Key Employee Retention Agreement

EXHIBIT 10.7

[EXECUTIVE OFFICER FORM]

[Emulex Letterhead]

[DATE]

[NAME]
[ADDRESS]
[ADDRESS]

     Re: Key Employee Retention Agreement

Dear _________:

     This Key Employee Retention Agreement (“Agreement”) relates to your appointment as [TITLE] of Emulex [name] Corporation, a [California or Delaware] corporation (the “Company”), which is an affiliate of Emulex Corporation, a Delaware corporation (“Emulex”). Because the Company and Emulex 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, the Company and Emulex are hereby entering into the following agreements:

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 100% 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 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 12 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) [insert the following paragraph if the agreement is a new agreement and the participant has not previously been a party to a KERA] Unless you notify us in writing within 30 days of entering into this agreement of your election to receive installments, your Severance Payment will be paid in a lump sum as provided in Section 1.1(a) hereof. 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). Any election must specify the installment period in a form that is acceptable to the Company. Such installments shall be paid to you on each anniversary of the Termination 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 within 30 days of entering into this agreement by providing written notice to the Secretary of Emulex of such election. Any such election by you to receive the Severance Payment in installments that has been made shall be irrevocable and binding on all parties hereto.

          [insert the following paragraphas paragraph (b) if the agreement is an amendment to an existing agreement or the participant has previously been a party to a KERA in a different classification] 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 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 one year 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 one-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).

          (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.

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