Document:

exv10w1

 

Exhibit 10.1

September 5, 2006

James M. McCluney

c/o Emulex Corporation

3333 Susan Street

Costa Mesa, California 92626

          Re: Amendment to Key Employee Retention Agreement

Dear Jim:

     Both Emulex Corporation, a Delaware corporation (“Emulex”) and its affiliates, and its wholly
owned subsidiary, Emulex Corporate Services Corporation, a California Corporation (the “Company”)
value your services as Chief Executive Officer. Because the Company, Emulex and its affiliates
wish to assure themselves of both present and future continuity of management in the event of any
Change in Control (as defined below), as well as objectivity of management in the event of a
proposed Change in Control, you and Emulex and the Company are hereby entering into the following
agreements which amend, restate and supersede your prior key employee retention agreement with
Emulex and its wholly owned subsidiary Emulex Corporation, a California Corporation with respect to
your prior position as President and Chief Operating Officer of the Company:

1. Severance Payment and Employee Benefits. If a Change in Control (as defined below)
shall occur after the date of this Agreement, and you are then still an employee of the Company,
and at any time within two years after the Change in Control and prior to your Normal Retirement
Date (as defined below) your employment is terminated by the Company without Cause (as defined
below) or by you because of a Demotion (as defined below):

     1.1 Severance Payment.

          (a) The Company will pay to you within 15 days after the date of termination of your
employment (the “Termination Date”) a lump-sum severance payment (the “Severance Payment”) equal to
the present value of 200% of the sum of your Annual Base Pay (as defined below) plus your Annual
Incentive Pay (as defined below); provided, however, that the Severance Payment will be reduced by
the aggregate amount of severance payments received by you under any other severance policy, plan,
program, or arrangement of the Company. Such present value shall be determined as if an aggregate
amount equal to 200% of the sum of your Annual Base Pay plus your Annual Incentive Pay (minus, if
applicable, the aggregate amount of severance payments received by you under any other severance
policies, plan, program, or arrangement of the Company) would otherwise have been paid to you in 24
equal monthly installments commencing one month after the

 

 

Termination Date, using a discount rate
equal to the then-applicable interest rate adopted by the Pension Benefit Guaranty Corporation for purposes of benefit valuations in connection with
non-multiemployer pension plan terminations assuming the immediate commencement of benefit
payments, as set forth in Table II in Appendix B to Part 4044 (formerly Part 2619) of Title 29 of
the Code of Federal Regulations (29 C.F.R. § 4044.75(b)), or any successor appendix, schedule, rule
or regulation.

          (b) In lieu of a cash lump sum, you may, in your sole discretion, elect to receive the
Severance Payment in equal annual installments over five years (or such lesser number of years as
you may elect) beginning on the Deferred Commencement Date described below. Any election must
specify the installment period in a form that is acceptable to the Company and in compliance with
the conditions herein. Such installments, plus interest calculated at the discount rate specified
in Section 1.1(a) hereof determined as of the Termination Date, shall be paid to you on each
anniversary of the Deferred Commencement Date, beginning with the first such anniversary and
continuing on each such anniversary thereafter until fully paid. Such election to receive the
Severance Payment in installments must be made in writing by providing written notice to the
Secretary of Emulex of such election and must satisfy the following conditions: (1) such election
may not take effect until at least twelve months after the date on which the election is made; and
(2) except in the event of your death, disability or unforeseeable emergency, the Deferred
Commencement Date that is the date of the first payment to which the installment payment election
applies must be deferred for not less than five years after the Termination Date on which such
Severance Payment would otherwise have been made. Any such election by you to receive the
Severance Payment in installments shall be irrevocable and binding on all parties hereto.

          (c) In the event that on your Termination Date there is not in effect a timely election by you
to receive the Severance Payment in installments, such Severance Payment shall be paid to you in a
single cash lump sum as provided in Section 1.1(a) hereof. In the event that you have made an
appropriate and timely election to receive the Severance Payment in annual installments, and you
become entitled to such Severance Payment as provided in this Agreement, then such Severance
Payment, to the extent at any time unpaid and/or deferred, shall be deemed to bear interest at the
aforementioned discount rate (based on the discount rate determined as of the Termination Date) or,
if less, the maximum rate permitted by law. Accrued interest shall be due and payable together
with each annual installment of the Severance Payment.

          (d) Notwithstanding anything to the contrary in this Section 1.1, in the event any Severance
Payment or other benefits under this agreement are determined, in whole or in part, to constitute
“nonqualified deferred compensation” within the meaning of Section 409A of the Code and you are a
specified employee as defined in Section 409A(2)(B)(i) of the Code, such amounts will not be paid
before the date which is six months after your Termination Date. Although it is contemplated that
Severance Payment or other benefits resulting from an involuntary termination of employment without
Cause will be short-term deferrals that will not constitute “nonqualified deferred compensation”
within the meaning of Section 409A of the Code, it is not clear that such treatment will be
available in all instances, including, for example, a termination by you because of a Demotion.
The determination of whether and what amount of the Severance Payment or other benefits constitute
deferred compensation and whether you are a specified employee within the

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meaning of Section 409A(2)(B)(i) of the Code shall be determined by the board of
directors of the Company or its delegate and any such determination shall be final and binding on
the Company and you, unless such decisions are determined to be arbitrary and capricious by a court
having jurisdiction. The Company makes no representation and the Company shall have no liability
to you or any other person if any Severance Payment or other benefits provided pursuant to the
terms of this Agreement are determined to constitute “nonqualified deferred compensation” within
the meaning of Section 409A of the Code and the payment terms of such Severance Payment or other
benefits do not satisfy the additional conditions applicable to nonqualified deferred compensation
under Section 409A of the Code and this Section 1.1(d).

     1.2 Employee Benefits. The Company shall provide or arrange to provide to you
continuation of your Employee Benefits (as defined below) for two years following the Termination
Date; provided, however, that such Employee Benefits will be reduced to the extent comparable
benefits are actually received by you (i) from another employer during such two-year period (and
any such benefits actually received by you shall be reported promptly by you to the Company) or
(ii) under any other policy, plan, program, or arrangement of the Company.

          Any or all of such Employee Benefits may be provided to you, in the discretion of the Company,
pursuant to policies or plans of the Company which exist as of the Termination Date and/or pursuant
to policies, plans, or arrangements which are implemented or adopted by the Company on or after the
Termination Date, including those which are implemented or adopted by the Company for your benefit
only or for the benefit of you and selected other employees or former employees of the Company.
The Company, in its discretion, may also fulfill its obligation to provide continuation of any or
all of your Employee Benefits in accordance with the foregoing by paying to you in cash from time
to time the minimum amount necessary to enable you to purchase a comparable Employee Benefit from
another benefit provider; provided, however, that this cash alternative shall not be utilized by
the Company if and to the extent comparable Employee Benefits are available to you under the terms
of the existing policies or plans of the Company.

     1.3 Certain Payment Reductions.

          (a) For purposes of this Section 1.3, (i) a Payment shall mean any payment or distribution in
the nature of compensation to or for your benefit, whether paid or payable pursuant to this
Agreement or otherwise; (ii) Agreement Payment shall mean a Payment paid or payable pursuant to
this Agreement (determined without regard to this Section 1.3); (iii) Net After Tax Receipt shall
mean the Present Value of a Payment net of all taxes imposed on you with respect thereto under
Sections 1 and 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), determined by
applying the highest marginal rate under Section 1 of the Code which applied to your taxable income
for the immediately preceding taxable year; (iv) “Present Value” shall mean such value determined
in accordance with Section 280G(d)(4) of the Code; and (v) “Reduced Amount” shall mean the smallest
aggregate amount of Payments which (a) is less than the sum of all Payments (determined without
regard to this Section 1.3) and (b) results in aggregate Net After Tax Receipts which are equal to
or greater than the Net After Tax Receipts which would result if the aggregate Payments were equal
to the sum of all Payments (determined without regard to this Section 1.3) or any other amount less
than the sum of all payments (determined without regard to this Section 1.3).

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          (b) Anything in this Agreement to the contrary notwithstanding, in the event accountants
selected by the Company (the “Accounting Firm”) shall determine that receipt of all Payments would
subject you to tax under Section 4999 of the Code, it shall determine whether some amount of
Payments would meet the definition of a “Reduced Amount.” If the Accounting Firm determines that
there is a Reduced Amount, the aggregate Agreement Payments shall be reduced to such Reduced
Amount; provided, however, that if the Reduced Amount exceeds the aggregate Agreement Payments, the
aggregate Payments shall, after the reduction of all Agreement Payments, be reduced (but not below
zero) in the amount of such excess.

          (c) If the Accounting Firm determines that aggregate Agreement Payments or Payments, as the
case may be, should be reduced to the Reduced Amount, the Company shall promptly give you notice to
that effect and a copy of the detailed calculation thereof, and you may then elect, in your sole
discretion, which and how much of the Payments shall be eliminated or reduced (as long as after
such election the present value of the aggregate Payments equals the Reduced Amount), and you shall
advise the Company in writing of your election within ten days of your receipt of notice. If no
such election is made by you within such ten-day period, the Company may elect which of the
Agreement Payments or Payments, as the case may be, shall be eliminated or reduced (as long as
after such election the present value of the aggregate Agreement Payments or Payments, as the case
may be, equals the Reduced Amount) and shall notify you promptly of such election. All
determinations made by the Accounting Firm under this Section 1.3 shall be binding upon the Company
and you and shall be made within 60 days after a termination of your employment. As promptly as
practicable following such determination, the Company shall pay to or distribute for your benefit
such Payments as are then due to you under this Agreement and shall promptly pay to or distribute
for your benefit in the future such Payments as become due to you under this Agreement.

          (d) While it is the intention of the Company and you to reduce the amounts payable or
distributable to you hereunder only if the aggregate Net After Tax Receipts to you would thereby be
increased, as a result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is possible that amounts
will have been paid or distributed by the Company to or for your benefit pursuant to this Agreement
which should not have been so paid or distributed (“Overpayment”) or that additional amounts which
will have not been paid or distributed by the Company to or for your benefit pursuant to this
Agreement could have been so paid or distributed (“Underpayment”), in each case, consistent with
the calculation of the Reduced Amount hereunder. The Company shall have no obligation to make an
Overpayment to you or for your benefit. In the event that the Accounting Firm, based either upon
the assertion of a deficiency by the Internal Revenue Service against the Company or you which the
Accounting Firm believes has a high probability of success or controlling precedent or other
substantial authority, determines that an Overpayment has been made, any such Overpayment paid or
distributed by the Company to or for your benefit shall be repaid by you promptly to the Company;
provided, however, that no such Overpayment shall be repaid by you to the Company if and to the
extent such Overpayment and repayment would not either reduce the amount on which you are subject
to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the
event that the Accounting Firm, based upon controlling precedent or other substantial authority,
determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by
the Company to or for your benefit together with interest at the applicable federal rate provided
for under Section 7872(f)(2) of the Code.

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          (e) The Company will bear the fees and expenses of the Accounting Firm in making the
determinations required by this Section 1.3.

2. Accelerated Vesting of Stock Options and Restricted Stock. If a Change in Control shall
occur after the date of this Agreement and you are then still an employee of the Company:

     2.1 Partial Acceleration. Upon the Change in Control, the vesting of your right to
exercise each Emulex Option (as defined below) and the vesting of any shares of Restricted Stock
held by you as of the Change in Control based on the length of your continued employment following
the grant of such Emulex Option or Restricted Stock will be accelerated by one year so that your
right to exercise such Emulex Option or to vest in shares of Restricted Stock after the Change in
Control will be determined as if such Emulex Option or Restricted Stock had been granted to you one
year before the actual date of grant of such equity award; provided, however, that the term and
expiration date of, and any other restrictions on your right to exercise, such Emulex Option or
Restricted Stock shall not be affected by the Change in Control; provided further, however, that,
if the agreement evidencing such Emulex Option or Restricted Stock shall provide for acceleration
of vesting of your right to exercise such Emulex Option or vest in such Restricted Stock upon a
Change in Control which is more favorable to you than the foregoing provisions of this Section 2.1,
the acceleration provisions of your Emulex Option or Restricted Stock agreement shall apply and
this Section 2.1 shall be disregarded.

     2.2 Full Acceleration. If, within two years after the Change in Control and prior to
your Normal Retirement Date, your employment with the Company is terminated by the Company without
Cause or by you because of a Demotion, the vesting of your right to exercise each Emulex Option and
vest in the Restricted Stock held by you as of the Termination Date will be fully accelerated as of
the Termination Date so that you will have the right to exercise such Emulex Option and vest in
such Restricted Stock in full at any time during its remaining term.

3. No Mitigation. You shall not be obligated to seek employment or otherwise mitigate the
Severance Payment to you under this Agreement, nor shall the Severance Payment be reduced by any
compensation earned by you as a result of your employment by another employer after the Termination
Date.

4. Employment Rights. Nothing in this Agreement, expressed or implied, shall obligate
Emulex, the Company or you to continue your employment with the Company or limit the right of you
or the Company to terminate your employment at any time before or after a Change in Control.
Notwithstanding the foregoing, if your employment is terminated by the Company without Cause or by
you because of a Demotion after commencement by Emulex or the Company of substantive discussions
with any third party which result in a Change in Control in which such third party has a
significant involvement within one year after commencement of such discussions and prior to your
Normal Retirement Date, your right to receive payments and benefits under this Agreement will be
determined as if your employment had terminated immediately following the Change in Control.
Nothing in this Agreement, expressed or implied, shall obligate Emulex or the Company to make a
loan to you or to arrange for the extension of credit to you.

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5. Definitions. For purposes of this Agreement, the terms set forth below are defined as
follows:

     5.1 “Annual Base Pay” means an amount equal to the greatest of (i) your annual fixed
or base compensation as in effect immediately prior to a Change in Control, (ii) your annual fixed
or base compensation as in effect immediately prior to commencement by Emulex or the Company of
substantive discussions with any third party that results in a Change in Control in which such
third party has a significant involvement within one year after commencement of such discussions,
and (iii) your annual fixed or base compensation as in effect immediately prior to the Termination
Date.

     5.2 “Annual Incentive Pay” means an amount equal to the highest annual average of the
aggregate bonuses or incentive payments of cash compensation in addition to fixed or base
compensation paid to you for your services in any two of the last three full fiscal years of the
Company immediately preceding the fiscal year of the Company in which the Change in Control occurs
(or such lesser number of full fiscal years during which you were employed by the Company if less
than three) or, if higher, the highest annual average of the aggregate annual bonuses or incentive
payments of cash compensation paid to you for services in any two of the last three full fiscal
years of the Company immediately preceding the fiscal year of the Company in which the Termination
Date occurs (or such lesser number of full fiscal years during which you were employed by the
Company if less than three).

     5.3 “Cause” for termination of your employment by the Company will exist if (i) you
become permanently disabled and are unable to perform your duties as an employee of the Company or
(ii) you commit any of the following acts and any of such acts shall be determined by the board of
directors of the Company to have been materially harmful to the Company at a meeting of the board
of directors called and held for such purpose (after reasonable notice to you and an opportunity
for you and your representative to make a presentation to the board of directors): an act of
fraud, embezzlement or theft in connection with your duties or in the course of your employment
with the Company; intentional wrongful damage to property of the Company; intentional wrongful
disclosure of trade secrets or confidential information of the Company; or intentional wrongful
engagement in any Competitive Activity (as defined below) while you are employed by the Company.

     5.4 “Change in Control” shall be deemed to have occurred only if (i) Emulex is merged
or consolidated or reorganized into or with another corporation and less than 51% of the combined
voting power of the then-outstanding securities of the surviving corporation immediately thereafter
is held in the aggregate by the holders of Voting Stock (as defined below) of Emulex immediately
prior to such transaction; (ii) Emulex sells or otherwise transfers all or substantially all of its
assets to any other corporation if less than 51% of the combined voting power of the
then-outstanding voting securities of such corporation immediately after such sale or transfer is
held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale
or transfer; (iii) there is consummated a transaction which results in Emulex beneficially owning,
directly or indirectly, less
than a majority of the outstanding shares of Voting Stock of the Company, unless common stock

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of the Company has been listed, approved or otherwise qualified for quotation or trading on the
NASDAQ National Market System, the American Stock Exchange or the New York Stock Exchange and no
person (as the term “person” is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act,
as defined below) other than Emulex beneficially owns (as “beneficial ownership” is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act), as of
consummation of such transaction, more than 33-1/3% of the Voting Stock of the Company; (iv) the
Company sells or otherwise transfers all or substantially all of its assets to another corporation
if less than 51% of the Voting Stock of the transferee corporation immediately after such sale or
transfer is held in the aggregate by Emulex, the Company or the holders of Voting Stock of Emulex
immediately prior to such sale or transfer; (v) there is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule or report) promulgated under the Securities Exchange Act of 1934
(the “Exchange Act”) disclosing that any person has become the beneficial owner of securities
representing 33-1/3% or more of the combined voting power of the then-outstanding securities
entitled to vote generally in the election of directors of Emulex (the “Voting Stock”); (vi) Emulex
shall file a report or proxy statement with the Securities and Exchange Commission pursuant to the
Exchange Act disclosing in response to Item 1 of Form 8-K thereunder or Item 6(e) of Schedule 14A
thereunder (or any successor schedule or report) that a change in control of Emulex has or may have
occurred or will or may occur in the future pursuant to any then-existing contract or transaction;
or (vii) during any period of two consecutive years, individuals who at the beginning of any such
period constitute the directors of Emulex cease for any reason to constitute at least a majority
thereof unless the election or the nomination for election by Emulex’s shareholders of each
director of Emulex first elected during such period (y) was approved by a vote of at least a
majority of the directors of Emulex then still in office who were directors of Emulex at the
beginning of any such period and (z) such election or nomination was not made in connection with an
actual or threatened election contest relating to the election of directors of Emulex, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act.
Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred for
purposes of this Agreement solely because Emulex, an entity in which Emulex directly or indirectly
beneficially owns more than 50% of the voting securities, or any Emulex-sponsored employee stock
ownership plan or any other employee benefit plan of Emulex or any entity holding shares of Voting
Stock for or pursuant to the terms of any such plan either files or becomes obligated to file a
report or proxy statement under or in response to Schedule 13D, or Schedule 14D-1, Item 1 of Form
8-K or Item 6(e) of Schedule 14A (or any successor report or schedule) under the Exchange Act,
disclosing beneficial ownership by it of shares of Voting Stock of Emulex, whether in excess of
33-1/3% or otherwise, or because Emulex reports that a change in control of Emulex has or may have
occurred or will or may occur in the future by reason of such beneficial ownership.

     5.5 “Competitive Activity” means your participation, without the consent of the board
of directors of the Company, in the management of any business enterprise if such enterprise
engages in substantial and direct competition with the Company and such enterprise’s sales of any
product or service competitive with any product or service of the Company amounted to 10% of such
enterprise’s net sales for its most recently completed fiscal year and if the Company’s
consolidated net sales of such products or services amounted to 10% of the Company’s consolidated
net sales for
its most recently completed fiscal year. “Competitive Activity” shall not include (i) the
mere ownership of securities in any enterprise and exercise of rights appurtenant thereto or (ii)
participation in management of any enterprise or business operation thereof other than in
connection with competitive operation of such enterprise.

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     5.6 “Deferred Commencement Date” means the date of the first payment to which the
installment payment election applies which must be deferred for not less than five years after the
Termination Date on which such Severance Payment would otherwise have been made.

     5.7 “Demotion” will be deemed to have occurred if any of the following changes with
respect to your employment with the Company shall occur during the two-year period immediately
following a Change in Control and prior to your Normal Retirement Date, you provide written notice
to the Company within 30 days of the first occurrence of such change and such change is not
remedied within 15 days after written notice thereof from you to the Company: (i) a significant
adverse change in the nature or scope of the powers, functions, titles, responsibilities or duties
in respect of the Company or Emulex which you had immediately prior to the Change in Control; (ii)
a reduction of your annual fixed or base compensation below the sum of your annual fixed or base
compensation as in effect immediately prior to the Change in Control; (iii) a reduction of your
aggregate bonus or incentive payment opportunities below the amount equal to the highest annual
average of the aggregate bonuses or incentive payments of cash compensation in addition to fixed or
base compensation paid to you for your services in any two of the last three full fiscal years of
the Company immediately preceding the fiscal year of the Company in which the Change in Control
occurred (or such lesser number of full fiscal years during which you were employed by the Company
if less than three), provided that nothing herein shall be construed as a commitment or a guarantee
that payment of any cash bonuses or incentive payments will actually be made and no Demotion will
occur if actual performance does not result in attainment of the goals required to receive the
specified bonus or incentive payment opportunities; (iv) a reduction of the Employee Benefits which
you were receiving immediately prior to the Change in Control below the comparable employee
benefits provided by the Company to its other executive officers from time to time; or (v)
relocation of the principal executive offices of the Company to, or any requirement of you to have
as your principal location of work at, any place which is more than 50 miles from the location
thereof immediately prior to the Change in Control.

          The parties acknowledge that, in the event of a Change in Control, it may be mutually
advantageous for you and your employer to discuss and implement changes in your employment on a
trial basis even though such employment changes may constitute a “Demotion” under the terms of this
Agreement. Accordingly, any change with respect to your employment to which you do not object in
writing will not constitute a Demotion; provided, however, that your acceptance on a trial basis of
a change which would otherwise constitute a Demotion will not constitute a waiver of your right to
object in writing to such change within 30 days and to treat such change as a Demotion if it is not
remedied within 15 days after written notice to the Company of your unwillingness to continue
accepting such change.

     5.8 “Employee Benefits” means benefits provided to you by the Company immediately
prior to a Change in Control, or, if greater, benefits provided to you by the Company immediately
prior to commencement by the Company of substantive discussions with any third party which
result in a Change in Control in which such third party has a significant involvement within one
year after

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commencement of such discussions, or, if greater, benefits provided to you by the
Company immediately prior to the Termination Date, in each case under any and all medical or
health, life insurance, disability income, tax assistance, or executive automobile benefit
policies, plans, programs or arrangements in which you are a participant at the applicable time.

     5.9 “Emulex Option” means each option to purchase shares of stock of Emulex which is
granted to you by Emulex prior to a Change in Control and each option to purchase shares of stock
of Emulex’s successor (by purchase of assets, merger, consolidation, reorganization or otherwise)
which is granted to you by such successor in connection with or after a Change in Control in
exchange or substitution for an option granted to you by Emulex prior to the Change in Control.

     5.10 “Normal Retirement Date” means the date designated by Emulex or the Company for
your normal retirement under any retirement policy or plan which is applied to the Company’s
executive officers in a non-discriminatory manner or, if no such policy or plan has been
established, the date when you attain age 65.

     5.11 “Restricted Stock” means shares of stock of Emulex which is awarded to you by
Emulex prior to a Change in Control and each share of stock of Emulex’s successor (by purchase of
assets, merger, consolidation, reorganization or otherwise) which is awarded to you by such
successor in connection with or after a Change in Control in exchange or substitution for an option
granted to you by Emulex prior to the Change in Control, which shares are subject to a substantial
risk of forfeiture and restrictions on transferability during a specified vesting period.

6. Withholding of Taxes. The Company or Emulex may withhold from any amounts payable under
this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or
government regulation or ruling.

7. Notice. For all purposes of this Agreement, all communications provided for herein
shall be in writing and shall be deemed to have been duly given when delivered or five business
days after having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the Company or Emulex (to the attention of the Secretary
of the Company or Emulex) at its principal executive office and to you at your principal residence,
or to such other address as either party may have furnished to the other in writing and in
accordance herewith, except that any notice of change of address shall be effective only upon
receipt.

8. Successors. This Agreement shall inure to the benefit of and be binding upon the
Company, Emulex and their successors. In the event of a Change in Control, any parent company,
which directly or indirectly controls a majority of the outstanding Voting Stock of Emulex or the
Company, or a successor to Emulex or the Company (by way of merger, consolidation, reorganization,
sale of assets or otherwise) shall, in the case of a successor, by an agreement in form and
substance reasonably satisfactory to you, expressly assume and agree to perform this Agreement and,
in the case of a parent company, by an agreement in form and substance reasonably satisfactory to
you, guarantee and agree to cause the performance of this Agreement, in each case, in the same
manner and to the same extent as Emulex or the Company would be required to perform if no Change in
Control had taken place.

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9. Severability; Entire Agreement; Amendments. This Agreement sets forth the entire
understanding among us as to the subject matter hereof. The terms of any prior plans, policies or
agreements relating to the subject matter hereof are hereby superseded and replaced by this
Agreement. From and after the date of this Agreement, any references to a Key Employee Retention
Agreement between the Company or Emulex and you contained in the offer of employment to you from
Emulex dated November 13, 2003, or in the related Addendum to Offer of Employment Letter dated
November 14, 2003, shall be deemed to refer solely to this Agreement. There are no terms,
conditions, representations, warranties or covenants other than those contained herein. No term or
provision of this Agreement may be amended, waived, released, discharged or modified in any
respect, except in writing, signed by the appropriate party(s). No waiver of any breach or default
shall constitute a waiver of any other breach or default whether of the same or any other covenant
or condition. A delay or failure to assert rights or a breach of this Agreement shall not be
deemed to be a waiver of such rights either with respect to that breach or any subsequent breach.
The invalidity or unenforceability of any provision of this Agreement shall not affect the validity
or enforceability of any other provision of this Agreement.

10. Governing Law. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of California, without giving effect to the
principles of conflict of laws of such State.

11. Counterparts. This agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall constitute one and the same
agreement.

12. Board Approval. Each of Emulex and the Company hereby represents that the execution,
delivery, and performance of this Agreement has been duly authorized by its board of directors.

13. Dispute Resolution. Except as provided herein, any controversy or claim arising out of
or relating in any way to this Agreement or the breach thereof, or your employment and any
statutory claims including all claims of employment discrimination shall be subject to private and
confidential arbitration in the City of Costa Mesa in accordance with the laws of the State of
California and the Executive Employment Dispute Resolution Rules (“Rules”) of the American
Arbitration Association (but shall not be required to be conducted under the auspices of the
American Arbitration Association). You waive any right to a jury trial. This provision will not
apply to disputes where injunctive relief would be appropriate or in connection with claims under
the Employee Invention and Non-Disclosure Agreement.

     13.1 The arbitration shall be conducted in a procedurally fair manner by a mutually agreed
upon arbitrator selected in accordance with the Rules or if none can be mutually agreed upon, then
by one arbitrator appointed pursuant to the Rules;

     13.2 The arbitration shall be conducted confidentially in accordance with the Rules;

     13.3 The arbitration fees shall be paid by the Company;

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     13.4 Each party shall have the right to conduct discovery including (3) three depositions,
requests for production of documents and such other discovery as permitted under the Rules or
ordered by the arbitrator;

     13.5 The arbitrator shall have the authority to award any damages authorized by law for the
claims presented including punitive damages and shall have the authority to award reasonable
attorneys fees to the prevailing party;

     13.6 The decision of the arbitrator shall be final and binding on all parties and shall be the
exclusive remedy of the parties; and

     13.7 The award shall be in writing in accordance with the Rules, and shall be subject to
judicial enforcement in accordance with California law.

14. Late Payment Interest. Any payment which is not made to you when due under this
Agreement shall bear interest at the rate of 10% per annum from the due date to the payment date.

	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	EMULEX CORPORATE SERVICES CORPORATION, a California

corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	EMULEX CORPORATION,	 	 
	 	 	a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 	 	 
	AGREED:
	 	 
	 
	 	 	 	 
	 	 	 
	James M. McCluney	 	 
	 
	 	 	 	 
	Dated:

	 	 	 	 
	 

	 	 	 	 

11exv10w2

 

Exhibit 10.2

September 5, 2006

Paul F. Folino

c/o Emulex Corporation

3333 Susan Street

Costa Mesa, California 92626

          Re: Amendment to Key Employee Retention Agreement

Dear Paul:

Both Emulex Corporation, a Delaware corporation (“Emulex”) and its affiliates, and its wholly
owned subsidiary, Emulex Corporate Services Corporation, a California Corporation (the “Company”)
value your services as Executive Chairman. Because the Company, Emulex and its affiliates wish to
assure themselves of both present and future continuity of management in the event of any Change in
Control (as defined below), as well as objectivity of management in the event of a proposed Change
in Control, you and Emulex and the Company are hereby entering into the following agreements which
amend, restate and supersede your prior key employee retention agreement with Emulex and its wholly
owned subsidiary Emulex Corporation, a California Corporation with respect to your prior position
as Chairman and Chief Executive Officer:

     1. Severance Payment and Employee Benefits. If a Change in Control (as defined below)
shall occur after the date of this Agreement, and you are then still an employee of the Company,
and at any time within two years after the Change in Control and prior to your Normal Retirement
Date (as defined below) your employment is terminated by the Company without Cause (as defined
below) or by you because of a Demotion (as defined below):

          1.1 Severance Payment.

     (a) The Company will pay to you within 15 days after the date of termination of your
employment (the “Termination Date”) a lump-sum severance payment (the “Severance Payment”) equal to
the present value of 200% of the sum of your Annual Base Pay (as defined below) plus your Annual
Incentive Pay (as defined below); provided, however, that the Severance Payment will be reduced by
the aggregate amount of severance payments received by you under any other severance policy, plan,
program, or arrangement of the Company. Such present value shall be determined as if an aggregate
amount equal to 200% of the sum of your Annual Base Pay plus your Annual Incentive Pay (minus, if
applicable, the aggregate amount of severance payments received by you under any other severance
policies, plan, program, or arrangement of the Company) would otherwise have been paid to you in 24
equal monthly installments commencing one month after the Termination Date, using a discount rate
equal to the then-applicable interest rate adopted by the

 

 

Pension Benefit Guaranty Corporation for
purposes of benefit valuations in connection with non-
multiemployer pension plan terminations assuming the immediate commencement of benefit
payments, as set forth in Table II in Appendix B to Part 4044 (formerly Part 2619) of Title 29 of
the Code of Federal Regulations (29 C.F.R. § 4044.75(b)), or any successor appendix, schedule, rule
or regulation.

          (b) In lieu of a cash lump sum, you may, in your sole discretion, elect to receive the
Severance Payment in equal annual installments over five years (or such lesser number of years as
you may elect) beginning on the Deferred Commencement Date described below. Any election must
specify the installment period in a form that is acceptable to the Company and in compliance with
the conditions herein. Such installments, plus interest calculated at the discount rate specified
in Section 1.1(a) hereof determined as of the Termination Date, shall be paid to you on each
anniversary of the Deferred Commencement Date, beginning with the first such anniversary and
continuing on each such anniversary thereafter until fully paid. Such election to receive the
Severance Payment in installments must be made in writing by providing written notice to the
Secretary of Emulex of such election and must satisfy the following conditions: (1) such election
may not take effect until at least twelve months after the date on which the election is made; and
(2) except in the event of your death, disability or unforeseeable emergency, the Deferred
Commencement Date that is the date of the first payment to which the installment payment election
applies must be deferred for not less than five years after the Termination Date on which such
Severance Payment would otherwise have been made. Any such election by you to receive the
Severance Payment in installments shall be irrevocable and binding on all parties hereto.

          (c) In the event that on your Termination Date there is not in effect a timely election by you
to receive the Severance Payment in installments, such Severance Payment shall be paid to you in a
single cash lump sum as provided in Section 1.1(a) hereof. In the event that you have made an
appropriate and timely election to receive the Severance Payment in annual installments, and you
become entitled to such Severance Payment as provided in this Agreement, then such Severance
Payment, to the extent at any time unpaid and/or deferred, shall be deemed to bear interest at the
aforementioned discount rate (based on the discount rate determined as of the Termination Date) or,
if less, the maximum rate permitted by law. Accrued interest shall be due and payable together
with each annual installment of the Severance Payment.

          (d) Notwithstanding anything to the contrary in this Section 1.1, in the event any Severance
Payment or other benefits under this agreement are determined, in whole or in part, to constitute
“nonqualified deferred compensation” within the meaning of Section 409A of the Code and you are a
specified employee as defined in Section 409A(2)(B)(i) of the Code, such amounts will not be paid
before the date which is six months after your Termination Date. Although it is contemplated that
Severance Payment or other benefits resulting from an involuntary termination of employment without
Cause will be short-term deferrals that will not constitute “nonqualified deferred compensation”
within the meaning of Section 409A of the Code, it is not clear that such treatment will be
available in all instances, including, for example, a termination by you because of a Demotion.
The determination of whether and what amount of the Severance Payment or other benefits constitute
deferred compensation and whether you are a specified employee within the meaning of Section
409A(2)(B)(i) of the Code shall be determined by the board of directors

2

 

of the Company or its delegate and any such determination shall be final and binding on the
Company and you, unless such decisions are determined to be arbitrary and capricious by a court
having jurisdiction. The Company makes no representation and the Company shall have no liability
to you or any other person if any Severance Payment or other benefits provided pursuant to the
terms of this Agreement are determined to constitute “nonqualified deferred compensation” within
the meaning of Section 409A of the Code and the payment terms of such Severance Payment or other
benefits do not satisfy the additional conditions applicable to nonqualified deferred compensation
under Section 409A of the Code and this Section 1.1(d).

     1.2 Employee Benefits. The Company shall provide or arrange to provide to you
continuation of your Employee Benefits (as defined below) for two years following the Termination
Date; provided, however, that such Employee Benefits will be reduced to the extent comparable
benefits are actually received by you (i) from another employer during such two-year period (and
any such benefits actually received by you shall be reported promptly by you to the Company) or
(ii) under any other policy, plan, program, or arrangement of the Company.

          Any or all of such Employee Benefits may be provided to you, in the discretion of the Company,
pursuant to policies or plans of the Company which exist as of the Termination Date and/or pursuant
to policies, plans, or arrangements which are implemented or adopted by the Company on or after the
Termination Date, including those which are implemented or adopted by the Company for your benefit
only or for the benefit of you and selected other employees or former employees of the Company.
The Company, in its discretion, may also fulfill its obligation to provide continuation of any or
all of your Employee Benefits in accordance with the foregoing by paying to you in cash from time
to time the minimum amount necessary to enable you to purchase a comparable Employee Benefit from
another benefit provider; provided, however, that this cash alternative shall not be utilized by
the Company if and to the extent comparable Employee Benefits are available to you under the terms
of the existing policies or plans of the Company.

     1.3 Certain Payment Reductions.

          (a) For purposes of this Section 1.3, (i) a Payment shall mean any payment or distribution in
the nature of compensation to or for your benefit, whether paid or payable pursuant to this
Agreement or otherwise; (ii) Agreement Payment shall mean a Payment paid or payable pursuant to
this Agreement (determined without regard to this Section 1.3); (iii) Net After Tax Receipt shall
mean the Present Value of a Payment net of all taxes imposed on you with respect thereto under
Sections 1 and 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), determined by
applying the highest marginal rate under Section 1 of the Code which applied to your taxable income
for the immediately preceding taxable year; (iv) “Present Value” shall mean such value determined
in accordance with Section 280G(d)(4) of the Code; and (v) “Reduced Amount” shall mean the smallest
aggregate amount of Payments which (a) is less than the sum of all Payments (determined without
regard to this Section 1.3) and (b) results in aggregate Net After Tax Receipts which are equal to
or greater than the Net After Tax Receipts which would result if the aggregate Payments were equal
to the sum of all Payments (determined without regard to this Section 1.3) or any other amount less
than the sum of all payments (determined without regard to this Section 1.3).

3

 

          (b) Anything in this Agreement to the contrary notwithstanding, in the event accountants
selected by the Company (the “Accounting Firm”) shall determine that receipt of all Payments would
subject you to tax under Section 4999 of the Code, it shall determine whether some amount of
Payments would meet the definition of a “Reduced Amount.” If the Accounting Firm determines that
there is a Reduced Amount, the aggregate Agreement Payments shall be reduced to such Reduced
Amount; provided, however, that if the Reduced Amount exceeds the aggregate Agreement Payments, the
aggregate Payments shall, after the reduction of all Agreement Payments, be reduced (but not below
zero) in the amount of such excess.

          (c) If the Accounting Firm determines that aggregate Agreement Payments or Payments, as the
case may be, should be reduced to the Reduced Amount, the Company shall promptly give you notice to
that effect and a copy of the detailed calculation thereof, and you may then elect, in your sole
discretion, which and how much of the Payments shall be eliminated or reduced (as long as after
such election the present value of the aggregate Payments equals the Reduced Amount), and you shall
advise the Company in writing of your election within ten days of your receipt of notice. If no
such election is made by you within such ten-day period, the Company may elect which of the
Agreement Payments or Payments, as the case may be, shall be eliminated or reduced (as long as
after such election the present value of the aggregate Agreement Payments or Payments, as the case
may be, equals the Reduced Amount) and shall notify you promptly of such election. All
determinations made by the Accounting Firm under this Section 1.3 shall be binding upon the Company
and you and shall be made within 60 days after a termination of your employment. As promptly as
practicable following such determination, the Company shall pay to or distribute for your benefit
such Payments as are then due to you under this Agreement and shall promptly pay to or distribute
for your benefit in the future such Payments as become due to you under this Agreement.

          (d) While it is the intention of the Company and you to reduce the amounts payable or
distributable to you hereunder only if the aggregate Net After Tax Receipts to you would thereby be
increased, as a result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is possible that amounts
will have been paid or distributed by the Company to or for your benefit pursuant to this Agreement
which should not have been so paid or distributed (“Overpayment”) or that additional amounts which
will have not been paid or distributed by the Company to or for your benefit pursuant to this
Agreement could have been so paid or distributed (“Underpayment”), in each case, consistent with
the calculation of the Reduced Amount hereunder. The Company shall have no obligation to make an
Overpayment to you or for your benefit. In the event that the Accounting Firm, based either upon
the assertion of a deficiency by the Internal Revenue Service against the Company or you which the
Accounting Firm believes has a high probability of success or controlling precedent or other
substantial authority, determines that an Overpayment has been made, any such Overpayment paid or
distributed by the Company to or for your benefit shall be repaid by you promptly to the Company;
provided, however, that no such Overpayment shall be repaid by you to the Company if and to the
extent such Overpayment and repayment would not either reduce the amount on which you are subject
to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the
event that the Accounting Firm, based upon controlling precedent or other substantial authority,
determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by
the Company to or for your benefit together with interest at the applicable federal rate provided
for under Section 7872(f)(2) of the Code.

4

 

          (e) The Company will bear the fees and expenses of the Accounting Firm in making the
determinations required by this Section 1.3.

2. Accelerated Vesting of Stock Options. If a Change in Control shall occur after the date
of this Agreement and you are then still an employee of the Company:

     2.1 Partial Acceleration. Upon the Change in Control, the vesting of your right to
exercise each Emulex Option (as defined below) and the vesting of any shares of Restricted Stock
held by you as of the Change in Control based on the length of your continued employment following
the grant of such Emulex Option or Restricted Stock will be accelerated by one year so that your
right to exercise such Emulex Option or to vest in shares of Restricted Stock after the Change in
Control will be determined as if such Emulex Option or Restricted Stock had been granted to you one
year before the actual date of grant of such equity award; provided, however, that the term and
expiration date of, and any other restrictions on your right to exercise, such Emulex Option or
Restricted Stock shall not be affected by the Change in Control; provided further, however, that,
if the agreement evidencing such Emulex Option or Restricted Stock shall provide for acceleration
of vesting of your right to exercise such Emulex Option or vest in such Restricted Stock upon a
Change in Control which is more favorable to you than the foregoing provisions of this Section 2.1,
the acceleration provisions of your Emulex Option or Restricted Stock agreement shall apply and
this Section 2.1 shall be disregarded.

     2.2 Full Acceleration. If, within two years after the Change in Control and prior to
your Normal Retirement Date, your employment with the Company is terminated by the Company without
Cause or by you because of a Demotion, the vesting of your right to exercise each Emulex Option and
vest in the Restricted Stock held by you as of the Termination Date will be fully accelerated as of
the Termination Date so that you will have the right to exercise such Emulex Option and vest in
such Restricted Stock in full at any time during its remaining term.

3. No Mitigation. You shall not be obligated to seek employment or otherwise mitigate the
Severance Payment to you under this Agreement, nor shall the Severance Payment be reduced by any
compensation earned by you as a result of your employment by another employer after the Termination
Date.

4. Employment Rights. Nothing in this Agreement, expressed or implied, shall obligate
Emulex, the Company or you to continue your employment with the Company or limit the right of you
or the Company to terminate your employment at any time before or after a Change in Control.
Notwithstanding the foregoing, if your employment is terminated by the Company without Cause or by
you because of a Demotion after commencement by Emulex or the Company of substantive discussions
with any third party which result in a Change in Control in which such third party has a
significant involvement within one year after commencement of such discussions and prior to your
Normal Retirement Date, your right to receive payments and benefits under this Agreement will be
determined as if your employment had terminated immediately following the Change in Control.
Nothing in this Agreement, expressed or implied, shall obligate Emulex or the Company to make a
loan to you or to arrange for the extension of credit to you.

5

 

5. Definitions. For purposes of this Agreement, the terms set forth below are defined as
follows:

     5.1 “Annual Base Pay” means an amount equal to the greatest of (i) your annual fixed
or base compensation as in effect immediately prior to a Change in Control, (ii) your annual fixed
or base compensation as in effect immediately prior to commencement by Emulex or the Company of
substantive discussions with any third party that results in a Change in Control in which such
third party has a significant involvement within one year after commencement of such discussions,
and (iii) your annual fixed or base compensation as in effect immediately prior to the Termination
Date.

     5.2 “Annual Incentive Pay” means an amount equal to the highest annual average of the
aggregate bonuses or incentive payments of cash compensation in addition to fixed or base
compensation paid to you for your services in any two of the last three full fiscal years of the
Company immediately preceding the fiscal year of the Company in which the Change in Control occurs
(or such lesser number of full fiscal years during which you were employed by the Company if less
than three) or, if higher, the highest annual average of the aggregate annual bonuses or incentive
payments of cash compensation paid to you for services in any two of the last three full fiscal
years of the Company immediately preceding the fiscal year of the Company in which the Termination
Date occurs (or such lesser number of full fiscal years during which you were employed by the
Company if less than three).

     5.3 “Cause” for termination of your employment by the Company will exist if (i) you
become permanently disabled and are unable to perform your duties as an employee of the Company or
(ii) you commit any of the following acts and any of such acts shall be determined by the board of
directors of the Company to have been materially harmful to the Company at a meeting of the board
of directors called and held for such purpose (after reasonable notice to you and an opportunity
for you and your representative to make a presentation to the board of directors): an act of
fraud, embezzlement or theft in connection with your duties or in the course of your employment
with the Company; intentional wrongful damage to property of the Company; intentional wrongful
disclosure of trade secrets or confidential information of the Company; or intentional wrongful
engagement in any Competitive Activity (as defined below) while you are employed by the Company.

     5.4 “Change in Control” shall be deemed to have occurred only if (i) Emulex is merged
or consolidated or reorganized into or with another corporation and less than 51% of the combined
voting power of the then-outstanding securities of the surviving corporation immediately thereafter
is held in the aggregate by the holders of Voting Stock (as defined below) of Emulex immediately
prior to such transaction; (ii) Emulex sells or otherwise transfers all or substantially all of its
assets to any other corporation if less than 51% of the combined voting power of the
then-outstanding voting securities of such corporation immediately after such sale or transfer is
held in the aggregate by the holders of Voting Stock of the Company immediately prior to such sale
or transfer; (iii) there is consummated a transaction which results in Emulex beneficially owning,
directly or indirectly, less
than a majority of the outstanding shares of Voting Stock of the Company, unless common stock

6

 

of the Company has been listed, approved or otherwise qualified for quotation or trading on the
NASDAQ National Market System, the American Stock Exchange or the New York Stock Exchange and no
person (as the term “person” is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act,
as defined below) other than Emulex beneficially owns (as “beneficial ownership” is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act), as of
consummation of such transaction, more than 33-1/3% of the Voting Stock of the Company; (iv) the
Company sells or otherwise transfers all or substantially all of its assets to another corporation
if less than 51% of the Voting Stock of the transferee corporation immediately after such sale or
transfer is held in the aggregate by Emulex, the Company or the holders of Voting Stock of Emulex
immediately prior to such sale or transfer; (v) there is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule or report) promulgated under the Securities Exchange Act of 1934
(the “Exchange Act”) disclosing that any person has become the beneficial owner of securities
representing 33-1/3% or more of the combined voting power of the then-outstanding securities
entitled to vote generally in the election of directors of Emulex (the “Voting Stock”); (vi) Emulex
shall file a report or proxy statement with the Securities and Exchange Commission pursuant to the
Exchange Act disclosing in response to Item 1 of Form 8-K thereunder or Item 6(e) of Schedule 14A
thereunder (or any successor schedule or report) that a change in control of Emulex has or may have
occurred or will or may occur in the future pursuant to any then-existing contract or transaction;
or (vii) during any period of two consecutive years, individuals who at the beginning of any such
period constitute the directors of Emulex cease for any reason to constitute at least a majority
thereof unless the election or the nomination for election by Emulex’s shareholders of each
director of Emulex first elected during such period (y) was approved by a vote of at least a
majority of the directors of Emulex then still in office who were directors of Emulex at the
beginning of any such period and (z) such election or nomination was not made in connection with an
actual or threatened election contest relating to the election of directors of Emulex, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act.
Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred for
purposes of this Agreement solely because Emulex, an entity in which Emulex directly or indirectly
beneficially owns more than 50% of the voting securities, or any Emulex-sponsored employee stock
ownership plan or any other employee benefit plan of Emulex or any entity holding shares of Voting
Stock for or pursuant to the terms of any such plan either files or becomes obligated to file a
report or proxy statement under or in response to Schedule 13D, or Schedule 14D-1, Item 1 of Form
8-K or Item 6(e) of Schedule 14A (or any successor report or schedule) under the Exchange Act,
disclosing beneficial ownership by it of shares of Voting Stock of Emulex, whether in excess of
33-1/3% or otherwise, or because Emulex reports that a change in control of Emulex has or may have
occurred or will or may occur in the future by reason of such beneficial ownership.

     5.5 “Competitive Activity” means your participation, without the consent of the board
of directors of the Company, in the management of any business enterprise if such enterprise
engages in substantial and direct competition with the Company and such enterprise’s sales of any
product or service competitive with any product or service of the Company amounted to 10% of such
enterprise’s net sales for its most recently completed fiscal year and if the Company’s
consolidated net sales of such products or services amounted to 10% of the Company’s consolidated
net sales for
its most recently completed fiscal year. “Competitive Activity” shall not include (i) the
mere ownership of securities in any enterprise and exercise of rights appurtenant thereto or (ii)
participation in management of any enterprise or business operation thereof other than in
connection with competitive operation of such enterprise.

7

 

     5.6 “Deferred Commencement Date” means the date of the first payment to which the
installment payment election applies which must be deferred for not less than five years after the
Termination Date on which such Severance Payment would otherwise have been made.

     5.7 “Demotion” will be deemed to have occurred if any of the following changes with
respect to your employment with the Company shall occur during the two-year period immediately
following a Change in Control and prior to your Normal Retirement Date, you provide written notice
to the Company within 30 days of the first occurrence of such change and such change is not
remedied within 15 days after written notice thereof from you to the Company: (i) a significant
adverse change in the nature or scope of the powers, functions, titles, responsibilities or duties
in respect of the Company or Emulex which you had immediately prior to the Change in Control; (ii)
a reduction of your annual fixed or base compensation below the sum of your annual fixed or base
compensation as in effect immediately prior to the Change in Control; (iii) a reduction of your
aggregate bonus or incentive payment opportunities below the amount equal to the highest annual
average of the aggregate bonuses or incentive payments of cash compensation in addition to fixed or
base compensation paid to you for your services in any two of the last three full fiscal years of
the Company immediately preceding the fiscal year of the Company in which the Change in Control
occurred (or such lesser number of full fiscal years during which you were employed by the Company
if less than three), provided that nothing herein shall be construed as a commitment or a guarantee
that payment of any cash bonuses or incentive payments will actually be made and no Demotion will
occur if actual performance does not result in attainment of the goals required to receive the
specified bonus or incentive payment opportunities; (iv) a reduction of the Employee Benefits which
you were receiving immediately prior to the Change in Control below the comparable employee
benefits provided by the Company to its other executive officers from time to time; or (v)
relocation of the principal executive offices of the Company to, or any requirement of you to have
as your principal location of work at, any place which is more than 50 miles from the location
thereof immediately prior to the Change in Control.

          The parties acknowledge that, in the event of a Change in Control, it may be mutually
advantageous for you and your employer to discuss and implement changes in your employment on a
trial basis even though such employment changes may constitute a “Demotion” under the terms of this
Agreement. Accordingly, any change with respect to your employment to which you do not object in
writing will not constitute a Demotion; provided, however, that your acceptance on a trial basis of
a change which would otherwise constitute a Demotion will not constitute a waiver of your right to
object in writing to such change within 30 days and to treat such change as a Demotion if it is not
remedied within 15 days after written notice to the Company of your unwillingness to continue
accepting such change.

     5.8 “Employee Benefits” means benefits provided to you by the Company immediately
prior to a Change in Control, or, if greater, benefits provided to you by the Company immediately
prior to commencement by the Company of substantive discussions with any third party which
result in a Change in Control in which such third party has a significant involvement within one
year after

8

 

commencement of such discussions, or, if greater, benefits provided to you by the
Company immediately prior to the Termination Date, in each case under any and all medical or
health, life insurance, disability income, tax assistance, or executive automobile benefit
policies, plans, programs or arrangements in which you are a participant at the applicable time.

     5.9 “Emulex Option” means each option to purchase shares of stock of Emulex which is
granted to you by Emulex prior to a Change in Control and each option to purchase shares of stock
of Emulex’s successor (by purchase of assets, merger, consolidation, reorganization or otherwise)
which is granted to you by such successor in connection with or after a Change in Control in
exchange or substitution for an option granted to you by Emulex prior to the Change in Control.

     5.10 “Normal Retirement Date” means the date designated by Emulex or the Company for
your normal retirement under any retirement policy or plan which is applied to the Company’s
executive officers in a non-discriminatory manner or, if no such policy or plan has been
established, the date when you attain age 65.

     5.11 “Restricted Stock” means shares of stock of Emulex which is awarded to you by
Emulex prior to a Change in Control and each share of stock of Emulex’s successor (by purchase of
assets, merger, consolidation, reorganization or otherwise) which is awarded to you by such
successor in connection with or after a Change in Control in exchange or substitution for an option
granted to you by Emulex prior to the Change in Control, which shares are subject to a substantial
risk of forfeiture and restrictions on transferability during a specified vesting period.

6. Withholding of Taxes. The Company or Emulex may withhold from any amounts payable under
this Agreement all federal, state, city or other taxes as shall be required pursuant to any law or
government regulation or ruling.

7. Notice. For all purposes of this Agreement, all communications provided for herein
shall be in writing and shall be deemed to have been duly given when delivered or five business
days after having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the Company or Emulex (to the attention of the Secretary
of the Company or Emulex) at its principal executive office and to you at your principal residence,
or to such other address as either party may have furnished to the other in writing and in
accordance herewith, except that any notice of change of address shall be effective only upon
receipt.

8. Successors. This Agreement shall inure to the benefit of and be binding upon the
Company, Emulex and their successors. In the event of a Change in Control, any parent company,
which directly or indirectly controls a majority of the outstanding Voting Stock of Emulex or the
Company, or a successor to Emulex or the Company (by way of merger, consolidation, reorganization,
sale of assets or otherwise) shall, in the case of a successor, by an agreement in form and
substance reasonably satisfactory to you, expressly assume and agree to perform this Agreement and,
in the case of a parent company, by an agreement in form and substance reasonably satisfactory to
you, guarantee and agree to cause the performance of this Agreement, in each case, in the same
manner and to the same extent as Emulex or the Company would be required to perform if no Change in
Control had taken place.

9

 

9. Severability; Entire Agreement; Amendments. This Agreement sets forth the entire
understanding among us as to the subject matter hereof. The terms of any prior plans, policies or
agreements relating to the subject matter hereof are hereby superseded and replaced by this
Agreement. There are no terms, conditions, representations, warranties or covenants other than
those contained herein. No term or provision of this Agreement may be amended, waived, released,
discharged or modified in any respect, except in writing, signed by the appropriate party(s). No
waiver of any breach or default shall constitute a waiver of any other breach or default whether of
the same or any other covenant or condition. A delay or failure to assert rights or a breach of
this Agreement shall not be deemed to be a waiver of such rights either with respect to that breach
or any subsequent breach. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this Agreement.

10. Governing Law. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of California, without giving effect to the
principles of conflict of laws of such State.

11. Counterparts. This agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall constitute one and the same
agreement.

12. Board Approval. Each of Emulex and the Company hereby represents that the execution,
delivery, and performance of this Agreement has been duly authorized by its board of directors.

13. Dispute Resolution. Except as provided herein, any controversy or claim arising out of
or relating in any way to this Agreement or the breach thereof, or your employment and any
statutory claims including all claims of employment discrimination shall be subject to private and
confidential arbitration in the City of Costa Mesa in accordance with the laws of the State of
California and the Executive Employment Dispute Resolution Rules (“Rules”) of the American
Arbitration Association (but shall not be required to be conducted under the auspices of the
American Arbitration Association). You waive any right to a jury trial. This provision will not
apply to disputes where injunctive relief would be appropriate or in connection with claims under
the Employee Invention and Non-Disclosure Agreement.

     13.1 The arbitration shall be conducted in a procedurally fair manner by a mutually agreed
upon arbitrator selected in accordance with the Rules or if none can be mutually agreed upon, then
by one arbitrator appointed pursuant to the Rules;

     13.2 The arbitration shall be conducted confidentially in accordance with the Rules;

     13.3 The arbitration fees shall be paid by the Company;

     13.4 Each party shall have the right to conduct discovery including (3) three depositions,
requests for production of documents and such other discovery as permitted under the Rules or
ordered by the arbitrator;

10

 

     13.5 The arbitrator shall have the authority to award any damages authorized by law for the
claims presented including punitive damages and shall have the authority to award reasonable
attorneys fees to the prevailing party;

     13.6 The decision of the arbitrator shall be final and binding on all parties and shall be the
exclusive remedy of the parties; and

     13.7 The award shall be in writing in accordance with the Rules, and shall be subject to
judicial enforcement in accordance with California law.

14. Late Payment Interest. Any payment which is not made to you when due under this
Agreement shall bear interest at the rate of 10% per annum from the due date to the payment date.

	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	EMULEX CORPORATE SERVICES CORPORATION, a California

corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	EMULEX CORPORATION,

a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 	 	 	 
	AGREED:	 	 
	 
	 	 	 	 
	 	 	 
	Paul F. Folino	 	 
	 
	 	 	 	 
	Dated:
	 	 	 	 
	 

	 	 	 	 

11

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