-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kPpPJISQHyHWtmlkDr+oIOCBJrapo/aeyuHDTDy4zmvKszrp7gQfyIWHQj2tde3Q MAKjRYNe/WNfRgxWSer+7A== 0000891618-95-000365.txt : 199506290000891618-95-000365.hdr.sgml : 19950629 ACCESSION NUMBER: 0000891618-95-000365 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950628 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAPTEC INC CENTRAL INDEX KEY: 0000709804 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942748530 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-15071 FILM NUMBER: 95550369 BUSINESS ADDRESS: STREET 1: 691 S MILPITAS BLVD STREET 2: M/S25 CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4089458600 MAIL ADDRESS: STREET 1: 691 SOUTH MILPITAS BLVD STREET 2: M/S25 CITY: MILPITAS STATE: CA ZIP: 95035 10-K405 1 FORM 10-K FOR ADAPTEC, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED). For the fiscal year ended March 31, 1995 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED). For the transition period from to . Commission File Number 000-15071 ADAPTEC, INC. (exact name of Registrant as specified in its charter) CALIFORNIA 94-2748530 (State of incorporation) (I.R.S. Employer Identification No.)
691 S. Milpitas Blvd. Milpitas, California 95035 (Address of principal executive offices) Registrant's telephone number, including area code: (408) 945-8600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value Common Share Purchase Rights (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes /X/ No / / Based on the closing sale price of the Common Stock on the NASDAQ National Market System on June 9, 1995, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $1,309,035,702. Shares of Common Stock held by each officer and director and by each person known by the Company to own 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares outstanding of Registrant's Common Stock, $.001 par value, was 51,481,515 at June 9, 1995. DOCUMENTS INCORPORATED BY REFERENCE Parts I, II and IV incorporate information by reference from the Annual Report to Shareholders for the fiscal year ended March 31, 1995. Part III incorporates information by reference from the definitive proxy statement for the Annual Meeting of Shareholders to be held on August 24, 1995. 2 INTRODUCTORY STATEMENT References made in this Annual Report on Form 10-K to "Adaptec", the "Company" or the "Registrant" refer to Adaptec, Inc. and its wholly owned subsidiaries. Adaptec, the Adaptec logo, Ioware, EZ-SCSI and SCSISelect are trademarks of Adaptec, Inc., which may be registered in some jurisdictions. All other trademarks used are owned by their respective owners. 1 3 PART I ITEM 1. BUSINESS. GENERAL Adaptec is a leading supplier of input/output (I/O) hardware and software (referred to by the Company as IOware solutions) used to eliminate performance bottlenecks between a microcomputer's central processing unit (CPU) and its peripheral devices, such as hard disk, optical and tape storage devices, and network file servers. The Company's IOware products include board-based I/O solutions using extensive proprietary software and proprietary very large scale integration (VLSI) integrated circuits (ICs). The Company's host adapter products are based on the Small Computer Systems Interface (SCSI) standard, which interfaces with all standard microcomputer architectures. The Company's IC products include single chip disk controllers for SCSI, AT and PCMCIA hard disk drives and single chip SCSI host adapters. BACKGROUND The market for high-performance microcomputers and related products, which are typically used in multiuser and multitasking environments, has continued to grow more rapidly than the overall microcomputer market in recent years. A key factor driving this growth has been the development of increasingly sophisticated software for applications such as networking, transaction processing, high resolution graphics and multimedia. These application developments have resulted in the need for increased data transmission rates between CPUs and peripherals to alleviate I/O bottlenecks which would limit the overall performance of microcomputer systems. The Company addresses these needs with products that significantly enhance and optimize overall microcomputer system performance, particularly in complex operating environments, involving sophisticated applications and multiple peripherals. MARKET OVERVIEW The Company provides value-added IOware solutions to the personal computing, enterprise computing and mass storage markets. The Company believes that technical leadership, product innovation, marketing expertise and brand name recognition allow it to compete favorably in these markets. Desktop and portable personal computers are used in a number of environments including business, home and travel. Operating systems for computing have historically been text-based and single-tasking such as MS-DOS. During the past several years Graphical User Interfaces (GUIs) such as Microsoft's Windows, have increasingly been shipped by Original Equipment Manufacturers (OEMs) as standard in most desktop and portable computers. Additionally, many desktop and portable personal computers are being configured with a more diverse set of peripherals, such as CD-ROM, Tape, Write Once Read Many (WORM), CD ROM Recordable (CDR) and Digital Audio Tape (DAT) drives, either at the time of purchase or after the original equipment sale. When this occurs, ease of installation and configuration are of great importance to the end user, giving products that provide this capability a significant competitive advantage. The enterprise computing market is characterized by increasingly more sophisticated and I/O-intensive applications, such as network management software, and distributed multimedia and business applications. During the past several years, these applications have been migrating from minicomputers to client/server environments. These applications typically require a file server to be configured with multiple peripherals such as WORM, CD-ROM and DAT drives, together with hard disk subsystems that provide security and data integrity capabilities such as Redundant Array of Inexpensive Disks (RAID). Successful implementation of such mission critical systems requires significant knowledge of networking software and I/O subsystems. Virtually every microcomputer is shipped with inexpensive mass storage devices which are required to store vast amounts of information and data. Such devices include CD-ROM, tape drives and most commonly rigid or hard disk drives. Non-hard disk devices are increasingly used in addition to a hard disk and often have SCSI interfaces. Common uses for non-hard disk SCSI devices include data backup and archiving for tape drives and storage needed for multimedia programs where video, text, graphics and sound are stored on a 2 4 CD-ROM or CDR. Hard disk drives are usually part of a standard desktop, portable or networked microcomputer configuration, and generally are used to store operating systems, user applications and data files. Most hard disk drives are shipped with either an AT or a SCSI interface and have relatively fast data access and transfer capabilities. Cost per megabyte of storage and performance characteristics such as average seek time, data transfer rate and spindle rotational speed continue to be critical to success in the disk drive market. PRODUCTS The Company's IOware products are designed and manufactured using a core set of technologies and resources. The Company's semiconductor technology design center develops products for all markets the Company serves. The Company utilizes a process called concurrent engineering, in which manufacturing, marketing and engineering work together early in the development cycle, to decrease the "time to volume" of product shipments. Board-based I/O Solutions The Company's board-based I/O solutions are designed to support business, technical and multimedia applications in the personal and enterprise computing markets. The Company's single chip host adapters are the principal component of these products. These ICs, together with the Company's extensive array of software products, provide customers the most comprehensive board-based I/O solutions available in the markets it serves. The Company provides bus mastering, multitasking host adapters that manage all I/O processing activity, thereby freeing the CPU to focus most of its power on task processing. The Company also provides non-bus mastering host adapters which provide standardized SCSI connectivity between the CPU and its peripherals. The Company's board-based I/O solutions are capable of interfacing with most major microcomputer architectures, including PCI, VESA, ISA, EISA and Micro Channel. Demand for the Company's board-based I/O solutions has increased with the continued adoption of SCSI as the high-performance I/O standard in personal computing. Additionally, demand is being driven by the increased use of file servers where SCSI usage approaches 100%. To meet this increased demand, the Company continues to develop and market I/Oware solutions meeting specific OEM requirements and turnkey kits for the distributor channels. These kits include a SCSI host adapter and related software, that enable end-users to connect SCSI peripherals to their microcomputer system. To facilitate the use of SCSI in microcomputer systems, the Company developed Advanced SCSI Programming Interface (ASPI), an operating system-level interface allowing seamless connectivity between SCSI host adapters and operating systems. ASPI enables users to integrate high-performance SCSI peripherals with microcomputers using popular operating systems, such as DOS, NetWare, OS/2 and UNIX. Additionally, ASPI supports the current release of Microsoft Windows operating environment; the Company has also been working with Microsoft to ensure that ASPI will support Windows 95. The Company is engaged in strategic relationships with leading operating system vendors, such as IBM, Microsoft and Novell, resulting in joint development projects to embed the Company's software within their operating systems. In addition, the Company has developed several software utilities such as Adaptec EZ-SCSI and SCSISelect products, which simplify connecting a SCSI host adapter and peripherals to a microcomputer system. Integrated Circuits The Company develops proprietary integrated circuits for use in mass storage devices and microcomputer systems and for use in its own board-based SCSI host adapters. Adaptec's proprietary integrated circuits provide innovative solutions for managing complex I/O functions in high-performance microcomputer and storage applications. Working closely with customers, the Company provides complete solutions that include sophisticated integrated circuits, with related firmware and software, to optimize overall subsystem design. In addition, the Company seeks to establish its proprietary integrated circuits as industry standards, thereby increasing market acceptance by new customers. 3 5 The Company's current IC products include SCSI, PCMCIA and AT programmable storage controllers and single-chip SCSI host adapters. All of the Company's IC products are developed using advanced design technologies to meet market requirements for higher levels of physical integration, increased functionality and performance. The Company's programmable SCSI and AT storage controllers are typically configured to address specific customer requirements in the mass storage market and are used primarily in high capacity hard disk drives. The Company's SCSI host adapter integrated circuits incorporate similar technology and are used by system manufacturers to embed SCSI on the system motherboard and by multifunction card companies to provide a SCSI interface. RESEARCH AND DEVELOPMENT The Company believes research and development is fundamental to its success, especially in integrated circuit design and software development. The development of proprietary integrated circuits that support multiple architectures and peripheral devices requires a combination of engineering disciplines. In addition, extensive knowledge of computer and subsystem architectures, expertise in the design of high-speed digital integrated circuits and knowledge of operating system software is essential. The integration of these specialized disciplines has enabled the Company to address more comprehensively the needs of the I/O microcomputer industry. The Company continues to leverage its technical expertise and product innovation capabilities to address applications requiring the management and high-speed transmission of microcomputer system data. Among the products under development are higher performance host adapters for microcomputers using PCI and ISA architectures, more highly integrated and functionally robust integrated circuits and software support for additional operating systems. While SCSI solutions currently remain the core of the Company's business, in fiscal 1995 the Company broadened its development efforts to include asynchronous transfer mode (ATM), RAID, Serial I/O, and infrared technologies. Approximately 22% of the Company's employees are engaged in research and development. In fiscal 1995, 1994 and 1993, the Company spent approximately $60.8 million, $40.0 million, and $26.3 million respectively, for research and development. MARKETING AND CUSTOMERS The Company sells its products through both OEM and distributor channels and packages these products to meet the specific requirements of system integrators and end users. The Company works closely with its OEM customers on the design of current and next generation products that incorporate the Company's SCSI host adapters and integrated circuits. The Company provides its OEM customers with extensive applications and system design support. The Company also sells host adapters to end users through major computer product distributors. The Company believes it has successfully positioned itself as a leading supplier of SCSI-based solutions in both OEM and distributor channels. The Company focuses its worldwide marketing efforts on major OEM customers and major distributors through its direct sales force located in the United States and major industrial centers in Europe and the Far East. The Company also makes selective use of sales representatives on a worldwide basis. OEM customers include Conner Peripherals, Digital Equipment Corporation, Dell Computer Corporation, Fujitsu, Hewlett-Packard Company, IBM Corporation, Intel Corporation, Maxtor Corporation, NEC Technologies, Samsung, Seagate Technology, Siemens and Toshiba America. Distribution customers include, Actebis, Anthem Electronics, Gates/Arrow, Globelle, Ingram Micro, Merisel, Nissho, and Tech Data. In fiscal 1995 and fiscal 1994 no customer accounted for more than 10% of the Company's net revenues. In fiscal 1993, Apple Computer, Inc. accounted for 16% of the Company's net revenues, substantially all of which was derived from the sale of the Company's discontinued laser printer controllers, and Maxtor accounted for approximately 10% of the Company's net revenues. The Company emphasizes solution-oriented customer support as a key element of its marketing strategy and maintains technical applications groups in the field as well as at the Company's headquarters. Support provided by these groups includes assisting current and prospective customers in the use of the Company's products, writing application notes and conducting seminars for use by system designers. The systems-level expertise and software experience of the Company's engineering staff are also available to customers with 4 6 particularly difficult I/O design problems. A high level of customer support is also maintained through technical support hotlines, electronic bulletin boards and dial-in-fax capability. International net revenues accounted for approximately 62%, 58% and 50% of net revenues in fiscal 1995, 1994, and 1993, respectively. Sales of the Company's products internationally are subject to certain risks common to all export activities, such as governmental regulation and the risk of imposition of tariffs or other trade barriers. Sales to customers are primarily denominated in U.S. dollars. As a result, the Company believes its corresponding foreign currency risk is minimal. BACKLOG The Company's backlog was approximately $65.6 million and $61.7 million at March 31, 1995 and March 31, 1994, respectively. These backlog figures include only orders scheduled for shipment within six months, of which the majority are scheduled for delivery within 90 days. In the past, the Company has experienced delays in receipt of expected purchase orders, and in some cases purchase orders have been rescheduled or canceled due to changes in customer requirements. These changes may occur even after the Company has been notified of design wins or has executed purchase agreements with customers. The Company's customers may cancel or delay purchase orders for a variety of reasons, including rescheduling of new product introductions and changes in inventory policies and forecasted demand. Accordingly, the Company's backlog as of any particular date may not be indicative of the Company's actual sales for any succeeding fiscal period. The demand for the Company's products is strongly related to the demand for high-performance microcomputers. This segment of the microcomputer industry is continuing to experience significant growth due to migration of minicomputer applications to microcomputers and the implementation of more complex business applications. Should these rates of growth decline, the Company's revenues and income may be adversely affected by a decrease in demand for the Company's products, and pricing pressures could increase from both competitors and customers. COMPETITION In the personal and enterprise computing markets, the Company's principal competitors are small, privately-held host adapter companies. The Company's competitive strategy is to leverage its technical leadership and concentrate on the most technology-intensive solutions. To address the competitive nature of the business the Company designs advanced features into its products, with particular emphasis on data transfer rates, software-defined features and compatibility with major operating systems and most peripherals. The Company believes that it obtains a significant competitive advantage by supplying its customers with a comprehensive array of I/O solutions ranging from connectivity products for the personal computing market to high performance products for enterprise-wide computing and networked environments. In addition, technical leadership, product innovation, marketing expertise, and brand awareness successfully position the Company in these markets. The Company's principal competitor in the mass storage market is Cirrus Logic, Inc. The Company believes that its competitive strengths in the mass storage market include its ability to obtain major design wins as the result of its systems level expertise, integrated circuit design capability and substantial experience in I/O applications. The Company believes the principal competitive factors in design wins are performance, product features, price, quality and technical and administrative support. Based on these factors, the Company believes it has, in the past, successfully competed for design wins. The markets for the Company's products are highly competitive and are characterized by rapid technological advances, frequent new product introductions and evolving industry standards. The Company's competitors continue to introduce products with improved performance characteristics and its customers continue to develop new applications. The Company will have to continue to develop and market appropriate products to remain competitive. While the Company continues to devote significant resources to research and development, there can be no assurance that such efforts will be successful or that the Company will develop and introduce new technology and products in a timely manner. In addition, while relatively few competitors offer a full range of IOware solutions, additional domestic and foreign manufacturers may increase their presence in, and the resources devoted to, these markets. 5 7 MANUFACTURING In August 1988, the Company opened its Singapore manufacturing facility for the production and testing of high volume host adapter products. The Singapore facility has earned ISO 9002 certification, a stringent quality standard that has become a requirement for doing business globally. During fiscal 1995, the Company purchased a fifth and sixth surface mount manufacturing line to support its continued growth. In addition, the Company completed the move of its IC production test facility to Singapore. This move affords the Company lower costs, shorter manufacturing cycle times, and improved service to customers. The Company's products make extensive use of standard logic, printed circuit boards and static random access memory supplied by several outside sources. An extended shortage or a major increase in the market prices of these components could have an adverse affect on the Company's business. In addition, foreign manufacturing is also subject to certain risks, including changes of governmental policies, transportation delays and interruptions and the imposition of tariffs and import and export controls. Currency exchange fluctuations could increase the cost of components manufactured abroad, although non-dollar denominated purchases do not currently represent a significant portion of the Company's purchases. In addition, there is no assurance that the Company will achieve its product cost objectives. All semiconductor wafers used to manufacture the Company's products are processed to its specification by outside suppliers. The Company believes that its current wafer volume and manufacturing technology requirements do not justify owning and operating a fabrication facility. The Company's reliance on third party semiconductor manufacturers involves several risks, including the absence of guaranteed capacity, the possible unavailability of or delays in obtaining access to certain process technologies, and the absence of control over wafer delivery schedules, manufacturing yields and production costs. To reduce these risks, in fiscal 1994 the Company entered into a deposit and supply agreement with Taiwan Semiconductor Manufacturing Co., Ltd. Under this agreement, the Company is entitled to guaranteed sub micron wafer foundry capacity through June 1997 and as of March 31, 1995 is committed to $44.6 million of purchases over the remaining term of the contract. The Company has made available to the supplier advances aggregating $14.7 million to secure the supply of silicon wafers pursuant to this agreement. The advances are repayable at the expiration of the supply agreement and the supplier has provided an irrevocable standby letter of credit to the Company in an equal amount to guarantee the repayment of amounts made available by the Company. PATENTS AND LICENSES The Company believes that patents are of less significance in its industry than such factors as innovative skills, technological expertise and marketing abilities. However, the Company encourages its engineers to document patentable inventions, and has applied for and continues to apply for patents both in the United States and in foreign countries when it deems it to be advantageous to do so. There can be no assurance that patents will be issued or that any patent issued will provide significant protection or could be successfully defended. As is the case with many companies in the electronics industry, it may be desirable in the future for the Company to obtain technology licenses from other companies. The Company has occasionally received notices of claimed infringement of intellectual property rights and may receive additional such claims in the future. The Company evaluates all such claims and, if necessary, will seek to obtain appropriate licenses. There can be no assurance that any such licenses, if required, will be available on acceptable terms. EMPLOYEES At March 31, 1995, the Company had 1,697 employees, including 379 in engineering, 871 in manufacturing (including 748 at its Singapore facility), 67 in customer technical support, 119 in marketing, 116 in sales, and 145 in finance and administration. The Company's continued success will depend in large measure on its ability to attract and retain highly skilled employees who are in great demand. None of the Company's employees is represented by a labor union. FOREIGN AND DOMESTIC OPERATIONS Incorporated by reference from information under the caption "Segment Information" on Pages 45 and 46 of the Annual Report to Shareholders for the fiscal year ended March 31, 1995. 6 8 FACTORS AFFECTING STOCK PRICE Factors such as technological innovations or new product introductions by Adaptec, its competitors or its customers may have a significant impact on the market price of Adaptec's Common Stock. In addition, quarter-to-quarter fluctuations in the Company's results of operations, caused by changes in customer demand, changes in the microcomputer and peripherals markets, or other factors, may have a significant impact on the market price of the Company's Common Stock. These conditions, as well as factors which generally affect the market for stocks of high technology companies, could cause the price of the Company's stock to fluctuate substantially over short periods. EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information with respect to the executive officers of the Company, and their ages, as of March 31, 1995.
NAME AGE POSITION - ----------------------------------------- --- ----------------------------------------- John G. Adler............................ 58 Chairman of the Board of Directors, and Chief Executive Officer F. Grant Saviers......................... 50 President and Chief Operating Officer Daniel W. Bowman......................... 50 Vice President of Administration Martin Brauns............................ 35 Vice President of Sales Andrew J. Brown.......................... 35 Corporate Controller and Principal Accounting Officer John D. Hamm............................. 35 Vice President and General Manager Paul G. Hansen........................... 47 Vice President of Finance, Chief Financial Officer and Assistant Secretary Sam Kazarian............................. 52 Vice President of Operations Christopher G. O'Meara................... 37 Vice President and Treasurer S. Sundaresh............................. 38 Vice President and General Manager Henry P. Massey, Jr...................... 55 Secretary
Executive officers serve at the pleasure of the Board of Directors of the Company. There are no family relationships between any directors or executive officers of the Company. Mr. Adler has served as Chief Executive Officer since December 1986, and as a Director since February 1986. Mr. Adler served as Chief Operating Officer from May 1985 to December 1986 and President from May 1985 to July 1992. Mr. Saviers has served as President and Chief Operating Officer of the Company since August 1992. Mr. Saviers was also appointed a member of the Board of Directors at that time. Prior to that time, Mr. Saviers held several senior level management positions in his 24 year tenure with Digital Equipment Corporation, and most recently served as Vice President of Digital's personal computer systems and peripherals operations. Mr. Bowman has served as Vice President of Administration since December 1990 and from September 1988 to December 1990, was Director of Administration. Mr. Brauns has served as Vice President of Sales since February 1994. From March 1993 to January 1994, he served as Director of Sales. Between April 1991 and February 1993 Mr. Brauns held the position of Vice President of Marketing and General Manager at Librex Computer Systems, Inc. From June 1987 to March 1991, he held a number of management positions at Wyse Technologies, Inc. Mr. Brown has served as Corporate Controller and Principal Accounting Officer since May 1994. From July of 1988 to April of 1994 he served in various financial roles with the Company, the most recent as Operations Accounting Controller. 7 9 Mr. Hamm has served as Vice President and General Manager since February 1994, after serving as Vice President of Sales from December 1990 to February 1994. Between February 1988 and August 1990, Mr. Hamm served as Director of Original Equipment Sales and held other various sales management positions at Western Digital Corporation. Mr. Hansen, a certified public accountant, has served as Vice President of Finance and Chief Financial Officer since January 1988, after serving as Corporate Controller from March 1985 to December 1987 and Director of Accounting from March 1984 to March 1985. Mr. Kazarian has served as Vice President of Operations since May 1990. Before joining Adaptec, he served as Executive Vice President and Chief Operating Officer at Rugged Digital Systems from January 1988 to April 1990. Mr. O'Meara has served as a Vice President since July 1992 and as Treasurer since April 1989. Between May 1988 and April 1989, Mr. O'Meara served as the Company's Director of Financial Planning. Mr. Sundaresh has served as Vice President and General Manager since February 1994. From March of 1993 until January of 1994 he served as Director of Marketing. From 1991 to 1993 he served as Director of PC Marketing at Hyundai Electronics America. From 1983 to 1991, Mr. Sundaresh held several marketing management positions at Hewlett-Packard Company. Mr. Massey has served as Secretary since November 1989. For more than the last five years, Mr. Massey has been a practicing lawyer and a member of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, a law firm and general outside counsel to the Company. ITEM 2. PROPERTIES. The Company owns six buildings (approximately 375,000 square feet) in Milpitas, California. Five buildings are used by the Company for corporate offices, research, manufacturing, marketing and sales. The sixth building, consisting of office and warehouse facilities, (approximately 101,000 square feet) is currently leased to third parties. The Company leases a facility in Boulder, Colorado (47,000 square feet) to support technical design efforts and sales. Adaptec Manufacturing Singapore is located in two leased facilities (approximately 103,000 square feet). The two buildings are used by the Company for research, manufacturing and sales. The Company also leases seven sales offices in the United States, and one sales office each in Brussels, Belgium; Munich, Germany; Bretonneux, France; Fleet, England; Singapore; and Tokyo, Japan. The Company believes its existing facilities and equipment are well maintained and in good operating condition and believes its manufacturing facilities, together with the use of independent manufacturers where required or desirable, will be sufficient to meet its anticipated manufacturing needs through fiscal 1996. The Company's future facilities requirements will depend upon the Company's business and, the Company believes additional space, if required, may be obtained on reasonable terms. ITEM 3. LEGAL PROCEEDINGS. A class action lawsuit alleging federal securities law violations and negligent misrepresentation was filed against the Company, its directors, and certain of its officers in February, 1991. That action was settled by letter agreement on July 29, 1993. The Company has made all payments required under the terms of the letter agreement. On March 7, 1995, the Court issued an Order preliminarily approving the class action settlement. Notice of the settlement has been given to class members. Final approval of the class action settlement is pending final order from the Court. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 8 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS. Incorporated by reference from the information under the caption "Common Stock Prices and Dividends" on page 48 of the Annual Report to Shareholders for the fiscal year ended March 31, 1995. ITEM 6. SELECTED FINANCIAL DATA. Incorporated by reference from the information under the caption "Selected Financial Data" on page 48 of the Annual Report to Shareholders for the fiscal year ended March 31, 1995. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Incorporated by reference from the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" from pages 31 through 34 of the Annual Report to Shareholders for the fiscal year ended March 31, 1995. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Consolidated financial statements of Adaptec, Inc. at March 31, 1995 and 1994 and for each of the three years in the period ended March 31, 1995 and the independent accountants' report thereon are incorporated by reference from pages 35 through 47 of the Annual Report to Shareholders for the fiscal year ended March 31, 1995. The financial statements of Adaptec, Inc. as of and for the two years ended March 31, 1994 were audited by other independent accountants as indicated in the previously mentioned independent accountants' report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The change in accountants during fiscal 1995 was reported of Forms 8-K filed May 4, 1994 and June 23, 1994. Additionally, Form 8-K/A-2 dated July 11,1994 was filed amending the original Form 8-K filed on May 4, 1994. On May 3, 1994, the Company dismissed Arthur Andersen LLP as its auditors. This decision was recommended by management and approved by the Audit Committee of the Board of Directors. The Company believes there were no disagreements with Arthur Andersen LLP within the meaning of Instruction 4 of Item 304 of Regulation S-K for the fiscal years ended March 31, 1993 or 1994, or with respect to the subsequent period ended May 3, 1994. During the fiscal years ended March 31, 1993 and 1994 and through May 3, 1994 there were no reportable events (as defined in Item 304 of Regulation S-K) with Arthur Andersen LLP. A letter from Arthur Andersen LLP addressed to the Securities and Exchange Commission is included as an exhibit to this Form 10-K and incorporated by reference from the aforementioned Form 8-K/A-2 dated July 11, 1994. This letter states that the firm agrees with the statements made by the Company pursuant to Item 304 of Regulation S-K. The Company appointed Price Waterhouse LLP as its independent accountants on June 21, 1994. This appointment is included in the Company's Form 8-K filed June 23, 1994. 9 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information with respect to directors of Adaptec is incorporated by reference from the information under the captions "Election of Directors -- Nominees" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's definitive Proxy Statement for the annual meeting of shareholders to be held, August 24, 1995 (the "Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION. Incorporated by reference from the information under the caption "Executive Compensation and Other Matters" and "Election of Directors, Certain Relationships and Related Transactions" in the Company's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Incorporated by reference from the information under the caption; "Election of Directors -- Security Ownership of Management" in the Company's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Incorporated by reference from the information under the caption "Election of Directors, Certain Relationships and Related Transactions" in the Company's Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. The following Consolidated Financial Statements of Adaptec, Inc. and the Report of Independent Public Accountants, as listed under (a)(1) below, are incorporated herein by reference to the Registrant's Annual Report to Shareholders for the year ended March 31, 1995. (a)(1) Financial Statements:
PAGE IN ANNUAL REPORT ------- Consolidated Statements of Operations -- Fiscal Years ended March 31, 1995, 1994 and 1993.................................................. 35 Consolidated Balance Sheets at March 31, 1995 and 1994............... 36 Consolidated Statements of Cash Flows -- Fiscal Years ended March 31, 1995, 1994 and 1993.................................................. 37 Consolidated Statements of Shareholders' Equity -- Fiscal Years ended March 31, 1995, 1994 and 1993........................................ 38 Notes to Consolidated Financial Statements........................... 39-46 Report of Management................................................. 47 Report of Independent Accountants.................................... 47
(2) All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. 10 12 (3) Exhibits included herein (numbered in accordance with Item 601 of Regulation S-K):
EXHIBIT NUMBER DESCRIPTION NOTES - ----------- ---------------------------------------------------------------------------------- 3.1 Seventh Amended and Restated Articles of Incorporation of Registrant. (1) 3.2 Bylaws of Registrant, as amended. (2) 4.1 First Amended and Restated Common Shares Rights Agreement dated June 30, 1992, between Registrant and Chemical Trust Company of California as Rights Agents. (3) 10.1* Registrant's 1982 Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement. (4) 10.2* Registrant's 1986 Employee Stock Purchase Plan. (1) 10.3 Industrial Lease Agreement dated February 26, 1987 between the Registrant, as Lessee, and Jurong Town Corporation, as Lessor. (5) 10.4 Technology License Agreement dated January 1, 1985 between the Registrant and International Business Machines Corporation. (6), (7) 10.5* Registrant's Savings and Retirement Plan. (5) 10.6* 1990 Stock Plan, as amended. (9) 10.7* Forms of Stock Option Agreement, Tandem Stock Option/SAR Agreement, Restricted Stock Purchase Agreement, Stock Appreciation Rights Agreement, and Incentive Stock Rights Agreement for use in connection with the 1990 Stock Plan, as amended. (2) 10.8* 1990 Directors' Option Plan and forms of Stock Option Agreement. (1) 10.9 Revolving Loan Agreement dated June 3, 1992 between Registrant and Plaza Bank of Commerce (incorporated by reference to Exhibit 10.26 filed with Registrant's Annual Report on Form 10-K for fiscal year ended March 31, 1992) and Amendment Number Three to the Revolving Credit Loan Agreement dated April 29, 1994 between the Registrant and Comerica Bank -- California (formerly Plaza Bank of Commerce) expiring August 31, 1997. (1) 10.10 Admendments Four, Five and Six to the Revolving Credit Loan Agreement dated April 29, 1994 between the Registrant and Comerica Bank -- California expiring August 31, 1997. 10.11 Form of Indemnification Agreement entered into with directors and officers of the Company. (8) 10.12 Term Loan Agreement dated June 24, 1992 between the Registrant and Plaza Bank of Commerce expiring June 30, 1998. (8) 10.13* Letter agreement between F. Grant Saviers and the Company dated July 27, 1992. (2) 10.14** Deposit and Supply Agreement between Taiwan Semiconductor Manufacturing Co., Ltd. and Adaptec Manufacturing Pte. Ltd. (1) 10.15 Purchase and Sale Agreement dated April 25, 1994 between the Registrant and the Prudential Insurance Company of America. (1) 10.16 Industrial Lease Agreements between the Registrant, as Lessee, and Jurong Town Corporation, as Lessor. 13.1 Annual Report to Shareholders for the fiscal year ended March 31, 1995. 16.1 Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated July 11, 1994. (10) 21.1 Subsidiaries of Registrant. (11) 23.1 Consent of Independent Accountants. Price Waterhouse LLP (See page 13). 23.2 Consent of Independent Public Accountants. Arthur Andersen LLP (See Page 14).
11 13
EXHIBIT NUMBER DESCRIPTION NOTES - ----------- ---------------------------------------------------------------------------------- 23.3 Report of Independent Public Accountants, Arthur Andersen LLP (See Page 15). 24.1 Power of Attorney (See Page 16). 27.1 Financial Data Schedule for the year ended March 31, 1995.
- --------------- (1) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1994. (2) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1993. (3) Incorporated by reference to Exhibit A filed with the Registrant's Registration Statement Number 0-15071 on Form 8-A on May 11, 1989 and to Exhibit 1.1 to Form 8 Amendments No. 1, No. 2 and No. 3 thereto as filed June 5, 1990, April 8, 1992 and July 20, 1992, respectively. (4) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1990. (5) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1987. (6) Incorporated by reference to Exhibit 10.15 filed in response to Item 16(a) "Exhibits", of the Registrant's Registration Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto (file No. 33-5519), which became effective on June 11, 1986. (7) Confidential treatment granted by order effective June 11, 1986 and extended by orders dated August 12, 1992 through June 30, 1995. (8) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1992. (9) Incorporated by reference to Exhibit 4.2 to Form S-8 as filed October 26, 1994. (10) Incorporated by reference to Exhibit 16 to Form 8-K/A-2 dated July 11, 1994. (11) Incorporated by reference from the information under the caption "Corporate Information" included in the Annual Report to Shareholders for the fiscal year ended March 31, 1995. * Designates management contracts or compensatory plan arrangements required to be filed as an exhibit pursuant to item 14(c) of this report on Form 10-K. ** Confidential treatment has been requested for portions of this agreement. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter. 12 14 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-85652) of Adaptec, Inc. of our report dated April 20, 1995 appearing on page 47 of the Annual Report to Shareholders which is incorporated by reference in this Annual Report on Form 10-K. PRICE WATERHOUSE, LLP -------------------------------------- San Jose, California June 23, 1995 13 15 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statements File No. 33-36353, No. 33-36352, No. 33-32071, No. 33-25237, No. 33-19125, No. 33-19124, No. 33-8846 and No.33-68630. /s/ ARTHUR ANDERSEN LLP -------------------------------------- Arthur Andersen LLP San Jose, California June 23, 1995 14 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Adaptec, Inc.: We have audited the consolidated balance sheet of Adaptec, Inc. (a California corporation) and subsidiaries as of March 31, 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended March 31, 1994 and 1993 (incorporated by reference herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Adaptec, Inc. and subsidiaries as of March 31, 1994, and the results of their operations and their cash flows for the years ended March 31, 1994 and 1993 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP -------------------------------------- Arthur Andersen LLP San Jose, California April 25, 1994 15 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. ADAPTEC, INC. Date: June 23, 1995 /s/ JOHN G. ADLER -------------------------------------- John G. Adler Chairman of the Board of Directors, Chief Executive Officer 16 18 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints John G. Adler and Paul G. Hansen, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------ ---------------- /s/ JOHN G. ADLER Chairman of the Board of June 23, 1995 ------------------------------ Directors, Chief Executive (John G. Adler) Officer(Principal Executive Officer) /s/ F. GRANT SAVIERS President, and Chief Operating June 23, 1995 -------------------------------- Officer (F. Grant Saviers) /s/ PAUL G. HANSEN Vice President of Finance and June 23, 1995 --------------------------------- Chief Financial Officer (Paul G. Hansen) (Principal Financial Officer) Assistant Secretary /s/ ANDREW J. BROWN Corporate Controller and June 23, 1995 --------------------------------- Principal Accounting Officer (Andrew J. Brown) /s/ LAURENCE B. BOUCHER Director June 23, 1995 ---------------------------------- (Laurence B. Boucher) /s/ ROBERT J. LOARIE Director June 23, 1995 ----------------------------------- (Robert J. Loarie) /s/ B. J. MOORE Director June 23, 1995 ------------------------------------- (B. J. Moore) /s/ W. FERRELL SANDERS Director June 23, 1995 ------------------------------------ (W. Ferrell Sanders) /s/ PHILLIP E. WHITE Director June 23, 1995 ------------------------------------ (Phillip E. White)
17 EX-10.10 2 AMENDMENTS TO THE REVOLVING CREDIT LOAN AGREEMENT 1 EXHIBIT 10.10 AMENDMENT NUMBER FOUR TO REVOLVING CREDIT LOAN AGREEMENT THIS AMENDMENT NUMBER FOUR TO REVOLVING CREDIT LOAN AGREEMENT dated as of July 13, 1994 (the "Amendment") is entered into by and between ADAPTEC, INC., a California corporation (the "Borrower"), and COMERICA BANK-CALIFORNIA (formerly known as Plaza Bank of Commerce), a California banking corporation (the "Bank"). WITNESSETH: WHEREAS, the Borrower and the Bank entered into the Revolving Credit Loan Agreement dated as of June 3, 1992, as amended by Amendment Number One dated as of August 21, 1992, Amendment Number Two dated as of December 31, 1992, and Amendment Number Three dated as of April 29, 1994 (as the same may be further amended, restated, supplemented or otherwise modified from time to time, the "Agreement"); and WHEREAS, the Borrower and the Bank desire to amend the Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower and the Bank agree as follows: 1. Capitalized terms used in this Amendment and not otherwise defined shall have the respective meanings set forth in the Agreement. 2. Section 6.2 of the Agreement is hereby amended to read in its entirety as follows: '6.2 Stock Acquisition. Purchase, redeem, retire or otherwise acquire any of the shares of its capital stock, or make any commitment to do so, in amounts which are, in the aggregate, greater than (a) Thirty Million Dollars ($30,000,000) in the Borrower's fiscal year ending March 31, 1995, and (b) Ten Million Dollars ($10,000,000) in any other fiscal year of the Borrower. Any such amount which is unused in any fiscal year shall not be available to carry forward for use in any subsequent fiscal year.' 3. The Borrower hereby represents and warrants to the Bank that (a) the representations and warranties contained in the Agreement are true in all material respects on and as of the date of this Amendment, and (b) no Default has occurred and is continuing. 2 4. Except as specifically amended pursuant to the foregoing paragraphs of this Amendment, all recitals, representations, warranties, covenants, undertakings, promises, indemnities, terms, conditions and provisions of the Agreement shall remain in full force and effect and shall be and remain unaffected by this Amendment. 5. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. The Amendment and the Agreement constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Amendment shall become effective when executed by each of the parties hereto and delivered to the Bank. 6. This Amendment shall be governed by, and construed and enforced in accordance with, the internal laws of the State of California other than principles of conflicts of laws. IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment to be executed by their duly authorized officers as of the day and year first written above. ADAPTEC, INC By: /s/ CHRISTOPHER G. O'MEARA ------------------------------------ Christopher G. O'Meara Its: Vice President and Treasurer COMERICA BANK-CALIFORNIA (formerly known as Plaza) Bank of Commerce) By: /s/ LORI EDWARDS ------------------------------------ Lori Edwards Its: First Vice President 2 3 AMENDMENT NUMBER FIVE TO REVOLVING CREDIT LOAN AGREEMENT THIS AMENDMENT NUMBER FIVE TO REVOLVING CREDIT LOAN AGREEMENT dated as of September 21, 1994 (the "Amendment") is entered into by and between ADAPTEC, INC., a California corporation (the "Borrower"), and COMERICA BANK-CALIFORNIA (formerly known as Plaza Bank of Commerce), a California banking corporation (the "Bank"). WITNESSETH: WHEREAS, the Borrower and the Bank entered into the Revolving Credit Loan Agreement dated as of June 3, 1992, as amended by Amendment Number One dated as of August 21, 1992, Amendment Number Two dated as of December 31, 1992, Amendment Number Three dated as of April 29, 1994, and Amendment Number Four dated as of July 13, 1994 (as the same may be further amended, restated, supplemented or otherwise modified from time to time, the "Agreement"); and WHEREAS, the Borrower and the Bank desire to amend the Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower and the Bank agree as follows: 1. Capitalized terms used in this Amendment and not otherwise defined shall have the respective meanings set forth in the Agreement. 2. Section 6.2 of the Agreement is hereby amended to read in its entirety as follows: '6.2 Stock Acquisition. Purchase, redeem, retire or otherwise acquire any of the shares of its capital stock, or make any commitment to do so, in amounts which are, in the aggregate, greater than (a) Fifty Million Dollars ($50,000,000) in the Borrower's fiscal year ending March 31, 1995, and (b) Ten Million Dollars ($10,000,000) in any other fiscal year of the Borrower. Any such amount which is unused in any fiscal year shall not be available to carry forward for use in any subsequent fiscal year.' 3. The Borrower hereby represents and warrants to the Bank that (a) the representations and warranties contained in the Agreement are true in all material respects on and as of the date of this Amendment, and (b) no Default has occurred and is continuing. 4 4. Except as specifically amended pursuant to the foregoing paragraphs of this Amendment, all recitals, representations, warranties, covenants, undertakings, promises, indemnities, terms, conditions and provisions of the Agreement shall remain in full force and effect and shall be and remain unaffected by this Amendment. 5. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment and the Agreement constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Amendment shall become effective when executed by each of the parties hereto and delivered to the Bank. 6. This Amendment shall be governed by, and construed and enforced in accordance with, the internal laws of the State of California other than principles of conflicts of law. IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment to be executed by their duly authorized officers as of the day and year first written above. ADAPTEC, INC. By: /s/ CHRISTOPHER G. O'MEARA ------------------------------------ Christopher G. O'Meara Its: Vice President and Treasurer COMERICA BANK-CALIFORNIA (formerly known as Plaza) Bank of Commerce) By: /s/ LORI EDWARDS ------------------------------------ Lori Edwards Its: First Vice President 2 5 AMENDMENT NUMBER SIX TO REVOLVING CREDIT LOAN AGREEMENT THIS AMENDMENT NUMBER SIX TO REVOLVING CREDIT LOAN AGREEMENT dated as of December 9, 1994 (the "Amendment") is entered into by and between ADAPTEC, INC., a California corporation (the "Borrower"), and COMERICA BANK-CALIFORNIA (formerly known as Plaza Bank of Commerce), a California banking corporation (the "Bank"). W I T N E S S E T H: WHEREAS, the Borrower and the Bank are parties to a certain Revolving Credit Loan Agreement dated as of June 3, 1992, as amended by Amendment Number One dated as of August 21, 1992, Amendment Number Two dated as of December 31, 1992, Amendment Number Three dated as of April 29, 1994, Amendment Number Four dated as of July 13, 1994, and Amendment Number Five dated as of September 21, 1994 (as so amended, the "Agreement"); and WHEREAS, the Borrower and the Bank desire to amend the Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises herein contained, the Borrower and the Bank agree as follows: 1. Capitalized terms used in this Amendment and not otherwise defined shall have the respective meanings set forth in the Agreement. 2. The definition of "Termination Date" set forth in Section 1.1 of the Agreement is hereby amended to read in its entirety as follows: ' "Termination Date" shall mean December 31, 1996 (or such later date as extended pursuant to Section 2.6 or such earlier date on which the Borrower shall permanently terminate the Bank's commitment under Section 2.14).' 3. Section 2.12.1 of the Agreement is hereby amended to read in its entirety as follows: ' 2.12.1 Commitment Fees. The Borrower shall pay to the Bank a commitment fee for the period from the Effective Date to and including the Termination Date equal to the average daily excess of the Commitment Amount over the sum of (a) the aggregate outstanding 6 principal amount of all outstanding Revolving Loans, plus (b) the aggregate outstanding Letter of Credit Face Amounts of all outstanding standby Letters of Credit, plus (c) the aggregate outstanding principal amount of all Letter of Credit Loans outstanding, multiplied by (i) from the Effective Date to and including November 30, 1994, three-eighths of one percent (0.375%) per annum, and (ii) from December 1, 1994 to and including the Termination Date, one-quarter of one percent (0.25%), in each case based on a year of 360 days for the actual number of days elapsed. Such commitment fees shall be computed without regard to any Default and shall be paid in arrears on the last day of each March, June, September and December, commencing September 30, 1992, and also on the Termination Date.' 4. The Borrower hereby represents and warrants to the Bank that (a) the representations and warrants contained in the Agreement are true in all material respects on and as of the date of this Amendment, and (b) no Default has occurred and is continuing. 5. Except as specifically amended pursuant to the foregoing paragraphs of this Amendment, all recitals, representations, warranties, covenants, undertakings, promises, indemnities, terms, conditions and provisions of the Agreement shall remain in full force and effect and shall be and remain unaffected by this Amendment. 6. This Amendment may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment and the Agreement constitute the entire agreement and understanding among the parties hereto and supersede any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Amendment shall become effective when executed by each of the parties hereto and delivered to the Bank. 7. This Amendment shall be governed by, and construed and enforced in accordance with, the internal laws of the State of California other than principles of conflicts of laws. 2 7 IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment to be executed by their duly authorized officers as of the day and year first written above. ADAPTEC, INC. By: /s/ CHRISTOPHER G. O'MEARA ------------------------------------ Christopher G. O'Meara Vice President and Treasurer COMERICA BANK-CALIFORNIA (formerly known as Plaza Bank of Commerce) By: /s/ LORI EDWARDS ------------------------------------ Lori S. Edwards First Vice President 3 EX-10.16 3 INDUSTRIAL LEASE AGREEMENTS 1 EXHIBIT 10.16 [LOGO] REGISTRATION NO: PF 20530/93 FILE NO: JTC(L)3729/1210 Pt 1/LPH/SL(AT) TENANCY AGREEMENT RELATING TO PRIVATE LOT A12733(c) NO. #06-14 AT 1003 BUKIT MERAH CENTRAL REDHILL INDUSTRIAL ESTATE BETWEEN JURONG TOWN CORPORATION AND ADAPTEC MFG (S) PTE LTD 2 TENANCY OF FLATTED FACTORY UNIT This Tenancy is made the 11th day of February 1993 between the JURONG TOWN CORPORATION incorporated under the Jurong Town Corporation Act, having its Head Office at Jurong Town Hall, Jurong Town Hall Road, Singapore (hereinafter called "the Landlord") of the one part and ADAPTEC MFG (S) PTE LTD and having its registered office at 10 Hoe Chiang Road, #17-02 Keppel Tower, Singapore 0208 (hereinafter called "the Tenant" which expression shall where the context so admits include its successors and permitted assigns) of the other part. WITNESSETH as follows :- 1 The Landlord hereby lets and the Tenant hereby takes ALL that portion of the SIXTH (6TH) storeys of the Building known as 1003 BUKIT MERAH CENTRAL #06-14 REDHILL INDUSTRIAL ESTATE (hereinafter called "the Building") containing an approximate area of 393.8 square metres (which said area may be adjusted on completion of survey, if any) more particularly delineated and coloured red on the plan annexed hereto (which portion is hereinafter called "the Factory Unit") TOGETHER with the use of the lavatories and conveniences thereat together also with the use for the Tenant the Tenant's servants and visitors of the lifts and the entrances staircases corridors and passages and accesses to the Building for the purpose only of ingress and egress to and from the Factory Unit with or without parcels and packages TO HOLD the same UNTO the Tenant for the term of TWO (2) YEARS AND TEN (10) MONTHS from the 1ST day of SEPTEMBER 1992 YIELDING AND PAYING therefor during the said term the rent (1) at the discounted rate of Dollars TWELVE AND CENTS THIRTY-FIVE ONLY ($12.35CTS) per square metre per month for so long as the Tenant shall occupy under tenancy an aggregate floor area of 393.8 square metres in the Building or in the various Flatted Factories belonging to the Landlord; and 3 - 2 - (2) in the event that the said aggregate floor area occupied is at any time henceforth and for any reason whatever reduced to below 5,000 square metres whence the discount shall be totally withdrawn from and in respect of the Factory Unit and all other premises occupied by the Tenant, then and with effect from the date of the reduction of the said aggregate floor area, at the normal rate of Dollars THIRTEEN ONLY ($13.00) per square metre per month to be paid clear of all deduction and in advance and without demand on the lst day of each of the calendar month of the year (i.e., the 1st day of January, February, March, etc.) the first of such payments to be made on the 1ST day of SEPTEMBER 1992. 2 The Tenant hereby covenants with the Landlord as follows: (1) To pay the said rent at the rates, on the days and in the manner aforesaid. (2) To pay in addition to the said rent during the said term the sum of Dollars ONE AND CENTS SEVENTY ONLY ($1.70CTS) per square metre per month in advance on the same dates and in the same manner as for the said rent as charges for services to be undertaken by the Landlord as hereinbefore mentioned (hereinafter referred to as "the Service Charge") PROVIDED THAT if the cost of services shall increase, the Landlord may revise the Service Charge and on serving a notice in writing to the Tenant to this effect such revised Service Charge shall be payable as from the date specified in the said notice. (3) (i) To pay a deposit equivalent to three (3) months' rent at the discounted rate and service charge on or before the execution of this Agreement, or commencement of the said term whichever is earlier, as security against breach of any or all of the covenants herein contained which cash deposit shall be maintained at this figure during the said term and shall be repayable without interest on the termination of this tenancy subject however to an appropriate deductions as damages in respect of any such breach. (ii) In lieu of the aforesaid cash deposit to provide an acceptable banker's guarantee for the same equivalent amount, which guarantee shall be valid and irrevocable for the whole of the said term or the unexpired portion of the said term, as the case may be, plus six months after the date of expiry of the said term and in a form approved by the Landlord, or to provide such other form of security as the Landlord may in Landlord's absolute discretion permit or accept. 4 - 3 - (iii) If the rent at the discounted rate hereinbefore mentioned in clause 1(1) shall at any time be increased to the rent at normal rate in accordance with Clause 1(2), or if the Service Charge has been increased by the Landlord in accordance with Clause 2 (2) hereof , to forthwith pay the amount of such increase so that the cash deposit stipulated in sub-clause (i) above shall at all times be equal to three (3) months' rent (at the discounted or normal rate as the case may be) and service charge. (4) During the said term or any renewal thereof to pay any increase of property tax which may be imposed whether by way of an increase in the annual value or an increase in the rate per cent. For the purpose of ascertaining the additional amount payable under this clause any such increase in property tax shall be apportioned in the same proportion as the rent payable under this Agreement bears to the total assessed annual value of the Building at the date such increase comes into force. (5) To pay all charges and outgoings whatsoever in respect of the supply of electricity and water used by the Tenant at the Factory Unit as shown by the separate meters belonging thereto and also pay all charges for the use and maintenance of such meters PROVIDED ALWAYS that subject to the prior written consent of the Landlord and to all approvals being obtained by the Tenant from the relevant authorities the water sub-meter will be installed in the Factory Unit by the Tenant at the Tenant's own cost. (6) At all times to use and occupy the Factory Unit for the purpose of MANUFACTURING OF APPLICATION SPECIFIC INTEGRATED CIRCUITS (ASIC) AND PRINTED CIRCUIT BOARD ASSEMBLY (PCBA) ONLY and for no other purposes whatever. (7) Not to place or allow to be placed upon the Factory Unit or on any of the floors in the Building any article machinery or load in excess of 10 kiloNewtons per square metre and not to place or allow to be placed in the goods lifts of the factory building any article machinery or load in excess of 2000 kilograms. 5 - 4 - (8) To keep the interior of the Factory Unit (including the doors and windows thereof and all the Landlord's other fixtures and fittings therein) clean and in good and substantial repair and condition (fair wear and tear and damage by fire lightning riot or tempest alone excepted) and also to clean and keep clean the exterior of the windows thereof. (9) Not to make or cause to be made any alteration in or addition to the Factory Unit without the prior written consent of the Landlord and the relevant authorities PROVIDED THAT on the granting of such consent and without prejudice to other terms and conditions which may be imposed the Tenant shall place with the Landlord a deposit equivalent to such amount as the Landlord may deem sufficient for the reinstatement of the Factory Unit to its original condition. Further the Tenant shall not use any inflammable building materials for internal partitioning. (10) Not to modify any existing electrical wirings or modify or replace any existing fire alarm fixtures and fittings or affix or install any further or additional electrical and fire alarm wiring extension in or about the Factory Unit without the written consent of the Landlord having been first obtained and PROVIDED FURTHER THAT all such work shall be carried out by a licensed electrical contractor or competent person as approved by the Landlord to be employed and paid by the Tenant who shall ensure as part of the work that the existing circuits and equipment are not overloaded or unbalanced. Prior to any electrical and fire alarm installation or modification work, the Tenant will be required to submit the necessary plans as hereinafter specified under clauses 2(29) and 2(30) to the Landlord for approval. (11) To permit the Landlord or the Landlord's agents with or without workmen or others at all reasonable times to enter the Factory Unit to take inventories of the Landlord's 6 - 5 - fixtures and fittings therein and to view the condition thereof and examine the state of repair of the Factory Unit and thereupon the Landlord may serve upon the Tenant notice in writing specifying any work or repairs necessary to be done which are within the responsibility of the Tenant under the terms of this Agreement and require the Tenant forthwith to execute the same and the Tenant shall pay the Landlord's reasonable costs of survey attending the preparation of the notice and if the Tenant shall not within ten days after the service of such notice proceed diligently and in workman-like manner with the execution of such work or repairs then to permit the Landlord (who shall not be under any obligation so to do) to enter upon the Factory Unit and execute such work or repairs and the cost thereof shall be a debt due from the Tenant to the Landlord and be forthwith recoverable PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such work or repairs. (12) To be wholly responsible for all damages and to bear the full cost of repairs and reinstatement of such damaged building equipment fixtures drains wiring and piping above and below ground level if the cause or causes of such damages can be traced directly or indirectly back to the Tenant's activities. (13) To permit the Landlord, the Landlord's agents or workmen and others to enter the Factory Unit at reasonable hours to do structural or external repairs and execute such work as may be necessary to the Factory Unit or to other portions of the Building of which the Factory Unit may form a part but which are not conveniently accessible otherwise than from or through the Factory Unit. (14) In complying with Clause 2(13) hereof and if so required by the Landlord the Tenant shall remove such installation, machinery or any article to permit the Landlord to execute the said repairs and works and if the Tenant shall fail to observe or perform this covenant the Landlord shall remove the same and all costs and expenses incurred thereby shall 7 - 6 - be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such removal. (15) Subject always to clause 2(27) hereinafter appearing, to give to the Landlord written notice of every change of name within one month from the date of each change. (16) To make good and sufficient provision for the safe and efficient disposal of all waste generated at the Factory Unit including but not limited to pollutants to the requirements and satisfaction of the Landlord and/or relevant Government authorities PROVIDED THAT in the event of any default by the Tenant under this covenant the Landlord may carry out such remedial measures as he thinks necessary and all costs and expenses incurred thereby shall forthwith be recoverable in full from the Tenant as a debt. (17) To provide and maintain refuse receptacles for all waste and refuse produced at the Factory Unit in conformity with the requirements and standards prescribed by the health authority and to keep the same out of sight of the public during the hours of business and to transfer such waste and refuse in suitable receptacles to such area and at such times each day as may be prescribed by the Landlord. (18) Not to keep or allow to be kept livestock or other animals at the Factory Unit. (19) Not to do or suffer to be done on or in the Factory Unit anything whereby the insurances of the same or of the Building or any part thereof may be rendered void or voidable or whereby the premium thereon may be increased and to repay to the Landlord on demand all sums paid by the Landlord by way of increased premium and all expenses incurred by the Landlord in connection therewith and/or all loss damages and expenses resulting from a breach or non-observance of this covenant without prejudice to any other rights and remedies available to the Landlord. 8 - 7 - (20) Not to do or permit or suffer to be done anything in or upon the Factory Unit or any part of the Building which in the opinion of the Landlord is a nuisance or cause annoyance to or in any way interfere with the business or the quiet or comfort of the other occupants of the Building PROVIDED THAT the Landlord shall not be responsible to the Tenant for any loss, damage or inconvenience as a result of nuisance, annoyance or any interference whatsoever caused by the other occupants of the Building. (21) Not to use the said premises for any illegal or immoral purpose. (22) Not to cause any obstruction in or on the approaches private roads or passage way adjacent to or leading to the Building by leaving or parking or permitting to be left or parked any motor vehicle or other carriages belonging to or used by the Tenant or by any of the Tenant's friends servants or visitors. And also to observe all regulations made by the Landlord relating to the parking of such vehicles or carriages and to pay such carpark charges as may be imposed by the Landlord. (23) Not to effect any sale by auction in the Building. (24) Not to affix paint or otherwise exhibit on the exterior of the Factory Unit or the windows thereof or of the Building or in any of the passages corridors or stairs of the Building any name plate placard poster or advertisement or any flag-staff or other thing whatsoever save only the name of the Tenant in such places only and not elsewhere and in such manner and position only as shall be approved in writing by the Landlord. (25) Not to cause any obstruction to the common stairways passageways and other common parts of the Building or accesses to the Building. PROVIDED ALWAYS that the 9 - 8 - Landlord shall have the full right and liberty and absolute discretion to remove and clear any such obstruction and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt. FURTHER PROVIDED THAT the Landlord shall not be liable to the Tenant or any third party for any loss damage or inconvenience caused by such removal and the Tenant hereby indemnifies the Landlord in this respect. (26) Not to install any machinery or fixture in the Factory Unit without the permission in writing of the Landlord and to submit a layout plan of the Tenant's machinery for the approval of the Landlord and/or relevant authorities prior to the actual fixing of the machineries. (27) Not to assign sublet grant a licence or part with or share the possession of the Factory Unit or any part thereof without first obtaining the written consent of the Landlord, which consent if granted shall be subject to such terms and conditions as the Landlord may think fit to impose. The restrictions contained in Section 17 of the Conveyancing and Law of Property Act (Chapter 61 shall not apply. (28) Not to do or omit or suffer to be done or omitted any act matter or thing in or on the Factory Unit and/or in respect of the business trade or industry carried out or conducted therein which shall contravene the provisions of any laws rules or regulations now or hereafter affecting the same and at all times hereafter to indemnify and keep indemnified the Landlord against all actions, proceedings, costs, expenses, claims, fines, losses, penalties and demands in respect of any act matter or thing done or omitted to be done in contravention of the said provisions. (29) To install electrical switch board wirings and equipment to the Factory Unit including the following electrical protective devices, all at the Tenant's own expense, subject to the approval of the Landlord:- 10 - 9 - (a) Overcurrent protective devices in the Landlord's Switch Room; (b) Overcurrent and earth-leakage protective devices in the Factory Unit, PROVIDED THAT- (i) the Tenant shall submit 3 sets of 'electrical single-line diagram' of the Factory Unit wirings for the approval of the Landlord prior to the actual installation of the wirings; and (ii) it shall be the responsibility of the Tenant to keep all or any of the aforesaid switch board wirings, equipment and devices installed by the Tenant in good condition at all times. (30) To carry out such modification work on the existing fire alarm wirings, heat detectors and fixtures in the Factory Unit as shall be necessary to suit the factory operation, including the installation of additional wirings and connections of the heat detectors and fixtures to the Landlord's common fire alarm system, to the approval of the Landlord and all at the Tenant's own expense PROVIDED THAT: (a) The Tenant shall submit 2 copies of the fire alarm drawings of the Factory Unit indicating the existing fixtures, the proposed modifications and the layout of the Tenant's machinery for the approval of the Landlord prior to the commencement of the modification work. (b) The Tenant shall at the Tenant's own expense ensure that the existing fire alarm wirings, heat detectors and fixtures and any additional wirings and fixtures installed by the Tenant in the Factory Unit are serviced monthly and in good condition at all times including the payment of any fee(s) in connection with servicing and maintenance works. 11 - 10 - (c) Any item of replacement required for the effective maintenance of the fire alarm wirings, heat detectors and fixtures shall be of a quality and has an operational characteristic similar to the item to be replaced and shall be subject to the approval of the Landlord. The Tenant shall be required to replace any or all items of dissimilar quality and operational characteristic found in use. (31) To close the Factory Unit during such hours as the Landlord may specify by notice in writing to the Tenant for any maintenance or repair work to be executed by the Landlord. (32) At all times during the three calendar months immediately preceding the determination of the said term to permit intending tenants and others with written authority from the Landlord or his agents at reasonable times of the day to view the Factory Unit. (33) At the determination of the said term by expiry or otherwise to yield up the Factory Unit and all the Landlord's fixtures fittings fastenings or appertaining in such good and substantial repair fair wear and tear excepted as shall be in accordance with the covenants of the Tenant herein contained and with all locks and keys complete. (34) In addition to the foregoing and immediately prior to the determination of the said term or the renewal thereof as the case may be to restore the Factory Unit in all respects to its original state and condition if so required by the Landlord to redecorate including painting the interior 12 - 11 - thereof to the satisfaction of the Landlord PROVIDED ALWAYS that if the Tenant shall fail to observe or perform this covenant the Landlord shall execute such work for the said restoration and redecoration and recover the cost thereof from the Tenant together with all rent and service charge and other amounts which the Landlord would have been entitled to receive from the Tenant had the period within which such restoration and redecoration are effected by the Landlord been added to the said term. (35) To pay interest at the rate of 8.5% per annum or such higher rate as may be determined from time to time by the Landlord in respect of any outstanding amount payable under this Agreement from the date such amount becomes due until payment in full is received by the Landlord. (36) Not to install and/or use any electrical installation, machine or apparatus that may cause or causes heavy power surge, high frequency voltage and current, air borne noise, vibration or any electrical or mechanical interference or disturbance whatsoever which may prevent or prevents in any way the service or use of any communication system or affects the operation of other equipment, installations, machinery, apparatus or plants of other Tenants and in connection therewith, to allow the Landlord or any authorised person(s) to inspect at all reasonable times, such installation, machine or apparatus in the Factory Unit to determine the source of the interference or disturbance and thereupon, to take suitable measures, at the Tenant's own expense, to eliminate or reduce such interference or disturbance to the Landlord's satisfaction, if it is found by the Landlord or such authorised person(s) that the Tenant's electrical installation, machine or apparatus is causing or contributing to the said interference or disturbance. (37) To indemnify the Landlord against any claims, proceedings, action, losses, penalties, damages, expenses, costs, 13 - 12 - demands which may arise in connection with clause 2(36) above. (38) To perform and observe all the obligations which the Landlord of the Factory Unit may be liable to perform or observe during the said term by any direction or requirement of any public or local authority and if the Tenant shall fail to observe or perform this covenant the Landlord may in its absolute discretion perform the same and all expenses and costs incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused thereby. (39) To ensure that (i) at least 60% of the overall floor area shall be used for purely industrial activities and (ii) the remaining 40% shall be used as ancillary stores and offices, neutral areas and communal facilities PROVIDED THAT the said ancillary offices shall not exceed 25% of the overall floor area. (40) Not to use and occupy the Factory Unit for the purpose of commercial office and storage unrelated to the Tenant's approved industrial activity. (41) To permit the Landlord, the Landlord's agents or workmen and others at any time during the said term to enter the Factory Unit to replace the louvre/casement windows and timber doors with such other windows and doors as the Landlord may think fit and to install or replace service ducts/pipes ("the said replacement or installation works"). If so required by the Landlord the Tenant shall remove such installation, machinery, partition or any article to permit the Landlord to execute the said replacement or installation works, and if the Tenant shall fail to observe or perform this covenant the Landlord shall have the right to (without prejudice to any other right or remedy the Landlord may have against the Tenant) remove the same, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss, damage or inconvenience caused whatsoever by such removal and the said replacement or installation works. (42) Without prejudice to Clause 2(6) hereof and subject to the prior written approval of the Landlord, to provide thermal insulation to the floor, ceiling and the walls of rooms, if the rooms are used for purposes requiring low temperature air conditioning or cooling that would result in moisture condensation on the external, ceiling or floor within or outside the Factory Unit. (43) If any damage of whatsoever nature or description shall at any time occur or be caused to the Factory Unit or any part thereof, to forthwith give the Landlord written notice of damage. 14 - 13 - (44) Not to commence operation in the Factory Unit after the installation(s) of the machinery equipment, etcetera have been completed until a final inspection of the installation(s) has been carried out and approval of the same is given by the Landlord. (45) The Tenant accepts the Factory Unit with full knowledge that refurbishment and upgrading works (hereinafter referred to as "the refurbishment") are being or may be carried out in the Building and the estate in which the Building is situated. The Tenant shall, if required by the Landlord and within the time stipulated by the Landlord, at the cost and expense of the Tenant properly and in accordance with the obligations of the Tenant under this Agreement remove, re-locate and/or modify temporarily or permanently as may be stipulated by the Landlord every installation, fixture, fittings, device, equipment and article existing at the time outside the Factory Unit as the Landlord may think fit for the purpose of permitting the Landlord, his servant, agent, contractor and subcontractor to properly carry out the refurbishment or for the purpose of improving the appearance or aesthetics of the Building. PROVIDED THAT if the Tenant shall fail to observe or perform this covenant or any part thereof the Landlord shall have the right (without prejudice to any other right or remedy the Landlord may have against the Tenant) to remove, re-locate and/or modify any or every such installation, fixture, fitting, device, equipment and article, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt. PROVIDED ALWAYS and it is hereby agreed that the Landlord shall not be liable in any way to the Tenant or any other person for any loss, damage, claim, cost, expense, disruption, interference and/or inconvenience caused howsoever or whatsoever by or in connection with the refurbishment and/or the removal, re-location or modification. 3 The Landlord hereby covenants with the Tenant as follows: (1) To pay the property tax payable in respect of the Factory Unit PROVIDED ALWAYS that if the rate of such property tax shall be increased whether by way of an increase in the annual value or an increase in the rate per cent then the Landlord shall not hereunder be liable to pay the said increase but the Tenant shall pay such increase as provided under Clause 2(4) hereof. (2) To keep the exterior and roof of the building and the lift entrances corridors passages staircases lavatories water closets and other conveniences intended for the use of the Tenant at all times in complete repair and in proper sanitary and clean condition. (3) To keep the stairs and passages leading to the Factory Unit and the lifts and lavatories well and sufficiently lighted and the lifts in proper working order PROVIDED THAT the Landlord shall not be responsible for any loss the Tenant may sustain by reason of any damage or injury caused by or in consequence of any breakage of or defect in any of the pipes wire or other apparatus of the Landlord used in or about the Building. 15 - 14 - (4) To keep the Building insured against loss or damage by fire and in the event of such loss or damage (unless resulting from some act or default of the Tenant) to rebuild and reinstate the damaged part of the Building PROVIDED THAT it is expressly agreed and understood that the terms loss or damage by fire as used in this clause do not include any loss or damage caused to the Tenant's fixtures or loss due to the factory being rendered out of commission and in any such event the Landlord shall not be held liable for any such loss or damage sustained by the Tenant. (5) That the Tenant paying the rent and observing and performing the several covenants and stipulations on the Tenant's part herein contained shall during the said term quietly enjoy the Factory Unit without any interruption by the Landlord or any person or persons lawfully claiming under or in trust for the Tenant. 4 PROVIDED ALWAYS THAT and it is hereby agreed as follows: (1) If the rent hereby reserved or any part thereof shall at any time be in arrears unpaid for twenty-one (21) days after becoming payable (whether formally demanded or not) or if the Tenant shall neglect to observe and perform any covenant or stipulation on the Tenant's part herein contained or if the Tenant shall make any assignment for the benefit of the Tenant's creditors or enter into any arrangement with its creditors by composition or otherwise or suffer any distress or attachment or execution to be levied against the Tenant's goods or if the Tenant for the time being shall be a company and shall enter into liquidation whether compulsory or voluntary (save for the purpose of reconstruction or amalgamation) or being an individual shall be lawful for the Landlord at any time thereafter to re-enter upon the Factory Unit or any part thereof in the name of the whole and thereupon this Tenancy shall absolutely determine but without prejudice to the rights of action of the Landlord in respect of any breach of the covenants on the part of the Tenant herein contained. (2) That the Landlord shall on written request of the Tenant made not less than three (3) months before the expiration of the term hereby created and if there shall not at the time of such request be any existing breach or non-observance by the Tenant of any of the terms, covenants and stipulations contained in this Agreement, at the cost and expense of the Tenant grant to the Tenant a tenancy of the Factory Unit for a further term to be mutually agreed upon by the parties hereto and at a revised rent to be determined by the Landlord and containing the like terms, covenants and stipulations as are herein contained or such variations or modifications thereof together with such other terms covenants and stipulations as may be imposed by the Landlord with the exception of the present covenant for renewal. (3) Any notice requiring to be served hereunder shall be sufficiently served on the Tenant if it is left addressed to the Tenant at the Factory Unit or forwarded to the Tenant by registered post to the Tenant's last known place of business and shall be sufficiently served on the Landlord if it is addressed to the Landlord and sent by registered post to the Head Office. In the event of the action in respect of the tenancy created herein (including any action for the recovery of the rent and/or service charge herein reserved) the Tenant agrees and accepts that the originating process shall be sufficiently served on the Tenant if it is addressed to the Tenant at the address specified in this Agreement or if it is left posted upon a conspicuous part of the Factory Unit or forwarded to the Tenant by post at the Tenant's last known place of business. 16 - 15 - (4) Letters or parcels whether registered or otherwise and telegrams or keys received by any servant(s) of the Landlord on behalf of the Tenant will be received solely at the risk of the Tenant. (5) No waiver expressed or implied by the Landlord of any breach of any covenant, condition or duty of the Tenant shall be construed as a waiver of any other breach of the same or any other covenant, condition or duty and shall not prejudice in any way the rights, powers and remedies of the Landlord herein contained. Any acceptance of rent and/or service charge shall not be deemed to operate as a waiver by the Landlord of any right to proceed against the Tenant for any of the Tenant's obligations hereunder. (6) The Landlord shall not be responsible for any loss damage or inconvenience occasioned by the closing of the lift or lifts for repairs or any other necessary purpose or for any accident that may occur to the Tenant or other person using the lift. (7) The Landlord shall be under no liability either to the Tenant or to others who may be permitted to enter or use the Factory Unit or the Building or any part thereof for any accident(s) or injuries sustained or loss or damage to property in the Factory Unit or the Building or any part thereof. (8) The Landlord shall not be liable to the Tenant in respect of: (i) any interruption in the services provided by the Landlord by reason of necessary repair or maintenance of any installation or apparatus or damage thereto or by reason of mechanical or other defect or breakdown including but not limited to breakdown in electricity and water supply. 17 - 16 - (ii) any act, omission, default, misconduct or negligence of any servant or employee of the Landlord in or about the performance or purported performance of any duty relating to the provision of the said services. (9) The Landlord shall be entitled to let any other part or parts of the Building subject to any term(s) or condition(s) which the Landlord may think fit to impose and nothing herein contained shall be deemed to create a letting scheme for the Building or any part thereof and neither the Tenant nor the persons deriving title under the Tenant shall have the benefit of or the right to enforce or to have enforced or to prevent the release or modification of any covenant agreement or condition entered into by any present or future tenant. (10) The Tenant shall pay all costs disbursements fees and charges legal or otherwise including stamp and/or registration fees in connection with the preparation stamping and issue of this Agreement and any prior accompanying or future documents or deeds supplementary collateral or in any way relating to this Agreement. (11) The Tenant shall pay all costs and fees legal or otherwise including costs as between solicitor and clients in connection with the enforcement of the covenants and conditions of this Agreement. (12) The Landlord shall not be liable for any loss or damage that may be suffered by the Tenant resulting from any subsidence, or cracking of the ground floor slabs and aprons of the Building PROVIDED that this clause shall apply only to Tenants occupying the ground floor of the Building. 18 - 17 - IN WITNESS WHEREOF the parties hereto have hereunto set their hands and/or seals the day and the year first above written. SIGNED BY: SEAH KEE POK Manager (Factories) for and on behalf of JURONG TOWN CORPORATION in the presence of: /s/ GRACE ONG SOO HIANG - ------------------------------ GRACE ONG SOO HIANG SIGNED BY: Lim Kok Yong Managing Director for and on behalf of ADAPTEC MFG (S) PTE LTD in the presence of: /s/ ANDREW NG TYA AH - ------------------------------- (SIGNATURE OF WITNESS) NAME OF WITNESS: Andrew Ng Tya Ah DESIGNATION: Director of Finance & Admin. 19 [LOGO] REGISTRATION NO: FF 20799/93 FILE REF: JTC(L) 3729/1210 Pt 1/GOSH/MF(MN) TENANCY OF FLATTED FACTORY NOS. 05-09 to 05-14 1003 BUKIT MERAH CENTRAL REDHILL INDUSTRIAL ESTATE BETWEEN JURONG TOWN CORPORATION AND ADAPTEC MFG (S) PTE LTD DATED 7/5/93 20 TENANCY OF FLATTED FACTORY UNIT This Tenancy is made the 7th day of May 1993 Between the JURONG TOWN CORPORATION incorporated under the Jurong Town Corporation Act, having its Head Office at Jurong Town Hall, Jurong Town Hall Road, Singapore (hereinafter called "the Landlord") of the one part and ADAPTEC MFG (S) PTE LTD a company incorporated in Singapore and having its registered office at 10 Hoe Chiang Road, #18-00, Keppel Towers, Singapore 0208 (hereinafter called "the Tenant" which expression shall where the context so admits include the Tenant's successors and permitted assigns) of the other part. WITNESSETH as follows :- 1 The Landlord hereby lets and the Tenant hereby takes ALL that portion of the FIFTH (5TH) storey of the Building known as 1003 BUKIT MERAH CENTRAL (hereinafter called "the Building") containing an approximate area of 1118.4 square metres (which said area may be adjusted on completion of survey, if any) more particularly delineated and edged red on the plan annexed hereto (which portion is hereinafter called "the Factory Unit") TOGETHER with the use of the lavatories and conveniences thereat together also with the use for the Tenant, the Tenant's servants and visitors of the lifts and the entrances staircases corridors and passages and accesses to the Building for the purpose only of ingress and egress to and from the Factory Unit with or without parcels and packages TO HOLD the same UNTO the Tenant for the term of TWO (2) YEARS AND TWO AND A HALF (2 1/2) MONTHS from the 16TH day of APRIL 1993 YIELDING AND PAYING therefor during the said term the rent- (1) at the discounted rate of DOLLARS TWELVE AND CENTS THIRTY-FIVE ONLY ($12.35CTS) per square metre per month for so long as the Tenant shall occupy under tenancy an aggregate floor area of 5,000 square metres in the Building or in the various Flatted Factories belonging to the Landlord; and 21 - 2 - (2) in the event that the said aggregate floor area is occupied at any time henceforth and for any reason whatever reduced to below 5,000 square metres whence the discount shall be totally withdrawn from and in respect of the Factory Unit and all other premises occupied by the Tenant, then and with effect from the date of the reduction of the said aggregate floor area, at the normal rate of DOLLARS THIRTEEN ONLY ($13.00CTS) per square metre per month to be paid clear of all deduction and in advance and without demand on the 1st day of each of the calendar month of the year (i.e., the 1st day of January, February, March, etc.) the first of such payments to be made on the 16TH day of APRIL 1993. 2 The Tenant hereby covenants with the Landlord as follows: (1) To pay the said rent on the days and in the manner aforesaid. (2) To pay in addition to the said rent during the said term the sum of DOLLARS ONE AND CENTS SEVENTY ONLY ($1.70CTS) per square metre per month in advance on the same dates and in the same manner as for the said rent as charges for services to be undertaken by the Landlord as hereinbefore mentioned (hereinafter referred to as "the Service Charge") PROVIDED THAT if the cost of services shall increase, the Landlord may revise the Service Charge and on serving a notice in writing to the Tenant to this effect such revised Service Charge shall be payable as from the date specified in the said notice. (3) (i) To pay a deposit equivalent to three (3) months' rent at the discounted rate and service charge on or before the execution of this Agreement or commencement of the said term, whichever is the earlier, as security against breach of any of the covenants herein contained which cash deposit shall be maintained at this figure during the said term and shall be repayable without interest on the termination of this tenancy subject however to an appropriate deduction as damages in respect of any such breach. (ii) In lieu of the aforesaid cash deposit to provide an acceptable banker's guarantee for the same equivalent amount, which guarantee shall be valid and irrevocable for the whole of the said term or the unexpired portion of the said term, as the case may be, plus six months after the date of expiry of the said term and in a form approved by the Landlord or to provide such other form of security as the Landlord may in the Landlord's absolute discretion permit or accept. 22 - 3 - (iii) If the rent at the discounted rate hereinbefore mentioned in clause 1(1) shall at any time be increased to the rent at the normal rate in accordance with Clause 1(2), or if the Service Charge has been increased by the Landlord in accordance with Clause 2(2) hereof, to pay the amount of such increase so that the cash deposit stipulated in sub- clause (i) above shall at all times be equal to three (3) months' rent and service charge. (4) During the said term or any renewal thereof to pay any increase of property tax which may be imposed whether by way of an increase in the annual value or an increase in the rate per cent. For the purpose of ascertaining the additional amount payable under this clause any such increase in property tax shall be apportioned in the same proportion as the rent payable under this Agreement bears to the total assessed annual value of the Building at the date such increase comes into force. (5) To pay all charges and outgoings whatsoever in respect of the supply of electricity and water used by the Tenant at the Factory Unit as shown by the separate meters belonging thereto and also pay all charges for the use and maintenance of such meters PROVIDED ALWAYS that subject to the prior written consent of the Landlord and to all approvals being obtained by the Tenant from the relevant authorities the water sub-meter will be installed in the Factory Unit by the Tenant at the Tenant's own cost. (6) At all times to use and occupy the Factory Unit for the purpose of ASSEMBLY OF PRINTED CIRCUIT BOARDS AND TESTING OF INTEGRATED CIRCUITS ONLY and for no other purposes whatever. (7) Not to place or allow to be placed upon the Factory Unit or on any of the floors in the Building any article machinery or load in excess of 10 kiloNewtons per square metre and not to place or allow to be placed in the goods lifts of the Building any article machinery or load in excess of 2,000 kilograms. 23 - 4 - (8) To keep the interior of the Factory Unit (including the doors and windows thereof and all the Landlord's other fixtures and fittings therein) clean and in good and substantial repair and condition (fair wear and tear and damage by fire lightning riot or tempest alone excepted) and also to clean and keep clean the exterior of the windows thereof. (9) Not to make or cause to be made any alteration in or addition to the Factory Unit without the prior written consent of the Landlord and the relevant authorities PROVIDED THAT on the granting of such consent and without prejudice to other terms and conditions which may be imposed the Tenant shall place with the Landlord a deposit equivalent to such amount as the Landlord may deem sufficient for the reinstatement of the Factory Unit to its original condition. Further the Tenant shall not use any inflammable building materials for internal partitioning. (10) Not to modify any existing electrical wirings or modify or replace any existing fire alarm fixtures and fittings or affix or install any further or additional electrical and fire alarm wiring extension in or about the Factory Unit without the written consent of the Landlord having been first obtained and PROVIDED FURTHER THAT all such work shall be carried out by a licensed electrical contractor or competent person as approved by the Landlord to be employed and paid by the Tenant who shall ensure as part of the work that the existing circuits and equipment are not overloaded or unbalanced. Prior to any electrical and fire alarm installation or modification work, the Tenant will be required to submit the necessary plans as hereinafter specified under clauses 2(29) and 2(30) to the Landlord for approval. (11) To permit the Landlord or the Landlord's agents with or without workmen or others at all reasonable times to enter the Factory Unit to take inventories of the Landlord's fixtures and fittings therein and to view the condition thereof and examine the state of repair of the Factory Unit and thereupon the Landlord may serve upon the Tenant notice in writing specifying any work or repairs necessary to be done which are within the responsibility of the Tenant under 24 - 5 - the terms of this Agreement and require the Tenant forthwith to execute the same and the Tenant shall pay the Landlord's reasonable costs of survey attending the preparation of the notice and if the Tenant shall not within ten days after the service of such notice proceed diligently and in workman-like manner with the execution of such work or repairs then to permit the Landlord (who shall not be under any obligation so to do) to enter upon the Factory Unit and execute such work or repairs and the cost thereof shall be a debt due from the Tenant to the Landlord and be forthwith recoverable PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such work or repairs. (12) To be wholly responsible for all damages and to bear the full cost of repairs and reinstatement of such damaged building equipment fixtures drains wiring and piping above and below ground level if the cause or causes of such damages can be traced directly or indirectly back to the Tenant's activities. (13) To permit the Landlord, the Landlord's agents or workmen and others to enter the Factory Unit at reasonable hours to do structural or external repairs and execute such work as may be necessary to the Factory Unit or to other portions of the Building of which the Factory Unit may form a part but which are not conveniently accessible otherwise than from or through the Factory Unit. (14) In complying with Clause 2(13) hereof and if so required by the Landlord the Tenant shall remove such installation, machinery or any article to permit the Landlord to execute the said repairs and works and if the Tenant shall fail to observe or perform this covenant the Landlord shall remove the same and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such removal. (15) Subject always to clause 2(27) hereinafter appearing, to give to the Landlord written notice of every change of name within one month from the date of each change. 25 - 6 - (16) To make good and sufficient provision for the safe and efficient disposal of all waste generated at the Factory Unit including but not limited to pollutants to the requirements and satisfaction of the Landlord and/or relevant Government authorities PROVIDED THAT in the event of any default by the Tenant under this covenant the Landlord may carry out such remedial measures as he thinks necessary and all costs and expenses incurred thereby shall forthwith be recoverable in full from the Tenant as a debt. (17) To provide and maintain refuse receptacles for all waste and refuse produced at the Factory Unit in conformity with the requirements and standards prescribed by the health authority and to keep the same out of sight of the public during the hours of business and to transfer such waste and refuse in suitable receptacles to such area and at such times each day as may be prescribed by the Landlord. (18) Not to keep or allow to be kept livestock or other animals at the Factory Unit. (19) Not to do or suffer to be done on or in the Factory Unit anything whereby the insurances of the same or of the Building or any part thereof may be rendered void or voidable or whereby the premium thereon may be increased and to repay to the Landlord on demand all sums paid by the Landlord by way of increased premium and all expenses incurred by the Landlord in connection therewith and/or all loss damages and expenses resulting from a breach or non-observance of this covenant without prejudice to any other rights and remedies available to the Landlord. (20) Not to do or permit or suffer to be done anything in or upon the Factory Unit or any part of the Building which in the opinion of the Landlord is a nuisance or cause annoyance to or in any way interfere with the business or the quiet or comfort of the other occupants of the Building PROVIDED THAT the Landlord shall not be responsible to the Tenant for any loss, damage or inconvenience as a result of nuisance, annoyance or any interference whatsoever caused by the other occupants of the Building. (21) Not to use the Factory Unit for any illegal or immoral purpose. (22) Not to cause any obstruction in or on the approaches private roads or passage way adjacent to or leading to the Building by leaving or parking or permitting to be left or parked any motor vehicle or other carriages belonging to or used by the Tenant or by any of the Tenant's friends servants or visitors. And also to observe all regulations made by the Landlord 26 - 7 - relating to the parking of such vehicles or carriages and to pay such carpark charges as may be imposed by the Landlord. (23) Not to effect any sale by auction in the Building. (24) Not to affix paint or otherwise exhibit on the exterior of the Factory Unit or the windows thereof or of the Building or in any of the passages corridors or stairs of the Building any name plate placard poster or advertisement or any flag-staff or other thing whatsoever save only the name of the Tenant in such places only and not elsewhere and in such manner and position only as shall be approved in writing by the Landlord. (25) Not to cause any obstruction to the common stairways passageways and other common parts of the Building or accesses to the Building. PROVIDED ALWAYS that the Landlord shall have the full right and liberty and absolute discretion to remove and clear any such obstruction and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt. FURTHER PROVIDED THAT the Landlord shall not be liable to the Tenant or any third party for any loss damage or inconvenience caused by such removal and the Tenant hereby indemnifies the Landlord in this respect. (26) Not to install any machinery or fixture in the Factory Unit without the permission in writing of the Landlord and to submit a layout plan of the Tenant's machinery for the approval of the Landlord and/or relevant authorities prior to the actual fixing of the machineries. (27) Not to assign create a trust sublet grant a licence or part with or share the possession or occupation of the Factory Unit or any part thereof or leave the Factory Unit or any part thereof vacant and unoccupied at any time during the said term. (28) Not to do or omit or suffer to be done or omitted any act matter or thing in or on the Factory Unit and/or in respect of the business trade or industry carried out or conducted therein which shall contravene the provisions of any laws rules or regulations now or hereafter affecting the same and at all times hereafter to indemnify and keep indemnified the Landlord against all actions, proceedings, costs, expenses, claims, fines, losses, penalties and demands in respect of any act matter or thing done or omitted to be done in contravention of the said provisions. 27 - 8 - (29) To install electrical switch board wirings and equipment to the Factory Unit including the following electrical protective devices, all at the Tenant's own expense, subject to the approval of the Landlord:- (a) Overcurrent protective devices in the Landlord's Switch Room; (b) Overcurrent and earth-leakage protective devices in the Factory Unit, PROVIDED THAT- (i) the Tenant shall submit 3 sets of 'electrical single-line diagram' of the Factory Unit wirings for the approval of the Landlord prior to the actual installation of the wirings; and (ii) it shall be the responsibility of the Tenant to keep all or any of the aforesaid switch board wirings, equipment and devices installed by the Tenant in good condition at all times. (30) To carry out such modification work on the existing fire alarm wirings, heat detectors and fixtures in the Factory Unit as shall be necessary to suit the factory operation, including the installation of additional wirings and connections of the heat detectors and fixtures to the Landlord's common fire alarm system, to the approval of the Landlord and all at the Tenant's own expense PROVIDED THAT: (a) The Tenant shall submit 2 copies of the fire alarm drawings of the Factory Unit indicating the existing fixtures, the proposed modifications and the layout of the Tenant's machinery for the approval of the Landlord prior to the commencement of the modification work. (b) The Tenant shall at the Tenant's own expense ensure that the existing fire alarm wirings, heat detectors and fixtures and any additional wirings and fixtures installed by the Tenant in the Factory Unit are serviced monthly and in good condition at all times including the payment of any fee(s) in connection with servicing and maintenance works. (c) Any item of replacement required for the effective maintenance of the fire alarm wirings, heat detectors and fixtures shall be of a quality and has an operational characteristic similar to the item to be replaced and shall be subject to the approval of the Landlord. The Tenant shall be 28 - 9 - required to replace any or all items of dissimilar quality and operational characteristic found in use. (31) To close the Factory Unit during such hours as the Landlord may specify by notice in writing to the Tenant for any maintenance or repair work to be executed by the Landlord. (32) At all times during the three calendar months immediately preceding the determination of the said term to permit intending tenants and others with written authority from the Landlord or his agents at reasonable times of the day to view the Factory Unit. (33) At the determination of the said term by expiry or otherwise to yield up the Factory Unit and all the Landlord's fixtures fittings fastenings or appertaining in such good and substantial repair fair wear and tear excepted as shall be in accordance with the covenants of the Tenant herein contained and with all locks and keys complete. (34) In addition to the foregoing and immediately prior to the determination of the said term or the renewal thereof as the case may be to restore the Factory Unit in all respects to its original state and condition including but not limited to the removal of all the fixtures and fittings installed by the previous tenant of the Factory Unit and if so required by the Landlord to redecorate including painting the interior thereof to the satisfaction of the Landlord PROVIDED ALWAYS that if the Tenant shall fail to observe or perform this covenant the Landlord shall execute such work for the said restoration and redecoration and recover the cost thereof from the Tenant together with all rent and service charge and other amounts which the Landlord would have been entitled to receive from the Tenant had the period within which such restoration and redecoration are effected by the Landlord been added to the said term. 29 - 10 - (35) To pay interest at the rate of 8.5% per annum or such higher rate as may be determined from time to time by the Landlord in respect of any outstanding amount payable under this Agreement from the date such amount becomes due until payment in full is received by the Landlord. (36) Not to install and/or use any electrical installation, machine or apparatus that may cause or causes heavy power surge, high frequency voltage and current, air borne noise, vibration or any electrical or mechanical interference or disturbance whatsoever which may prevent or prevents in any way the service or use of any communication system or affects the operation of other equipment, installations, machinery, apparatus or plants of other Tenants and in connection therewith, to allow the Landlord or any authorised person(s) to inspect at all reasonable times, such installation, machine or apparatus in the Factory Unit to determine the source of the interference or disturbance and thereupon, to take suitable measures, at the Tenant's own expense, to eliminate or reduce such interference or disturbance to the Landlord's satisfaction, if it is found by the Landlord or such authorised person(s) that the Tenant's electrical installation, machine or apparatus is causing or contributing to the said interference or disturbance. (37) To indemnify the Landlord against any claims, proceedings, action, losses, penalties, damages, expenses, costs, demands which may arise in connection with clause 2(36) above. (38) To perform and observe all the obligations which the Landlord of the Factory Unit may be liable to perform or observe during the said term by any direction or requirement of any public or local authority and if the Tenant shall fail to observe or perform this covenant the Landlord may in its absolute discretion perform the same and all expenses and costs incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused thereby. (39) To ensure that - (i) at least 60% of the overall floor area shall be used for purely industrial activities and (ii) the remaining 40% shall be used as ancillary stores and offices, neutral areas and communal facilities PROVIDED THAT the said ancillary offices shall not exceed 25% of the overall floor area. 30 - 11 - (40) Not to use and occupy the Factory Unit for the purpose of commercial office and storage unrelated to the Tenant's approved industrial activity. (41) To permit the Landlord, the Landlord's agents or workmen and others at any time during the said term to enter the Factory Unit to replace the louvre/casement windows and timber doors with such other windows and doors as the Landlord may think fit and to install or replace service ducts/pipes ("the said replacement or installation works"). If so required by the Landlord the Tenant shall remove such installation, machinery, partition or any article to permit the Landlord to execute the said replacement or installation works, and if the Tenant shall fail to observe or perform this covenant the Landlord shall have the right to (without prejudice to any other right or remedy the Landlord may have against the Tenant) remove the same, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss, damage or inconvenience caused whatsoever by such removal and the said replacement or installation works. (42) Without prejudice to Clause 2(6) hereof and subject to the prior written approval of the Landlord, to provide thermal insulation to the floor, ceiling and the walls of rooms, if the rooms are used for purposes requiring low temperature air conditioning or cooling that would result in moisture condensation on the external, ceiling or floor within or outside the Factory Unit. (43) If any damage of whatsoever nature or description shall at any time occur or be caused to the Factory Unit or any part thereof, to forthwith give the Landlord written notice of damage. (44) Not to commence operation in the Factory Unit after the installation(s) of any type of machinery or equipment have been completed until a final inspection of the installation(s) has been carried out an approval in writing of the same is given by the Landlord. 31 - 12 - (45) The Tenant accepts the Factory Unit with full knowledge that refurbishment and upgrading works (hereinafter referred to as "the refurbishment") are being or may be carried out in the Building and the estate in which the Building is situated. The Tenant shall, if required by the Landlord and within the time stipulated by the Landlord, at the cost and expense of the Tenant properly and in accordance with the obligations of the Tenant under this Agreement remove, re-locate and/or modify temporarily or permanently as may be stipulated by the Landlord every installation, fixture, fittings, device, equipment and article existing at the time outside the Factory Unit as the Landlord may think fit for the purpose of permitting the Landlord, his servant, agent, contractor and subcontractor to properly carry out the refurbishment or for the purpose of improving the appearance or aesthetics of the Building. PROVIDED THAT if the Tenant shall fail to observe or perform this covenant or any part thereof the Landlord shall have the right (without prejudice to any other right or remedy the Landlord may have against the Tenant) to remove, relocate and/or modify any or every such installation, fixture, fittings, device, equipment and article, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt. PROVIDED ALWAYS and it is hereby agreed that the Landlord shall not be liable in any way to the Tenant or any other person for any loss, damage, claim, cost, expense, disruption, interference and/or inconvenience caused howsoever or whatsoever by or in connection with the refurbishment and/or the removal, re-location or modification. 3 The Landlord hereby covenants with the Tenant as follows: (1) To pay the property tax payable in respect of the Factory Unit PROVIDED ALWAYS that if the rate of such property tax shall be increased whether by way of an increase in the annual value or an increase in the rate per cent then the Landlord shall not hereunder be liable to pay the said increase but the Tenant shall pay such increase as provided under Clause 2(4) hereof. (2) To keep the exterior and roof of the Building and the lift entrances corridors passages staircases lavatories water closets and other conveniences intended for the use of the Tenant at all times in complete repair and in proper sanitary and clean condition. 32 - 13 - (3) To keep the stairs and passages leading to the Factory Unit and the lifts and lavatories well and sufficiently lighted and the lifts in proper working order PROVIDED THAT the Landlord shall not be responsible for any loss the Tenant may sustain by reason of any damage or injury or in consequence of any breakage of or defect in any of the pipes wire or other apparatus of the Landlord used in or about the Building. (4) To keep the Building insured against loss or damage by fire and in the event of such loss or damage (unless resulting from some act or default of the Tenant) to rebuild and reinstate the damaged part of the Building PROVIDED THAT it is expressly agreed and understood that the terms loss or damage by fire as used in this clause do not include any loss or damage caused to the Tenant's fixtures or loss due to the factory being rendered out of commission and in any such event the Landlord shall not be held liable for any such loss or damage sustained by the Tenant. (5) That the Tenant paying the rent and observing and performing the several covenants and stipulations on the Tenant's part herein contained shall during the said term quietly enjoy the Factory Unit without any interruption by the Landlord or any person or persons lawfully claiming under or in trust for the Tenant. 4 PROVIDED ALWAYS THAT and it is hereby agreed as follows (1) If the rent hereby reserved or service charge or interest, or any part thereof shall at any time remain unpaid for fourteen (14) days after becoming payable (whether formally demanded or not) or if the Tenant shall neglect to observe and perform any covenant or stipulation on the Tenant's part herein contained or if the Tenant shall make any assignment for the benefit of the Tenant's creditors or enter into any arrangement with its creditors by composition or otherwise or suffer any distress or attachment or execution to be levied against the Tenant's goods or if the Tenant for the time being shall be a company and shall enter into liquidation whether compulsory or voluntary (save for the purpose of reconstruction or amalgamation) or being an individual shall have a receiving order or an adjudicating order made against the Tenant then and in any or such cases it shall be lawful for the Landlord at any time thereafter to re-enter upon the Factory Unit or any part thereof in the name of the whole and thereupon this Tenancy shall absolutely determine but without prejudice to the rights of action of the Landlord in respect of any breach of the covenants on the part of the Tenant herein contained. 33 - 14 - (2) Any notice requiring to be served hereunder shall be sufficiently served on the Tenant if it is left addressed to the Tenant at the Factory Unit or forwarded to the Tenant by registered post to the Tenant's last known place of business and shall be sufficiently served on the Landlord if it is addressed to the Landlord and sent by registered post to the Head Office. In the event of the action in respect of the tenancy created herein (including any action for the recovery of the rent and/or service charge herein reserved) the Tenant agrees and accepts that the originating process shall be sufficiently served on the Tenant if it is addressed to the Tenant at the address specified in this Agreement or if it is left posted upon a conspicuous part of the Factory Unit or forwarded to the Tenant by post at the Tenant's last known place of business. (3) Letters or parcels whether registered or otherwise and telegrams or keys received by any servant(s) of the Landlord on behalf of the Tenant will be received solely at the risk of the Tenant. (4) No waiver expressed or implied by the Landlord of any breach of any covenant, condition or duty of the Tenant shall be construed as a waiver of any other breach of the same or any other covenant, condition or duty and shall not prejudice in any way the rights, powers and remedies of the Landlord herein contained. Any acceptance of rent and/or service charge shall not be deemed to operate as a waiver by the Landlord of any right to proceed against the Tenant for any of the Tenant's obligations hereunder. (5) The Landlord shall not be responsible for any loss damage or inconvenience occasioned by the closing of the lift or lifts for repairs or any other necessary purpose or for any accident that may occur to the Tenant or other person using the lift. (6) The Landlord shall be under no liability either to the Tenant or to others who may be permitted to enter or use the Factory Unit or the Building or any part thereof for any accident(s) or injuries sustained or loss or damage to property in the Factory Unit or the Building or any part thereof. (7) The Landlord shall not be liable to the Tenant in respect of: (i) any interruption in the services provided by the Landlord by reason of necessary repair or maintenance of any installation or apparatus or damage thereto or by reason of mechanical or other defect or breakdown including but not limited to breakdown in electricity and water supply. (ii) any act, omission, default, misconduct or negligence of any servant or employee of the Landlord in or about the performance or purported performance of any duty relating to the provision of the said services. 34 - 15 - (8) The Landlord shall be entitled to let any other part or parts of the Building subject to any term(s) or condition(s) which the Landlord may think fit to impose and nothing herein contained shall be deemed to create a letting scheme for the Building or any part thereof and neither the Tenant nor the persons deriving title under the Tenant shall have the benefit of or the right to enforce or to have enforced or to prevent the release or modification of any covenant agreement or condition entered into by any present or future tenant. (9) The Tenant shall pay all costs disbursements fees and charges legal or otherwise including stamp and/or registration fees in connection with the preparation stamping and issue of this Agreement and any prior accompanying or future documents or deeds supplementary collateral or in any way relating to this Agreement. (10) The Tenant shall pay all costs and fees legal or otherwise including costs as between solicitor and clients in connection with the enforcement of the covenants and conditions of this Agreement. (11) The Landlord shall not be liable for any loss or damage that may be suffered by the Tenant resulting from any subsidence or cracking of the ground floor slabs and aprons of the Building PROVIDED that this clause shall apply only to Tenants occupying the ground floor of the Building. (12) The Landlord shall on written request of the Tenant made not less than three (3) months before the expiration of the term hereby created and if there shall not at the time of such request be any existing breach or nonobservance by the Tenant of any of the terms, covenants and stipulations contained in this Agreement, at the cost and expense of the Tenant grant to the Tenant a tenancy of the Factory Unit for a further term to be mutually agreed upon by the parties hereto and at a revised rent to be determined by the Landlord and containing the like terms, covenants and stipulations as are herein contained or such variations or modifications thereof together with such other terms covenants and stipulations as may be imposed by the Landlord with the exception of the present covenant for renewal. 35 - 16 - IN WITNESS WHEREOF the parties hereto have hereunto set their hands and/or seals the day and the year first above written. SIGNED BY: SEAH KEE POK MANAGER (FACTORIES) for and on behalf of JURONG TOWN CORPORATION in the presence of: /s/ GRACE ONG SOO HIANG ---------------------------- Grace Ong Soo Hiang SIGNED BY: LIM KOK YONG, Managing Director for and on behalf of ADAPTEC MFG (S) PTE LTD in the presence of: /s/ ANDREW NG ---------------------------- (Signature of Witness) Name of Witness: Andrew Ng Designation: Director, Finance & Admin 36 [LOGO] J T C REGISTRATION NO: FF 21551/94 FILE REF: JTC(L)8339/205 Pt 1/GOSH/KS TENANCY OF FLATTED FACTORY NOS. #07-18 TO #07-2(0) 1002 JALAN BUKIT MERAH REDHILL INDUSTRIAL ESTATE BETWEEN JURONG TOWN CORPORATION AND ADAPTEC MFG (S) PTD LTD DATED 8th February 1994 37 TENANCY OF FLATTED FACTORY UNIT This Tenancy is made the 8th day of February 1994 Between the JURONG TOWN CORPORATION incorporated under the Jurong Town Hall Corporation Act, having its Head Office at Jurong Town Hall, 301 Jurong Town Hall Road, Singapore 2260 (hereinafter called "the Landlord" of the one part and ADAPTEC MFG (S) PTE LTD a company incorporated in Singapore and having its registered office at 10 Hoe Chiang Road, #18-00 Keppel Tower, Singapore 0208. (hereinafter called "the Tenant" which expression shall where the context so admits include the Tenant's successors-in-title and permitted assigns) of the other part. WITNESSETH as follows:- 1 The Landlord hereby lets and the Tenant hereby takes ALL that portion of the storey(s) of the Building known as 1002 JALAN BUKIT MERAH (hereinafter called "the Building") containing an approximate area of 286.5 square metres (which said area may be adjusted on completion of survey, if any) more particularly delineated and edged red on the plan annexed hereto (which portion is hereinafter called "the Factory Unit") TOGETHER with the use of the lavatories and conveniences thereat together also with the use for the Tenant, the Tenant's servants and visitors of the lifts and the entrances staircases corridors and passages and accesses to the Building for the purpose only of ingress and egress to and from the Factory Unit with or without parcels and packages TO HOLD the same UNTO the Tenant for the term of THREE (3) YEARS from the 16TH day of JANUARY 1994 YIELDING AND PAYING therefor during the said term the rent of (1) at the discounted rate of DOLLARS TWELVE AND CENTS THIRTY-FIVE ($12.35CTS) ONLY PER SQUARE METRE PER MONTH for so long as the Tenant shall occupy under tenancy an aggregate floor area of 5,000 SQUARE metres in the Building or in the various Flatted Factories belonging to the Landlord; and 38 - 2 - (2) in the event that the said aggregate floor area is occupied at any time henceforth and for any reason whatever reduced to below 5,000 square metres whence the discount shall be totally withdrawn from and in respect of the Factory Unit and all other premises occupied by the Tenant, then and with effect from the date of the reduction of the said aggregate floor area, at the normal rate of DOLLARS THIRTEEN ($13.00) ONLY PER SQUARE METRE PER MONTH to be paid clear of all deduction and in advance and without demand on the 1st day of each of the calendar month of the year (i.e., the 1st day of January, February, March, etc.) the first of such payments to be made on the day of 2 The Tenant hereby covenants with the Landlord as follows: (1) To pay the said rent on the days and in the manner aforesaid. (2) To pay in addition to the said rent during the said term the sum of DOLLARS ONE AND CENTS SEVENTY ($1.70CTS) ONLY per square metre per month in advance on the same dates and in the same manner as for the said rent as charges for services to be undertaken by the Landlord as hereinbefore mentioned (hereinafter referred to as "the Service Charge") PROVIDED THAT if the cost of services shall increase, the Landlord may revise the Service Charge and on serving a notice in writing to the Tenant to this effect such revised Service Charge shall be payable as from the date specified in the said notice. (3) (i) To pay a deposit equivalent to three (3) months' rent at the discounted rate and service charge on or before the execution of this Agreement or commencement of the said term, whichever is the earlier, as security against breach of any of the covenants herein contained which cash deposit shall be maintained at this figure during the said term and shall be repayable without interest on the termination of this tenancy subject however to an appropriate deduction as damages in respect of any such breach. (ii) In lieu of the aforesaid cash deposit to provide an acceptable banker's guarantee for the same equivalent amount, which guarantee shall be valid and irrevocable for the whole of the said term or the unexpired portion of the said term, as the case may be, plus six months after the date of expiry of the said term and in a form approved by the Landlord or to provide such other form of security as the Landlord may in the Landlord's absolute discretion permit or accept. 39 - 3 - (iii) If the rent at the discounted rate hereinbefore mentioned in clause 1(1) shall at any time be increased to the rent at the normal rate in accordance with Clause 1(2), or if the Service Charge has been increased by the Landlord in accordance with Clause 2(2) hereof, to pay the amount of such increase so that the cash deposit stipulated in sub- clause (i) above shall at all times be equal to three (3) months' rent and service charge. (4) During the said term or any renewal thereof to pay any increase of property tax which may be imposed whether by way of an increase in the annual value or an increase in the rate per centum. For the purpose of ascertaining the additional amount payable under this clause any such increase in property tax shall be apportioned in the same proportion as the rent payable under this Agreement bears to the total assessed annual value of the Building at the date such increase comes into force. (5) To pay all charges and outgoings whatsoever in respect of the supply of electricity and water used by the Tenant at the Factory Unit as shown by the separate meters belonging thereto and also pay all charges for the use and maintenance of such meters PROVIDED ALWAYS that subject to the prior written consent of the Landlord and to all approvals being obtained by the Tenant from the relevant governmental and statutory authorities the water sub-meter will be installed in the Factory Unit by the Tenant at the Tenant's own cost. (6) At all times to use and occupy the Factory Unit for the purpose of THE TESTING OF INTEGRATED CIRCUITS ONLY and for no other purposes whatever. (7) Not to place or allow to be placed upon the Factory Unit or on any of the floors in the Building any article machinery or load in excess of 7.5 kiloNewtons per square metre and not to place or allow to be placed in the goods lifts of the Building any article machinery or load in excess of 1,500 kilograms. 40 - 4 - (8) To keep the interior of the Factory Unit (including the doors and windows thereof and all the Landlord's other fixtures and fittings therein) clean and in good and substantial repair and condition (fair wear and tear and damage by fire lightning riot or tempest alone excepted) and also to clean and keep clean the exterior of the windows thereof. (9) Not to make or cause to be made any alteration in or addition to the Factory Unit without the prior written consent of the Landlord and the relevant governmental and statutory authorities PROVIDED THAT on the granting of such consent and without prejudice to other terms and conditions which may be imposed the Tenant shall place with the Landlord a deposit equivalent to such amount as the Landlord may deem sufficient for the reinstatement of the Factory Unit to its original condition. Further the Tenant shall not use any flammable building materials for internal partitioning. (10) Not to modify any existing electrical wirings or modify or replace any existing fire alarm fixtures and fittings or affix or install any further or additional electrical and fire alarm wiring extension in or about the Factory Unit without the written consent of the Landlord having been first obtained and PROVIDED FURTHER THAT all such work shall be carried out by a licensed electrical contractor or competent person as approved by the Landlord to be employed and paid by the Tenant who shall ensure as part of the work that the existing circuits and equipment are not overloaded or unbalanced. Prior to any electrical and fire alarm installation or modification work, the Tenant shall be required to submit the necessary plans as hereinafter specified under clauses 2(29) and 2(30) to the Landlord for approval. (11) To permit the Landlord or the Landlord's agents with or without workmen or others at all reasonable times to enter the Factory Unit to take inventories of the Landlord's fixtures and fittings therein and to view the condition thereof and examine the state of repair of the Factory Unit and thereupon the Landlord may serve upon the Tenant notice in writing specifying any work or repairs necessary to be done which are within the responsibility of the Tenant under the terms of this Agreement and require the Tenant forthwith to execute the same and the Tenant shall pay the Landlord's reasonable costs of survey attending the preparation of the notice and if the Tenant shall not within ten days after the service of such notice proceed diligently and in workman-like manner with the execution of such work or repairs then to permit the Landlord (who 41 - 5 - shall not be under any obligation so to do) to enter upon the Factory Unit and execute such work or repairs and the cost thereof shall be a debt due from the Tenant to the Landlord and be forthwith recoverable PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such work or repairs. (12) To be wholly responsible for all damages and to bear the full cost of repairs and reinstatement of such damaged building equipment fixtures drains wiring and piping above and below ground level if the cause or causes of such damages can be traced directly or indirectly back to the Tenant's activities. (13) To permit the Landlord, the Landlord's agents or workmen and others to enter the Factory Unit at reasonable hours to do structural or external repairs and execute such work as may be necessary to the Factory Unit or to other portions of the Building of which the Factory Unit may form a part but which are not conveniently accessible otherwise than from or through the Factory Unit. (14) In complying with Clause 2(13) hereof and if so required by the Landlord the Tenant shall remove such installation, machinery or any article to permit the Landlord to execute the said repairs and works and if the Tenant shall fail to observe or perform this covenant the Landlord shall remove the same and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such removal. (15) Subject always to clause 2(27) hereinafter appearing, to give to the Landlord written notice of every change of name within one month from the date of each change. (16) To make good and sufficient provision for and to ensure the safe and efficient disposal of all waste generated at the Factory Unit including but not limited to pollutants to the requirements and satisfaction of the Landlord and the relevant governmental and statutory authorities PROVIDED THAT in the event of any default by the Tenant under this covenant the Landlord may at the discretion of the Landlord and without prejudice to any other rights and remedies the Landlord may have in law or under this Agreement, carry out such remedial measures and works as the Landlord thinks necessary and all costs and expenses incurred thereby shall forthwith be recoverable in full from the Tenant as a debt. 42 - 6 - (17) To provide and maintain refuse receptacles for all waste and refuse produced at the Factory Unit in conformity with the requirements and standards prescribed by the health authority and to keep the same out of sight of the public during the hours of business and to transfer such waste and refuse in suitable receptacles to such area and at such times each day as may be prescribed by the Landlord. (18) Not to keep or allow to be kept livestock or other animals at the Factory Unit. (19) Not to do or suffer to be done on or in the Factory Unit anything whereby the insurances of the same or of the Building or any part thereof may be rendered void or voidable or whereby the premium thereon may be increased and to repay to the Landlord on demand all sums paid by the Landlord by way of increased premium and all expenses incurred by the Landlord in connection therewith and all loss damages and expenses resulting from a breach or non-observance of this covenant without prejudice to any other rights and remedies available to the Landlord. (20) Not to do or permit or suffer to be done anything in or upon the Factory Unit or any part of the Building which in the opinion of the Landlord is or may be a nuisance or cause annoyance to or in any way interfere with the business or the quiet or comfort of the other occupants of the Building PROVIDED THAT the Landlord shall not be responsible to the Tenant for any loss, damage or inconvenience as a result of nuisance, annoyance or any interference whatsoever caused by the other occupants of the Building. (21) Not to use the Factory Unit for any illegal or immoral purpose. (22) Not to cause any obstruction in or on the approaches, private roads or passage way adjacent to or leading to the Building by leaving or parking or permitting to be left or parked any motor vehicle or other carriages belonging to or used by the Tenant or by any of the Tenant's friends servants or visitors. And also to observe and ensure observance of all regulations made by the Landlord relating to the parking of such vehicles or carriages and to pay such carpark charges as may be imposed by the Landlord or his agent. (23) Not to effect any sale by auction in the Building. 43 - 7 - (24) Not to affix paint or otherwise exhibit on the exterior of the Factory Unit or the windows thereof or of the Building or in any of the passages corridors or stairs of the Building any name plate placard poster or advertisement or any flag-staff or other thing whatsoever save only the name of the Tenant in such places only and not elsewhere and in such manner and position only as shall be approved in writing by the Landlord. (25) Not to cause any obstruction to the common stairways passageways and other common parts of the Building or accesses to the Building. PROVIDED ALWAYS that the Landlord shall have the full right and liberty and absolute discretion to remove and clear any such obstruction and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt. FURTHER PROVIDED THAT the Landlord shall not be liable to the Tenant or any third party for any loss damage or inconvenience caused by such removal and the Tenant hereby indemnifies the Landlord in this respect. (26) Not to install any machinery or fixture in the Factory Unit without the permission in writing of the Landlord and to submit a layout plan of the Tenant's machinery for the approval of the Landlord and the relevant governmental and statutory authorities prior to the actual fixing of the machineries. (27) Not to assign create a trust sublet grant a licence or part with or share the possession or occupation of the Factory Unit or any part thereof or leave the Factory Unit or any part thereof vacant and unoccupied at any time during the said term. (28) Not to do or omit or suffer to be done or omitted any act matter or thing in or on the Factory Unit and/or in respect of the business trade or industry carried out or conducted therein which shall contravene the provisions of any laws rules or regulations now or hereafter affecting the same and at all times hereafter to indemnify and keep indemnified the Landlord against all actions, proceedings, costs, expenses, claims, fines, losses, penalties and demands in respect of any act matter or thing done or omitted to be done in contravention of the said provisions. (29) To install electrical switch board wirings and equipment to the Factory Unit including the following electrical protective devices, all at the Tenant's own expense, subject to the approval of the Landlord:- (a) Overcurrent protective devices in the Landlord's Switch Room; 44 - 8 - (b) Overcurrent and earth-leakage protective devices in the Factory Unit, PROVIDED THAT- (i) the Tenant shall submit 3 sets of 'electrical single-line diagram' of the Factory Unit wirings for the approval of the Landlord prior to the actual installation of the wirings; and (ii) it shall be the responsibility of the Tenant to keep all or any of the aforesaid switch board wirings, equipment and devices installed by the Tenant in good condition at all times. (30) To carry out such modification work on the existing fire alarm wirings, heat detectors and fixtures in the Factory Unit as shall be necessary to suit the factory operation, including the installation of additional wirings and connections of the heat detectors and fixtures to the Landlord's common fire alarm system, to the approval of the Landlord and all at the Tenant's own expense PROVIDED THAT: (a) The Tenant shall submit 2 copies of the fire alarm drawings of the Factory Unit indicating the existing fixtures, the proposed modifications and the layout of the Tenant's machinery for the approval of the Landlord prior to the commencement of the modification work. (b) The Tenant shall at the Tenant's own expense ensure that the existing fire alarm wirings, heat detectors and fixtures and any additional wirings and fixtures installed by the Tenant in the Factory Unit are serviced monthly and in good condition at all times including the payment of any fee(s) in connection with servicing and maintenance works. (c) Any item of replacement required for the effective maintenance of the fire alarm wirings, heat detectors and fixtures shall be of a quality and shall have an operational characteristic similar to the item to be replaced and shall be subject to the approval of the Landlord. The Tenant shall at his own cost forthwith replace any or all items of dissimilar quality and operational characteristic found in use. (31) To close the Factory Unit during such hours as the Landlord may specify by notice in writing to the Tenant for any maintenance or repair work to be executed by the Landlord. 45 - 9 - (32) At all times during the three calendar months immediately preceding the determination of the said term to permit intending tenants and others with written authority from the Landlord or his agents at reasonable times of the day to view the Factory Unit. (33) At the determination of the said term by expiry or otherwise to yield up the Factory Unit and all the Landlord's fixtures fittings fastenings or appertaining in such good and substantial repair fair wear and tear excepted as shall be in accordance with the covenants of the Tenant herein contained and with all locks and keys complete. (34) In addition to the foregoing and immediately prior to the determination of the said term or the renewal thereof as the case may be to restore the Factory Unit in all respects to its original state and condition if so required by the Landlord to redecorate including painting the interior thereof to the satisfaction of the Landlord PROVIDED ALWAYS that if the Tenant shall fail to observe or perform this covenant the Landlord may in its absolute discretion, and without prejudice to any other rights and remedies the Landlord may have against the Tenant, execute such work for the said restoration and redecoration and shall recover all costs thereof from the Tenant together with all rent, service charge, tax and other amounts which the Landlord would have been entitled to receive from the Tenant had the period within which such restoration and redecoration are effected by the Landlord been added to the said term. (35) To pay interest at the rate of 8.5% per annum or such higher rate as may be determined from time to time by the Landlord in respect of any outstanding amount payable under this Agreement from the date such amount becomes due until payment in full is received by the Landlord. (36) Not to install or use any electrical installation, machine or apparatus that may cause or causes heavy 46 - 10 - power surge, high frequency voltage and current, air borne noise, vibration or any electrical or mechanical interference or disturbance whatsoever which may prevent or prevents in any way the service or use of any communication system or affects the operation of other equipment, installations, machinery, apparatus or plants of other Tenants and in connection therewith, to allow the Landlord or any authorised person(s) to inspect at all reasonable times, such installation, machine or apparatus in the Factory Unit to determine the source of the interference or disturbance and thereupon, to take suitable measures, at the Tenant's own expense, to eliminate or reduce such interference or disturbance to the Landlord's satisfaction, if it is found by the Landlord or such authorised person(s) that the Tenant's electrical installation, machine or apparatus is causing or contributing to the said interference or disturbance. (37) To indemnify the Landlord against any claims, proceedings, action, losses, penalties, damages, expenses, costs, demands which may arise in connection with clause 2(36) above. (38) To perform and observe all the obligations which the Landlord of the Factory Unit may be liable to perform or observe during the said term by any direction or requirement of any governmental and statutory authority and if the Tenant shall fail to observe or perform this covenant the Landlord may in its absolute discretion perform the same and all expenses and costs incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused thereby. (39) Without prejudice to the generality of Clause 2(38) herein, the rent and service charge and other sums payable by the Tenant under or in connection with this tenancy shall be exclusive of the goods and services tax (herein called "tax") chargeable by any government, statutory or tax authority calculated by reference to the amount of rent, service charge and any other sums received or receivable by the Landlord from the Tenant and which tax is payable by the Tenant. The Tenant shall pay the tax and the Landlord acting as the collecting agent for the government, statutory or tax authority shall collect the tax from the Tenant in the manner and within the period prescribed in accordance with the applicable laws and regulations. (40) If any damage of whatsoever nature or description shall at any time occur or be caused to the Factory Unit or any part thereof, to forthwith give the Landlord written notice of damage. 47 - 11 - (41) To ensure that - (i) at least 60% of the overall floor area shall be used for purely industrial activities and (ii) the remaining 40% shall be used as ancillary stores and offices, neutral areas and communal facilities PROVIDED THAT the said ancillary offices shall not exceed 25% of the overall floor area. (42) Not to use and occupy the Factory Unit for the purpose of commercial office and storage unrelated to the Tenant's approved industrial activity. (43) (i) Not to install or allowed to be installed any anchors on top or bottom of the precast hollow core slabs in or about the Factory Unit without the written consent of the Landlord having been first obtained, subject as aforesaid, the maximum embedment depth of the anchors at the top flange (soffit) shall be 80mm and 30mm respectively. (ii) Not to hack or allow the hacking of any openings larger than 250mm x 250mm (the said measurements) in or about the Factory Unit without the written consent of the Landlord having been first obtained and to submit drawings of the openings (together with such information as the-Landlord may require) to the Landlord and the relevant authorities for approval prior to the actual hacking of the openings. The hacking of openings smaller than the said measurements is allowed PROVIDED ALWAYS THAT the spacing of the openings is not less than 1. 2 metre in any direction. Notwithstanding anything herein, the cutting of any steel reinforcement bars shall not be permitted without the prior approval in writing of the Landlord. (44) Without prejudice to Clause 2(6) hereof and subject to the prior written approval of the Landlord, to provide thermal insulation to the floor, ceiling and the walls of rooms, if the rooms are used for purposes requiring low temperature air conditioning or cooling that would result in moisture condensation on the external, ceiling or floor within or outside the Factory Unit. (45) Not to commence operation in the Factory Unit after the installation(s) of any type of machinery or equipment have been completed until a final inspection of the installation(s) has been carried out and approval of the same is given by the Landlord. 48 - 12 - (46) The Tenant accepts the Factory Unit with full knowledge that refurbishment and upgrading works (hereinafter referred to as "the refurbishment") are being or may be carried out in the Building and the estate in which the Building is situated. The Tenant shall, if required by the Landlord and within the time stipulated by the Landlord, at the cost and expense of the Tenant properly and in accordance with the obligations of the Tenant under this Agreement remove, re-locate and/or modify temporarily or permanently as may be stipulated by the Landlord every installation, fixture, fittings, device, equipment and article existing at the time outside the Factory Unit as the Landlord may think fit for the purpose of permitting the Landlord, his servant, agent, contractor and subcontractor to properly carry out the refurbishment or for the purpose of improving the appearance or aesthetics of the Building. PROVIDED THAT if the Tenant shall fail to observe or perform this covenant or any part thereof the Landlord shall have the right (without prejudice to any other right or remedy the Landlord may have against the Tenant) to remove, relocate and/or modify any or every such installation, fixture, fittings, device, equipment and article, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt. PROVIDED ALWAYS and it is hereby agreed that the Landlord shall not be liable in any way to the Tenant or any other person for any loss, damage, claim, cost, expense, disruption, interference and/or inconvenience caused howsoever or whatsoever by or in connection with the refurbishment and/or the removal, re-location or modification. 49 - 13 - 3 The Landlord hereby covenants with the Tenant as follows: (1) To pay the property tax payable in respect of the Factory Unit PROVIDED ALWAYS that if the rate of such property tax shall be increased whether by way of an increase in the annual value or an increase in the rate per cent then the Landlord shall not hereunder be liable to pay the said increase but the Tenant shall pay such increase as provided under Clause 2(4) hereof. (2) To keep the exterior and roof of the Building and the lift entrances corridors passages staircases lavatories water closets and other conveniences intended for the use of the Tenant at all times in complete repair and in proper sanitary and clean condition. (3) To keep the stairs and passages leading to the Factory Unit and the lifts and lavatories well and sufficiently lighted and the lifts in proper working order PROVIDED THAT the Landlord shall not be responsible for any loss the Tenant may sustain by reason of any damage or injury or in consequence of any breakage of or defect in any of the pipes wire or other apparatus of the Landlord used in or about the Building. (4) To keep the Building insured against loss or damage by fire and in the event of such loss or damage (unless resulting from some act or default of the Tenant) to rebuild and reinstate the damaged part of the Building PROVIDED THAT it is expressly agreed and understood that the term "loss or damage by fire" as used in this clause do not include any loss or damage caused to the Tenant's fixtures or loss due to the factory being rendered out of commission and in any such event the Landlord shall not be held liable for any such loss or damage sustained by the Tenant. (5) That the Tenant paying the rent, service charge and tax and observing and performing the several covenants and stipulations on the Tenant's part herein contained shall during the said term quietly enjoy the Factory Unit without any interruption by the Landlord or any person or persons lawfully claiming under or in trust for the Landlord. 4 PROVIDED ALWAYS THAT and it is hereby agreed as follows:- (1) If the rent hereby reserved or service charge or interest, tax or any other sums payable herein, or any part thereof shall at any time remain unpaid for fourteen (14) days after becoming payable (whether formally demanded or not) or if the Tenant shall neglect to observe or perform any covenant or stipulation on the Tenant's part herein contained or if the Tenant shall make any assignment for the benefit of the Tenant's creditors or enter into any arrangement with its creditors by composition or otherwise or suffer any distress or attachment or execution to be levied against the Tenant's goods or if the Tenant for the time being shall be a company and shall enter 50 - 14 - into liquidation whether compulsory or voluntary (save for the purpose of reconstruction or amalgamation) or being an individual shall have a receiving order or an adjudicating order made against the Tenant then and in any or such cases it shall be lawful for the Landlord at any time thereafter to re-enter upon the Factory Unit or any part thereof in the name of the whole and thereupon this Tenancy shall absolutely determine but without prejudice to the rights of action of the Landlord in respect of any breach of the covenants on the part of the Tenant herein contained. (2) Any notice requiring to be served hereunder shall be sufficiently served on the Tenant if it is left addressed to the Tenant at the Factory Unit or forwarded to the Tenant by registered post to the Tenant's last known place of business and shall be sufficiently served on the Landlord if it is addressed to the Landlord and sent by registered post to the Head Office of the Landlord. In the event of any action in respect of the tenancy created herein (including any action for the recovery of the rent or service charge herein reserved or tax and/or any other sums herein payable) the Tenant agrees and accepts that the originating process shall be sufficiently served on the Tenant if it is addressed to the Tenant at the address specified in this Agreement or if it is left posted upon a conspicuous part of the Factory Unit or forwarded to the Tenant by post at the Tenant's last known place of business. (3) Letters or parcels whether registered or otherwise and telegrams or keys received by any agent or servant of the Landlord on behalf of the Tenan0t shall be received solely at the risk of the Tenant. (4) No waiver expressed or implied by the Landlord of any breach of any covenant, condition or duty of the Tenant shall be construed as a waiver of any other breach of the same or any other covenant, condition or duty and shall not prejudice in any way the rights, powers and remedies of the Landlord herein contained. Any acceptance of rent, service charge, tax and/or any other sum whatsoever payable under this Agreement shall not be construed as nor be deemed to operate as a waiver by the Landlord of any right to proceed against the Tenant for any of the Tenant's obligations hereunder. (5) The Landlord shall not be responsible for any loss damage or inconvenience occasioned by the closing of the lift or lifts for repairs or any other necessary purpose or for any accident that may occur to the Tenant or other person using the lift. 51 - 15 - (6) The Landlord shall be under no liability either to the Tenant or to others who may be permitted to enter or use the Factory Unit or the Building or any part thereof for any accidents or injuries sustained or loss or damage to property in the Factory Unit or the Building or any part thereof. (7) The Landlord shall not be liable to the Tenant in respect of: (i) any interruption in the services provided by the Landlord by reason of necessary repair or maintenance of any installation or apparatus or damage thereto or by reason of mechanical or other defect or breakdown including but not limited to breakdown in electricity and water supply; (ii) any act, omission, default, misconduct or negligence of any servant, agent, contractor, sub-contractor or employee of the Landlord in or about the performance or purported performance of any duty relating to the provision of the said services. (8) The Landlord shall be entitled to let any other part or parts of the Building subject to any terms or conditions which the Landlord may think fit to impose and nothing herein contained shall be deemed to create a letting scheme for the Building or any part thereof and neither the Tenant nor the persons deriving title under the Tenant shall have the benefit of or the right to enforce or to have enforced or to prevent the release or modification of and covenant agreement or condition entered into by any present or future tenant. (9) The Tenant shall pay all costs disbursements fees and charges legal or otherwise including stamp and/or registration fees in connection with the preparation stamping and issue of this Agreement and any prior accompanying or future documents or deeds supplementary collateral or in any way relating to this Agreement. 52 - 16 - (10) The Tenant shall pay all costs and fees legal or otherwise including costs as between solicitor and clients in connection with the enforcement of the covenants and conditions of this Agreement. (11) The Landlord shall not be liable for any loss or damage that may be suffered by the Tenant resulting from any subsidence or cracking of the ground floor slabs and aprons of the Building PROVIDED that this clause shall apply only to Tenants occupying the ground floor of the Building. (12) The Landlord shall on written request of the Tenant made not less than three (3) months before the expiration of the term hereby created and if there shall not at the time of such request be any existing breach or non-observance by the Tenant of any of the terms, covenants and stipulations contained in this Agreement, at the cost and expense of the Tenant grant to the Tenant a tenancy of the Factory Unit for a further term to be mutually agreed upon by the parties hereto and at a revised rent to be determined by the Landlord and containing the like terms, covenants and stipulations as are herein contained, or such variations or modifications thereof together with such other terms covenants and stipulations as may be imposed by the Landlord, with the exception of and without the present covenant for renewal. 5 In this Agreement where the context so requires or permits, words importing the singular number or the masculine gender include the plural number or the feminine gender and words importing persons include corporations and vice versa, the expression "the Landlord" shall include its successors-in-title and assigns, the expression "the Tenant" shall include its successors-in-title and permitted assigns (if any), where there are two or more persons included in the expression "the Tenant" covenants expressed to be made by "the Tenant" shall be deemed to be made by such persons jointly and severally. 53 - 17 - IN WITNESS WHEREOF the parties hereto have hereunto set their hands and/or seals the day and the year first above written. SIGNED BY: SEAH KEE POK DIRECTOR, BUILDINGS DEVELOPMENT for and on behalf of JURONG TOWN CORPORATION in the presence of: /s/ GRACE ONG SOO HIANG -------------------------------- Grace Ong Soo Hiang SIGNED BY: - ---------------------------- for and on behalf of ADAPTEC MFG (S) PTE LTD /s/ K Y LIM ---------------------------------- K Y Lim Vice President & Managing Director in the presence of: ADAPTEC MFG (S) PTE LTD /s/ ANDREW NG ---------------------------------- Andrew Ng Director Finance & Administration (Signature of Witness) Name of Witness: Designation: 54 [LOGO] J T C REGISTRATION NO: FF 22112/94 JTC(L)8339/205 Pt 1/KM/KS TENANCY OF FLATTED FACTORY NOS. #06-01/10 AND #06-12/20 1002 JALAN BUKIT MERAH REDHILL INDUSTRIAL ESTATE BETWEEN JURONG TOWN CORPORATION AND ADAPTEC MFG (S) PTE LTD DATED: 26th August 1994 55 TENANCY OF FLATTED FACTORY UNIT THIS AGREEMENT is made the 26th day of August 1994 Between the JURONG TOWN CORPORATION incorporated under the Jurong Town Hall Corporation Act, having its Head Office at Jurong Town Hall, 301 Jurong Town Hall Road, Singapore 2260 (hereinafter called "the Landlord" of the one part and ADAPTEC MFG (S) PTE LTD a company incorporated in Singapore and having its registered office at Block 1003, Bukit Merah Central, #07-09 to #07-12, Singapore 0315. (hereinafter called "the Tenant" which expression shall where the context so admits include the Tenant's successors-in-title and permitted assigns) of the other part. WITNESSETH as follows: 1 The Landlord hereby lets and the Tenant hereby takes ALL that portion of the SIXTH (6TH) storey(s) of the Building known as 1002 JALAN BUKIT MERAH (hereinafter called "the Building") containing an approximate TOTAL area of 1,796.9 square metres (which said area may be adjusted on completion of survey, if any) more particularly delineated and edged red on the plan annexed hereto (which portion is hereinafter called "the Factory Unit") TOGETHER with the use of the lavatories and conveniences thereat together also with the use for the Tenant, the Tenant's servants and visitors of the lifts and the entrances staircases corridors and passages and accesses to the Building for the purpose only of ingress and egress to and from the Factory Unit with or without parcels and packages TO HOLD the same UNTO the Tenant for the term of TWO (2) YEARS FIVE AND A HALF (5 1/2) MONTHS from the 1ST day of AUGUST 1994 YIELDING AND PAYING therefor during the said term the rent of (1) at the discounted rate of DOLLARS TWELVE AND CENTS THIRTY-FIVE ONLY ($12.35CTS) per square metre per month for so long as the Tenant shall occupy under tenancy an aggregate floor area of 5000 square metres in the Building or in the various Flatted Factories belonging to the Landlord; and 56 - 2 - (2) in the event that the said aggregate floor area occupied is at any time henceforth and for any reason whatever reduced to below 5000 square metres whence the discount shall be totally withdrawn from and in respect of the Factory Unit and all other premises occupied by the Tenant, then and with effect from the date of the reduction of the said aggregate floor area, at the normal rate of DOLLARS THIRTEEN ONLY ($13.00) per square metre per month; to be paid clear of all deduction and in advance and without demand on the 1st day of each of the calendar month of the year (i.e., the 1st day of January, February, March, etc.) the first of such payments to be made on the 1ST day of AUGUST 1994. 2 The Tenant hereby covenants with the Landlord as follows: (1) To pay the said rent on the days and in the manner aforesaid. (2) To pay in addition to the said rent during the said term the sum of DOLLARS ONE AND CENTS SEVENTY ONLY ($1.70CT) per square metre per month in advance on the same dates and in the same manner as for the said rent as charges for services to be undertaken by the Landlord as hereinbefore mentioned (hereinafter referred to as "the Service Charge") PROVIDED THAT if the cost of services shall increase, the Landlord may revise the Service Charge and on serving a notice in writing to the Tenant to this effect such revised Service Charge shall be payable as from the date specified in the said notice. (3) (i) To pay a deposit equivalent to three (3) months' rent at the discounted rate and service charge on or before the execution of this Agreement or commencement of the said term, whichever is the earlier, as security against breach of any of the covenants and stipulations herein contained which cash deposit shall be maintained at this figure during the said term and shall be repayable without interest on the termination of this tenancy subject however to an appropriate deduction as damages in respect of any such breach. (ii) In lieu of the aforesaid cash deposit to provide an acceptable banker's guarantee for the same equivalent amount, which guarantee shall be valid and irrevocable for the whole of the said term or the unexpired portion of the said term, as the case may be, plus six months after the date of expiry of the said term and in a form approved by the Landlord or to provide such other form of security as the Landlord may in the Landlord's absolute discretion permit or accept. 57 - 3 - (iii) If the rent at the discounted rate hereinbefore mentioned in clause 1(1) shall at any time be increased to the rent at the normal rate in accordance with Clause 1(2), or if the Service Charge has been increased by the Landlord in accordance with Clause 2(2) hereof, to forthwith pay the amount of such increase so that the cash deposit stipulated in sub-clause (i) above shall at all times be equal to three (3) months' rent and service charge. (4) During the said term or any renewal thereof to pay any increase of property tax which may be imposed whether by way of an increase in the annual value or an increase in the rate per centum. For the purpose of ascertaining the additional amount payable under this clause any such increase in property tax shall be apportioned in the same proportion as the rent payable under this Agreement bears to the total assessed annual value of the Building at the date such increase comes into force. (5) To pay all charges and outgoings whatsoever in respect of the supply of electricity and water used by the Tenant at the Factory Unit as shown by the separate meters belonging thereto and also pay all charges for the use and maintenance of such meters PROVIDED ALWAYS that subject to the prior written consent of the Landlord and to all approvals being obtained by the Tenant from the relevant governmental and statutory authorities the water sub-meter will be installed in the Factory Unit by the Tenant at the Tenant's own cost. (6) At all times to use and occupy the Factory Unit for the purpose of THE TESTING OF INTEGRATED CIRCUITS ONLY and for no other purposes whatever. (7) Not to place or allow to be placed upon the Factory Unit or on any of the floors in the Building any article machinery or load in excess of 7.5 kiloNewtons per square metre and not to place or allow to be placed in the goods lifts of the Building any article machinery or load in excess of 1,500 kilograms. 58 - 4 - (8) To keep the interior of the Factory Unit (including the doors and windows thereof and all the Landlord's other fixtures and fittings therein) clean and in good and substantial repair and condition (fair wear and tear and damage by fire lightning riot or tempest alone excepted) and also to clean and keep clean the exterior of the windows thereof. (9) Not to make or cause to be made any alteration in or addition to the Factory Unit without the prior written consent of the Landlord and the relevant governmental and statutory authorities PROVIDED THAT on the granting of such consent and without prejudice to other terms and conditions which may be imposed the Tenant shall place with the Landlord a deposit equivalent to such amount as the Landlord may deem sufficient for the reinstatement of the Factory Unit to its original condition. Further the Tenant shall not use any flammable building materials for internal partitioning. (10) Not to modify any existing electrical wirings or modify or replace any existing fire alarm fixtures and fittings or affix or install any further or additional electrical and fire alarm wiring extension in or about the Factory Unit without the written consent of the Landlord having been first obtained and PROVIDED FURTHER THAT all such work shall be carried out by a licensed electrical contractor or competent person as approved by the Landlord to be employed and paid by the Tenant who shall ensure as part of the work that the existing circuits and equipment are not overloaded or unbalanced. Prior to any electrical and fire alarm installation or modification work, the Tenant shall be required to submit the necessary plans as hereinafter specified under clauses 2(29) and 2(30) to the Landlord for approval. (11) To permit the Landlord or the Landlord's agents with or without workmen or others at all reasonable times to enter the Factory Unit to take inventories of the Landlord's fixtures and fittings therein and to view the condition thereof and examine the state of repair of the Factory Unit and thereupon the Landlord may serve upon the Tenant notice in writing specifying any work or repairs necessary to be done which are within the responsibility of the Tenant under the terms of this Agreement and require the Tenant forthwith to execute the same and the Tenant shall pay the Landlord's reasonable costs of survey attending the preparation of the notice and if the Tenant shall not within ten days after the service of such notice proceed diligently and in workman-like manner with the execution of such work or repairs then to permit the Landlord (who 59 - 5 - shall not be under any obligation so to do) to enter upon the Factory Unit and execute such work or repairs and the cost thereof shall be a debt due from the Tenant to the Landlord and be forthwith recoverable PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such work or repairs. (12) To be wholly responsible for all damages and to bear the full cost of repairs and reinstatement of such damaged building equipment fixtures drains wiring and piping above and below ground level if the cause or causes of such damages can be traced directly or indirectly back to the Tenant's activities. (13) To permit the Landlord, the Landlord's agents or workmen and others to enter the Factory Unit at reasonable hours to do structural or external repairs and execute such work as may be necessary to the Factory Unit or to other portions of the Building of which the Factory Unit may form a part but which are not conveniently accessible otherwise than from or through the Factory Unit. (14) In complying with Clause 2(13) hereof and if so required by the Landlord the Tenant shall remove such installation, machinery or any article to permit the Landlord to execute the said repairs and works and if the Tenant shall fail to observe or perform this covenant the Landlord shall remove the same and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such removal. (15) Subject always to clause 2(27) hereinafter appearing, to give to the Landlord written notice of every change of name within one month from the date of each change. (16) To make good and sufficient provision for and to ensure the safe and efficient disposal of all waste generated at the Factory Unit including but not limited to pollutants to the requirements and satisfaction of the Landlord and the relevant governmental and statutory authorities PROVIDED THAT in the event of any default by the Tenant under this covenant the Landlord may at the discretion of the Landlord and without prejudice to any other rights and remedies the Landlord may have in law or under this Agreement, carry out such remedial measures and works as the Landlord thinks necessary and all costs and expenses incurred thereby shall forthwith be recoverable in full from the Tenant as a debt. 60 - 6 - (17) To provide and maintain refuse receptacles for all waste and refuse produced at the Factory Unit in conformity with the requirements and standards prescribed by the health authority and to keep the same out of sight of the public during the hours of business and to transfer such waste and refuse in suitable receptacles to such area and at such times each day as may be prescribed by the Landlord. (18) Not to keep or allow to be kept livestock or other animals at the Factory Unit. (19) Not to do or suffer to be done on or in the Factory Unit anything whereby the insurances of the same or of the Building or any part thereof may be rendered void or voidable or whereby the premium thereon may be increased and to repay to the Landlord on demand all sums paid by the Landlord by way of increased premium and all expenses incurred by the Landlord in connection therewith and all loss damages and expenses resulting from a breach or non-observance of this covenant without prejudice to any other rights and remedies available to the Landlord. (20) Not to do or permit or suffer to be done anything in or upon the Factory Unit or any part of the Building which in the opinion of the Landlord is or may be a nuisance or cause annoyance to or in any way interfere with the business or the quiet or comfort of the other occupants of the Building PROVIDED THAT the Landlord shall not be responsible to the Tenant for any loss, damage or inconvenience as a result of nuisance, annoyance or any interference whatsoever caused by the other occupants of the Building. (21) Not to use the Factory Unit for any illegal or immoral purpose. (22) Not to cause any obstruction in or on the approaches, private roads or passage way adjacent to or leading to the Building by leaving or parking or permitting to be left or parked any motor vehicle or other carriages belonging to or used by the Tenant or by any of the Tenant's friends servants or visitors. And also to observe and ensure observance of all regulations made by the Landlord relating to the parking of such vehicles or carriages and to pay such carpark charges as may be imposed by the Landlord or his agent. (23) Not to effect any sale by auction in the Building. 61 - 7 - (24) Not to affix paint or otherwise exhibit on the exterior of the Factory Unit or the windows thereof or of the Building or in any of the passages corridors or stairs of the Building any name plate placard poster or advertisement or any flag-staff or other thing whatsoever save only the name of the Tenant in such places only and not elsewhere and in such manner and position only as shall be approved in writing by the Landlord. (25) Not to cause any obstruction to the common stairways passageways and other common parts of the Building or accesses to the Building. PROVIDED ALWAYS that the Landlord shall have the full right and liberty and absolute discretion to remove and clear any such obstruction and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt. FURTHER PROVIDED THAT the Landlord shall not be liable to the Tenant or any third party for any loss damage or inconvenience caused by such removal and the Tenant hereby indemnifies the Landlord in this respect. (26) Not to install any machinery or fixture in the Factory Unit without the permission in writing of the Landlord and to submit a layout plan of the Tenant's machinery for the approval of the Landlord and the relevant governmental and statutory authorities prior to the actual fixing of the machineries. (27) Not to assign create a trust sublet grant a licence or part with or share the possession or occupation of the Factory Unit or any part thereof or leave the Factory Unit or any part thereof vacant and unoccupied at any time during the said term. (28) Not to do or omit or suffer to be done or omitted any act matter or thing in or on the Factory Unit and/or in respect of the business trade or industry carried out or conducted therein which shall contravene the provisions of any laws rules or regulations now or hereafter affecting the same and at all times hereafter to indemnify and keep indemnified the Landlord against all actions, proceedings, costs, expenses, claims, fines, losses, penalties and demands in respect of any act matter or thing done or omitted to be done in contravention of the said provisions. (29) To install electrical switch board wirings and equipment to the Factory Unit including the following electrical protective devices, all at the Tenant's own expense, subject to the approval of the Landlord:- (a) Overcurrent protective devices in the Landlord's Switch Room; 62 - 8 - (b) Overcurrent and earth-leakage protective devices in the Factory Unit, PROVIDED THAT- (i) the Tenant shall submit 3 sets of 'electrical single-line diagram' of the Factory Unit wirings for the approval of the Landlord prior to the actual installation of the wirings; and (ii) it shall be the responsibility of the Tenant to keep all or any of the aforesaid switch board wirings, equipment and devices installed by the Tenant in good condition at all times. (30) To carry out such modification work on the existing fire alarm wirings, heat detectors and fixtures in the Factory Unit as shall be necessary to suit the factory operation, including the installation of additional wirings and connections of the heat detectors and fixtures to the Landlord's common fire alarm system, to the approval of the Landlord and all at the Tenant's own expense PROVIDED THAT: (a) The Tenant shall submit 2 copies of the fire alarm drawings of the Factory Unit indicating the existing fixtures, the proposed modifications and the layout of the Tenant's machinery for the approval of the Landlord prior to the commencement of the modification work. (b) The Tenant shall at the Tenant's own expense ensure that the existing fire alarm wirings, heat detectors and fixtures and any additional wirings and fixtures installed by the Tenant in the Factory Unit are serviced monthly and in good condition at all times including the payment of any fee(s) in connection with servicing and maintenance works. (c) Any item of replacement required for the effective maintenance of the fire alarm wirings, heat detectors and fixtures shall be of a quality and shall have an operational characteristic similar to the item to be replaced and shall be subject to the approval of the Landlord. The Tenant shall at his own cost forthwith replace any or all items of dissimilar quality and operational characteristic found in use. (31) To close the Factory Unit during such hours as the Landlord may specify by notice in writing to the Tenant for any maintenance or repair work to be executed by the Landlord. 63 - 9 - (32) At all times during the three calendar months immediately preceding the determination of the said term to permit intending tenants and others with written authority from the Landlord or his agents at reasonable times of the day to view the Factory Unit. (33) At the determination of the said term by expiry or otherwise to yield up the Factory Unit and all the Landlord's fixtures fittings fastenings or appertaining in such good and substantial repair fair wear and tear excepted as shall be in accordance with the covenants of the Tenant herein contained and with all locks and keys complete. (34) In addition to the foregoing and immediately prior to the determination of the said term or the renewal thereof as the case may be to restore the Factory Unit in all respects to its original state and condition if so required by the Landlord to redecorate including painting the interior thereof to the satisfaction of the Landlord PROVIDED ALWAYS that if the Tenant shall fail to observe or perform this covenant the Landlord may in its absolute discretion, and without prejudice to any other rights and remedies the Landlord may have against the Tenant, execute such work for the said restoration and redecoration and shall recover all costs thereof from the Tenant together with all rent, service charge, tax and other amounts which the Landlord would have been entitled to receive from the Tenant had the period within which such restoration and redecoration are effected by the Landlord been added to the said term. (35) To pay interest at the rate of 8.5% per annum or such higher rate as may be determined from time to time by the Landlord in respect of any outstanding amount payable under this Agreement from the date such amount becomes due until payment in full is received by the Landlord. (36) Not to install or use any electrical installation, machine or apparatus that may cause or causes heavy 64 - 10 - power surge, high frequency voltage and current, air borne noise, vibration or any electrical or mechanical interference or disturbance whatsoever which may prevent or prevents in any way the service or use of any communication system or affects the operation of other equipment, installations, machinery, apparatus or plants of other Tenants and in connection therewith, to allow the Landlord or any authorised person(s) to inspect at all reasonable times, such installation, machine or apparatus in the Factory Unit to determine the source of the interference or disturbance and thereupon, to take suitable measures, at the Tenant's own expense, to eliminate or reduce such interference or disturbance to the Landlord's satisfaction, if it is found by the Landlord or such authorised person(s) that the Tenant's electrical installation, machine or apparatus is causing or contributing to the said interference or disturbance. (37) To indemnify the Landlord against any claims, proceedings, action, losses, penalties, damages, expenses, costs, demands which may arise in connection with clause 2(36) above. (38) To perform and observe all the obligations which the Landlord of the Factory Unit may be liable to perform or observe during the said term by any direction or requirement of any governmental and statutory authority and if the Tenant shall fail to observe or perform this covenant the Landlord may in its absolute discretion perform the same and all expenses and costs incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused thereby. (39) Without prejudice to the generality of Clause 2(38) herein, the rent and service charge and other sums payable by the Tenant under or in connection with this tenancy shall be exclusive of the goods and services tax (herein called "tax") chargeable by any government, statutory or tax authority calculated by reference to the amount of rent, service charge and any other sums received or receivable by the Landlord from the Tenant and which tax is payable by the Tenant. The Tenant shall pay the tax and the Landlord acting as the collecting agent for the government, statutory or tax authority shall collect the tax from the Tenant in the manner and within the period prescribed in accordance with the applicable laws and regulations. (40) If any damage of whatsoever nature or description shall at any time occur or be caused to the Factory Unit or any part thereof, to forthwith give the Landlord written notice of damage. 65 - 11 - (41) To ensure that - (i) at least 60% of the overall floor area shall be used for purely industrial activities and (ii) the remaining 40% shall be used as ancillary stores and offices, neutral areas and communal facilities PROVIDED THAT the said ancillary offices shall not exceed 25% of the overall floor area. (42) Not to use and occupy the Factory Unit for the purpose of commercial office and storage unrelated to the Tenant's approved industrial activity. (43) To permit the Landlord, the Landlord's agents or workmen and others at any time during the said term to enter the Factory Unit to replace the louvre/casement windows and timber doors with such other windows and doors as the Landlord may think fit and to install or replace service ducts/pipes (hereinafter referred to as "the said replacement or installation works") . If so required by the Landlord the Tenant shall remove such installation, machinery, partition and any article to permit the Landlord to execute the said replacement or installation works, and if the Tenant shall fail to observe or perform this covenant the Landlord shall have the right to (without prejudice to any other right or remedy the Landlord may have against the Tenant) remove the same, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss, damage or inconvenience caused whatsoever by such removal and the said replacement or installation works. (44) Without prejudice to Clause 2(6) hereof and subject to the prior written approval of the Landlord, to provide thermal insulation to the floor, ceiling and the walls of rooms, if the rooms are used for purposes requiring low temperature air conditioning or cooling that would result in moisture condensation on the external, ceiling or floor within or outside the Factory Unit. (45) Not to commence operation in the Factory Unit after the installation(s) of any type of machinery or equipment have been completed until a final inspection of the installation(s) has been carried out and approval of the same is given by the Landlord. 66 - 12 - (46) The Tenant accepts the Factory Unit with full knowledge that refurbishment and upgrading works (hereinafter referred to as "the refurbishment") are being or may be carried out in the Building and the estate in which the Building is situated. The Tenant shall, if required by the Landlord and within the time stipulated by the Landlord, at the cost and expense of the Tenant properly and in accordance with the obligations of the Tenant under this Agreement remove, re-locate and/or modify temporarily or permanently as may be stipulated by the Landlord every installation, fixture, fittings, device, equipment and article existing at the time outside the Factory Unit as the Landlord may think fit for the purpose of permitting the Landlord, his servant, agent, contractor and subcontractor to properly carry out the refurbishment or for the purpose of improving the appearance or aesthetics of the Building. PROVIDED THAT if the Tenant shall fail to observe or perform this covenant or any part thereof the Landlord shall have the right (without prejudice to any other right or remedy the Landlord may have against the Tenant) to remove, re-locate and/or modify any or every such installation, fixture, fittings, device, equipment and article, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt. PROVIDED ALWAYS and it is hereby agreed that the Landlord shall not be liable in any way to the Tenant or any other person for any loss, damage, claim, cost, expense, disruption, interference and/or inconvenience caused howsoever or whatsoever by or in connection with the refurbishment and/or the removal, re-location or modification. 67 - 13 - 3 The Landlord hereby covenants with the Tenant as follows: (1) To pay the property tax payable in respect of the Factory Unit PROVIDED ALWAYS that if the rate of such property tax shall be increased whether by way of an increase in the annual value or an increase in the rate per cent then the Landlord shall not hereunder be liable to pay the said increase but the Tenant shall pay such increase as provided under Clause 2(4) hereof. (2) To keep the exterior and roof of the Building and the lift entrances corridors passages staircases lavatories water closets and other conveniences intended for the use of the Tenant at all times in complete repair and in proper sanitary and clean condition. (3) To keep the stairs and passages leading to the Factory Unit and the lifts and lavatories well and sufficiently lighted and the lifts in proper working order PROVIDED THAT the Landlord shall not be responsible for any loss the Tenant may sustain by reason of any damage or injury or in consequence of any breakage of or defect in any of the pipes wire or other apparatus of the Landlord used in or about the Building. (4) To keep the Building insured against loss or damage by fire and in the event of such loss or damage (unless resulting from some act or default of the Tenant) to rebuild and reinstate the damaged part of the Building PROVIDED THAT it is expressly agreed and understood that the term "loss or damage by fire" as used in this clause do not include any loss or damage caused to the Tenant's fixtures or loss due to the factory being rendered out of commission and in any such event the Landlord shall not be held liable for any such loss or damage sustained by the Tenant. (5) That the Tenant paying the rent, service charge and tax and observing and performing the several covenants and stipulations on the Tenant's part herein contained shall during the said term quietly enjoy the Factory Unit without any interruption by the Landlord or any person or persons lawfully claiming under or in trust for the Landlord. 4 PROVIDED ALWAYS THAT and it is hereby agreed as follows:- (1) If the rent hereby reserved or service charge or interest, tax or any other sums payable herein, or any part thereof shall at any time remain unpaid for fourteen (14) days after becoming payable (whether formally demanded or not) or if the Tenant shall neglect to observe or perform any covenant or stipulation on the Tenant's part herein contained or if the Tenant shall make any assignment for the benefit of the Tenant's creditors or enter into any arrangement with its creditors by composition or otherwise or suffer any distress or attachment or execution to be levied against the Tenant's goods or if the Tenant for the time being shall be a company and shall enter 68 - 14 - into liquidation whether compulsory or voluntary (save for the purpose of reconstruction or amalgamation) or being an individual shall have a receiving order or an adjudicating order made against the Tenant then and in any or such cases it shall be lawful for the Landlord at any time thereafter to re-enter upon the Factory Unit or any part thereof in the name of the whole and thereupon this Tenancy shall absolutely determine but without prejudice to the rights of action of the Landlord in respect of any breach of the covenants on the part of the Tenant herein contained. (2) Any notice requiring to be served hereunder shall be sufficiently served on the Tenant if it is left addressed to the Tenant at the Factory Unit or forwarded to the Tenant by registered post to the Tenant's last known place of business and shall be sufficiently served on the Landlord if it is addressed to the Landlord and sent by registered post to the Head Office of the Landlord. In the event of any action in respect of the tenancy created herein (including any action for the recovery of the rent or service charge herein reserved or tax and/or any other sums herein payable) the Tenant agrees and accepts that the originating process shall be sufficiently served on the Tenant if it is addressed to the Tenant at the address specified in this Agreement or if it is left posted upon a conspicuous part of the Factory Unit or forwarded to the Tenant by post at the Tenant's last known place of business. (3) Letters or parcels whether registered or otherwise and telegrams or keys received by any agent or servant of the Landlord on behalf of the Tenant shall be received solely at the risk of the Tenant. (4) No waiver expressed or implied by the Landlord of any breach of any covenant, condition or duty of the Tenant shall be construed as a waiver of any other breach of the same or any other covenant, condition or duty and shall not prejudice in any way the rights, powers and remedies of the Landlord herein contained. Any acceptance of rent, service charge, tax and/or any other sum whatsoever payable under this Agreement shall not be construed as nor be deemed to operate as a waiver by the Landlord of any right to proceed against the Tenant for any of the Tenant's obligations hereunder. (5) The Landlord shall not be responsible for any loss damage or inconvenience occasioned by the closing of the lift or lifts for repairs or any other necessary purpose or for any accident that may occur to the Tenant or other person using the lift. 69 - 15 - (6) The Landlord shall be under no liability either to the Tenant or to others who may be permitted to enter or use the Factory Unit or the Building or any part thereof for any accident(s) or injuries sustained or loss or damage to property in the Factory Unit or the Building or any part thereof. (7) The Landlord shall not be liable to the Tenant in respect of: (i) any interruption in the services provided by the Landlord by reason of necessary repair or maintenance of any installation or apparatus or damage thereto or by reason of mechanical or other defect or breakdown including but not limited to breakdown in electricity and water supply; (ii) any act, omission, default, misconduct or negligence of any servant, agent, contractor, sub-contractor or employee of the Landlord in or about the performance or purported performance of any duty relating to the provision of the said services. (8) The Landlord shall be entitled to let any other part or parts of the Building subject to any terms or conditions which the Landlord may think fit to impose and nothing herein contained shall be deemed to create a letting scheme for the Building or any part thereof and neither the Tenant nor the persons deriving title under the Tenant shall have the benefit of or the right to enforce or to have enforced or to prevent the release or modification of any covenant agreement or condition entered into by any present or future tenant. (9) The Tenant shall pay all costs disbursements fees and charges legal or otherwise including stamp and/or registration fees in connection with the preparation stamping and issue of this Agreement and any prior accompanying or future documents or deeds supplementary collateral or in any way relating to this Agreement. 70 - 16 - (10) The Tenant shall pay all costs and fees legal or otherwise including costs as between solicitor and clients in connection with the enforcement of the covenants and conditions of this Agreement. (11) The Landlord shall not be liable for any loss or damage that may be suffered by the Tenant resulting from any subsidence or cracking of the ground floor slabs and aprons of the Building PROVIDED that this clause shall apply only to Tenants occupying the ground floor of the Building. (12) The Landlord shall on written request of the Tenant made not less than three (3) months before the expiration of the term hereby created and if there shall not at the time of such request be any existing breach or non-observance by the Tenant of any of the terms, covenants and stipulations contained in this Agreement, at the cost and expense of the Tenant grant to the Tenant a tenancy of the Factory Unit for a further term to be mutually agreed upon by the parties hereto and at a revised rent to be determined by the Landlord and containing the like terms, covenants and stipulations as are herein contained, or such variations or modifications thereof together with such other terms covenants and stipulations as may be imposed by the Landlord, with the exception of and without the present covenant for renewal. 5 In this Agreement where the context so requires or permits, words importing the singular number or the masculine gender include the plural number or the feminine gender and words importing persons include corporations and vice versa, the expression "the Landlord" shall include its successors-in-title and assigns, the expression "the Tenant" shall include its successors-in-title and permitted assigns (if any), where there are two or more persons included in the expression "the Tenant" covenants expressed to be made by "the Tenant" shall be deemed to be made by such persons jointly and severally. 71 - 17 - IN WITNESS WHEREOF the parties hereto have hereunto set their hands and/or seals the day and the year first above written. SIGNED BY: CHUA TIN WEE HEAD (FLATTED FACTORIES) LEASE MANAGEMENT DEPARTMENT BUILDINGS DEVELOPMENT GROUP for and on behalf of JURONG TOWN CORPORATION in the presence of: /s/ KANNAN MALINI ------------------------------ Kannan Malini SIGNED BY: for and on behalf of ADAPTEC MFG (S) PTE LTD /s/ K Y LIM ------------------------------ Vice President & Managing Director in the presence of: /s/ ANDREW NG ------------------------------ Andrew Ng Director Finance & Administration Name of Witness: Designation : 72 [LOGO] J T C REGISTRATION NO: FF 22250/94 JTC(L)3729/1210 Pt 1 Vol 2/KM/KS TENANCY OF FLATTED FACTORY NOS. #06-09 TO #06-11 1003 BUKIT MERAH CENTRAL REDHILL INDUSTRIAL ESTATE BETWEEN JURONG TOWN CORPORATION AND ADAPTEC MFG (S) PTE LTD DATED: 11th October 1994 73 TENANCY OF FLATTED FACTORY UNIT This Tenancy is made the 11th day of October 1994 Between the JURONG TOWN CORPORATION incorporated under the Jurong Town Hall Corporation Act, having its Head Office at Jurong Town Hall, 301 Jurong Town Hall Road, Singapore 2260 (hereinafter called "the Landlord" of the one part and ADAPTEC MFG (S) PTE LTD a company incorporated in Singapore and having its registered office at 1003 BUKIT MERAH CENTRAL #07-09 TO #07-12 SINGAPORE 0315 (hereinafter called "the Tenant" which expression shall where the context so admits include the Tenant's successors-in-title and permitted assigns) of the other part. WITNESSETH as follows:- 1 The Landlord hereby lets and the Tenant hereby takes ALL that portion of the SIXTH (6TH) storey(s) of the Building known as 1003 BUKIT MERAH CENTRAL (hereinafter called "the Building") containing an approximate area of 513.6 square metres (which said area may be adjusted on completion of survey, if any) more particularly delineated and edged red on the plan annexed hereto (which portion is hereinafter called "the Factory Unit") TOGETHER with the use of the lavatories and conveniences thereat together also with the use for the Tenant, the Tenant's servants and visitors of the lifts and the entrances staircases corridors and passages and accesses to the Building for the purpose only of ingress and egress to and from the Factory Unit with or without parcels and packages TO HOLD the same UNTO the Tenant for the term of THREE (3) YEARS from the 1ST DAY OF OCTOBER 1994 YIELDING AND PAYING therefor during the said term the rent:- (1) at the discounted rate of DOLLARS TWELVE AND CENTS THIRTY-FIVE ONLY ($12.35CTS) per square metre per month for so long as the Tenant shall occupy tenancy an aggregate floor area of 5,000 square metres in the Building or in the various Flatted Factories belonging to the Landlord; and 74 - 2 - (2) in the event that the said aggregate floor area is occupied at any time henceforth and for any reason whatever reduced to below 5,000 square metres whence the discount shall be totally withdrawn from and in respect of the Factory Unit and all other premises occupied by the Tenant, then and with effect from the date of the reduction of the said aggregate floor area, at the normal rate of DOLLARS THIRTEEN ONLY ($13.00) per square metre per month to be paid clear of all deduction and in advance and without demand on the 1st day of each of the calendar month of the year (i.e., the 1st day of January, February, March, etc.) the first OF such payments to be made on the 1ST DAY OF OCTOBER 1994. 2 The Tenant hereby covenants with the Landlord as follows: (1) To pay the said rent on the days and in the manner aforesaid. (2) To pay in addition to the said rent during the said term the sum of DOLLARS ONE AND CENTS SEVENTY ONLY ($1.70CTS) per square metre per month in advance on the same dates and in the same manner as for the said rent as charges for services to be undertaken by the Landlord as hereinbefore mentioned (hereinafter referred to as "the Service Charge") PROVIDED THAT if the cost of services shall increase, the Landlord may revise the Service Charge and on serving a notice in writing to the Tenant to this effect such revised Service Charge shall be payable as from the date specified in the said notice. (3) (i) To pay a deposit equivalent to three (3) months' rent at the discounted rate and service charge on or before the execution of this Agreement or commencement of the said term, whichever is the earlier, as security against breach of any of the covenants herein contained which cash deposit shall be maintained at this figure during the said term and shall be repayable without interest on the termination of this tenancy subject however to an appropriate deduction as damages in respect of any such breach. (ii) In lieu of the aforesaid cash deposit to provide an acceptable banker's guarantee for the same equivalent amount, which guarantee shall be valid and irrevocable for the whole of the said term or the unexpired portion of the said term, as the case may be, plus six months after the date of expiry of the said term and in a form approved by the Landlord or to provide such other form of security as the Landlord may in the Landlord's absolute discretion permit or accept. 75 - 3 - (iii) If the rent at the discounted rate hereinbefore mentioned in clause 1(1) shall at any time be increased to the rent at the normal rate in accordance with Clause 1(2), or if the Service Charge has been increased by the Landlord in accordance with Clause 2(2) hereof, to pay the amount of such increase so that the cash deposit stipulated in sub- clause (i) above shall at all times be equal to three (3) months' rent and service charge. (4) During the said term or any renewal thereof to pay any increase of property tax which may be imposed whether by way of an increase in the annual value or an increase in the rate per centum. For the purpose of ascertaining the additional amount payable under this clause any such increase in property tax shall be apportioned in the same, proportion as the rent payable under this Agreement bears to the total assessed annual value of the Building at the date such increase comes into force. (5) To pay all charges and outgoings whatsoever in respect of the supply of electricity and water used by the Tenant at the Factory Unit as shown by the separate meters belonging thereto and also pay all charges for the use and maintenance of such meters PROVIDED ALWAYS that subject to the prior written consent of the Landlord and to all approvals being obtained by the Tenant from the relevant governmental and statutory authorities the water sub-meter will be installed in the Factory Unit by the Tenant at the Tenant's own cost. (6) At all times to use and occupy the Factory Unit for the purpose of THE TESTING OF INTEGRATED CIRCUITS ONLY and for no other purposes whatever. (7) Not to place or allow to be placed upon the Factory Unit or on any of the floors in the Building any article machinery or load in excess of 10 kiloNewtons per square metre and not to place or allow to be placed in the goods lifts of the Building any article machinery or load in excess of 2,000 kilograms. 76 - 4 - (8) To keep the interior of the Factory Unit (including the doors and windows thereof and all the Landlord's other fixtures and fittings therein) clean and in good and substantial repair and condition (fair wear and tear and damage by fire lightning riot or tempest alone excepted) and also to clean and keep clean the exterior of the windows thereof. (9) Not to make or cause to be made any alteration in or addition to the Factory Unit without the prior written consent of the Landlord and the relevant governmental and statutory authorities PROVIDED THAT on the granting of such consent and without prejudice to other terms and conditions which may be imposed the Tenant shall place with the Landlord a deposit equivalent to such amount as the Landlord may deem sufficient for the reinstatement of the Factory Unit to its original condition. Further the Tenant shall not use any flammable building materials for internal partitioning. (10) Not to modify any existing electrical wirings or modify or replace any existing fire alarm fixtures and fittings or affix or install any further or additional electrical and fire alarm wiring extension in or about the Factory Unit without the written consent of the Landlord having been first obtained and PROVIDED FURTHER THAT all such work shall be carried out by a licensed electrical contractor or competent person as approved by the Landlord to be employed and paid by the Tenant who shall ensure as part of the work that the existing circuits and equipment are not overloaded or unbalanced. Prior to any electrical and fire alarm installation or modification work, the Tenant shall be required to submit the necessary plans as hereinafter specified under clauses 2(29) and 2(30) to the Landlord for approval. (11) To permit the Landlord or the Landlord's agents with or without workmen or others at all reasonable times to enter the Factory Unit to take inventories of the Landlord's fixtures and fittings therein and to view the condition thereof and examine the state of repair of the Factory Unit and thereupon the Landlord may serve upon the Tenant notice in writing specifying any work or repairs necessary to be done which are within the responsibility of the Tenant under the terms of this Agreement and require the Tenant forthwith to execute the same and the Tenant shall pay the Landlord's reasonable costs of survey attending the preparation of the notice and if the Tenant shall not within ten days after the service of such notice proceed diligently and in workman-like manner with the execution of such work or repairs then to permit the Landlord (who 77 - 5 - shall not be under any obligation so to do) to enter upon the Factory Unit and execute such work or repairs and the cost thereof shall be a debt due from the Tenant to the Landlord and be forthwith recoverable PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such work or repairs. (12) To be wholly responsible for all damages and to bear the full cost of repairs and reinstatement of such damaged building equipment fixtures drains wiring and piping above and below ground level if the cause or causes of such damages can be traced directly or indirectly back to the Tenant's activities. (13) To permit the Landlord, the Landlord's agents or workmen and others to enter the Factory Unit at reasonable hours to do structural or external repairs and execute such work as may be necessary to the Factory Unit or to other portions of the Building of which the Factory Unit may form a part but which are not conveniently accessible otherwise than from or through the Factory Unit. (14) In complying with Clause 2(13) hereof and if so required by the Landlord the Tenant shall remove such installation, machinery or any article to permit the Landlord to execute the said repairs and works and if the Tenant shall fail to observe or perform this covenant the Landlord shall remove the same and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused by such removal. (15) Subject always to clause 2(27) hereinafter appearing, to give to the Landlord written notice of every change of name within one month from the date of each change. (16) To make good and sufficient provision for and to ensure the safe and efficient disposal of all waste generated at the Factory Unit including but not limited to pollutants to the requirements and satisfaction of the Landlord and the relevant governmental and statutory authorities PROVIDED THAT in the event of any default by the Tenant under this covenant the Landlord may at the discretion of the Landlord and without prejudice to any other rights and remedies the Landlord may have in law or under this Agreement, carry out such remedial measures and works as the Landlord thinks necessary and all costs and expenses incurred thereby shall forthwith be recoverable in full from the Tenant as a debt. 78 - 6 - (17) To provide and maintain refuse receptacles for all waste and refuse produced at the Factory Unit in conformity with the requirements and standards prescribed by the health authority and to keep the same out of sight of the public during the hours of business and to transfer such waste and refuse in suitable receptacles to such area and at such times each day as may be prescribed by the Landlord. (18) Not to keep or allow to be kept livestock or other animals at the Factory Unit. (19) Not to do or suffer to be done on or in the Factory Unit anything whereby the insurances of the same or of the Building or any part thereof may be rendered void or voidable or whereby the premium thereon may be increased and to repay to the Landlord on demand all sums paid by the Landlord by way of increased premium and all expenses incurred by the Landlord in connection therewith and all loss damages and expenses resulting from a breach or non-observance of this covenant without prejudice to any other rights and remedies available to the Landlord. (20) Not to do or permit or suffer to be done anything in or upon the Factory Unit or any part of the Building which in the opinion of the Landlord is or may be a nuisance or cause annoyance to or in any way interfere with the business or the quiet or comfort of the other occupants of the Building PROVIDED THAT the Landlord shall not be responsible to the Tenant for any loss, damage or inconvenience as a result of nuisance, annoyance or any interference whatsoever caused by the other occupants of the Building. (21) Not to use the Factory Unit for any illegal or immoral purpose. (22) Not to cause any obstruction in or on the approaches, private roads or passage way adjacent to or leading to the Building by leaving or parking or permitting to be left or parked any motor vehicle or other carriages belonging to or used by the Tenant or by any of the Tenant's friends servants or visitors. And also to observe and ensure observance of all regulations made by the Landlord relating to the parking of such vehicles or carriages and to pay such carpark charges as may be imposed by the Landlord or his agent. (23) Not to effect any sale by auction in the Building. 79 - 7 - (24) Not to affix paint or otherwise exhibit on the exterior of the Factory Unit or the windows thereof or of the Building or in any of the passages corridors or stairs of the Building any name plate placard poster or advertisement or any flag-staff or other thing whatsoever save only the name of the Tenant in such places only and not elsewhere and in such manner and position only as shall be approved in writing by the Landlord. (25) Not to cause any obstruction to the common stairways passageways and other common parts of the Building or accesses to the Building. PROVIDED ALWAYS that the Landlord shall have the full right and liberty and absolute discretion to remove and clear any such obstruction and all costs and expenses incurred thereby shall be recoverable from the Tenant as a debt. FURTHER PROVIDED THAT the Landlord shall not be liable to the Tenant or any third party for any loss damage or inconvenience caused by such removal and the Tenant hereby indemnifies the Landlord in this respect. (26) Not to install any machinery or fixture in the Factory Unit without the permission in writing of the Landlord and to submit a layout plan of the Tenant's machinery for the approval of the Landlord and the relevant governmental and statutory authorities prior to the actual fixing of the machineries. (27) Not to assign create a trust sublet grant a licence or part with or share the possession or occupation of the Factory Unit or any part thereof or leave the Factory Unit or any part thereof vacant and unoccupied at any time during the said term. (28) Not to do or omit or suffer to be done or omitted any act matter or thing in or on the Factory Unit and/or in respect of the business trade or industry carried out or conducted therein which shall contravene the provisions of any laws rules or regulations now or hereafter affecting the same and at all times hereafter to indemnify and keep indemnified the Landlord against all actions, proceedings, costs, expenses, claims, fines, losses, penalties and demands in respect of any act matter or thing done or omitted to be done in contravention of the said provisions. (29) To install electrical switch board wirings and equipment to the Factory Unit including the following electrical protective devices, all at the Tenant's own expense, subject to the approval of the Landlord:- (a) Overcurrent protective devices in the Landlord's Switch Room; 80 - 8 - (b) Overcurrent and earth-leakage protective devices in the Factory Unit, PROVIDED THAT- (i) the Tenant shall submit 3 sets of 'electrical single-line diagram' of the Factory Unit wirings for the approval of the Landlord prior to the actual installation of the wirings; and (ii) it shall be the responsibility of the Tenant to keep all or any of the aforesaid switch board wirings, equipment and devices installed by the Tenant in good condition at all times. (30) To carry out such modification work on the existing fire alarm wirings, heat detectors and fixtures in the Factory Unit as shall be necessary to suit the factory operation, including the installation of additional wirings and connections of the heat detectors and fixtures to the Landlord's common fire alarm system, to the approval of the Landlord and all at the Tenant's own expense PROVIDED THAT: (a) The Tenant shall submit 2 copies of the fire alarm drawings of the Factory Unit indicating the existing fixtures, the proposed modifications and the layout of the Tenant's machinery for the approval of the Landlord prior to the commencement of the modification work. (b) The Tenant shall at the Tenant's, own expense ensure that the existing fire alarm wirings, heat detectors and fixtures and any additional wirings and fixtures installed by the Tenant in the Factory Unit are serviced monthly and in good condition at all times including the payment of any fee(s) in connection with servicing and maintenance works. (c) Any item of replacement required for the effective maintenance of the fire alarm wirings, heat detectors and fixtures shall be of a quality and shall have an operational characteristic similar to the item to be replaced and shall be subject to the approval of the Landlord. The Tenant shall at his own cost forthwith replace any or all items of dissimilar quality and operational characteristic found in use. (31) To close the Factory Unit during such hours as the Landlord may specify by notice in writing to the Tenant for any maintenance or repair work to be executed by the Landlord. 81 - 9 - (32) At all times during the three calendar months immediately preceding the determination of the said term to permit intending tenants and others with written authority from the Landlord or his agents at reasonable times of the day to view the Factory Unit. (33) At the determination of the said term by expiry or otherwise to yield up the Factory Unit and all the Landlord's fixtures fittings fastenings or appertaining in such good and substantial repair fair wear and tear excepted as shall be in accordance with the covenants of the Tenant herein contained and with all locks and keys complete. (34) In addition to the foregoing and immediately prior to the determination of the said term or the renewal thereof as the case may be to restore the Factory Unit in all respects to its original state and condition including but not limited to the removal of all the fixtures and fittings installed by the previous tenant of the Factory Unit and if so required by the Landlord to redecorate including painting the interior thereof to the satisfaction of the Landlord PROVIDED ALWAYS that if the Tenant shall fail to observe or perform this covenant the Landlord may in its absolute discretion, and without prejudice to any other rights and remedies the Landlord may have against the Tenant, execute such work for the said restoration and redecoration and shall recover all costs thereof from the Tenant together with all rent, service charge, tax and other amounts which the Landlord would have been entitled to receive from the Tenant had the period within which such restoration and redecoration are effected by the Landlord been added to the said term. (35) To pay interest at the rate of 8.5% per annum or such higher rate as may be determined from time to time by the Landlord in respect of any outstanding amount payable under this Agreement from the date such amount becomes due until payment in full is received by the Landlord. (36) Not to install or use any electrical installation, machine or apparatus that may cause or causes heavy 82 - 10 - power surge, high frequency voltage and current, air borne noise, vibration or any electrical or mechanical interference or disturbance whatsoever which may prevent or prevents in any way the service or use of any communication system or affects the operation of other equipment, installations, machinery, apparatus or plants of other Tenants and in connection therewith, to allow the Landlord or any authorised person(s) to inspect at all reasonable times, such installation, machine or apparatus in the Factory Unit to determine the source of the interference or disturbance and thereupon, to take suitable measures, at the Tenant's own expense, to eliminate or reduce such interference or disturbance to the Landlord's satisfaction, if it is found by the Landlord or such authorised person(s) that the Tenant's electrical installation, machine or apparatus is causing or contributing to the said interference or disturbance. (37) To indemnify the Landlord against any claims, proceedings, action, losses, penalties, damages, expenses, costs, demands which may arise in connection with clause 2(36) above. (38) To perform and observe all the obligations which the Landlord of the Factory Unit may be liable to perform or observe during the said term by any direction or requirement of any governmental and statutory authority and if the Tenant shall fail to observe or perform this covenant the Landlord may in its absolute discretion perform the same and all expenses and costs incurred thereby shall be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss damage or inconvenience caused thereby. (39) Without prejudice to the generality of Clause 2(38) herein, the rent and service charge and other taxable sums payable by the Tenant under or in connection with this tenancy shall be exclusive of the goods and services tax (herein called "tax") chargeable by any government, statutory or tax authority calculated by reference to the amount of rent, service charge and any other taxable sums received or receivable by the Landlord from the Tenant and which tax is payable by the Tenant. The Tenant shall pay the tax and the Landlord acting as the collecting agent for the government, statutory or tax authority shall collect the tax from the Tenant together with the rent and service charge hereinbefore reserved without any deduction and in advance without demand on the 1st day of each of the calender months of the year and in the manner and within the period prescribed in accordance with the applicable laws and regulations. (40) If any damage of whatsoever nature or description shall at any time occur or be caused to the Factory Unit or any part thereof, to forthwith give the Landlord written notice of damage. 83 - 11 - (41) To ensure that - (i) at least 60% of the overall floor area shall be used for purely industrial activities and (ii) the remaining 40% shall be used as ancillary stores and offices, neutral areas and communal facilities PROVIDED THAT the said ancillary offices shall not exceed 25% of the overall floor area. (42) Not to use and occupy the Factory Unit for the purpose of commercial office and storage unrelated to the Tenant's approved industrial activity. (43) To permit the Landlord, the Landlord's agents or workmen and others at any time during the said term to enter the Factory Unit to replace the louvre/casement windows and timber doors with such other windows and doors as the Landlord may think fit and to install or replace service ducts/pipes (hereinafter referred to as "the said replacement or installation works"). If so required by the Landlord the Tenant shall remove such installation, machinery, partition and any article to permit the Landlord to execute the said replacement or installation works, and if the Tenant shall fail to observe or perform this covenant the Landlord shall have the right to (without prejudice to any other right or remedy the Landlord may have against the Tenant) remove the same, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt PROVIDED ALWAYS that the Landlord shall not be liable to the Tenant for any loss, damage or inconvenience caused whatsoever by such removal and the said replacement or installation works. (44) Without prejudice to Clause 2(6) hereof and subject to the prior written approval of the Landlord, to provide thermal insulation to the floor, ceiling and the walls of rooms, if the rooms are used for purposes requiring low temperature air conditioning or cooling that would result in moisture condensation on the external, ceiling or floor within or outside the Factory Unit. (45) Not to commence operation in the Factory Unit after the installation(s) of any type of machinery or equipment have been completed until a final inspection of the installation(s) has been carried out and approval of the same is given by the Landlord. 84 - 12 - (46) The Tenant accepts the Factory Unit with full knowledge that refurbishment and upgrading works (hereinafter referred to as "the refurbishment") are being or may be carried out in the Building and the estate in which the Building is situated. The Tenant shall, if required by the Landlord and within the time stipulated by the Landlord, at the cost and expense of the Tenant properly and in accordance with the obligations of the Tenant under this Agreement remove, re-locate and/or modify temporarily or permanently as may be stipulated by the Landlord every installation, fixture, fittings, device, equipment and article existing at the time outside the Factory Unit as the Landlord may think fit for the purpose of permitting the Landlord, his servant, agent, contractor and subcontractor to properly carry out the refurbishment or for the purpose of improving the appearance or aesthetics of the Building. PROVIDED THAT if the Tenant shall fail to observe or perform this covenant or any part thereof the Landlord shall have the right (without prejudice to any other right or remedy the Landlord may have against the Tenant) to remove, re-locate and/or modify any or every such installation, fixture, fittings, device, equipment and article, and all costs and expenses incurred thereby shall forthwith be recoverable from the Tenant as a debt. PROVIDED ALWAYS and it is hereby agreed that the Landlord shall not be liable in any way to the Tenant or any other person for any loss, damage, claim, cost, expense, disruption, interference and/or inconvenience caused howsoever or whatsoever by or in connection with the refurbishment and/or the removal, re-location or modification. (47) Subject to clause 2(34) and without prejudice to the generality of clauses 2(9), 2(26) and 2(36) hereinbefore appearing, the Tenant shall accept the said premises (including all additions and alterations) in its condition existing at the commencement of the said term or the earlier acceptance of the keys to the said premises by the Tenant, whichever is the earlier (hereinafter referred to as "the control date") , and the Tenant shall at his own cost and expense forthwith or within such period as may be stipulated in writing by the Landlord: (a) ensure and take all necessary steps to ensure that all fixtures, fittings and other alterations, installations and additions (hereinafter referred to as "the said installations") have been approved in writing by the Landlord, and that plans concerning the said installations have been submitted to and approved in writing by the Landlord; (b) ensure and take every step to ensure that the said installations comply fully with all building guidelines of the Building Control Division and the requirements of all relevant governmental and statutory authorities, prevailing at the control date; and (c) demolish and remove such or all of the said installations as may not have been approved under subparagraph (a) or which have failed to comply with subparagraph (b) hereinbefore appearing. 85 - 13 - 3 The Landlord hereby covenants with the Tenant as follows: (1) To pay the property tax payable in respect of the Factory Unit PROVIDED ALWAYS that if the rate of such property tax shall be increased whether by way of an increase in the annual value or an increase in the rate per cent then the Landlord shall not hereunder be liable to pay the said increase but the Tenant shall pay such increase as provided under Clause 2(4) hereof. (2) To keep the exterior and roof of the Building and the lift entrances corridors passages staircases lavatories water closets and other conveniences intended for the use of the Tenant at all times in complete repair and in proper sanitary and clean condition. (3) To keep the stairs and passages leading to the Factory Unit and the lifts and lavatories well and sufficiently lighted and the lifts in proper working order PROVIDED THAT the Landlord shall not be responsible for any loss the Tenant may sustain by reason of any damage or injury or in consequence of any breakage of or defect in any of the pipes wire or other apparatus of the Landlord used in or about the Building. (4) To keep the Building insured against loss or damage by fire and in the event of such loss or damage (unless resulting from some act or default of the Tenant) to rebuild and reinstate the damaged part of the Building PROVIDED THAT it is expressly agreed and understood that the term "loss or damage by fire" as used in this clause do not include any loss or damage caused to the Tenant's fixtures or loss due to the factory being rendered out of commission and in any such event the Landlord shall not be held liable for any such loss or damage sustained by the Tenant. (5) That the Tenant paying the rent, service charge and tax and observing and performing the several covenants and stipulations on the Tenant's part herein contained shall during the said term quietly enjoy the Factory Unit without any interruption by the Landlord or any person or persons lawfully claiming under or in trust for the Landlord. 4 PROVIDED ALWAYS THAT and it is hereby agreed as follows:- (1) If the rent hereby reserved or service charge or interest, tax or any other sums payable herein, or any part thereof shall at any time remain unpaid for fourteen (14) days after becoming payable (whether formally demanded or not) or if the Tenant shall neglect to observe or perform any covenant or stipulation on the Tenant's part herein contained or if the Tenant shall make any assignment for the benefit of the Tenant's creditors or enter into any arrangement with its creditors by composition or otherwise or suffer any distress or attachment or execution to be levied against the Tenant's goods or if the Tenant for the time being shall be a company and shall enter 86 - 14 - into liquidation whether compulsory or voluntary (save for the purpose of reconstruction or amalgamation) or being an individual shall have a receiving order or an adjudicating order made against the Tenant then and in any or such cases it shall be lawful for the Landlord at any time thereafter to re-enter upon the Factory Unit or any part thereof in the name of the whole and thereupon this Tenancy shall absolutely determine but without prejudice to the rights of action of the Landlord in respect of any breach of the covenants on the part of the Tenant herein contained. (2) Any notice requiring to be served hereunder shall be sufficiently served on the Tenant if it is left addressed to the Tenant at the Factory Unit or forwarded to the Tenant by registered post to the Tenant's last known place of business and shall be sufficiently served on the Landlord if it is addressed to the Landlord and sent by registered post to the Head Office of the Landlord. In the event of any action in respect of the tenancy created herein (including any action for the recovery of the rent or service charge herein reserved or tax and/or any other sums herein payable) the Tenant agrees and accepts that the originating process shall be sufficiently served on the Tenant if it is addressed to the Tenant at the address specified in this Agreement or if it is left posted upon a conspicuous part of the Factory Unit or forwarded to the Tenant by post at the Tenant's last known place of business. (3) Letters or parcels whether registered or otherwise and telegrams or keys received by any agent or servant of the Landlord on behalf of the Tenant shall be received solely at the risk of the Tenant. (4) No waiver expressed or implied by the Landlord of any breach of any covenant, condition or duty of the Tenant shall be construed as a waiver of any other breach of the same or any other covenant, condition or duty and shall not prejudice in any way the rights, powers and remedies of the Landlord herein contained. Any acceptance of rent, service charge, tax and/or any other sum whatsoever payable under this Agreement shall not be construed as nor be deemed to operate as a waiver by the Landlord of any right to proceed against the Tenant for any of the Tenant's obligations hereunder. (5) The Landlord shall not be responsible for any loss damage or inconvenience occasioned by the closing of the lift or lifts for repairs or any other necessary purpose or for any accident that may occur to the Tenant or other person using the lift. 87 - 15 - (6) The Landlord shall be under no liability either to the Tenant or to others who may be permitted to enter or use the Factory Unit or the Building or any part thereof for any accident(s) or injuries sustained or loss or damage to property in the Factory Unit or the Building or any part thereof. (7) The Landlord shall not be liable to the Tenant in respect of: (i) any interruption in the services provided by the Landlord by reason of necessary repair or maintenance of any installation or apparatus or damage thereto or by reason of mechanical or other defect or breakdown including but not limited to breakdown in electricity and water supply; (ii) any act, omission, default, misconduct or negligence of any servant, agent, contractor, sub-contractor or employee of the Landlord in or about the performance or purported performance of any duty relating to the provision of the said services. (8) The Landlord shall be entitled to let any other part or parts of the Building subject to any terms or conditions which the Landlord may think fit to impose and nothing herein contained shall be deemed to create a letting scheme for the Building or any part thereof and neither the Tenant nor the persons deriving title under the Tenant shall have the benefit of or the right to enforce or to have enforced or to prevent the release or modification of any covenant agreement or condition entered into by any present or future tenant. (9) The Tenant shall pay all costs disbursements fees and charges legal or otherwise including stamp and/or registration fees in connection with the preparation stamping and issue of this Agreement and any prior accompanying or future documents or deeds supplementary collateral or in any way relating to this Agreement. 88 - 16 - (10) The Tenant shall pay all costs and fees legal or otherwise including costs as between solicitor and clients in connection with the enforcement of the covenants and conditions of this Agreement. (11) The Landlord shall not be liable for any loss or damage that may be suffered by the Tenant resulting from any subsidence or cracking of the ground floor slabs and aprons of the Building PROVIDED that this clause shall apply only to Tenants occupying the ground floor of the Building. (12) The Landlord shall on written request of the Tenant made not less than three (3) months before the expiration of the term hereby created and if there shall not at the time of such request be any existing breach or non-observance by the Tenant of any of the terms, covenants and stipulations contained in this Agreement, at the cost and expense of the Tenant grant to the Tenant a tenancy of the Factory Unit for a further term to be mutually agreed upon by the parties hereto and at a revised rent to be determined by the Landlord and containing the like terms, covenants and stipulations as are herein contained, or such variations or modifications thereof together with such other terms covenants and stipulations as may be imposed by the Landlord with the exception of and without the present covenant for renewal. 5 In this Agreement where the context so requires or permits, words importing the singular number or the masculine gender include the plural number or the feminine gender and words importing persons include corporations and vice versa, the expression "the Landlord" shall include its successors-in-title and assigns, the expression "the Tenant" shall include its successors-in-title and permitted assigns (if any), where there are two or more persons included in the expression "the Tenant" covenants expressed to be made by "the Tenant" shall be deemed to be made by such persons jointly and severally. 89 - 17 - IN WITNESS WHEREOF the parties hereto have hereunto set their hands and/or seals the day and the year first above written. SIGNED BY: CHUA TIN WEE HEAD (FLATTED FACTORIES) LEASE MANAGEMENT DEPARTMENT BUILDINGS DEVELOPMENT GROUP for and on behalf of JURONG TOWN CORPORATION in the presence of: /s/ KANNAN MALINI - ----------------------------------- Kannan Malini SIGNED BY: /s/ K Y LIM - ------------------------------------ Vice President & Managing Director for and on behalf of ADAPTEC MFG (S) PTE LTD in the presence of: /s/ ANDREW NG - ------------------------------------ Director Finance & Administration (Signature of Witness) Name of Witness: Designation EX-13.1 4 ANNUAL REPORT TO SHAREHOLDERS 1 [Drawing 1] 2 [Drawing 2] 3 Company Profile. Adaptec, Inc. designs, manufactures and markets a comprehensive family of hardware and software solutions, collectively called IOware(R) products, which eliminate performance bottlenecks between computers, peripherals and networks. Solutions range from simple connectivity products for single-user and small-office desktops, to intelligent subsystem, high-performance SCSI, RAID and ATM products for enterprise-wide computing and networked environments. 4 (In thousands, except per share amounts)
Year Ended March 31 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------- Net revenues $466,194 $372,245 $311,339 $150,315 $128,865 Income from operations 117,784 77,135 62,743 16,397 13,388 Net income 93,402 58,950 49,390 14,614 12,204 Net income per share 1.75 1.10 .96 .35 .30 Working capital 294,058 243,451 191,693 105,671 86,074 Total assets 435,708 358,475 282,896 138,615 109,142 Long-term debt, net of current portion 7,650 11,050 14,450 423 996 Shareholders' equity 371,644 297,616 225,155 117,742 94,558
Net Revenues [GRAPH] Income From Operations [GRAPH] Net Income Per Share [GRAPH] Working Capital [GRAPH] 5 To Our Shareholders: Fiscal 1995 was an outstanding year for Adaptec. We posted record revenues as we continued our worldwide leadership in the critical input/output (I/O) market. We expanded our portfolio of innovative IOware solutions. We made significant progress in applying our core competencies to take advantage of the worldwide growth of the PC market. We made significant investments to ensure Adaptec's participation in new markets that will grow rapidly in the next few years. 6 For the year ended March 31, 1995, net revenues grew to $466,194,000, a 25 percent increase compared with fiscal 1994. Net income for fiscal 1995 was $93,402,000, and net income per share was $1.75, representing a 58 percent increase over the prior year. Our results reflect strong market demand and preference for our IOware products. Host adapter revenue for the year grew by nearly 45 percent, as the need for high-performance I/O solutions continued to increase. In the fourth quarter, our annualized revenues exceeded half a billion dollars, a figure that underscores Adaptec's standing as the industry leader in I/O solutions. As we broadened our portfolio of solutions for an evolving I/O market, we both increased our market share, and helped to enlarge the overall market in which we participate. We accomplished this in part by developing new products that enhance our established I/O technologies, such as our industry leading offerings in Small Computer System Interface (SCSI) products. For fiscal 1995 we set the objective to be the leader in high-performance I/O solutions for Pentium-based systems. We achieved that goal with the AHA(R)-2940 family of SCSI host adapter boards. This product delivers SCSI solutions to PCs, network servers, and personal workstations using the new high-performance system bus, 4 7 Peripheral Component Interconnect, or PCI. After going through the fastest production ramp-up in Adaptec's history, our PCI-to-SCSI product continues to win a phenomenal reception with OEMs, system integrators and individual consumers. A major new initiative that is driving our expansion into the enterprise computing market is our Build a Better Server program. This program introduces a family of new SCSI host adapters for the PCI bus, which enables servers to connect as many as 21 peripherals per host adapter. Among these solutions is Adaptec's first low-cost PCI Redundant Array of Inexpensive Disks (RAID) adapter. Significantly, Build a Better Server also showcases Adaptec's established software strengths with Adaptec CI/O(R) software, a suite of powerful remote management and diagnostic tools that enable network administrators to monitor SCSI subsystems on networks. Adaptec's market penetration and strong brand image are a winning combination in the growing global marketplace. In Japan and Europe, demand for all of Adaptec's host adapter products was strong across all performance ranges and system architectures. Our strategy to forge a broader set of solutions is also extending the Adaptec brand to reach an expanding network of distribution channels throughout the world. Total SCSI unit volume grew significantly 5 8 as our easy-to-use host adapters with menu-driven software utilities, increased their penetration in desktop systems. This recognition is resulting in valuable awareness and preference for our products at all distribution levels -- from system integrators to corporate customers as well as computer retailers. In fiscal 1995 we continued to invest in furthering SCSI's position as the microcomputer I/O solution that provides performance, data integrity and the broadest choice of peripherals. Along with other industry leaders we announced support for UltraSCSI, which doubles the available I/O bandwidth to 40 megabytes per second. To expand our future opportunities for growth, we apply our core competencies to new high-growth markets. For instance, we introduced network interface cards (NICs), based on asynchronous transfer mode (ATM) technology. ATM, widely believed to be the future in LAN and WAN networking, provides a pathway for delivering emerging video and data-intensive applications. With these and other products to relieve networking bottlenecks for desktop computers and servers running bandwidth-intensive applications such as CAD/CAM, distributed databases, and videoconferencing, Adaptec is strategically positioned as a major force in the expanding high-speed networking market. 6 9 As part of our ongoing strategy to bring promising new technologies to market, we continued to invest in several emerging serial I/O technologies: 1394, Fibre Channel, and Serial Storage Architecture (SSA). To accelerate our SSA product development, we entered into an agreement with IBM to license its SSA technology. A licensing agreement with Apple Computer will enable us to use Apple's FireWire technology as a basis for future 1394 products. We are jointly developing Fibre Channel technology with Hewlett-Packard and others for very high performance storage subsystems. This year, we also delivered wireless infrared products for data transfer between portable and desktop PCs in order to serve the needs of mobile office professionals. Meeting product demand with cost-effective, high-volume manufacturing is key to Adaptec's long-term growth. We continue to invest in our Singapore manufacturing facility to improve cycle times and expand our manufacturing capabilities. To ensure capacity for future growth, we moved our ASIC production test facility to Singapore and by fiscal year's end we installed our fifth and sixth surface mount technology lines for board-level manufacturing. Regarding the fiscal 1996 outlook, we anticipate the industry requirements for intelligent I/O to both support demand for our 7 10 IOware solutions and create strong new market opportunities. We are committed to being the lowest cost provider through focus on cost management and leveraging our resources. Because our human resources are the source of our competitive advantage, we will continue to significantly invest in employee training and development. This has long been part of our corporate culture, and is an important part of the reason that Adaptec continues to attract and retain such outstanding and productive employees. As the PC industry produces more powerful platforms and demanding applications, we expect I/O needs and solutions to evolve and grow. Adaptec has the expertise in silicon design and software engineering and the industry relationships to support current I/O requirements, and simultaneously prepare for emerging solutions. As this year's annual report discusses in the following sections, I/O is a dynamic, multi-faceted market. Adaptec has the technology, the products, and the employee talent to provide for the I/O needs of today and the future. /s/ John G. Adler - ------------------------ John G. Adler Chairman and Chief Executive Officer /s/ F. Grant Saviers - ------------------------ F. Grant Saviers President and Chief Operating Officer 8 11 [PHOTO] JOHN G. ADLER Chairman and Chief Executive Officer [PHOTO] F. GRANT SAVIERS President and Chief Operating Officer 12 The Adaptec Story. Both the PC industry and its strong associated markets confirm that I/O represents a defining factor for high-performance systems and networks. Adaptec's relationships with virtually all major operating system vendors, personal computer makers, and peripheral manufacturers have made it the leading industry supplier of the best in I/O hardware and software solutions. Adaptec's leadership is based on unrivaled competitive strengths -- long experience, price-performance leadership, innovative strategic products, and unmatched compatibility and interoperability -- which is demonstrated by the Company's sustained growth. 13 [Drawing 3] 14 [Drawing 4] 15 BROADEST INDUSTRY EXPERIENCE. There is no substitute for experience, and Adaptec's industry leadership is founded on a comprehensive background in I/O technology, putting it in a class by itself as the leading industry supplier of I/O solutions. When the first desktop PCs emerged early in the last decade, Adaptec was already pioneering I/O solutions to improve system performance. From the beginning, Adaptec took a total system approach, addressing I/O challenges on both sides of the interface in peripherals and hosts. As PC technology evolved with more powerful CPUs, multiple architectures and operating systems, and more sophisticated software applications, Adaptec refined and improved its technology. From its earliest innovations, such as the first multitasking disk controllers more than a decade ago, to pioneering ASPI software standards as a common interface for operating systems and peripherals, to the recent breakthroughs such as the first affordable ATM network interface cards, Adaptec continues to build on its heritage of innovation. By continuously broadening its expertise, expanding its strategic relationships with major software and systems companies, growing its distribution channel, and strengthening its brand franchise, Adaptec helps ensure its ability to attain long-term business success. 13 16 Today, input/output not only remains a critical issue for system performance, but has also grown into a complex, multi-faceted market. Adaptec's experience supports a growing family of IOware products, comprised of host adapter cards, custom ASICs, and software that improve overall system performance by speeding data transfer rates between systems, peripherals, and networks. Because of its broad perspective and expertise, Adaptec is not limited to any single I/O technology. Consequently, Adaptec is able to lead the important and expanding SCSI market, yet still have the resources to address other significant I/O solutions. By staying involved with every new generation of microcomputer technology, architectures, and bus standards, Adaptec develops IOware products that span all industry standards -- from SCSI, EIDE and PCMCIA, to ATM, infrared, and serial technology. Experience with multiple technologies also gives Adaptec the capability to enhance performance and connectivity within a variety of environments. The market has embraced the Company's IOware solutions for high-performance workstations, for client/server throughput and redundancy, for enterprise-wide networking, for the mobile computing market, down to the small business and single user on desktop PCs running the latest games or graphics-intensive applications. 14 17 [Drawing 5] [Drawing 6] [Drawing 7] [Drawing 8] 18 [Drawing 9] [Drawing 10] [Drawing 11] 19 LEADING EDGE PRODUCTS. Adaptec sustains its leadership with a constant stream of innovative new products for multiple market segments, covering a full spectrum of I/O needs. For instance, the host adapter and software solutions in the Build a Better Server initiative address high-end intelligent server requirements. MiniSCSI(TM), SlimSCSI(TM) and infrared products serve the mobile computing market. The Plug and Play compliant AHA-1540CP host adapter and the AHA-2940 family of SCSI host adapters for the PCI bus target the business desktop user that utilizes CAD, video or graphics-intensive applications. In addition, Adaptec's price-performance breadth continues to expand upwards in performance and to lower price points with easier-to-use products. The core competencies behind Adaptec's products begin with the Company's system level expertise and the operating system alliances it forges. Major operating system developers -- such as IBM, Microsoft, Novell, and SCO -- incorporate Adaptec software into their products. Because such software is designed, tested, and optimized for performance in parallel with these operating system suppliers, it provides customers with solutions guaranteeing compatibility, interoperability, and reliability with enhanced ease of use. 17 20 [Drawing 12] Design engineering and manufacturing innovations play another key role in Adaptec's core competencies. Using the latest application specific integrated circuit (ASIC) software and hardware tools, the Company is integrating multiple capabilities onto single chips for lower costs and higher performance. Several major disk drive manufacturers have selected our highly integrated DSP-based disk management chip for their advanced product families. In addition, Adaptec has invested in concurrent engineering, manufacturing, and marketing methods. This approach ensures products are simultaneously developed to offer the best technology and most efficient manufacturability, which accelerates Adaptec's time to customer volume and maintains its advantages as the industry's lowest-cost solutions provider. Additionally, in support of its commitment to quality, Adaptec's board-level manufacturing facility has earned ISO-9002 certification. This international quality standard, established by the International Organization for Standardization (ISO), ensures a high level of product quality, testing and service. 18 21 [Drawing 13] 22 [Drawing 14] [Drawing 15] [Drawing 16] 23 SUSTAINABLE GROWTH. Adaptec is positioned to take increasing advantage of the role I/O plays in every key development and trend that is driving the PC industry forward. Constantly improved CPUs, multitasking operating systems, mobile computing platforms, games and entertainment, client/server computing, collaborative computing and intelligent peripherals are all enlarging the opportunities for I/O, allowing Adaptec to increase its market share in a growing mainstream market. One factor supporting Adaptec's record of growth is products serving the Small Computer System Interface (SCSI) market. Demand for the Pentium CPU and its faster system performance benefits SCSI demand. The new PCI interface, which introduces higher performance to a variety of system platforms, also helps create a larger market for Adaptec's SCSI solutions. A new generation of peripherals keyed to specialized applications also stimulates demand for SCSI connectivity. These include digital audio tape (DAT) drives for data archiving, CD-ROMs for multimedia products, scanners for publishing applications, optical and recordable CD drives for archiving data, and removable disks for data interchange. Adaptec IOware adapters support more of these diverse peripherals than any other I/O supplier. 21 24 [Drawing 17] The increased corporate use of groupware and distributed computing with its client/server demands offers Adaptec another growth arena to extend its I/O leadership. The Company's Build a Better Server program features a family of new multichannel SCSI host adapters for the PCI bus, which enables servers to connect as many as 21 peripherals per host adapter. Among these products is the first low-cost Redundant Array of Inexpensive Disks (RAID) adapter. Besides SCSI, Adaptec's first efforts in a long-term strategy to relieve bottlenecks in the high-speed networking market have resulted in the development and shipment of a new family of hardware and software solutions based on asynchronous transfer mode -- or ATM -- technology. Adaptec has developed highly integrated proprietary ASICs for its ATM NICs and is verifying its extensive ATM software applications for full interoperability with major ATM switch and ATM network component providers. Finally, IOware solutions with new value-added software content continue to make I/O technology easier to use and attract a broader user base. The Company offers numerous such packages -- from Adaptec EZ-SCSI(R) software for installing and optimizing SCSI peripherals, to its breakthrough CI/O software for remote management and monitoring of SCSI subsystems on networks. 22 25 [Drawing 18] [Drawing 19] 26 [DRAWING 21] 27 DEVELOPING THE FUTURE. Adaptec's heritage of technology innovations is a direct result of its constant efforts to anticipate market trends to respond to customer requirements and to innovatively create future I/O technologies. The Company maintains a close collaborative involvement with other technology leaders as an elected member of the industry's main standard-setting committees that help map the future of I/O. Adaptec's membership on standards committees and similar industry associations helps it to evaluate and prepare for all dominant I/O standards. These interfaces extend from the widely popular Small Computer System Interface (SCSI), to newly emerging serial technologies such as the 1394 serial bus for connecting computers and home entertainment systems, and both Serial Storage Architecture (SSA) and Fibre Channel -- interfaces for computer systems and peripherals that provide mainframe-like I/O capabilities. Making future I/O solutions a reality for all kinds of platforms -- even for non-PC-based ones -- is also a function of Adaptec's investment in research and development. The Company invests significantly in R&D in order to provide a steady stream of future products -- which enhance and expand present product technology, and which create the emerging I/O standards for tomorrow. 25 28 To enhance current SCSI solutions, Adaptec pioneered with industry leaders such as Conner, Quantum, Seagate and others to announce support for UltraSCSI, a performance-doubling compatible extension to present SCSI technology. Adaptec's future portfolio of solutions will also include several serial I/O technology initiatives: 1394, SSA, and Fibre Channel. Adaptec has already demonstrated a prototype 1394-based video camera subsystem with Sony, plans SSA host adapters and chips based on technology licensed from IBM, has licensed Apple's FireWire technology as a basis for future 1394 products, and is investigating Fibre Channel to support performance in high-end workstations and video servers. In addition, Adaptec is investing in infrared technology for wireless file transfer between portable and desktop PCs, ATM for networks, and solutions for the PowerPC and Power Macintosh and other high-performance RISC-based platforms. Backed by its promising strategic initiatives, as well as its long experience, product innovation, and technical leadership, Adaptec is well positioned to be the industry's leading input/output solution provider for the long term. 26 29 [DRAWING 22] [DRAWING 23] [DRAWING 24] [DRAWING 25] [DRAWING 26] 30 [DRAWING 27] 31 TABLE OF CONTENTS. Results of Operations..................................................... 30 Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 31 Consolidated Statements of Operations..................................... 35 Consolidated Balance Sheets............................................... 36 Consolidated Statements of Cash Flows..................................... 37 Consolidated Statements of Shareholders' Equity........................... 38 Notes to Consolidated Financial Statements................................ 39 Report of Management...................................................... 47 Report of Independent Accountants......................................... 47 Selected Financial Data................................................... 48
32 RESULTS OF OPERATIONS The following table sets forth the items in the consolidated statements of operations as a percentage of net revenues:
Year Ended March 31 1995 1994 1993 ---- ---- ---- Net revenues 100% 100% 100% Cost of revenues 44 51 56 ---- ---- ---- Gross margin 56 49 44 ---- ---- ---- Operating expenses Research and development 13 11 9 Sales and marketing 13 12 10 General and administrative 5 5 5 ---- ---- ---- 31 28 24 ---- ---- ---- Income from operations 25 21 20 Shareholder settlement -- (1) -- Interest income, net 2 1 1 ---- ---- ---- Income before income taxes 27 21 21 Provision for income taxes 7 5 5 ---- ---- ---- Net income 20% 16% 16% ==== ==== ====
30 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1995 COMPARED TO FISCAL 1994 Net revenues increased 25% to $466.2 million in fiscal 1995 from $372.2 million in fiscal 1994. The continued adoption of SCSI in personal computers (PCs) resulted in increased sales of the Company's SCSI host adapter products across all performance ranges. Additionally, demand for the Company's host adapters was driven by the growing use of file servers where SCSI usage approaches 100%. During fiscal 1995, the Company introduced several new IOware solutions ranging from connectivity products for the single-user and small-office markets, to high-performance products for enterprise-wide computing and networked environments. The market acceptance of the Company's high-performance host adapters for the PCI local bus market resulted in the fastest product ramp in the Company's history. The Company's fiscal 1995 revenue from mass storage integrated circuits (ICs) was comparable to the prior year. The Company believes this was due to the timing of design win cycles at Original Equipment Manufacturers (OEMs) coupled with significant fluctuations in demand experienced in the disk drive market. During fiscal 1995 the Company won key designs for next generation products at major OEMs in the Pacific Rim. Gross margin of 56% in fiscal 1995 increased from 49% in fiscal 1994. Gross margin was favorably affected by the increased revenues from the Company's higher margin SCSI host adapters. The Company also continued to experience component cost reductions and manufacturing efficiencies, including the move of the IC production test facility to Singapore where costs are lower. This has also allowed the Company to shorten the manufacturing cycle time and better serve its customers. The Company's ability to maintain current gross margins will be significantly affected by factors such as mix of products shipped, competitive price pressures, the timeliness of volume deliveries of new products, and the Company's ability to continue achieving manufacturing efficiencies and component cost reductions. Research and development expenditures in fiscal 1995 were $60.8 million, an increase of 52% over fiscal 1994. As a percentage of net revenues, research and development expenses increased to 13% in fiscal 1995 compared to 11% in fiscal 1994. This was primarily due to increased staffing levels. The Company continued to invest in its SCSI products, where it has captured a leadership position by improving system performance as the computer industry has become more I/O intensive with more powerful CPUs, multitasking operating systems, and a new generation of intelligent peripherals. While SCSI solutions remain the core of the Company's business, fiscal 1995 saw the Company broaden its portfolio of solutions to include ATM, RAID, serial I/O and infrared technology. The Company believes technical leadership and product innovation are its primary competitive advantages and thus will continue to increase research and development expenditures in fiscal 1996 to supply IOware products that deliver higher performance in personal and enterprise-wide computing, and networked environments. Sales and marketing expenses increased to $58.7 million in fiscal 1995, an increase of 27% over fiscal 1994. As a percentage of net revenues, fiscal 1995 sales and marketing expenses were 13% compared to 12% in fiscal 1994. The increase in actual spending was a result of increased staffing levels to support the continued growth of the Company, including expansion of the Company's international sales and marketing infrastructure. Additionally, increases in advertising and promotional expenses were aimed at strategies to further accelerate and expand SCSI acceptance in the marketplace and drive demand for the Company's products. The Company believes that sales and marketing expenditures will increase in fiscal 1996 as a result of continued increases in staffing levels and through increased advertising and promotional activities aimed at increasing demand for the Company's products. 31 34 General and administrative expenses as a percentage of net revenues in fiscal 1995 were consistent with fiscal 1994 at 5%. Actual spending increased from fiscal 1994, primarily due to increased staffing to support the continued growth of the Company. The Company believes that expenses will increase in fiscal 1996, and will vary as a percentage of net revenues. Interest income, net of interest expense, was $6.8 million in fiscal 1995, an increase of $2.9 million over fiscal 1994. The increase was primarily due to the increase in cash and cash equivalents and marketable securities coupled with slightly higher average yields on cash and investment balances. The Company's effective tax rate for fiscal 1995 was 25%, the same as fiscal 1994. The Company's manufacturing subsidiary currently operates under a tax holiday it has received from the Singapore government which expires in September 1995. The Company is currently negotiating for an extension of this tax holiday. The Company's results of operations may be affected in the future by a variety of factors, including changes in product mix, competitive pricing pressures, fluctuations in manufacturing yields, availability of components, changes in product costs, timing of new product introductions and market demand for these products, and cancellation or rescheduling of orders by its customers. In addition, the Company's results from operations could be affected by international and domestic economic conditions and technology changes in the markets in which it competes. FISCAL 1994 COMPARED TO FISCAL 1993 Net revenues increased 20% to $372.2 million in fiscal 1994 from $311.3 million in fiscal 1993. The majority of the growth was from increased shipments of the Company's SCSI host adapters, where adoption of SCSI in PCs and file servers increased significantly. To meet the I/O intensive demands of file server applications, the Company introduced and shipped several new high-performance products during fiscal 1994 including products for local bus architectures. The Company also experienced growth in shipments of its proprietary single-chip SCSI host adapters, primarily to PC system and peripheral manufactures. This expansion was due primarily to the increased use of multitasking operating environments such as Novell NetWare and Microsoft Windows, increased demand for multimedia PCs and increased shipments of SCSI peripherals, especially CD-ROM drives. The Company also experienced increased shipments of its mass storage ICs in fiscal 1994. The Company believes this increase was primarily due to increased market share in high-capacity disk drives that require an AT interface. Also during fiscal 1994, the Company experienced a significant reduction in sales of laser printer controllers, shipments of which the Company discontinued in September 1993. Gross margin of 49% in fiscal 1994 increased from 44% in fiscal 1993. Gross margin was favorably affected by the mix of products shipped, primarily from increased net revenues in the Company's SCSI host adapters and lower shipments of the discontinued laser printer controllers. The Company also experienced component cost reductions and increased manufacturing efficiencies that contributed to the increased gross margin. Expenditures for research and development in fiscal 1994 were $40.0 million, an increase of 52% over fiscal 1993. As a percentage of net revenues, research and development expenses increased to 11% in fiscal 1994 as compared to 9% in fiscal 1993. This was primarily due to increased staffing as the Company continued to invest in its leadership position in the microcomputer I/O industry. During fiscal 1994, the Company introduced new SCSI host adapters and new mass storage ICs for the industry-standard AT (or ISA) bus and the emerging PCI and VESA local bus architectures. Sales and marketing expenses increased to $46.2 million in fiscal 1994. This represented a 42% increase from fiscal 1993 and an increase as a 32 35 percentage of net revenues to 12% from 10%. Contributing to the increase was additional staffing to support a more complex business environment including the establishment of a sales subsidiary in Japan. An additional factor was increased advertising and promotional expenses aimed at increasing demand for the Company's products in the distribution channel. General and administrative expenses as a percentage of net revenues in fiscal 1994 were essentially the same as fiscal 1993 at 5%. Actual spending increased 25% from fiscal 1993, primarily due to increased staffing to support a higher level of activity in fiscal 1994. During the second quarter of fiscal 1994, the Company entered into a letter agreement to settle a shareholder class action lawsuit. As a result, the Company recorded an other expense of $2.4 million for settlement payments and costs associated with this litigation. Interest income, net of interest expense was $3.9 million in fiscal 1994, a 25% increase from fiscal 1993. This was primarily due to a commensurate increase in cash and cash equivalents and marketable securities from fiscal 1993 to fiscal 1994. The Company's effective tax rate for fiscal 1994 was 25%, the same as fiscal 1993. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Net cash generated from operating activities during fiscal 1995 was $118.1 million as compared to $43.1 million in fiscal 1994. During fiscal 1995, the majority of funds generated from operations resulted from $93.4 million of net income adjusted by non-cash items including depreciation and amortization of $15.7 million. Also contributing to favorable operating cash flows was a decrease in net inventories of $7.2 million, and an increase in accrued liabilities and accounts payable totaling $6.6 million. The decrease in inventory is a result of improved marketing forecasts, coupled with continued cost reductions and reduced manufacturing cycle times. The increase in accounts payable and accrued liabilities is attributable to activities associated with the year-to-year increases in net revenues. Other assets increased $4.1 million, mostly related to an additional advance on a deposit and supply agreement the Company signed during fiscal 1994 to support the Company's silicon wafer requirements. During fiscal 1994, the majority of funds generated from operations resulted from $59.0 million of net income adjusted by non-cash items including depreciation and amortization of $11.5 million. Also contributing to the positive results was an increase of $8.9 million in accrued liabilities. Offsetting these were increases in net inventory of $5.6 million and accounts receivable of $13.0 million. These increases were primarily the result of activities associated with the year-to-year increase in net revenues. Other assets also increased $11.5 million from fiscal 1993 to 1994. The most significant portion of this increase was related to a deposit and supply agreement the Company signed to support the Company's silicon wafer requirements. In fiscal 1993, the Company's net cash generated from operating activities was $42.6 million of which net income and non-cash items including depreciation and amortization contributed $49.4 million and $7.0 million, respectively. Other sources of cash were from an increase in accounts payable of $12.8 million to support net revenues that more than doubled from the prior year and an increase in accrued liabilities of $9.4 million. Uses of funds were for increased accounts receivables and net inventories of $18.2 million and $11.8 million, respectively, as a result of the year-to-year increase in net revenues. INVESTING ACTIVITIES During fiscal 1995, the Company continued to invest in equipment for product development and manufacturing testing, including the addition of a fifth and sixth surface mount manufacturing line to support the increased demand for board-level products. Additionally, during fiscal 1995, 33 36 the Company purchased land and buildings for $8.0 million to support staffing requirements in engineering, sales and marketing. The Company also increased its investment in marketable securities during the past year. During fiscal 1994, the principal investing activities for property and equipment were for the addition of a surface mount manufacturing line, manufacturing test equipment, engineering design tools and information systems hardware and software. The Company also increased its investment in marketable securities. During fiscal 1993, the Company completed the purchase of its Milpitas headquarters, an additional building and land for $17.4 million. The Company also made investments to increase its manufacturing capacity. FINANCING ACTIVITIES During fiscal 1995, 1994 and 1993 the Company received proceeds from common stock issued under the Company's Employee Stock Option and Employee Stock Purchase Plans totaling $17.2 million, $13.5 million and $9.2 million, respectively. In fiscal 1995, the Company's Board of Directors approved the repurchase of up to four million shares of the Company's common stock to be used for issuance upon exercise of employee stock options previously granted or to be granted in the future and for issuance under the Company's 1990 Stock Plan. The Company repurchased two million shares for $36.5 million during fiscal 1995. In fiscal 1993, the Company also generated funds from a public offering of common stock of $48.9 million and long-term debt financing of its building and land purchases under a $17.0 million six year term loan. The Company anticipates capital expenditures in fiscal 1996 for equipment for product development, manufacturing testing and information systems hardware and software of approximately $30 million. The sources for these expenditures are expected to be funds generated from operations as well as working capital presently on hand. The Company may also require additional funds for increased manufacturing capacity, technology investments, or acquisitions of complementary businesses, products or technologies. The Company has an unsecured $17.0 million revolving line of credit under which there were no outstanding borrowings as of March 31, 1995. The Company believes that existing working capital, together with expected cash flows from operations and available sources of bank and equipment financing, will be sufficient to support the Company's anticipated operations at least through fiscal 1996. 34 37 CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts) ---------------------------------------- Year Ended March 31 1995 1994 1993 ---------------------------------------- Net revenues $ 466,194 $ 372,245 $ 311,339 Cost of revenues 205,596 189,526 174,179 ---------------------------------------- Gross profit 260,598 182,719 137,160 ---------------------------------------- Operating expenses Research and development 60,848 39,993 26,324 Sales and marketing 58,737 46,192 32,525 General and administrative 23,229 19,399 15,568 ---------------------------------------- 142,814 105,584 74,417 ---------------------------------------- Income from operations 117,784 77,135 62,743 ---------------------------------------- Shareholder settlement -- (2,409) -- Interest income 7,932 5,183 4,078 Interest expense (1,179) (1,306) (967) ---------------------------------------- 6,753 1,468 3,111 ---------------------------------------- Income before income taxes 124,537 78,603 65,854 Provision for income taxes 31,135 19,653 16,464 ---------------------------------------- Net income $ 93,402 $ 58,950 $ 49,390 ======================================== Net income per share $ 1.75 $ 1.10 $ .96 ======================================== Weighted average number of common and common equivalent shares outstanding 53,357 53,602 51,652 ========================================
See accompanying notes. 35 38 CONSOLIDATED BALANCE SHEETS
(In thousands) --------------------- As of March 31 1995 1994 --------------------- ASSETS Current assets Cash and cash equivalents $ 66,835 $ 35,387 Marketable securities 179,911 147,620 Accounts receivable, net of allowance for doubtful accounts of $4,431 in 1995 and $4,390 in 1994 56,495 55,334 Inventories 31,712 38,940 Prepaid expenses and other 15,519 15,979 --------------------- Total current assets 350,472 293,260 --------------------- Property and equipment, net 67,863 51,522 --------------------- Other assets 17,373 13,693 --------------------- $435,708 $358,475 ===================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 3,400 $ 3,400 Accounts payable 22,008 19,654 Accrued liabilities 31,006 26,755 --------------------- Total current liabilities 56,414 49,809 --------------------- Long-term debt, net of current portion 7,650 11,050 --------------------- Commitments (Note 7) Shareholders' equity Preferred stock Authorized shares, 1,000 Outstanding shares, none -- -- Common stock Authorized shares, 200,000 Outstanding shares, 51,677 in 1995 and 52,291 in 1994 140,191 138,317 Retained earnings 231,453 159,299 --------------------- Total shareholders' equity 371,644 297,616 --------------------- $435,708 $358,475 =====================
See accompanying notes. 36 39 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) ---------------------------------- Year Ended March 31 1995 1994 1993 ---------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 93,402 $ 58,950 $ 49,390 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,662 11,489 6,983 Provision for doubtful accounts 150 2,069 1,867 Increase in accounts receivable (1,311) (13,020) (18,228) Decrease (increase) in inventories 7,228 (5,563) (11,833) Decrease (increase) in prepaid expenses 460 (5,470) (6,054) Increase in other assets (4,107) (11,478) (1,674) Increase (decrease) in accounts payable 2,354 (2,781) 12,830 Increase in accrued liabilities 4,251 8,867 9,361 ---------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 118,089 43,063 42,642 ---------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in property and equipment (31,576) (17,314) (37,196) Investments in marketable securities, net (32,291) (20,250) (72,215) ---------------------------------- NET CASH USED FOR INVESTING ACTIVITIES (63,867) (37,564) (109,411) ---------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 17,174 13,511 58,023 Repurchase of common stock (36,548) -- -- Proceeds from long-term debt -- -- 17,000 Principal payments on debt (3,400) (2,968) (578) ---------------------------------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (22,774) 10,543 74,445 ---------------------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 31,448 16,042 7,676 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 35,387 19,345 11,669 ---------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 66,835 $ 35,387 $ 19,345 ==================================
See accompanying notes. 37 40 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share amounts) --------------------------------------------- Common Stock ------------------- Retained Shares Amount Earnings Total --------------------------------------------- BALANCE, MARCH 31, 1992 42,134 $ 66,783 $ 50,959 $ 117,742 Sale of common stock at $7.50 per share, pursuant to public offering, net of expenses 6,900 48,865 -- 48,865 Sale of common stock under employee purchase and option plans 1,680 5,338 -- 5,338 Income tax benefit of employees' stock transactions -- 3,820 -- 3,820 Net income -- -- 49,390 49,390 --------------------------------------------- BALANCE, MARCH 31, 1993 50,714 124,806 100,349 225,155 Sale of common stock under employee purchase and option plans 1,577 7,728 -- 7,728 Income tax benefit of employees' stock transactions -- 5,783 -- 5,783 Net income -- -- 58,950 58,950 --------------------------------------------- BALANCE, MARCH 31, 1994 52,291 138,317 159,299 297,616 Sale of common stock under employee purchase and option plans 1,426 11,245 -- 11,245 Income tax benefit of employees' stock transactions -- 5,929 -- 5,929 Repurchases of common stock (2,040) (15,300) (21,248) (36,548) Net income -- -- 93,402 93,402 --------------------------------------------- BALANCE, MARCH 31, 1995 51,677 $ 140,191 $ 231,453 $ 371,644 =============================================
See accompanying notes. 38 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND TRANSLATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of intercompany transactions and balances. Foreign currency transaction gains and losses are included in income as they occur. REVENUE RECOGNITION The Company recognizes revenue generally at the time of shipment or upon satisfaction of contractual obligations. The Company records provisions for estimated returns at the time of sale. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain of the Company's financial instruments, including cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts shown for long-term debt also approximate fair value because current interest rates offered to the Company for debt of similar maturities are substantially the same. MARKETABLE SECURITIES Effective April 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). This statement requires investments in debt and equity securities to be classified as "held-to-maturity," "trading" or "available-for-sale." As of March 31, 1995, the Company's marketable securities are classified as available-for-sale and reported at fair value which approximates amortized cost. Management determines the appropriate classification of marketable securities at the time of purchase and reassesses the classification at each reporting date. Marketable securities as of March 31, 1995 with maturities due after one year through three years totaled $71,905,000 with all remaining marketable securities maturing less than one year. Realized gains and losses are based on the book value of specific securities sold and were immaterial during fiscal 1995, 1994 and 1993. The cumulative effect of adopting SFAS 115 was not material. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and trade accounts receivable. The Company places its marketable securities in a variety of financial instruments such as municipal securities and U.S. Government securities. The Company, by policy, limits the amount of credit exposure through diversification and highly rated securities. Sales to customers are primarily denominated in U.S. dollars. As a result, the Company believes its foreign currency risk is minimal. The Company sells its products to original equipment manufacturers and distributors throughout the world. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The Company maintains an allowance for uncollectible accounts receivable based upon the expected collectibility of all accounts receivable. There were no significant amounts charged to this allowance during the current year. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the assets. INCOME TAXES Effective April 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) 39 42 on a prospective basis. This adoption had no material effect on the Company's financial statements. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income of the period that includes the enactment date. Previously, the Company deferred the past tax effects of timing differences between financial reporting and taxable income under Accounting Principles Board Opinion No. 11 "Accounting for Income Taxes," (APB 11). NET INCOME PER SHARE Net income per share is computed under the treasury stock method using the weighted average number of common and common equivalent shares from dilutive options outstanding during the respective periods. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of funds in checking accounts, money market funds and marketable securities with original maturities of three months or less. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE 2. SUPPLEMENTAL FINANCIAL INFORMATION
MARKETABLE SECURITIES (In thousands) ------------------- 1995 1994 ------------------- Municipal securities $169,972 $139,894 U.S. Government securities 6,064 5,764 Discount notes 3,875 1,962 ------------------- $179,911 $147,620 ===================
INVENTORIES (In thousands) ------------------ 1995 1994 Raw materials $12,230 $14,674 Work-in-process 5,839 12,486 Finished goods 13,643 11,780 ------------------ $31,712 $38,940 ==================
PROPERTY AND EQUIPMENT (In thousands) ------------------------------------ Life 1995 1994 ------------------------------------ Land -- $ 13,240 $ 9,537 Buildings and improvements 5-40 years 18,088 11,855 Machinery and equipment 3-5 years 42,810 32,812 Furniture and fixtures 3-8 years 17,005 15,292 Leasehold improvements Life of lease 3,968 2,618 ------------------------------------ 95,111 72,114 Accumulated depreciation and amortization (27,248) (20,592) ------------------- $(67,863 $(51,522 ===================
ACCRUED LIABILITIES (In thousands) ------------------ 1995 1994 ------------------ Accrued compensation and related taxes $15,740 $ 7,772 Sales and marketing related 4,877 4,104 Tax related 5,746 11,670 Other 4,643 3,209 ------------------ $31,006 $26,755 ==================
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS (In thousands) ------------------------------ 1995 1994 1993 ------------------------------ Interest paid $ 1,125 $ 1,300 $ 1,120 Income taxes paid $29,411 $14,927 $11,146
40 43 NOTE 3. LINE OF CREDIT The Company has available an unsecured $17,000,000 revolving line of credit which expires on December 31, 1996. Of the total line of credit available, $7,000,000 has been issued as an irrevocable standby letter of credit to guarantee component purchases from a supplier (see Note 7) at a fee of 3/4% per annum. As of March 31, 1995, no borrowings were outstanding under this line of credit. The Company may select its own method of interest payment on borrowings based upon the bank's CD rate plus one percent, Eurodollar rate plus one percent or prime lending rate. A commitment fee of 1/4% per annum is payable on the unused line of credit. In addition, the arrangement requires the Company to comply with certain financial covenants. The Company was in compliance with all such covenants as of March 31, 1995. NOTE 4. LONG-TERM DEBT The Company entered into a $17,000,000 term loan agreement in June 1992 bearing interest at 7.65%, with principal and interest payable in quarterly installments of $850,000. All outstanding principal and accrued but unpaid interest is due and payable in June 1998. The arrangement requires the Company to comply with certain financial covenants. The Company was in compliance with all such covenants as of March 31, 1995. Principal payments due through the maturity on the term loan are as follows:
Fiscal Year (In thousands) - ------------------------------------------------------ 1996 $ 3,400 1997 3,400 1998 3,400 1999 850 ------- 11,050 Current portion (3,400) ------- Long-term portion $ 7,650 =======
NOTE 5. ACQUISITION In February 1993, the Company acquired all of the outstanding shares of common stock of Trantor Systems Limited (Trantor) in exchange for approximately 798,000 shares of the Company's common stock. Trantor developed and manufactured SCSI host adapters and related software. The merger was accounted for as a pooling of interests. Trantor's retained earnings and results of operations were not material to the Company's consolidated financial statements. Consequently, the Company's retained earnings at March 31, 1992 were restated to include the retained earnings of Trantor without restating prior-period statements of operations. The results of operations for Trantor for fiscal 1993 and thereafter have been included in the Company's statements of operations. NOTE 6. STOCK PLANS 1986 EMPLOYEE STOCK PURCHASE PLAN The Company has authorized 2,800,000 shares of common stock for issuance under the 1986 Employee Stock Purchase Plan (1986 Plan). Qualified employees who have completed at least one quarter of continuous service may elect to have a certain percentage (not to exceed 10%) of their salary withheld pursuant to the 1986 Plan. The salary withheld is then used to purchase shares of the Company's common stock at a price equal to 85% of the market value of the stock at the beginning or ending of a three-month offering period, whichever is lower. Under this Plan, 188,976 shares were issued during fiscal 1995, representing approximately $3,104,000 in employee contributions. 1982 INCENTIVE STOCK OPTION PLAN This Plan was terminated by the Board of Directors on May 1, 1990 and expired on January 1, 1992. However, the termination and the expiration of this Plan has no effect on the vesting and exercise rights of options already outstanding under the Plan. At March 31, 1995, there 41 44 were 6,000 exercisable options under this Plan at a price of $3.125 per share. 1990 STOCK PLAN The Company's 1990 Stock Plan allows the Board of Directors to grant to employees, officers and consultants, options to purchase common stock or other stock rights at exercise prices not less than 50% of the fair market value on date of grant. The expiration of options or other stock rights is not to exceed ten years after the date of grant. To date, the Company has issued substantially all incentive and non-statutory stock options under this Plan at exercise prices of 100% of fair market value on the respective dates of grant. In general, options vest and become exercisable over a four year period. Option activity under the 1990 Stock Plan is as follows:
Options Outstanding Options -------------------------------- Available Shares Price -------------------------------------------------- Balance, March 31, 1992 705,759 3,008,049 $ 2.47 to $ 6.66 Authorized 3,000,000 -- -- Granted (1,701,000) 1,701,000 $ 6.32 to $13.88 Exercised -- (682,344) $ 2.47 to $12.82 Terminated 275,653 (275,653) $ 2.85 to $12.82 -------------------------------------------------- Balance, March 31, 1993 2,280,412 3,751,052 $ 2.47 to $13.88 Authorized 2,000,000 -- -- Granted (1,837,500) 1,837,500 $11.31 to $21.38 Exercised -- (859,513) $ 2.47 to $15.44 Terminated 330,662 (330,662) $ 2.85 to $16.50 -------------------------------------------------- Balance, March 31, 1994 2,773,574 4,398,377 $ 2.47 to $21.38 Authorized 2,500,000 -- -- Granted (1,914,500) 1,914,500 $15.63 to $35.88 Exercised -- (930,574) $ 2.47 to $21.38 Terminated 599,053 (599,053) $ 2.84 to $27.63 -------------------------------------------------- Balance, March 31, 1995 3,958,127 4,783,250 $ 2.47 to $35.88 ==================================================
At March 31, 1995, there were 1,558,886 exercisable options under this Plan at prices ranging from $2.47 to $21.50 per share. In August 1993, stock options issued by Trantor were exercised for 2,112 shares of common stock of the Company. These shares became issuable upon exercise of certain stock options assumed by the Company in connection with the acquisition of Trantor. 1990 DIRECTORS' OPTION PLAN The 1990 Directors' Option Plan provides for the automatic grant to non-employee directors of non-statutory stock options to purchase common stock at the fair market value on the date of grant, which is generally the last day of each fiscal year except for the first grant to any newly elected director. Each current director receives an option at the end of each fiscal year for 10,000 shares, which vests and becomes exercisable over a four year period. Each newly elected director receives an initial option on the date of his or her appointment or election for 40,000 shares, which also vests and becomes exercisable over a four year period. The options expire five years after the date of grant. Option activity under the 1990 Directors' Option Plan is as follows:
Options Outstanding Options --------------------------- Available Shares Price ------------------------------------------- Balance, March 31, 1992 120,000 80,000 $ 2.91 to $ 7.69 Granted (80,000) 80,000 $12.50 to $13.88 Exercised -- (2,500) $ 2.91 ------------------------------------------- Balance, March 31, 1993 40,000 157,500 $ 2.91 to $13.88 Authorized 500,000 -- -- Granted (50,000) 50,000 $18.38 Exercised -- (5,000) $ 2.91 ------------------------------------------- Balance, March 31, 1994 490,000 202,500 $ 2.91 to $18.38 Granted (50,000) 50,000 $33.00 Exercised -- (21,250) $ 2.91 to $13.88 ------------------------------------------- Balance, March 31, 1995 440,000 231,250 $ 2.91 to $33.00 ===========================================
At March 31, 1995 there were 93,750 exercisable options under this Plan at prices ranging from $2.91 to $18.38 per share. 42 45 RIGHTS PLAN The Company has reserved 120,000,000 shares of common stock for issuance under the Rights Plan which was amended and restated as of June 30, 1992. Under this plan, shareholders will receive one Common Share Purchase Right ("Right") for each outstanding share of the Company's common stock. Each Right will entitle shareholders to buy one share of common stock at an exercise price of $50.00 per share. The Rights will trade automatically with shares of the Company's common stock. The Rights are not exercisable until ten days after a person or group announces acquisition of 20% or more of the Company's outstanding common stock or the commencement of a tender offer which would result in ownership by a person or group of 20% or more of the then outstanding common stock. The Company is entitled to redeem the Rights at $.005 per Right anytime on or before the tenth day following such an acquisition or tender offer. This redemption period may be extended by the Company in some cases. If, prior to such redemption, the Company is acquired in a merger or other business combination, a party acquires 20% or more of the Company's common stock, a 20% shareholder engages in certain self-dealing transactions, or the Company sells 50% or more of its assets, each right will entitle the holder to purchase from the surviving corporation, for $50.00 per share, common stock having a then current market value of $100.00 per share. At March 31, 1995, the Company has reserved the following shares of authorized but unissued common stock: 1982 Incentive Stock Option Plan (Expired January 1, 1992) 6,000 1986 Employee Stock Purchase Plan 1,008,462 1990 Stock Plan 8,741,377 1990 Directors' Option Plan 671,250 Rights Plan 120,000,000 ----------- 130,427,089 ===========
NOTE 7. COMMITMENTS The Company leases certain office facilities, vehicles and certain equipment under operating lease agreements that expire at various dates through fiscal 2000. As of March 31, 1995, the minimum future payments on existing leases are as follows:
Fiscal Year (In thousands) - ------------------------------------------------------- 1996 $2,045 1997 846 1998 311 1999 225 2000 226 ------ $3,653 ======
Rent expense was approximately $2,377,000, $1,640,000 and $1,454,000 during fiscal 1995, 1994 and 1993, respectively. To provide the Company with an increased supply of silicon wafers, an agreement was entered into with one of the Company's suppliers to purchase integrated circuits fabricated by the supplier's foundry. The agreement expires in June 1997. Under the agreement, the Company is committed to the following minimum purchases: Fiscal Year (In thousands) - ------------------------------------------------------- 1996 $19,800 1997 19,800 1998 4,950 ------- $44,550 =======
The Company has made a deposit aggregating $14,650,000 to secure the supply of silicon wafers pursuant to this agreement. The advances are repayable at the expiration of the deposit and supply agreement in June 1997 and are classified as other assets in the accompanying consolidated balance sheets. The supplier has provided an irrevocable standby letter of credit to the Company in an equal amount to guarantee the repayment of amounts made available by the Company. 43 46 NOTE 8. INCOME TAXES Effective April 1, 1993, the Company adopted SFAS 109 on a prospective basis. Prior years were accounted for under APB 11 and have not been restated. The adoption of SFAS 109 had no material effect on the Company's financial statements. The components of income before income taxes for the years ended March 31 are as follows:
(In thousands) -------------------------------- 1995 1994 1993 -------------------------------- Domestic $ 74,397 $54,972 $35,881 Foreign 50,140 23,631 29,973 -------------------------------- Income before income taxes $124,537 $78,603 $65,854 ================================
The components of the provision for income taxes for the years ended March 31 are as follows:
(In thousands) ------------------------------ 1995 1994 1993 ------------------------------ Federal Current $26,455 $13,899 $13,687 Deferred (311) 2,658 (770) ------------------------------ 26,144 16,557 12,917 ------------------------------ Foreign Current 1,106 317 132 Deferred -- -- 208 ------------------------------ 1,106 317 340 ------------------------------ State Current 3,177 3,474 3,632 Deferred 708 (695) (425) ------------------------------ 3,885 2,779 3,207 ------------------------------ Provision for income taxes $31,135 $19,653 $16,464 ==============================
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets, included in prepaid expenses and other in the accompanying consolidated balance sheets for the years ended March 31, are as follows:
(In thousands) ------------------ 1995 1994 ------------------ Inventory reserves $ 1,048 $ 2,955 State taxes 990 2,895 Bad debt reserve 1,829 2,060 Compensatory accruals 4,355 1,851 Various expense accruals 3,725 1,525 Other, net 2 1,060 ------------------ Net deferred tax assets $11,949 $12,346 ==================
The provision for income taxes differs from the amount computed by applying the federal statutory tax rate to income before income taxes for the years ended March 31 as follows:
1995 1994 1993 --------------------------- Federal statutory rate 35.0% 35.0% 34.0% State taxes, net of federal benefit 2.2 2.9 3.1 Foreign subsidiary income at other than the U.S. tax rate (9.9) (10.5) (13.1) Other (2.3) (2.4) 1.0 --------------------------- Effective income tax rate 25.0% 25.0% 25.0% ===========================
The Company's Singapore subsidiary has been granted pioneer status from the Singapore government whereby all profits derived from the facility are tax exempt for a period of eight years, subject to certain conditions. The pioneer status will expire during fiscal 1996 and the Company will continue to benefit from a reduced rate of 15% instead of the normal 27% for an additional three year period. The Company is currently pursuing an extension of its pioneer status with the Singapore government. As of March 31, 1995, the Company had not accrued income taxes on $116,177,000 of accumulated undistributed earnings of its Singapore subsidiary, as these earnings will be reinvested indefinitely. 44 47 NOTE 9. SEGMENT INFORMATION Adaptec operates strictly in the microcomputer input/output industry and is a leading supplier of high-performance intelligent subsystems and associated software and very large-scale integrated circuits used to control the flow of data between a microcomputer's CPU and its peripherals. The Company focuses its worldwide marketing efforts on major OEM customers through its direct sales force located in the United States, Europe and Far East and also sells through distributors and sales representatives in each of these geographic areas. Income from operations consists of net revenues less cost of revenues and operating expenses incurred in supporting the revenues of each geographic area. All of the Company's identifiable assets are used to support the operations in each geographic area. Corporate assets include cash and cash equivalents, marketable securities, deferred tax assets and certain other assets. Intercompany sales are made at arms-length prices, and revenues for the European subsidiaries consist mainly of commissions earned in connection with obtaining foreign orders.
(In thousands) ------------------------------------------------------------------------------- Singapore, Adjustments United Far East, and States Other Europe Corporate Eliminations Total ------------------------------------------------------------------------------- FISCAL 1995 Revenues Sales to customers $464,707 $ 1,487 $ -- $ -- $ -- $466,194 Intercompany sales between geographic areas 10,401 191,360 3,905 -- (205,666) -- ------------------------------------------------------------------------------- Net revenues $475,108 $192,847 $3,905 $ -- $(205,666) $466,194 =============================================================================== Income from operations 68,594 48,847 343 -- -- 117,784 Identifiable assets 122,097 123,044 1,070 262,383 (72,886) 435,708 FISCAL 1994 Revenues Sales to customers $371,863 $ 382 $ -- $ -- $ -- $372,245 Intercompany sales between geographic areas 10,344 119,305 2,375 -- (132,024) -- ------------------------------------------------------------------------------- Net revenues $382,207 $119,687 $2,375 $ -- $(132,024) $372,245 =============================================================================== Income from operations 53,945 23,074 116 -- -- 77,135 Identifiable assets 153,340 74,512 347 207,591 (77,315) 358,475 FISCAL 1993 Revenues Sales to customers $311,339 $ -- $ -- $ -- $ -- $311,339 Intercompany sales between geographic areas 9,350 136,000 2,273 -- (147,623) -- ------------------------------------------------------------------------------- Net revenues $320,689 $136,000 $2,273 $ -- $(147,623) $311,339 =============================================================================== Income from operations 32,816 29,746 181 -- -- 62,743 Identifiable assets 119,365 63,314 378 157,843 (58,004) 282,896
45 48 EXPORT REVENUES The following table represents export revenues by geographic region as a percentage of total revenues:
1995 1994 1993 ------------------------- Singapore, Far East, Other 37% 38% 27% Europe 25 20 23 ------------------------- 62% 58% 50% =========================
MAJOR CUSTOMERS In fiscal 1995 and 1994, no customer accounted for more than 10% of net revenues. In fiscal 1993, two different customers accounted for 16% and 10% of net revenues. NOTE 10. LEGAL MATTERS A class action lawsuit alleging federal securities law violations and negligent misrepresentation was filed against the Company, its directors, and certain of its officers in February, 1991. That action was settled by letter agreement on July 29, 1993. The Company has made all payments required under the terms of the letter agreement. On March 7, 1995, the Court issued an order preliminarily approving the class-action settlement. Notice of the settlement has been given to class members. Final approval of the class-action settlement is pending final order from the Court. NOTE 11. COMPARATIVE QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data is as follows:
(In thousands, except per share amounts) ------------------------------------------------------------------------- Quarters First Second Third Fourth Year ------------------------------------------------------------------------- FISCAL 1995 Net revenues $106,061 $106,574 $123,367 $130,192 $466,194 Gross profit 54,888 57,413 71,563 76,734 260,598 Net income 17,592 18,458 27,403 29,949 93,402 Net income per share $ .33 $ .35 $ .52 $ .56 $ 1.75 Weighted average shares outstanding 53,944 53,182 52,958 53,802 53,357 FISCAL 1994 Net revenues $ 86,505 $ 87,915 $ 96,071 $101,754 $372,245 Gross profit 39,228 43,245 48,690 51,556 182,719 Net income 13,623 12,239 15,820 17,268 58,950 Net income per share $ .26 $ .23 $ .29 $ .32 $ 1.10 Weighted average shares outstanding 52,816 53,326 53,928 54,352 53,602
46 49 REPORT OF MANAGEMENT Management is responsible for the preparation and integrity of the consolidated financial statements and other financial information presented in the annual report. The accompanying financial statements were prepared in conformity with generally accepted accounting principles and as such, include some amounts based on management's best judgments and estimates. Financial information in the annual report is consistent with that in the financial statements. Management is responsible for maintaining a system of internal business controls and procedures to provide reasonable assurance that assets are safeguarded and that transactions are authorized, recorded and reported properly. The internal control system is continuously monitored by management review, written policies and guidelines, and careful selection and training of qualified people who are provided with and expected to adhere to the Company's standards of business conduct. Management believes the Company's internal controls provide reasonable assurance that assets are safeguarded against material loss from unauthorized use or disposition and the financial records are reliable for preparing financial statements and other data and maintaining accountability for assets. The audit committee of the Board of Directors meets periodically with the independent accountants and management to discuss internal business controls, auditing and financial reporting matters. The committee also reviews with the independent accountants the scope and results of the audit effort. The independent accountants, Price Waterhouse LLP, are engaged to examine the consolidated financial statements of the Company and conduct such tests and related procedures as they deem necessary in accordance with generally accepted auditing standards. The opinion of the independent accountants, based upon their audit of the consolidated financial statements, is contained in this annual report. /s/ John G. Adler /s/ Paul G. Hansen - --------------------------- --------------------------- John G. Adler Paul G. Hansen Chairman and Chief Vice President, Finance Executive Officer and Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Adaptec, Inc.: In our opinion, the accompanying consolidated balance sheet and the related consolidated statement of operations, of cash flows and of shareholders' equity present fairly, in all material respects, the financial position of Adaptec, Inc. and its subsidiaries at March 31, 1995, and the results of their operations and their cash flows for the year in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The financial statements of Adaptec, Inc. as of and for the two years ended March 31, 1994 were audited by other independent accountants whose report dated April 25, 1994 expressed an unqualified opinion on those statements. /s/ Price Waterhouse LLP San Jose, California April 20, 1995 47 50 SELECTED FINANCIAL DATA
(In thousands, except per share amounts) ------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA YEAR ENDED MARCH 31 Net revenues $466,194 $372,245 $311,339 $150,315 $128,865 Cost of revenues 205,596 189,526 174,179 84,549 74,745 ------------------------------------------------------------------------- Gross profit 260,598 182,719 137,160 65,766 54,120 ------------------------------------------------------------------------- Operating expenses Research and development 60,848 39,993 26,324 17,514 14,005 Sales and marketing 58,737 46,192 32,525 21,338 18,447 General and administrative 23,229 19,399 15,568 10,517 8,280 ------------------------------------------------------------------------- 142,814 105,584 74,417 49,369 40,732 ------------------------------------------------------------------------- Net income $ 93,402 $ 58,950 $ 49,390 $ 14,614 $ 12,204 ========================================================================= NET INCOME PER SHARE Net income per share $ 1.75 $ 1.10 $ .96 $ .35 $ .30 Weighted average shares outstanding 53,357 53,602 51,652 41,664 41,148 ------------------------------------------------------------------------- BALANCE SHEET DATA AS OF MARCH 31 Working capital $294,058 $243,451 $191,693 $105,671 $ 86,074 Total assets 435,708 358,475 282,896 138,615 109,142 Long-term debt, net of current portion 7,650 11,050 14,450 423 996 Shareholders' equity 371,644 297,616 225,155 117,742 94,558
COMMON STOCK PRICES AND DIVIDENDS The Company's common stock is traded in the over-the-counter market under the NASDAQ symbol ADPT. The following table sets forth the range of the high and low prices by quarter as reported by the NASDAQ National Market System.
1995 1994 -------------------------------------------------------------------- High Low High Low -------------------------------------------------------------------- First quarter $19-1/2 $14 $12-13/16 $ 9- 1/4 Second quarter 21-1/4 16-1/4 16-5/8 10-9/16 Third quarter 24-3/4 17-1/4 19-15/16 13-1/16 Fourth quarter 37 21-3/4 22-1/2 17- 3/4
In March 1992 and January 1994, the Company's Board of Directors approved a two-for-one-split of its common stock. The above sale prices have been adjusted to reflect the stock splits. At March 31, 1995, there were 722 holders of record of the Company's common stock. The Company has not paid cash dividends on its common stock and does not currently plan to pay cash dividends to its shareholders in the near future. 48 51 DIRECTORS AND OFFICERS DIRECTORS John G. Adler Chairman of the Board and Chief Executive Officer Laurence B. Boucher President and Chief Executive Officer, Auspex Systems, Inc. Robert J. Loarie General Partner, Morgan Stanley Venture Partners, L.P. B.J. Moore Independent Management Consultant W. Ferrell Sanders General Partner, Asset Management Co. F. Grant Saviers President and Chief Operating Officer Phillip E. White Chairman of the Board and Chief Executive Officer, Informix Software, Inc. OFFICERS John G. Adler Chairman of the Board and Chief Executive Officer Daniel W. Bowman Vice President, Administration Martin W. Brauns Vice President, Sales Andrew J. Brown Corporate Controller John D. Hamm Vice President and General Manager Paul G. Hansen Vice President, Finance and Chief Financial Officer (Assistant Secretary) Sam Kazarian Vice President, Operations Christopher G. O'Meara Vice President and Treasurer F. Grant Saviers President and Chief Operating Officer S. Sundaresh Vice President and General Manager Henry P. Massey, Jr. Secretary CORPORATE INFORMATION HEADQUARTERS 691 S. Milpitas Blvd. Milpitas, CA 95035 (408) 945-8600 SUBSIDIARIES Adaptec Mfg. (S) Pte. Ltd. Block 1003 Bukit Merah Central #07-09 Singapore 0315 (011-65) 278-7300 Adaptec GmbH Munchner Strasse 17 85540 Haar Germany (011-49) 89-456-4060 Adaptec Europe, S.A. Dreve Richelle 161 Building A, 2nd Floor B-1410 Waterloo Belgium (011-32) 2-352-3411 Adaptec Japan Ltd. Kioicho Hills, 4F 3-32 Kioicho Chiyoda-ku, Tokyo 102 Japan (011-81) 35-276-9882 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP San Jose, California LEGAL COUNSEL Wilson, Sonsini, Goodrich & Rosati Palo Alto, California SHAREHOLDER INFORMATION TRANSFER AGENT Chemical Mellon Shareholder Services San Francisco, California (800) 356-2017 COMMON STOCK The Company's stock is traded on the National Market System under the NASDAQ symbol ADPT. ANNUAL MEETING OF SHAREHOLDERS The annual meeting will be held Thursday, August 24, 1995 at 9:30 a.m. PDT at Adaptec's Milpitas site, located at 500 Yosemite Drive, Milpitas, California. FORM 10-K A copy of the Company's Form 10-K, as filed with the Securities and Exchange Commission, is available on request without charge by calling (800) 934-2766. QUARTERLY SHAREHOLDER INFORMATION Commencing with fiscal 1996, the Company will replace its traditional quarterly shareholder reports with expanded quarterly financial press releases. These financial press releases will be available on request without charge by calling (800) 934-2766 or by accessing Adaptec's World Wide Web Home Page at http://www.adaptec.com FINANCIAL LITERATURE (800) 934-2766 Copyright (C) 1995 Adaptec, Inc. All rights reserved. Adaptec, the Adaptec logo, IOware, AHA, CI/O, MiniSCSI, SlimSCSI, and EZ-SCSI are trademarks of Adaptec, Inc. which may be registered in some jurisdictions. All other trademarks used are owned by their respective owners. Created by: Cahan & Associates, San Francisco 52 [ADAPTEC LOGO] Adaptec, Inc. 691 South Milpitas Blvd. Milpitas, California 95035 835000-011 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR MAR-31-1995 APR-01-1994 MAR-31-1995 1 66,835 179,911 60,926 4,431 31,712 350,472 95,111 27,248 435,708 56,414 7,650 140,191 0 0 231,453 435,708 466,194 466,194 205,596 205,596 142,664 150 1,179 124,537 31,135 93,402 0 0 0 93,402 1.75 1.75
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