EMULEX CORP /DE/
EXHIBIT 10.7
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>4
<FILENAME>a84590exv10w7.txt
<DESCRIPTION>EXHIBIT 10.7
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.7



                               EMULEX CORPORATION

                           EMPLOYEE STOCK OPTION PLAN


1. PURPOSE. The purpose of this Emulex Corporation Employee Stock Option Plan
("Plan") is to further the growth and development of Emulex Corporation
("Company") and its subsidiaries by providing, through ownership of stock of the
Company, an incentive to officers and other key employees who are in a position
to contribute materially to the prosperity of the Company, to increase such
persons' interests in the Company's welfare, to encourage them to continue their
services to the Company or its subsidiaries, and to attract individuals of
outstanding ability to enter the employment of the Company or its subsidiaries.

2. INCENTIVE AND NON-QUALIFIED STOCK OPTIONS. Two types of options (referred to
herein as "options" without distinction between such two types) may be granted
under the Plan: Options intended to qualify as incentive stock options
("incentive stock options") under Section 422 of the Internal Revenue Code of
1986, as amended, and any successor statutes ("Code"); and other options not
specifically authorized or qualified for favorable income tax treatment by the
Code ("non-qualified stock options").

3. ADMINISTRATION.

        3.1 Administration by Board. Subject to Section 3.2, the Plan may be
administered by the Board of Directors of the Company (the "Board"). Subject to
the provisions of the Plan, the Board shall have authority to construe and
interpret the Plan, to promulgate, amend, and rescind rules and regulations
relating to its administration, from time to time to select from among the
eligible employees (as determined pursuant to Section 4) of the Company and its
subsidiaries those employees to whom options will be granted, to determine the
timing and manner of the grant of the options, to determine the exercise price,
the number of shares covered by and all of the terms of the options, to
determine the duration and purpose of leaves of absence which may be granted to
optionees without constituting termination of their employment for purposes of
the Plan, and to make all of the determinations necessary or advisable for
administration of the Plan. The interpretation and construction by the Board of
any provisions of the Plan, or of any agreement issued and executed under the
Plan, shall be final and binding upon all parties. No member of the Board shall
be liable for any action or determination undertaken or made in good faith with
respect to the Plan or any agreement executed pursuant to the Plan.

        3.2 Administration by Committee. The Board may, in its sole discretion,
delegate any or all of its administrative duties to a committee (the
"Committee") of not fewer than two (2) members of the Board, all of the members
of which Committee shall be persons who, in the opinion of counsel to the
Company, are "non-employee directors" as defined in Rule 16b-3(b)(3)(i)
promulgated by the Securities and Exchange Commission, as amended and in effect
on and after August 15, 1996, to be appointed by and serve at the pleasure of
the Board. From time to time, the Board may increase or decrease (to not less
than two members) the size of the Committee, and add additional members to, or
remove members from, the Committee. The Committee shall act pursuant to a
majority vote, or the written consent of a majority of its members, and minutes
shall be kept of all of its meetings and copies thereof shall be provided to the
Board. Subject to the provisions of the Plan and the directors of the Board, the
Committee may establish and follow such rules and regulations for the conduct of
its business as it may deem advisable. No member of the Committee shall be
liable for any action or determination



<PAGE>
undertaken or made in good faith with respect to the Plan or any agreement
executed pursuant to the Plan.

4. ELIGIBILITY. Any employee of the Company or any of its subsidiaries who does
not own stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any of its parent or subsidiary corporations
shall be eligible to receive an option under the Plan. A director or employee
may receive more than one option under the Plan. No director who is not also an
employee shall be eligible to receive an option under the Plan.

5. SHARES SUBJECT TO OPTIONS. The stock available for grant of options under the
Plan shall be shares of the Company's authorized but unissued, or reacquired,
common stock. The aggregate number of shares which may be issued pursuant to
exercise of options theretofore or thereafter granted under the shall not exceed
28,690,000 shares of common stock (subject to adjustment as provided in Section
6.14). The maximum number of shares with respect to which options may be granted
to any employee in any one calendar year shall be 4,000,000 shares. In the event
that any outstanding option under the Plan for any reason expires or is
terminated, the shares of common stock allocable to the unexercised portion of
the option shall again be available for options under the Plan as if no option
had been granted with respect to such shares.

6. TERMS AND CONDITIONS OF OPTIONS. Options granted under the Plan shall be
evidenced by agreements (which need not be identical) in such form and
containing such provisions which are consistent with the Plan as the Board or
Committee shall from time to time approve. Each agreement shall specify whether
the option granted thereby is an incentive stock option or a non-qualified stock
option. Such agreements may incorporate all or any of the terms hereof by
reference and shall comply with and be subject to the following terms and
conditions:

        6.1 Number of Shares Subject to Option. Each option agreement shall
specify the number of shares subject to the option.

        6.2 Option Price. The purchase price for the shares subject to any
option shall not be less than 100% of the fair market value of the shares of
common stock of the Company on the date the option is granted. For purposes of
the Plan, the "fair market value" of any share of common stock of the Company at
any date shall be (a) if the common stock is listed on an established stock
exchange or exchanges, the last reported sale price per share on such date on
the principal exchange on which it is traded, or if no sale was made on such
date on such principal exchange, at the closing reported bid price on such date
on such exchange, or (b) if the common stock is not then listed on an exchange,
the last reported sale price per share on such date reported by NASDAQ, or if
sales are not reported by NASDAQ or no sale was made on such date, the average
of the closing bid and asked prices per share for the common stock in the
over-the-counter market as quoted on NASDAQ on such date, or (c) if the common
stock is not then listed on an exchange or quoted on NASDAQ, an amount
determined in good faith by the Board or the Committee.

        6.3 Medium and Time of Payment. The purchase price for any shares
purchased pursuant to exercise of an option granted under the Plan shall be paid
in full upon exercise of the option in cash, or by check, or, at the discretion
of the Board or the Committee, upon such terms and conditions as the Board or
the Committee shall approve, by transferring to the Company for redemption
shares of common stock of the Company at their fair market value (determined in
the manner provided in Section 6.2 as of the date provided in Section 6.5).
Shares of common stock transferred to the Company upon exercise of an option
shall not increase the number of shares available for issuance under the Plan.
Notwithstanding the foregoing, the Company may extend



<PAGE>

and maintain, or arrange for the extension and maintenance of, credit to any
optionee to finance the optionee's purchase of shares pursuant to exercise of
any option, on such terms as may be approved by the Board or the Committee,
subject to applicable regulations of the Federal Reserve Board and any other
laws or regulations in effect at the time such credit is extended.

        6.4 Term of Option. No option granted to an employee (including a
director who is an employee) shall be exercisable after the expiration of the
earliest of (i) ten years after the date the option is granted, (ii) three
months after the date the optionee's employment with the Company and its
subsidiaries terminates if such termination is for any reason other than
permanent disability, death, or cause, (iii) the date the optionee's employment
with the Company and its subsidiaries terminates if such termination is for
cause, as determined by the Board or by the Committee, in its sole discretion,
or (iv) one year after the date the optionee's employment with the Company and
its subsidiaries terminates if such termination is a result of death or
permanent disability, or death or permanent disability results within not more
than three months of the date on which the optionee ceases to be an employee;
provided, however, that the option agreement for any option may provide for
shorter periods in each of the foregoing instances. For the purposes of this
Section 6.4, "permanent disability" shall mean a disability of the type defined
in Section 22(c)(3) of the Code. Notwithstanding anything to the contrary
contained in this Section 6.4 or any other provision of the Plan, the terms of
any option agreement under the Plan may provide that the exercise period
described in 6.4(ii) above may be longer than three months after the date the
optionee's employment with the Company and its subsidiaries terminates.

        6.5 Exercise of Option. No option shall be exercisable during the
lifetime of an optionee by any person other than the optionee. The Board or the
Committee shall have the power to set the time or times within which each option
shall be exercisable and to accelerate the time or times of exercise. Unless
otherwise provided by the Board or the Committee, each option granted under the
Plan shall become exercisable on a cumulative basis as to 25% of the total
number of shares covered thereby at any time after one year from the date the
option is granted and an additional 6 1/4% of such total number of shares at any
time after the end of each consecutive calendar quarter thereafter until the
option has become exercisable as to all of such total number of shares. To the
extent that an optionee has the right to exercise an option and purchase shares
pursuant thereto, the option may be exercised from time to time by written
notice to the Company, stating the number of shares being purchased and
accompanied by payment in full of the purchase price for such shares. If shares
of common stock of the Company are used in part or full payment for the shares
to be acquired upon exercise of the option, such shares shall be valued for the
purpose of such exchange as of the date of exercise of the option in accordance
with the provisions of Sections 6.2 and 6.3. Any certificate(s) for shares of
outstanding common stock of the Company used to pay the purchase price shall be
accompanied by stock power(s) duly endorsed in blank by the registered holder of
the certificate(s) (with the signature thereon guaranteed). In the event the
certificate(s) tendered by the optionee in such payment cover more shares than
are required for such payment, the certificate(s) shall also be accompanied by
instructions from the optionee to the Company's transfer agent with respect to
disposition of the balance of the shares covered thereby.

        6.6 No Transfer of Option. No option shall be transferable by an
optionee otherwise than by will or the laws of descent and distribution.

        6.7 Prior Outstanding Incentive Stock Options. No incentive stock option
granted under the Plan prior to 1987 shall be exercisable to any extent at any
time while there is outstanding any incentive stock option which was granted
prior to the granting of such option to the optionee by the Company or any
subsidiary or parent corporation of the Company or any



<PAGE>

predecessor corporation of the Company or any subsidiary or parent corporation
of the Company. For the purpose of this Section 6.7, an option shall be
outstanding until such time as the option is exercised in full or expires by
reason of lapse of time.

        6.8    Limit on Incentive Stock Options.

           (a) The aggregate fair market value (determined as of the time the
               option is granted) of the stock for which any employee may be
               granted incentive stock options in any calendar year commencing
               after December 31, 1980 and continuing before January 1, 1987
               (under all option plans of the Company and its parent and
               subsidiary corporations) shall not exceed $100,000 plus any
               unused limit carryover to such year allowed under Section
               422(c)(4) of the Code.

           (b) The aggregate fair market value (determined at the time the
               option is granted) of the stock with respect to which incentive
               stock options granted after December 31, 1986 are exercisable for
               the first time by an optionee during any calendar year (under all
               incentive stock option plans of the Company and its subsidiaries)
               shall not exceed $100,000.

        6.9 Restriction on Issuance of Shares. The issuance of options and
shares shall be subject to compliance with all of the applicable requirements of
law with respect to the issuance and sale of securities, including, without
limitation, any required qualification under the California Corporate Securities
Law of 1968, as amended.

        6.10 Investment Representation. Any optionee may be required, as a
condition of issuance of shares covered by his or her option, to represent that
the shares to be acquired pursuant to exercise of the option will be acquired
for investment and without a view to distribution thereof, and in such case, the
Company may place a legend on the certificate evidencing the shares reflecting
the fact that they were acquired for investment and cannot be sold or
transferred unless registered under the Securities Act of 1933, as amended, or
unless counsel for the Company is satisfied that the circumstances of the
proposed transfer do not require such registration.

        6.11 Rights as a Stockholder or Employee. An optionee or transferee of
an option shall have no rights as a stockholder of the Company with respect to
any shares covered by any option until the date of issuance of a share
certificate for such shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether cash, securities, or other property) or distribution
or other rights for which the record date is prior to the date such share
certificate is issued, except as provided in Section 6.14. Nothing in the Plan
or in any option agreement shall confer upon any employee any right to continue
in the employ of the Company or any of its subsidiaries or interfere in any way
with any right of the Company or any subsidiary to terminate the optionee's
employment at any time.

        6.12 No Fractional Shares. In no event shall the Company be required to
issue fractional shares upon the exercise of an option.

        6.13 Exercisability in the Event of Death. In the event of the death of
the optionee while he or she is an employee and/or director of the Company or
any of its subsidiaries or within not more than three months of the date on
which he or she ceased to be an employee and/or director, any option or
unexercised portion thereof granted to the optionee, to the extent



<PAGE>

exercisable by him or her on the date of death, may be exercised by the
optionee's personal representatives, heirs, or legatees subject to the
provisions of Section 6.4 hereof.

        6.14 Recapitalization or Reorganization of Company. Except as otherwise
provided herein, appropriate and proportionate adjustments shall be made in the
number and class of shares subject to the Plan and to the option rights granted
under the Plan, and the exercise price of such option rights, in the event of a
stock dividend (but only on common stock), stock split, reverse stock split,
recapitalization, reorganization, merger, consolidation, separation, or like
change in the capital structure of the Company. In the event of a liquidation of
the Company, or a merger, reorganization, or consolidation of the Company with
any other corporation in which the Company is not the surviving corporation or
the Company becomes a wholly-owned subsidiary of another corporation, any
unexercised options theretofore granted under the Plan shall be deemed canceled
unless the surviving corporation in any such merger, reorganization, or
consolidation elects to assume the options under the Plan or to use substitute
options in place thereof; provided, however, that, notwithstanding the
foregoing, if such options would otherwise be canceled in accordance with the
foregoing, the optionee shall have the right, exercisable during a ten-day
period ending on the fifth day prior to such liquidation, merger, or
consolidation, to exercise the optionee's option in whole or in part without
regard to any installment exercise provisions in the optionee's option
agreement. To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board or the
Committee, the determination of which in that respect shall be final, binding,
and conclusive, provided that each option granted pursuant to the Plan shall not
be adjusted in a manner that causes the option to fail to continue to qualify as
an incentive stock option within the meaning of Section 422 of the Code.

        6.15 Modification, Extension, and Renewal of Options. Subject to the
terms and conditions and within the limitations of the Plan, the Board or
Committee may modify, extend, or renew outstanding options granted under the
Plan, accept the surrender of outstanding options (to the extent not theretofore
exercised), and authorize the granting of new options in substitution therefor
(to the extent not theretofore exercised). The Board or Committee shall not,
however, modify any outstanding incentive stock option in any manner which would
cause the option not to qualify as an incentive stock option within the meaning
of Section 422 of the Code. Notwithstanding the foregoing, no modification of an
option shall, without the consent of the optionee, alter or impair any rights of
the optionee under the option.

        6.16 Other Provisions. Each option may contain such other terms,
provisions, and conditions not inconsistent with the Plan as may be determined
by the Board or Committee.

7. TERMINATION OR AMENDMENT OF PLAN. The Board may at any time terminate or
amend the Plan; provided that, without approval of the stockholders of the
Company, there shall be, except by operation of the provisions of Section 6.14,
no increase in the total number of shares covered by the Plan, no change in the
class of persons eligible to receive options granted under the Plan or other
material modification of the requirements as to eligibility for participation in
the Plan, no material increase in the benefits accruing to participants under
the Plan, and no extension of the latest date upon which options may be granted;
and provided further that, without the consent of the optionee, no amendment may
adversely affect any then outstanding option or any unexercised portion thereof.

8. INDEMNIFICATION. In addition to such other rights of indemnification as they
may have as members of the Board or the Committee, the members of the Board or
the Committee administering the Plan shall be indemnified by the Company against
reasonable expenses,



<PAGE>

including attorney's fees, actually and necessarily incurred in connection with
the defense of any action, suit, or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any action, suit,
or proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit, or proceeding that such member is liable for negligence or
misconduct in the performance of his duties, provided that within 60 days after
institution of any such action, suit, or proceeding, the member shall in writing
offer the Company the opportunity, at its own expense, to handle and defend the
same.

9. NON-QUALIFIED STOCK OPTION PLAN. The Plan as set forth herein constitutes an
amendment and restatement of the Company's Non-Qualified Stock Option Plan which
was adopted in November 1980. The Board or the Committee may, in its discretion,
authorize the conversion, to the fullest extent permitted by law, of
non-qualified stock options granted under the Non-Qualified Stock Option Plan
prior to such amendment to incentive stock options under this Plan, as so
amended. Any such options converted to incentive stock options shall be treated
as incentive stock options for all purposes under the Plan; provided, however,
that none of the terms or conditions of any such options, including, but not
limited to, the exercise price, the term of the option, and the time(s) within
which the option may be exercised, shall be altered or amended by reason of such
conversion.

10. STOCKHOLDER APPROVAL AND TERM OF PLAN. The Plan shall not take effect until
approved by the stockholders of the Company. Unless sooner terminated by the
Board in its sole discretion, the Plan will expire on September 30, 2005.

</TEXT>
</DOCUMENT>
