder vote with respect to which the
articles, the bylaws, or a resolution approved by the board directs that
dissenting shareholders may obtain payment for their shares. Subd. 2. Beneficial
owners. (a) A shareholder shall not assert dissenters' rights as to less than
all of the shares registered in the name of the shareholder, unless the
shareholder dissents with respect to all the shares that are beneficially owned
by another person but registered in the name of the shareholder and discloses
the name and address of each beneficial owner on whose behalf the shareholder
dissents. In that event, the rights of the dissenter shall be determined as if
the shares as to which the shareholder has dissented and the other shares were
registered in the names of different shareholders. (b) A beneficial owner of
shares who is not the shareholder may assert dissenters' rights with respect to
shares held on behalf of the beneficial owner, and shall be treated as a
dissenting shareholder under the terms of this section and section 302A.473, if
the beneficial owner submits to the corporation at the time of or before the
assertion of the rights a written consent of the shareholder. Subd. 3. Rights
not to apply. (a) Unless the articles, the bylaws, or a resolution approved by
the board otherwise provide, the right to obtain payment under this section does
not apply to a shareholder of the surviving corporation in a merger, if the
shares of the shareholder are not entitled to be voted on the merger. (b) If a
date is fixed according to section 302A.445, subdivision 1, for the determin
ation of shareholders entitled to receive notice of and to vote on an action
described in subdivision 1, only shareholders as of the date fixed, and
beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights. Subd. 4. Other
rights. The shareholders of a corporation who have a right under this section to
obtain payment for their shares do not have a right at law or in equity to have
a
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corporate action described in subdivision 1 set aside or rescinded, except when
the corporate action is fraudulent with regard to the complaining shareholder or
the corporation.
302A.473 Procedures for asserting dissenters' rights. Subdivision 1.
Definitions. (a) For purposes of this section, the terms defined in this
subdivision have the meanings given them. (b) "Corporation" means the issuer of
the shares held by a dissenter before the corporate action referred to in
section 302A.471, subdivision 1 or the successor by merger of that issuer. (c)
"Fair value of the shares" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to in
section 302A.471, subdivision 1. (d) "Interest" means interest commencing five
days after the effective date of the corporate action referred to in section
302A.471, subdivision 1, up to and including the date of payment, calculated at
the rate provided in section 549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting at which
any action described in section 302A.471, subdivision 1 is to be voted upon, the
notice of the meeting shall inform each shareholder of the right to dissent and
shall include a copy of section 302A.471 and this section and a brief
description of the procedure to be followed under these sections. Subd. 3.
Notice of dissent. If the proposed action must be approved by the shareholders,
a shareholder who is entitled to dissent under section 302A.471 and who wishes
to exercise dissenters' rights must file with the corporation before the vote on
the proposed action a written notice of intent to demand the fair value of the
shares owned by the shareholder and must not vote the shares in favor of the
proposed action. Subd. 4. Notice of procedure; deposit of shares. (a) After the
proposed action has been approved by the board and, if necessary, the
shareholders, the corporation shall send to all shareholders who have complied
with subdivision 3 and to all shareholders entitled to dissent if no shareholder
vote was required, a notice that contains: (1) The address to which a demand for
payment and certificates of certificated shares must be sent in order to obtain
payment and the date by which they must be received; (2) Any restrictions on
transfer of uncertificated shares that will apply after the demand for payment
is received; (3) A form to be used to certify the date on which the shareholder,
or the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and (4) A copy of section
302A.471 and this section and a brief description of the procedures to be
followed under these sections. (b) In order to receive the fair value of the
shares, a dissenting shareholder must demand payment and deposit certificated
shares or comply with any restrictions on transfer of uncertificated shares
within 30 days after the notice required by paragraph (a) was given, but the
dissenter retains all other rights of a shareholder until the proposed action
takes effect. Subd. 5. Payment; return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation estimates
to be the fair value of the shares, plus interest, accompanied by: (1) the
corporation's closing balance sheet and statement of income for a fiscal year
ending not more than 16 months before the effective date of the corporate
action, together with the latest available interim financial statements; (2) an
estimate by the corporation of the fair value of the shares and a brief
description of the method used to reach the estimate; and (3) a copy of section
302A.471 and this section, and a brief description of the procedure to be
followed in demanding supplemental payment. (b) The corporation may withhold the
remittance described in paragraph (a) from a person who was not a shareholder on
the date the action dissented from was first announced to the public or who is
dissenting on behalf of a person who was not a beneficial owner on that date. If
the dissenter has complied with subdivisions 3 and 4, the corporation shall
forward to the dissenter the materials described in paragraph (a), a statement
of the reason for withholding the remittance, and an offer to pay to the
dissenter the amount listed in the materials if the dissenter agrees to accept
that amount in full satisfaction. The dissenter may decline the offer and demand
payment under subdivision 6. Failure to do so entitles the dissenter only to the
amount offered. If the dissenter makes demand, subdivisions 7
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<PAGE> 168
and 8 apply. (c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel all
transfer restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time. Subd. 6.
Supplemental payment; demand. If a dissenter believes that the amount remitted
under subdivision 5 is less than the fair value of the shares plus interest, the
dissenter may give written notice to the corporation of the dissenter's own
estimate of the fair value of the shares, plus interest, within 30 days after
the corporation mails the remittance under subdivision 5, and demand payment of
the difference. Otherwise, a dissenter is entitled only to the amount remitted
by the corporation. Subd. 7. Petition; determination. If the corporation
receives a demand under subdivision 6, it shall, within 60 days after receiving
the demand, either pay to the dissenter the amount demanded or agreed to by the
dissenter after discussion with the corporation or file in court a petition
requesting that the court determine the fair value of the shares, plus interest.
The petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last registered
office of the constituent corporation was located. The petition shall name as
parties all dissenters who have demanded payment under subdivision 6 and who
have not reached agreement with the corporation. The corporation shall, after
filing the petition, serve all parties with a summons and copy of the petition
under the rules of civil procedure. Nonresidents of this state may be served by
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest. Subd. 8. Costs;
fees; expenses. (a) The court shall determine the costs and expenses of a
proceeding under subdivision 7, including the reasonable expenses and
compensation of any appraisers appointed by the court, and shall assess those
costs and expenses against the corporation, except that the court may assess
part or all of those costs and expenses against a dissenter whose action in
demanding payment under subdivision 6 is found to be arbitrary, vexatious, or
not in good faith. (b) If the court finds that the corporation has failed to
comply substantially with this section, the court may assess all fees and
expenses of any experts or attorneys as the court deems equitable. These fees
and expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be awarded
to a party injured by those actions. (c) The court may award, in its discretion,
fees and expenses to an attorney for the dissenters out of the amount awarded to
the dissenters, if any.
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<PAGE> 169
ANNEX F
INDEPENDENT AUDITORS' REPORT
The Board of Directors
QLogic Corporation:
We have audited the consolidated balance sheets of QLogic Corporation and
subsidiaries as of April 2, 2000 and March 28, 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three year period ended April 2, 2000. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of QLogic
Corporation and subsidiaries as of April 2, 2000 and March 28, 1999 and the
results of their operations and their cash flows for each of the years in the
three year period ended April 2, 2000, in conformity with generally accepted
accounting principles
KPMG LLP
/s/ KPMG LLP
Orange County, California
May 10, 2000
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<PAGE> 170
QLOGIC CORPORATION
CONSOLIDATED BALANCE SHEETS
APRIL 2, 2000 AND MARCH 28, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 64,134 $ 43,174
Short term investments...................................... 58,671 57,613
Accounts and notes receivable, less allowance for doubtful
accounts of $950 as of April 2, 2000 and $940 as of March
28, 1999.................................................. 21,647 11,917
Inventories................................................. 22,330 10,623
Deferred income taxes....................................... 9,211 5,649
Prepaid expenses and other current assets................... 1,356 1,950
-------- --------
Total current assets................................... 177,349 130,926
Long term investments....................................... 39,797 29,760
Property and equipment, net................................. 45,775 10,409
Other assets................................................ 4,235 1,828
-------- --------
$267,156 $172,923
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 5,743 $ 6,432
Accrued compensation........................................ 10,224 7,378
Deferred revenue............................................ 3,023 1,074
Accrued warranty............................................ 2,000 910
Income taxes payable........................................ 163 1,358
Other accrued liabilities................................... 3,034 3,087
-------- --------
Total current liabilities.............................. 24,187 20,239
-------- --------
Commitments and contingencies
Subsequent event
Stockholders' equity:
Preferred stock, $0.001 par value; 1,000,000 shares
authorized, (200,000 shares designated as Series A
Junior Participating Preferred, $0.001 par value); none
issued and outstanding................................. -- --
Common stock, $0.001 par value; 150,000,000 shares
authorized, 74,292,949 and 71,844,232 shares issued and
outstanding at April 2, 2000 and March 28, 1999,
respectively........................................... 74 72
Additional paid-in capital................................ 145,067 108,737
Retained earnings......................................... 97,828 43,875
-------- --------
Total stockholders' equity............................. 242,969 152,684
-------- --------
$267,156 $172,923
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 171
QLOGIC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED APRIL 2, 2000, MARCH 28, 1999, AND MARCH 29, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Net revenues....................................... $203,143 $117,182 $81,393
Cost of revenues................................... 64,241 42,603 34,049
-------- -------- -------
Gross profit.................................. 138,902 74,579 47,344
-------- -------- -------
Operating expenses:
Engineering and development...................... 39,993 24,358 15,601
Selling and marketing............................ 16,724 11,062 8,707
General and administrative....................... 8,140 5,794 4,550
-------- -------- -------
Total operating expenses...................... 64,857 41,214 28,858
-------- -------- -------
Operating income.............................. 74,045 33,365 18,486
Interest expense................................... 19 84 109
Interest and other income.......................... 7,722 5,657 3,453
-------- -------- -------
Income before income taxes....................... 81,748 38,938 21,830
Income tax provision............................... 27,795 13,239 8,422
-------- -------- -------
Net income......................................... $ 53,953 $ 25,699 $13,408
======== ======== =======
Net income per share:
Basic............................................ $ 0.74 $ 0.37 $ 0.22
-------- -------- -------
Diluted.......................................... $ 0.70 $ 0.34 $ 0.21
-------- -------- -------
Number of shares used in per share computations:
Basic............................................ 72,950 70,047 60,732
-------- -------- -------
Diluted.......................................... 77,497 74,760 64,792
-------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
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QLOGIC CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 2, 2000, MARCH 28, 1999, AND MARCH 29, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance as of March 30, 1997....... 46,728 $47 $ 19,538 $ 4,768 $ 24,353
Net income....................... -- -- -- 13,408 13,408
Stock offering................... 21,160 21 77,515 -- 77,536
Issuance of common stock under
employee stock plans
(including tax benefit of
$1,494)....................... 1,320 1 2,751 -- 2,752
------ --- -------- ------- --------
Balance as of March 29, 1998....... 69,208 69 99,804 18,176 118,049
Net income....................... -- -- -- 25,699 25,699
Issuance of common stock under
employee stock plans
(including tax benefit of
$5,753)....................... 2,636 3 8,933 -- 8,936
------ --- -------- ------- --------
Balance as of March 28, 1999....... 71,844 72 108,737 43,875 152,684
Net income....................... -- -- -- 53,953 53,953
Issuance of common stock under
employee stock plans
(including tax benefit of
$28,085)...................... 2,449 2 36,330 -- 36,332
------ --- -------- ------- --------
Balance as of April 2, 2000........ 74,293 $74 $145,067 $97,828 $242,969
====== === ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 173
QLOGIC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 2, 2000, MARCH 28, 1999, AND MARCH 29, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999 1998
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 53,953 $ 25,699 $ 13,408
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 4,799 3,366 2,434
Write-off of acquired in-process technology............. 8,410 1,220 --
Provision for doubtful accounts......................... 10 201 200
Loss on disposal of property and equipment.............. 219 89 161
Benefit from deferred income taxes...................... (6,264) (1,354) (3,030)
Changes in assets and liabilities:
Accounts and notes receivable......................... (9,740) (4,282) (2,316)
Inventories........................................... (11,707) (6,788) 959
Prepaid expenses and other current assets............. 594 (1,475) (84)
Other assets.......................................... (137) (1,158) --
Accounts payable...................................... (689) 2,667 (229)
Accrued compensation.................................. 2,846 2,403 1,750
Income taxes payable.................................. 26,890 1,999 5,163
Accrued warranty...................................... 1,090 300 185
Other accrued liabilities............................. 540 1,944 (23)
Deferred revenue...................................... 1,949 (839) 914
Other non-current liabilities......................... -- (466) (458)
-------- --------- --------
Net cash provided by operating activities........... 72,763 23,526 19,034
-------- --------- --------
Cash flows from investing activities:
Additions to property and equipment....................... (39,952) (6,766) (3,924)
Purchases of investments.................................. (96,438) (103,448) (53,059)
Acquisition of business, net of cash acquired............. (8,860) (1,957) --
Maturities of investments................................. 85,343 64,755 4,379
-------- --------- --------
Net cash used in investing activities............... (59,907) (47,416) (52,604)
-------- --------- --------
Cash flows from financing activities:
Principal payments under capital leases................... (143) (209) (225)
Proceeds from issuance of stock under employee stock
plans................................................... 8,247 3,183 1,258
Proceeds from sale of common stock........................ -- -- 77,536
-------- --------- --------
Net cash provided by financing activities........... 8,104 2,974 78,569
-------- --------- --------
Net increase (decrease) in cash and cash equivalents........ 20,960 (20,916) 44,999
Cash and cash equivalents at beginning of year.............. 43,174 64,090 19,091
-------- --------- --------
Cash and cash equivalents at end of year.................... $ 64,134 $ 43,174 $ 64,090
======== ========= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.................................................. $ 19 $ 65 $ 90
======== ========= ========
Income taxes.............................................. $ 6,068 $ 13,116 $ 6,275
======== ========= ========
</TABLE>
Non-cash investing and financing activities:
During fiscal year 2000, the Company recorded a credit to additional
paid-in-capital and a debit to accrued taxes payable of $28,085, related to the
tax benefit of exercises of stock options under the Company's stock options
plans. Additionally, during fiscal year 2000 the Company recorded an accrual of
$841, in accordance with the performance provisions of the Silicon Design
Resources Asset Acquisition Agreement. See Note 2 of Notes to Consolidated
Financial Statements.
During fiscal year 1999, the Company recorded a credit to additional
paid-in-capital and a debit to accrued taxes payable of $5,753, related to the
tax benefit of exercises of stock options under the Company's stock option
plans. Additionally, during fiscal year 1999 the Company recorded an accrual of
$1,321, in accordance with the performance provisions of the Silicon Design
Resources Asset Acquisition Agreement. See Note 2 of Notes to Consolidated
Financial Statements.
During fiscal year 1998, the Company recorded a credit to additional
paid-in-capital and a debit to accrued taxes payable of $1,494 related to
exercises of stock options under the Company's stock option plans.
See accompanying notes to consolidated financial statements.
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<PAGE> 174
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Business Information
QLogic Corporation ("QLogic" or the "Company") designs and supplies
semiconductor and board level input/output (I/O) products. The Company's I/O
products provide a high performance interface between computer systems and their
attached data storage peripherals, such as hard disk drives, tape drives,
removable disk drives and Redundant Array of Independent Disks subsystems, or
RAID subsystems. The Company also designs and supplies semiconductor enclosure
management products. QLogic markets and distributes its products through a
direct sales organization supported by field application engineers, as well as
through a network of independent manufacturers' representatives and regional and
international distributors. The Company's primary OEM customers are major
domestic and international suppliers and manufacturers of servers, workstations
and data storage peripherals.
Principles of Consolidation and Financial Reporting Period
The consolidated financial statements include the financial statements of
QLogic Corporation and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
QLogic's fiscal year ends on the Sunday nearest March 31. The fiscal year ended
April 2, 2000 ("fiscal 2000") comprised 53 weeks. The fiscal years ended March
28, 1999 ("fiscal 1999") and March 29, 1998 ("fiscal 1998") each comprised 52
weeks.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates that affect
the amounts reported in the Company's consolidated financial statements and
accompanying notes. Actual results could differ from these estimates.
Revenue Recognition
Revenue is recognized upon product shipment. Royalty revenue is recognized
when earned and receipt is assured. The customer's obligation to pay the
Company, and the payment terms, are set at the time of shipment and are not
dependent on subsequent resale of the Company's product. However, certain of the
Company's sales are made to distributors under agreements allowing limited right
of return and/or price protection. The Company warrants its products, on a
limited basis, to be free from defects for periods of one to five years from
date of shipment. The Company estimates and establishes allowances and reserves
for product returns, warranty obligations, doubtful accounts, and price
adjustments.
Capitalized Software Costs
Statement of Financial Accounting Standards No. ("SFAS") 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
provides for the capitalization of certain software development costs once
technological feasibility is established. The cost so capitalized is then
amortized on a straight-line basis over the estimated product life, or the ratio
of current revenues to total projected product revenues, whichever is greater.
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<PAGE> 175
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
No such costs have been capitalized for all periods presented, as the impact on
the consolidated financial statements is immaterial.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Net Income per Share
During the third quarter of 1998, the Company adopted SFAS 128, "Earnings
per Share." All prior periods have been restated accordingly. Basic net income
per common share was computed based on the weighted average number of common
shares outstanding during the periods presented. Diluted net income per share
was computed based on the weighted average number of common and dilutive
potential common shares outstanding during the periods presented. The Company
has granted certain stock options which have been treated as dilutive potential
common shares in computing diluted net income per share. The adoption of SFAS
128 did not have a material impact on the Company's financial statements.
Segment Information
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
131 supersedes SFAS 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with the "management"
approach. The management approach is based on the way that management organizes
its operating segments within the enterprise. Operating segments, as defined by
SFAS 131, are components of an enterprise for which separate financial
information is available and is evaluated regularly by the Company in deciding
how to allocate resources and in assessing performance. SFAS 131 also requires
disclosures about products and services, geographic areas, and major customers.
The Company operates in one operating segment for purposes of SFAS 131.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
accrued liabilities, the carrying amounts approximate fair value due to their
short maturities. Long-term investments are carried at cost which approximates
fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents,
investments in marketable securities, and
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<PAGE> 176
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
trade accounts receivable. The Company places its marketable securities
primarily in municipal bonds, corporate bonds and government securities, all of
which are of high investment grade. The Company, by policy, limits the amount of
credit exposure through diversification and investment in highly rated
securities. Sales to customers are denominated in U.S. dollars. As a result, the
Company believes its foreign currency risk is minimal.
The Company sells its products to original equipment manufacturers and
distributors throughout the world. The Company's four largest customers comprise
46% of total accounts receivable at April 2, 2000 and 59% at March 28, 1999. The
Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The Company
maintains an allowance for doubtful accounts based upon the expected
collectibility of all accounts receivable. There have not been significant
losses experienced on accounts receivable.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with original maturities of
three months or less on their acquisition date to be cash equivalents.
Investments in Debt Securities
The Company determines the appropriate balance sheet classification of its
investments in debt securities based on maturity date at the time of purchase
and evaluates the classifications at each balance sheet date. Debt securities
are classified as held to maturity as the Company has the positive intent and
ability to hold the securities to maturity. Held to maturity securities are
stated at amortized cost.
The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and interest
are included in interest income. Realized gains and losses are included in
interest and other income in the consolidated statements of income. The cost of
securities sold is based on the specific identification method.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net
realizable value.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by the comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
F-8
<PAGE> 177
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over estimated useful lives of two to 39.5 years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the lease term or the estimated useful life of the related asset.
Stock Based Compensation
The Company accounts for its employee and director stock options and
employee stock purchase plan in accordance with the provisions of Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees." SFAS 123, "Accounting for Stock-Based Compensation," which was
effective for fiscal years beginning after December 31, 1995, provided an
alternative to APB 25, but allowed companies to account for employee and
director stock-based compensation under the current intrinsic value method as
prescribed by APB 25. The Company has continued to account for its employee and
director stock plans in accordance with APB 25. Additional pro forma disclosures
as required under SFAS 123 are presented in Note 8 of notes to consolidated
financial statements.
Comprehensive Income
The Company has adopted SFAS 130, "Reporting Comprehensive Income."
Comprehensive income is defined as the change in equity of a company during a
period from transactions and other events and circumstances excluding
transactions resulting from investments by owners and distributions to owners.
Comprehensive income equals net income for all periods presented as there are no
non-owner sources of equity.
Research and Development
Research and development costs, including costs related to the development
of new products and process technology, as well as acquired in-process
technology, are expensed as incurred.
Reclassifications
Certain reclassifications have been made to the fiscal 1999 and fiscal 1998
consolidated financial statements to conform to the fiscal 2000 presentation.
NOTE (2) ACQUISITIONS
Adaptive RAID Technology
On January 10, 2000, the Company acquired certain intellectual property
("AdaptiveRAID(R) technology") from Borg Adaptive Technologies, Inc., a wholly
owned subsidiary of nStor Corporation. The AdaptiveRAID(R) technology, which is
expected to provide next generation embedded RAID storage solutions for the
Intel Architecture workstation market, was purchased for $7.5 million in cash.
At the time of the acquisition, the AdaptiveRAID(R) technology was in the
development stage with no completed commercially viable storage solution
products. The technology
F-9
<PAGE> 178
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purchased had, at the time of acquisition, several in-process research and
development projects that were substantially incomplete. The major projects
acquired included: (a) a PCI RAID controller; (b) a RAID bridge controller; and
(c) a storage area network RAID controller for the Intel Architecture server and
workstation market. The Company's primary purpose for the acquisition was to
acquire these in-process projects and complete the development efforts as the
Company believed they had economic value but had not yet reached technological
feasibility and had no alternative future uses. Therefore, the Company has
recorded the purchase price as a one-time charge for in-process research and
development of $7.5 million to engineering and development expense in the fourth
fiscal quarter ended April 2, 2000. The Company is continuing development
efforts and does not currently have an estimate as to when the first new
products will begin to ship.
Silicon Design Resources, Inc.
On August 20, 1998, the Company acquired the net assets of Silicon Design
Resources, Inc. ("SDR") for $2 million in cash. In addition, the Company is
obligated to pay up to an additional $8 million in cash provided that certain
performance targets are achieved through fiscal year 2002. These payments will
be accounted for as additional purchase price and allocated to the intangible
assets acquired, specifically the in-process technology and the completed
technology. The Company accounted for the transaction using the purchase method
of accounting, and excluding the initial write-off of the acquired in-process
technology in the quarter ended September 27, 1998, the impact to the Company's
financial position and results of operations from the acquisition date was not
material. Additionally, the Company incurred approximately $413,000 in
professional fees related to the acquisition.
The Company allocated the purchase price to the tangible and identifiable
intangible net assets as of August 20, 1998 based on the fair market values of
the assets; such fair values were derived from an independent third party
appraisal. The fair value of the net assets acquired exceeded the initial
payment, resulting in negative goodwill. This negative goodwill was allocated to
the intangible assets acquired, based on their relative fair values. The
allocation of the initial purchase price included $558,000 of net tangible
assets, $635,000 of completed technology and $1,220,000 of in-process
technology.
At the time of the acquisition, SDR was a startup company that had two
products which were in full production, and three research and development
projects which were in the development stage. The primary purpose of the
acquisition was to acquire these in-process projects and complete the
development efforts. The Company believes the developmental projects had
economic value, but had not reached technological feasibility and had no
alternative future uses. In accordance with applicable accounting literature,
the acquired in-process technology was written-off to engineering and
development expense during the quarter ended September 27, 1998, and will
continue to be written-off to engineering and development when future
performance payments are earned. Acquired completed technology has been
capitalized and is included in other assets in the accompanying consolidated
balance sheet. The acquired completed technology is being amortized on a
straight-line basis over a period of three years from the acquisition date. At
April 2, 2000 and March 28, 1999, a performance payment to the former
shareholders of SDR of $841,000 and $1,321,000, respectively, was included in
other accrued liabilities in the accompanying consolidated balance sheets. These
payments were allocated to the intangible assets acquired: $559,000 and
$870,000, respectively, were written-off as acquired in-process technology and
$282,000 and $451,000, respectively, were capitalized as completed technology.
F-10
<PAGE> 179
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE (3) NET INCOME PER SHARE
The Company computed basic net income per share based on the weighted
average number of common shares outstanding during the periods presented.
Diluted income per share was computed based on the weighted average number of
common and dilutive potential common shares outstanding during the periods
presented. The Company has granted certain stock options which have been treated
as dilutive potential common shares.
The following table sets forth the computations of basic and diluted net
income per share:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
Net income................................. $53,953 $25,699 $13,408
======= ======= =======
Denominator:
Denominator for basic net income per share
-- weighted average shares.............. 72,950 70,047 60,732
Dilutive potential common shares, using
treasury stock method................... 4,547 4,713 4,060
------- ------- -------
Denominator for diluted net income per
share................................... 77,497 74,760 64,792
======= ======= =======
Basic net income per share................... $ 0.74 $ 0.37 $ 0.22
------- ------- -------
Diluted net income per share................. $ 0.70 $ 0.34 $ 0.21
------- ------- -------
</TABLE>
Options to purchase 72,237, 153,392 and 114,184 shares of common stock were
outstanding as of April 2, 2000, March 28, 1999, and March 29, 1998,
respectively, but were not included in the computation of diluted net income per
share, as the effect would be antidilutive.
NOTE (4) INVESTMENTS
The Company's portfolio of investments consists of the following:
<TABLE>
<CAPTION>
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
U.S. Government securities........................... $ 30,715 $ 6,981
Municipal securities................................. 31,810 61,305
Corporate debt securities............................ 72,963 35,253
Other debt securities................................ 27,114 26,673
-------- --------
$162,602 $130,212
======== ========
</TABLE>
F-11
<PAGE> 180
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At April 2, 2000 and March 28, 1999, the net unrealized holding gains and
losses on securities were immaterial. Investments at April 2, 2000 and March 28,
1999 were classified as shown below:
<TABLE>
<CAPTION>
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash equivalents..................................... $ 64,134 $ 42,839
Short-term investments............................... 58,671 57,613
Long-term investments (with maturities from 1 to 2
years)............................................. 39,797 29,760
-------- --------
$162,602 $130,212
======== ========
</TABLE>
NOTE (5) INVENTORIES
Components of inventories, are as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $16,072 $ 7,716
Work in progress....................................... 3,799 833
Finished goods......................................... 2,459 2,074
------- -------
$22,330 $10,623
======= =======
</TABLE>
NOTE (6) PROPERTY AND EQUIPMENT
Components of property and equipment are as follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land................................................... $11,663 $ --
Building and Improvements.............................. 21,405 948
Product and test equipment............................. 25,688 20,238
Furniture and fixtures................................. 3,037 1,907
Semiconductor tooling.................................. 2,914 2,119
------- -------
64,707 25,212
Less accumulated depreciation and amortization......... 18,932 14,803
------- -------
$45,775 $10,409
======= =======
</TABLE>
NOTE (7) CAPITAL ACCOUNTS
Common Stock
At April 2, 2000 and March 28, 1999, the Company's authorized common stock
was 150,000,000 with 74,292,949 and 71,844,232 shares issued and outstanding,
respectively. At April 2, 2000, 21,480,000 shares were reserved for the exercise
of issued and unissued common stock options, and 2,400,000 shares were reserved
for issuance in connection with the Company's Employee Stock Purchase Plan.
F-12
<PAGE> 181
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Preferred Stock
In fiscal 1994, the Company's stockholders approved an amendment and
restatement of the certificate of incorporation which authorized the future
issuance of 1,000,000 shares of preferred stock, $0.10 par value, with rights
and preferences to be determined by the Board of Directors. In January 2000, the
par value was adjusted to $0.001.
Shareholder Rights Plan
On June 4, 1996, the Board of Directors of the Company unanimously adopted
a Shareholder Rights Plan (the "Rights Plan") pursuant to which it declared a
dividend distribution of preferred stock purchase rights (a "Right") upon all of
the outstanding shares of the common stock.
The Rights dividend was paid on June 20, 1996 to the holders of record of
shares of common stock on that date, at the rate of one-eighth of one whole
Right per one share of common stock, as adjusted pursuant to the Company's stock
splits. Each share of common stock presently outstanding that had been issued
since June 20, 1996 also includes one-eighth Right, and each share of common
stock that may be issued after the date hereof and prior to the Distribution
Date (as defined below) also will include one-eighth Right.
The Rights become exercisable (i) the 10th business day following the date
of a public announcement that a person or a group of affiliated or associated
persons (an "Acquiring Person") has acquired beneficial ownership of 15% or more
of the outstanding shares of common stock, or (ii) the 10th business day
following the commencement of, or announcement of an intention to make a tender
offer or exchange offer the consummation of which would result in the person or
group making the offer becoming an Acquiring Person (the earlier of the dates
described in clauses (i) and (ii) being called the "Distribution Date").
The Rights held by an Acquiring Person or its affiliates are not
exercisable. All shares of common stock that will be issued prior to the
Distribution Date will include such Rights. The Rights will expire at the close
of business on June 4, 2006 (the "Scheduled Expiration Date"), unless prior
thereto the Distribution Date occurs, or unless the Scheduled Expiration Date is
extended.
Pursuant to the Rights Plan, as amended to date, each Right entitles the
registered holder, on and after the Distribution Date and until redemption of
all Rights, to purchase from the Company 1/100th of one whole share (a "Unit")
of the Company's Series A Junior Participating Preferred Stock, par value $.001
per share (the "Series A Preferred Stock"). The purchase price is $425.00 per
Unit. In the event of certain acquisitions involving the Acquiring Person,
directly or indirectly, the holder of each Right will be entitled to purchase
for $425.00 certain shares or assets of the Company or an Acquiring person that
have a market value of $850.00 at such time.
The Company has 200,000 whole shares of Series A Preferred Stock
authorized, of which no shares are issued or outstanding at April 2, 2000. Each
Unit would entitle the holder to (A) one vote, voting together with the shares
of common stock; (B) in the event the Company's assets are liquidated, a payment
of one dollar ($1.00) or an amount equal to the payment to be distributed per
share of common stock, whichever is greater; and (C) in the event of any merger,
consolidation or other transaction in which shares of common stock are
exchanged, a payment in an amount equal to the payment received per share of
common stock.
F-13
<PAGE> 182
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The number of Rights per share of common stock, and the purchase price, is
subject to adjustment in the event of each and any stock split, stock dividend
or similar event.
Holders of Rights will be entitled to purchase shares or assets of the
Company or an Acquiring Person with a value that is double the exercise price in
the event of certain acquisitions involving the Acquiring Person, directly or
indirectly.
Common Stock Splits
In February 1999, July 1999 and February 2000, the Company effected
two-for-one splits of the outstanding shares of common stock. All share and per
share data presented in the consolidated financial statements and footnotes has
been retroactively adjusted to reflect these two-for-one stock splits.
Stock Offering
In the second quarter of fiscal 1998, the Company completed a secondary
offering of 21,160,000 shares of the Company's common stock at a price of $3.91
per share. The Company received proceeds of $77.5 million net of underwriter's
discount and expenses.
NOTE (8) STOCK PLANS
Employee Stock Purchase Plan
In fiscal year 1999, the Company's Board of Directors adopted an Employee
Stock Purchase Plan (the "ESPP"). Under the ESPP, employees of the Company who
elect to participate are granted options to purchase common stock at a 15%
discount from the lower of the market value of the common stock at the beginning
or end of each three month offering period. The ESPP permits an enrolled
employee to make contributions to purchase shares of common stock by having
withheld from their salary an amount between 1% and 10% of compensation. The
ESPP is administered by the Compensation Committee of the Board of Directors.
The total number of shares of common stock that may be issued pursuant to
options granted under the ESPP is 2,400,000. The total number of shares issued
under the ESPP were 79,572 and 23,736 during the years ended April 2, 2000 and
March 28, 1999, respectively.
Incentive Compensation Plans
On January 12, 1994, the Company's Board of Directors adopted the QLogic
Corporation Stock Awards Plan (the "Stock Awards Plan") and the QLogic
Corporation Non-Employee Director Stock Option Plan (the "Director Plan")
(collectively the "Stock Option Plans"). Additionally, the Company issues
options on an ad hoc basis from time to time.
The Stock Awards Plan provides for the issuance of incentive and
non-qualified stock options, restricted stock and other stock-based incentive
awards for officers and key employees. The Stock Awards Plan permits the
Compensation Committee of the Board of Directors to select eligible employees to
receive awards and to determine the terms and conditions of awards. As of April
2, 2000, a total of 19,800,000 shares were reserved for issuance under the Stock
Awards Plan, no shares of restricted stock were issued, options to purchase
5,474,915
F-14
<PAGE> 183
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
shares of Common Stock were outstanding, and there were 6,606,080 shares
available for future grants.
Options granted under the Company's Stock Awards Plan provide that an
employee holding a stock option may exchange mature stock which the employee
already owns as payment against the exercise of an option. This provision
applies to all options outstanding as of April 2, 2000. All stock options
granted under the Company's Stock Awards Plan have ten-year terms and vest
ratably over four years from the date of grant.
Under the terms of the Director Plan, new directors receive an option
grant, at fair market value, to purchase 64,000 shares of common stock of the
Company upon election to the Board, and the plan provides for annual grants to
each non-employee director (other than the Chairman of the Board) of options to
purchase 32,000 shares of common stock. The plan also provides for annual grants
to the Chairman of the Board of options to purchase 54,000 shares of common
stock. A total of 1,600,000 shares have been reserved for issuance under the
Director Plan. As of April 2, 2000, options for a total of 254,005 shares were
outstanding, and 467,999 shares were available for grant. All stock options
granted under the Director Plan have ten-year terms and vest ratably over three
years from the date of grant.
As of April 2, 2000, ad hoc stock options have been issued representing
options to purchase 80,000 shares, with a total of 53,000 options outstanding.
Stock option activity in fiscal 2000, 1999 and 1998 under the Company's
Stock Option Plans was as follows:
<TABLE>
<CAPTION>
AVERAGE OPTION
SHARES PRICE PER SHARE
---------- ---------------
<S> <C> <C>
Options outstanding as of March 30, 1997....... 6,710,040 $ 1.13
Granted........................................ 1,222,000 3.69
Canceled....................................... (204,416) 1.59
Exercised...................................... (1,321,000) 0.95
---------- ------
Options outstanding as of March 29, 1998....... 6,406,624 1.64
Granted........................................ 2,260,800 8.26
Canceled....................................... (98,472) 4.04
Exercised...................................... (2,613,888) 1.13
---------- ------
Options outstanding as of March 28, 1999....... 5,955,064 4.33
Granted........................................ 2,370,000 43.15
Canceled....................................... (173,999) 2.77
Exercised...................................... (2,369,145) 5.79
---------- ------
Options outstanding as of April 2, 2000........ 5,781,920 $20.84
========== ======
</TABLE>
F-15
<PAGE> 184
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of April 2, 2000, March 28, 1999, and March 29, 1998, the number of
options exercisable was 1,383,266, 1,780,904 and 2,710,240 respectively, and the
weighted average exercise price of those options was $3.23, $1.60 and $0.99,
respectively.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ------------------------------
WEIGHTED WEIGHTED
OUTSTANDING AVERAGE REMAINING EXERCISABLE AVERAGE
RANGE OF AS OF EXERCISE PRICE CONTRACTUAL AS OF EXERCISE PRICE
EXERCISE PRICES APRIL 2, 2000 PER OPTION LIFE (YEARS) APRIL 2, 2000 PER OPTION
---------------- ------------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.59 to $ 3.19 1,558,721 $ 1.94 6.36 1,032,843 $ 1.68
$ 3.78 to $14.25 1,565,973 $ 6.78 8.26 307,737 $ 6.69
$15.03 to $16.38 287,226 $15.97 8.89 42,686 $15.94
$31.31 to $88.25 2,370,000 $43.15 9.38 -- $ --
--------- ---------
$ 0.59 to $88.25 5,781,920 $20.84 8.24 1,383,266 $ 3.23
========= ====== ==== ========= ======
</TABLE>
Pro Forma Information
The Company applies APB 25 in accounting for its Stock Option Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date, recorded over a four-year
vesting period, for its stock options under SFAS 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income as reported................................ $53,953 $25,699 $13,408
Assumed stock compensation cost, net of tax........... 14,757 8,325 2,576
------- ------- -------
Pro forma net income.................................. $39,196 $17,374 $10,832
------- ------- -------
Diluted net income per share as reported.............. $ 0.70 $ 0.34 $ 0.21
Pro forma diluted net income per share................ $ 0.51 $ 0.23 $ 0.17
</TABLE>
The Company uses the Black-Scholes option-pricing model for estimating the
fair value of its equity instruments. The following represents the
weighted-average fair value of options granted and the assumptions used for the
calculations:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Estimated fair value per option granted.................. $30.35 $22.32 $ 8.43
Stock volatility......................................... 84.6% 79.5% 60.4%
Risk-free interest rate.................................. 5.9% 5.6% 6.0%
Expected life (years).................................... 5.00 5.00 5.00
Stock dividend yield..................................... 0.0% 0.0% 0.0%
</TABLE>
The fair value of each option grant, as defined by SFAS 123, is estimated
on the date of grant using the Black-Scholes option-pricing model. The
Black-Scholes model, as well as other currently accepted option valuation
models, was developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require highly
subjective assumptions, including future stock price volatility and expected
time until exercise, which greatly effect the calculated fair value on the grant
date.
F-16
<PAGE> 185
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE (9) EMPLOYEE RETIREMENT SAVINGS PLAN
The Company has established a pretax savings and profit sharing plan under
Section 401(k) of the Internal Revenue Code for substantially all domestic
employees. Under the plan, eligible employees are able to contribute up to 15%
of their compensation. Company contributions match up to 3% of a participant's
compensation. The Company's direct contributions on behalf of its employees were
$647,000, $458,000 and $349,000 in fiscal 2000, 1999, and 1998, respectively.
NOTE (10) COMMITMENTS AND CONTINGENCIES
Line of Credit
On July 5, 1999, the Company renewed its unsecured line of credit from a
bank. Maximum borrowings under the line of credit are $5.0 million, subject to a
borrowing base based on accounts receivable, with a $3.0 million sub-limit for
letters of credit. Interest on outstanding advances is payable monthly at the
bank's prime rate (8.0% at April 2, 2000). The line of credit expires on July 5,
2000. The line of credit contains certain restrictive covenants that, among
other things, require the maintenance of certain financial ratios and restrict
the Company's ability to incur additional indebtedness. The Company was in
compliance with all such covenants as of April 2, 2000. There were no borrowings
under the line of credit as of April 2, 2000. The Company expects to extend the
line of credit through the end of fiscal year 2001.
Leases
The Company leases certain equipment and facilities under non-cancelable
operating lease agreements, which expire at various dates through fiscal year
2005. Future minimum non-cancelable lease commitments are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR: (IN THOUSANDS)
<S> <C>
2001................................................ $ 924
2002................................................ 898
2003................................................ 560
2004................................................ 181
2005................................................ 30
------
Total minimum lease payments..................... $2,593
======
</TABLE>
Rent expense for fiscal 2000, 1999, and 1998 was $1,850,000, $1,430,000 and
$820,000 respectively.
Litigation
QLogic is involved in various legal proceedings, which have arisen in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
F-17
<PAGE> 186
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE (11) INCOME TAXES
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $30,402 $12,892 $ 9,888
State.............................................. 2,564 1,701 1,564
Foreign............................................ 1,093 -- --
------- ------- -------
Total current................................... 34,059 14,593 11,452
Deferred:
Federal............................................ (5,349) (1,398) (2,264)
State.............................................. (915) 44 (766)
------- ------- -------
Total deferred.................................. (6,264) (1,354) (3,030)
------- ------- -------
Total income tax provision........................... $27,795 $13,239 $ 8,422
======= ======= =======
</TABLE>
A reconciliation of the income tax provision with the amount computed by
applying the federal statutory tax rate to pretax income is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected income tax provision at the statutory
rate............................................... $28,612 $13,628 $ 7,641
State income tax, net of Federal tax benefit......... 2,858 1,910 1,991
Tax benefit of research and development and other
credits............................................ (2,120) (1,240) --
Foreign Sales Corporation tax benefit................ (659) (431) --
Decrease in valuation allowance...................... -- -- (1,904)
Tax exempt income.................................... (617) (882) (315)
Other, net........................................... (279) 254 1,009
------- ------- -------
$27,795 $13,239 $ 8,422
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
2000 1999
------- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserves and accruals not currently deductible........ $ 9,639 $5,572
Property and equipment................................ 907 789
Acquired in-process technology........................ 4,072 897
State tax expense..................................... -- 122
Other................................................. -- 12
------- ------
Total gross deferred tax assets.................... 14,618 7,392
------- ------
Deferred tax liabilities:
Research and development expenditures................. 1,192 882
State tax expense..................................... 508 --
Other................................................. 349 205
------- ------
Total gross deferred tax liabilities............... 2,049 1,087
------- ------
Net deferred tax assets............................... $12,569 $6,305
======= ======
</TABLE>
F-18
<PAGE> 187
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Based upon the Company's current and historical pre-tax earnings,
management believes it is more likely than not that the Company will realize the
benefit of the existing net deferred tax assets as of April 2, 2000. Management
believes the existing net deductible temporary differences will reverse during
periods in which the Company generates net taxable income or that there would be
sufficient tax carrybacks available; however, there can be no assurance that the
Company will generate any earnings or any specific level of continuing earnings
in future years.
The tax benefit associated with dispositions from employee stock purchase
plans reduced taxes currently payable by $28,085,000, $5,753,000 and $1,494,000
for the years ended April 2, 2000, March 28, 1999 and March 29, 1998
respectively. These benefits were recorded directly to additional paid-in
capital.
Fiscal years 1998 and 1999 are currently under examination by the Internal
Revenue Service. Management believes that adequate amounts of tax and related
interest and penalties, if any, have been provided for any adjustment that may
result for these years.
NOTE (12) EXPORT REVENUES AND SIGNIFICANT CUSTOMERS
Product Revenues
The Company designs and supplies semiconductor and board I/O and enclosure
management products. These products utilize one of three technology standards:
Fibre Channel, SCSI and IDE. Net revenues for the Company's products are grouped
by technology standard as they function using similar technologies.
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fibre Channel...................................... $ 60,076 $ 19,288 $ 1,398
SCSI............................................... 131,694 97,269 79,745
IDE................................................ 11,373 625 250
-------- -------- -------
$203,143 $117,182 $81,393
======== ======== =======
</TABLE>
Geographic Revenues
The Company's net revenues by country based on ship-to location are:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States...................................... $ 88,972 $ 55,106 $46,835
Japan.............................................. 78,211 38,591 25,064
United Kingdom..................................... 15,902 11,257 2,657
Rest of World...................................... 20,058 12,228 6,837
-------- -------- -------
$203,143 $117,182 $81,393
======== ======== =======
</TABLE>
F-19
<PAGE> 188
QLOGIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant Customers
The following table represents sales to customers accounting for greater
than 10% of the Company's net revenues. With the exception of these customers,
management believes that the loss of any one customer would not have a material
adverse effect on its business.
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Customer 1............................................ 30% 24% 23%
Customer 2............................................ 13% 19% 20%
</TABLE>
NOTE (13) SUBSEQUENT EVENT
On May 7, 2000, the Company entered into an agreement to acquire Ancor
Communications, Inc. ("Ancor"). Under the terms of the agreement, the Company
will exchange 0.5275 shares of common stock for each outstanding Ancor common
share. The proposed transaction is intended to qualify as a pooling-of-interests
and as a tax-free exchange of shares under IRS regulations. The transaction is
subject to shareholder approval from both companies and appropriate regulatory
approvals.
NOTE (14) CONDENSED QUARTERLY RESULTS (UNAUDITED)
The following summarizes certain unaudited quarterly financial information
for fiscal 2000, 1999, and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
JUNE SEPTEMBER DECEMBER MARCH
------- --------- -------- -------
<S> <C> <C> <C> <C>
FISCAL 2000:
Net revenues............................. $43,186 $47,492 $52,338 $60,127
Operating income(1)...................... 16,053 18,538 21,452 18,002
Net income(1)............................ 11,512 13,381 15,552 13,508
Net income per diluted share(1).......... 0.15 0.17 0.20 0.17
======= ======= ======= =======
FISCAL 1999:
Net revenues............................. $24,115 $27,692 $30,299 $35,076
Operating income......................... 5,888 6,535 9,368 11,574
Net income............................... 4,775 5,238 7,148 8,538
Net income per diluted share............. 0.07 0.07 0.10 0.11
======= ======= ======= =======
FISCAL 1998:
Net revenues............................. $18,172 $19,625 $20,856 $22,740
Operating income......................... 3,367 4,225 5,184 5,710
Net income............................... 2,244 3,041 3,946 4,177
Net income per diluted share............. 0.04 0.05 0.05 0.06
======= ======= ======= =======
</TABLE>
---------------
(1) Operating income, net income and net income per diluted share includes a
$7.5 million charge for acquired in-process technology in the fourth quarter
of fiscal 2000.
F-20
<PAGE> 189
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, other than an action
by or in the right of the corporation, because the person is or was a director
or officer of the corporation. Such indemnity may be against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action, suit or
proceeding, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and if, with respect to any criminal action or proceeding, the
person did not have reasonable cause to believe the person's conduct was
unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the corporation,
against any expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
be indemnified for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 145(g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the corporation against any
liability asserted against the person in any such capacity, or arising out of
the person's status as such, whether or not the corporation would have the power
to indemnify the person against such liability under the provisions of the law.
QLogic also maintains an insurance policy or policies to assist in funding
indemnification of directors and officers for certain liabilities.
II-1
<PAGE> 190
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of May 8, 2000 by and
among QLogic Corporation, Amino Acquisition Corp. and Ancor
Communications, Incorporated. (Included as Annex A to the
joint proxy statement/prospectus contained in this
registration statement.)
2.2 Stock Option Agreement dated as of May 8, 2000 by and among
QLogic Corporation and Ancor Communications, Incorporated.
(Included as Annex D to the joint proxy statement/prospectus
contained in this registration statement.)
2.3 Form of Voting Agreement dated as of May 8, 2000 by and
among QLogic Corporation and various Ancor Communications,
Incorporated directors and executive officers. (Incorporated
by reference to QLogic Corporation's Form 8-K dated May 8,
2000 filed May 11, 2000.)
3.1 Certificate of Incorporation of Emulex Micro Devices
Corporation, dated November 13, 1992. (Incorporated by
reference to an exhibit to QLogic Corporation's Registration
Statement on Form 10 filed January 28, 1994.)
3.2 EMD Incorporation Agreement, dated as of January 1, 1993.
(Incorporated by reference to an exhibit to QLogic
Corporation's Registration Statement on Form 10 filed
January 28, 1994.)
3.3 Certificate of Amendment of Certificate of Incorporation,
dated May 26, 1993. (Incorporated by reference to an exhibit
to QLogic Corporation's Registration Statement on Form 10
filed January 28, 1994.)
3.4 Bylaws of QLogic Corporation. (Incorporated by reference to
an exhibit to QLogic Corporation's Registration Statement on
Form 10 filed January 28, 1994.)
3.5 Amendments to Bylaws of QLogic Corporation. (Incorporated by
reference to an exhibit to QLogic Corporation's Registration
Statement on Form 10 filed January 28, 1994.)
3.6 Certificate of Amendment of Certificate of Incorporation,
dated February 15, 1999. (Incorporated by reference to an
exhibit to QLogic Corporation's Annual Report on Form 10-K
for the year ended March 28, 1999.)
3.7 Certificate of Amendment of Certificate of Incorporation
dated January 5, 2000. (Incorporated by reference to an
exhibit to QLogic Corporation's Form 10-Q for the quarter
ended December 26, 1999.)
4.1 Form of certificate for shares of common stock of QLogic
Corporation. (Incorporated by reference to QLogic
Corporation's Form 10 filed February 14, 1994.)
4.2 Rights Agreement, dated as of June 4, 1996 between QLogic
Corporation and Harris Trust Company of California, which
includes as Exhibit B thereto the form of Rights
Certificate. (Incorporated by reference to Exhibit 2.1 to
QLogic Corporation's Form 8-A12G dated June 19, 1996.)
4.3 Amendment to Rights Agreement, dated as of November 19, 1997
between QLogic Corporation and Harris Trust Company of
California. (Incorporated by reference to Exhibit 2 to
QLogic Corporation's Form 8-A12G/A dated November 25, 1997.)
4.4 Amendment to Rights Agreement, dated as of January 24, 2000
between QLogic Corporation's and Harris Trust Company of
California. (Incorporated by reference to Exhibit 3 to
QLogic Corporation's Form 8-A12G/A dated June 1, 2000.)
5.1 Opinion of Stradling Yocca Carlson & Rauth regarding the
legality of the securities being issued.
8.1 Opinion of Dorsey & Whitney LLP regarding certain tax
matters.**
23.1 Consent of KPMG LLP with respect to QLogic Corporation's
consolidated financial statements.
</TABLE>
II-2
<PAGE> 191
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
23.2 Consent of KPMG LLP with respect to Ancor Communications,
Incorporated's financial statements.**
23.3 Consent of McGladrey & Pullen, LLP with respect to Ancor
Communications, Incorporated's financial statements.**
23.4 Consent of Dorsey & Whitney LLP. (Included in Exhibit 8.1.)
23.5 Consent of Stradling Yocca Carlson & Rauth. (Included in
Exhibit 5.1.)
23.6 Consent of SG Cowen Securities Corporation.
23.7 Consent of Goldman, Sachs & Co.
24.1 Power of Attorney.**
99.1 Opinion of SG Cowen Securities Corporation. (Included as
Annex B to the joint proxy statement/prospectus contained in
this registration statement.)
99.2 Opinion of Goldman, Sachs & Co. (Included as Annex C to the
joint proxy statement/prospectus contained in this
registration statement.)
99.3 Consent of Director Nominee Kenneth E. Hendrickson.**
99.4 Form of proxy card for QLogic stockholders.
99.5 Form of proxy card for Ancor shareholders.
</TABLE>
---------------
** Previously filed
(b) Not applicable.
(c)(1) Opinion of SG Cowen Securities Corporation. (Included as Annex B to
the joint proxy statement/prospectus contained in this registration statement.)
(2) Opinion of Goldman, Sachs & Co. (Included as Annex C to the joint proxy
statement/prospectus contained in this registration statement.)
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof;
(2) that, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under
II-3
<PAGE> 192
the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of this registration statement through the date of
responding to the request;
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement
when it became effective; and
(6) insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item
20 above, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Aliso
Viejo, State of California as of the 22nd day of June, 2000.
QLOGIC CORPORATION
By: /s/ H.K. DESAI
-----------------------------------
H.K. Desai
Chairman of the Board, President,
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed on June 22, 2000, by the following
persons on behalf of the Registrant and in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ H.K. DESAI Chairman of the Board, President
------------------------------------------------ and Chief Executive Officer
H.K. Desai
/s/ THOMAS R. ANDERSON Chief Financial Officer (Principal
------------------------------------------------ Financial and Accounting Officer)
Thomas R. Anderson
* Director
------------------------------------------------
Carol L. Miltner
* Director
------------------------------------------------
George D. Wells
* Director
------------------------------------------------
Larry R. Carter
* Director
------------------------------------------------
Jim Fiebiger
</TABLE>
*By: /s/ H.K. DESAI
-----------------------------
H.K. Desai
Attorney-in-Fact
II-5
<PAGE> 194
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
2.1 Agreement and Plan of Merger dated as of May 8, 2000 by and
among QLogic Corporation, Amino Acquisition Corp. and Ancor
Communications, Incorporated. (Included as Annex A to the
joint proxy statement/prospectus contained in this
registration statement.)
2.2 Stock Option Agreement dated as of May 8, 2000 by and among
QLogic Corporation and Ancor Communications, Incorporated.
(Included as Annex D to the joint proxy statement/prospectus
contained in this registration statement.)
2.3 Form of Voting Agreement dated as of May 8, 2000 by and
among QLogic Corporation and various Ancor Communications,
Incorporated directors and executive officers. (Incorporated
by reference to QLogic Corporation's Form 8-K dated May 8,
2000 filed May 11, 2000.)
3.1 Certificate of Incorporation of Emulex Micro Devices
Corporation, dated November 13, 1992. (Incorporated by
reference to an exhibit to QLogic Corporation's Registration
Statement on Form 10 filed January 28, 1994.)
3.2 EMD Incorporation Agreement, dated as of January 1, 1993.
(Incorporated by reference to an exhibit to QLogic
Corporation's Registration Statement on Form 10 filed
January 28, 1994.)
3.3 Certificate of Amendment of Certificate of Incorporation,
dated May 26, 1993. (Incorporated by reference to an exhibit
to QLogic Corporation's Registration Statement on Form 10
filed January 28, 1994.)
3.4 Bylaws of QLogic Corporation. (Incorporated by reference to
an exhibit to QLogic Corporation's Registration Statement on
Form 10 filed January 28, 1994.)
3.5 Amendments to Bylaws of QLogic Corporation. (Incorporated by
reference to an exhibit to QLogic Corporation's Registration
Statement on Form 10 filed January 28, 1994.)
3.6 Certificate of Amendment of Certificate of Incorporation,
dated February 15, 1999. (Incorporated by reference to an
exhibit to QLogic Corporation's Annual Report on Form 10-K
for the year ended March 28, 1999.)
3.7 Certificate of Amendment of Certificate of Incorporation
dated January 5, 2000. (Incorporated by reference to an
exhibit to QLogic Corporation's Form 10-Q for the quarter
ended December 26, 1999.)
4.1 Form of certificate for shares of common stock of QLogic
Corporation. (Incorporated by reference to QLogic
Corporation's Form 10 filed February 14, 1994.)
4.2 Rights Agreement, dated as of June 4, 1996 between QLogic
Corporation and Harris Trust Company of California, which
includes as Exhibit B thereto the form of Rights
Certificate. (Incorporated by reference to Exhibit 2.1 to
QLogic Corporation's Form 8-A12G dated June 19, 1996.)
4.3 Amendment to Rights Agreement, dated as of November 19, 1997
between QLogic Corporation and Harris Trust Company of
California. (Incorporated by reference to Exhibit 2 to
QLogic Corporation's Form 8-A12G/A dated November 25, 1997.)
4.4 Amendment to Rights Agreement, dated as of January 24, 2000
between QLogic Corporation's and Harris Trust Company of
California. (Incorporated by reference to Exhibit 3 to
QLogic Corporation's Form 8-A12G/A dated June 1, 2000.)
5.1 Opinion of Stradling Yocca Carlson & Rauth regarding the
legality of the securities being issued.
8.1 Opinion of Dorsey & Whitney LLP regarding certain tax
matters.**
23.1 Consent of KPMG LLP with respect to QLogic Corporation's
consolidated financial statements.
</TABLE>
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
23.2 Consent of KPMG LLP with respect to Ancor Communications,
Incorporated's financial statements.**
23.3 Consent of McGladrey & Pullen, LLP with respect to Ancor
Communications, Incorporated's financial statements.**
23.4 Consent of Dorsey & Whitney LLP. (Included in Exhibit 8.1.)
23.5 Consent of Stradling Yocca Carlson & Rauth. (Included in
Exhibit 5.1.)
23.6 Consent of SG Cowen Securities Corporation.
23.7 Consent of Goldman, Sachs & Co.
24.1 Power of Attorney.**
99.1 Opinion of SG Cowen Securities Corporation. (Included as
Annex B to the joint proxy statement/prospectus contained in
this registration statement.)
99.2 Opinion of Goldman, Sachs & Co. (Included as Annex C to the
joint proxy statement/prospectus contained in this
registration statement.)
99.3 Consent of Director Nominee Kenneth E. Hendrickson.**
99.4 Form of proxy card for QLogic stockholders.
99.5 Form of proxy card for Ancor shareholders.
</TABLE>
---------------
** Previously filed
