-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fdzs2KRo4+XopnqyQQA2BASXETePW+1Svx5lnwby1bHKFuUXvI7gSDO3u36yxlvR yNC3qRZifFrScBlEQC626w== 0000891618-97-001624.txt : 19970407 0000891618-97-001624.hdr.sgml : 19970407 ACCESSION NUMBER: 0000891618-97-001624 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19970404 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAPTEC INC CENTRAL INDEX KEY: 0000709804 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 942748530 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-24557 FILM NUMBER: 97574983 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 S-1 1 FORM S-1 1 As filed with the Securities and Exchange Commission on April 4, 1997 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------- ADAPTEC, INC. (Exact name of Registrant as specified in its charter) CALIFORNIA 36798 94-2748530 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification No.) organization) 691 S. MILPITAS BLVD. MILPITAS, CALIFORNIA 95035 (408) 945-8600 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) ------------------- F. GRANT SAVIERS PRESIDENT AND CHIEF EXECUTIVE OFFICER ADAPTEC, INC. 691 S. MILPITAS BLVD. MILPITAS, CALIFORNIA 95035 (408) 945-8600 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------- Copies to: HENRY P. MASSEY, JR., ESQ. DAVID C. DRUMMOND, ESQ. PETER S. HEINECKE, ESQ. WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CA 94304 (415) 493-9300 ------------------- Approximate date of commencement of proposed sale to the public: FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------- 2 CALCULATION OF REGISTRATION FEE
=================================================================================================== PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF OF SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SECURITY PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------- 4 3/4% Convertible Subordinated $230,000,000 100% $230,000,000 $69,697 Notes Due February 1, 2004 - --------------------------------------------------------------------------------------------------- Common Stock, $.001 par 4,452,188(2) --- --- --- value ===================================================================================================
- ---------- (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(i) of the Securities Act of 1933, as amended. (2) Such number represents the number of shares of Common Stock as are initially issuable upon conversion of the 4 3/4% Convertible Subordinated Notes due February 1, 2004 registered hereby and, pursuant to Rule 416 under the Securities Act of 1933, as amended, such indeterminate number of shares of Common Stock as shall be required for issuance upon conversion of the aforesaid notes. Pursuant to Rule 457(i), no registration fee is required. ------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. 3 ADAPTEC, INC. CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM S-1
ITEMS AND HEADING IN FORM S-1 REGISTRATION STATEMENT PROSPECTUS LOCATION IN PROSPECTUS - ------------------------------------------------------------ ------------------------------------------------------------ 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus ................... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus ....................................... Inside Front and Outside Back Cover Pages 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges ........................ Prospectus Summary; Risk Factors 4. Use of Proceeds .................................. Prospectus Summary; Use of Proceeds 5. Determination of Offering Price .................. Not applicable 6. Dilution ......................................... Not applicable 7. Selling Security Holders ......................... Principal and Selling Shareholders 8. Plan of Distribution ............................. Outside and Inside Front Cover Pages; Plan of Distribution 9. Description of Securities to be Registered ....... Description of Capital Stock; Description of Notes; Dividend Policy 10. Interests of Named Experts and Counsel ........... Legal Matters; Experts 11. Information with Respect to the Registrant ....... Outside and Inside Front Cover Pages; Prospectus Summary; Risk Factors; Price Range of Common Stock; Dividend Policy; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Relationships and Related Transactions; Principal Shareholders; Description of Capital Stock; Consolidated Financial Statements; Outside Back Cover Page 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities ... Not applicable
4 PROSPECTUS Adaptec, Inc. U.S. $230,000,000 4 3/4% Convertible Subordinated Notes due February 1, 2004 and Shares of Common Stock Issuable Upon Conversion Thereof ----------------------- This Prospectus relates to $230,000,000 aggregate principal amount of 4 3/4% Convertible Subordinated Notes due February 1, 2004 (the "Notes") of Adaptec, Inc. (the "Company") under the Securities Act of 1933, as amended (the "Securities Act"), and the shares of Common Stock, $.001 par value of the Company, ("Common Stock") issuable upon the conversion of the Notes (the "Conversion Shares"). The Notes registered hereby were issued and sold on February 3, 1997 (the "Original Offering") in transactions exempt from the registration requirements of the Securities Act, to persons reasonably believed by Bear, Stearns & Co. Inc., Lehman Brothers, Robertson Stephens & Company LLC, and Unterberg Harris, as the initial purchasers (the "Initial Purchasers") of the Notes, to be "qualified institutional buyers" (as defined by Rule 144A under the Securities Act) or other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under Regulation D of the Securities Act) or in compliance with the provisions of Regulation S under the Securities Act. The Notes and the Common Stock issuable upon conversion thereof may be offered and sold from time to time by the holders named herein or by their transferees, pledgees, donees or their successors (collectively, the "Selling Securityholders") pursuant to this Prospectus. The Registration Statement of which this Prospectus is a part has been filed with the Securities and Exchange Commission pursuant to a registration rights agreement dated as of February 3, 1997 (the "Registration Agreement") between the Company and the Initial Purchasers, entered into in connection with the Original Offering. The Notes are convertible at the option of the holder into shares of Common Stock of the Company (at any time on or after May 5, 1997 and prior to redemption or maturity, at a conversion rate of 19.3573 shares per $1,000 principal amount of Notes), subject to adjustment under certain circumstances. Interest on the Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on August 1, 1997. On April 2, 1997, the closing price of the Common Stock, which is quoted on the Nasdaq National Market under the symbol "ADPT," was $35.75 per share. ----------------------- THE NOTES AND THE COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 8. ----------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1997 5 The Notes are unsecured general obligations of the Company and are subordinated in right of payment to all existing and future Senior Indebtedness (as defined in the Indenture). See "Description of Notes--Subordination." The Notes will mature on February 1, 2004, and may be redeemed, at the option of the Company, in whole or in part, at any time on or after February 3, 2000 at the redemption prices set forth herein plus accrued interest. Each holder of Notes will have the right to cause the Company to repurchase all of such holder's Notes, payable in cash or, at the Company's option, in Common Stock, in the event the Common Stock is no longer publicly traded or in certain circumstances involving a Change of Control (as defined in the Indenture). The Notes and the Conversion Shares may be offered by the Selling Securityholders from time to time in transactions (which may include block transactions in the case of the Conversion Shares) on any exchange or market on which such securities are listed or quoted, as applicable, in negotiated transactions, through a combination of such methods of sale, or otherwise, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices. The Selling Securityholders may effect such transactions by selling the Notes or Conversion Shares directly or to or through broker-dealers, who may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Notes or Conversion Shares for whom such broker-dealers may act as agents or to whom they may sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Company will not receive any of the proceeds from the sale of the Notes or Conversion Shares by the Selling Securityholders. The Company has agreed to pay all expenses incident to the offer and sale of the Notes and Conversion Shares offered by the Selling Securityholders hereby, except that the Selling Securityholders will pay all underwriting discounts and selling commissions, if any. See "Plan of Distribution." The Notes have been designated for trading on the PORTAL Market. Notes sold pursuant to this Prospectus are not eligible for trading on the PORTAL Market. The Selling Securityholders will receive all of the net proceeds from the sale of the Notes and the Common Stock issuable upon conversion of the Notes and will pay all underwriting discounts and selling commissions, if any, applicable to the sale of the Notes and the Common Stock issuable upon conversion of the Notes. The Company is responsible for payment of all other expenses incident to the offer and sale of the Notes and the Common Stock issuable upon conversion of the Notes. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy and information statements, and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy and information statements, and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the regional offices of the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy statements and other information can also be inspected at the offices of the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a World Wide Web site that contains reports, proxy and -2- 6 information statements, and other information that are filed through the Commission's Electronic Data Gathering, Analysis and Retrieval System. This Web site can be accessed at http://www.sec.gov. The Company has filed with the Commission a Registration Statement on Form S-1 (together with all amendments and exhibits thereto, the "Registration Statement") under the Securities Act with respect to the Notes and Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company, the Notes and the Common Stock, reference is made to the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. Copies of the Registration Statement, including all exhibits thereto, may be obtained from the Commission's principal office in Washington, D.C. upon payment of the fees prescribed by the Commission, or may be examined without charge at the offices of the Commission described above. Adaptec, EZ-SCSI and SCSIselect are registered trademarks of Adaptec, Inc. This Prospectus also uses trademarks and registered trademarks of companies other than the Company and its subsidiaries. -3- 7 PROSPECTUS SUMMARY The following summary information is qualified in its entirety by the detailed information and financial information appearing elsewhere in this Prospectus. This Prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. When used in this Prospectus, the words "believes," "intends," "anticipates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include the timing and acceptance of new product introductions, the actions of the Company's competitors and business partners, and those discussed under the caption "Risk Factors." Share and per share data in this Prospectus have been adjusted to reflect a two-for-one split of the outstanding Common Stock of the Company which was effected in November 1996. Unless the context requires otherwise, all references herein to the "Company" or "Adaptec" mean Adaptec, Inc. and its wholly-owned subsidiaries. THE OFFERING ISSUER ........... Adaptec, Inc. (the "Company") SECURITIES ....... Offered $230,000,000 of 4 3/4% Convertible Subordinated Notes Due 2004 issued under an indenture (the "Indenture") between the Company and State Street Bank and Trust Company, as trustee (the "Trustee"). INTEREST PAYMENT DATES ............ February 1 and August 1 of each year, commencing August 1, 1997. MATURITY ......... February 1, 2004 CONVERSION........ Convertible at the option of the holder at any time on or after May 5, 1997 through the close of business on February 1, 2004, subject to prior redemption and repurchase, into Common Stock of the Company at $51.66 per share, subject to adjustment as set forth herein. See "Description of Notes-- Conversion of Notes." REDEMPTION........ The Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after February 3, 2000, at the declining redemption prices set forth herein plus accrued interest to the date of redemption. See "Description of Notes-- Optional Redemption by the Company." -4- 8 REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE OF CONTROL ......................... In the event of a Change of Control (as defined), holders of Notes will have the right to require that the Company repurchase the Notes in whole or in part at a repurchase price of 101% of the principal amount thereof plus accrued interest to the date of repurchase. See "Description of Notes -- Repurchase at Option of Holders." RANKING ......................... The Notes constitute general unsecured obligations of the Company and are subordinated in right of payment to all existing and future Senior Indebtedness (as defined) of the Company. As of December 27, 1996, the Company had approximately $5.1 million of outstanding indebtedness that would have constituted Senior Indebtedness (excluding accrued interest and Senior Indebtedness constituting liabilities of a type not required to be reflected as a liability on the balance sheet of the Company in accordance with generally accepted accounting principles). In addition, because certain of the Company's operations are conducted through operating subsidiaries, claims of holders of indebtedness of such subsidiaries, as well as claims of regulators and creditors of such subsidiaries, will have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of the Company, including holders of the Notes. As of December 27, 1996, the aggregate liabilities of such subsidiaries were approximately $22.9 million (excluding intercompany liabilities and liabilities of a type not required to be reflected on the balance sheets of such subsidiaries in accordance with generally accepted accounting principles). The Indenture does not limit the amount of additional indebtedness which the Company can create, incur, assume or guarantee, nor will the Indenture limit the amount of indebtedness which any subsidiary can create, incur, assume or guarantee. See "Description of Notes-- Subordination." TRADING ......................... The Notes have been designated for trading in The PORTAL Market. Notes sold pursuant to this Prospectus are not eligible for trading on the PORTAL Market. The Company's Common Stock is traded on the Nasdaq National Market under the symbol "ADPT". -5- 9 THE COMPANY Adaptec is a leading supplier of bandwidth management solutions that significantly enhance total system performance by increasing data transfer rates between PCs, servers, peripherals and networks. The Company's products include host adapters, which are primarily based on the SCSI standard, peripheral technology solutions, which are primarily ASIC controllers for hard disk and CD-ROM drives, and network products, which include ATM and Fast Ethernet adapters. Adaptec provides its customers complete solutions, consisting of hardware, software and firmware, which are incorporated into the products of substantially all of the major Intel-based PC and server manufacturers worldwide. A number of trends are driving the need to increase effective input-output ("I/O") bandwidth between PCs, servers, peripherals and networks: (i) the introduction of increasingly powerful CPUs, which require more rapidly accessed and intelligently managed data to function at their optimal performance level, (ii) new advanced operating systems, such as Windows 95 and Windows NT that allow for faster I/O and multitasking, (iii) the growth of data-intensive software applications, such as graphics and video, which require significantly more bandwidth, (iv) the proliferation of client/server networks, the Internet and corporate intranets, which is in turn driving growth in the number and processing power of servers, and (v) growth in high performance peripherals, such as high capacity hard disk drives, scanners, CD-ROMs, and new CD-R and DVD drives. These factors have created a rapid increase in the transfer of data between the desktop, servers, peripherals and networks, resulting in substantial I/O and network bottlenecks. The majority of the Company's products are based on the SCSI standard, which was pioneered by Adaptec. SCSI has been widely adopted as the industry standard I/O bus specification for high performance PCs, servers and peripherals. SCSI allows the "intelligent" transfer of data between computers, peripherals and networks by enabling multitasking and by off-loading the CPU from I/O management, and provides a high performance, system-independent interface that supports multiple peripherals. SCSI adapters are used in servers, where the Company believes that virtually every system now has at least one SCSI adapter and more recently, in high performance desktop PCs. Through succeeding generations, SCSI has evolved from its original standard, which supported data transfer rates of 5 mbps, to the most recent UltraSCSI standard which is capable of data transfer rates of 40 mbps. Adaptec has been the leading supplier of SCSI-based solutions for each generation of SCSI technology. In addition to its SCSI host adapters, the Company offers a broad line of integrated circuit ("IC") solutions for the mass storage market and a line of network adapters based on the ATM and Fast Ethernet standards. The Company has introduced products for emerging high performance I/O technologies such as Firewire, which is used primarily for consumer products; a RAID solution, which includes a proprietary ASIC controller and software; and a software-only product which enables users to master CDs using a CD-R drive. The Company is also developing an adapter for Fibre Channel, an emerging I/O standard which is primarily intended for very high performance data-intensive applications. The Company believes it has successfully positioned itself as a leading supplier of a full range of I/O solutions providing bandwidth management. The Company sells its products through a direct sales force to substantially all major server and PC manufacturers, as well as most of the major distributors worldwide. Customers include Acer, Compaq, Digital Equipment Corporation, Dell Computer, Fujitsu, Gateway 2000, Hewlett-Packard, IBM, Intel, IOmega, Maxtor, NEC, Samsung, Siemons Nixdorf and Toshiba. The Company was incorporated in California in May 1981. Its principal executive offices are located at 691 South Milpitas Boulevard, Milpitas, California 95035, and its telephone number is 408-945-8600. -6- 10 Summary Consolidated Financial Information (in thousands, except ratios and per share amounts)
Nine Months Ended Year Ended March 31, -------------------------- ------------------------------------------------ December 29, December 27, 1992 1993 1994 1995 1996 1995 1996 -------- -------- -------- -------- -------- ------------ ------------ Statement of Operations Data: Net revenues ........................ $150,315 $311,339 $372,245 $466,194 $659,347 $463,322 $668,760 Income from operations .............. 16,397 62,743 77,135 117,784 126,135 74,819 98,121 Net income .......................... 14,614 49,390 58,950 93,402 103,375 62,307 60,735 Net income per share ................ $ 0.18 $ 0.48 $ 0.55 $ 0.88 $ 0.95 $ 0.57 $ 0.53 Weighted average shares outstanding . 83,328 103,304 107,204 106,714 109,138 108,794 114,002 Adjusted income from operations(1) .. $ 16,397 $ 62,743 $ 77,135 $117,784 $178,448 $127,132 $178,784 Adjusted net income(1) .............. 14,614 49,390 61,359 93,402 142,826 101,758 139,632 Adjusted net income per share(1) .... $ 0.18 $ 0.48 $ 0.57 $ 0.88 $ 1.31 $ 0.94 $ 1.22 Ratio of earnings to fixed charges(2) 26.4x 46.5x 43.6x 64.4x 67.8x 51.7x 61.7x
Pro-Forma as of December 27, 1996 December 27, 1996(3) ----------------- -------------------- Balance Sheet Data: Working capital......................... $374,707 $599,140 Total assets............................ 726,487 956,487 Long-term debt, net of current portion . 1,700 231,700 Shareholders' equity ................... 611,999 611,999
- ---------- (1) Adjusted for one-time charges primarily related to the write-off of acquired in-process technology. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations." (2) For the purpose of calculating the ratio of earnings to fixed charges, (i) earnings consist of consolidated pre-tax income plus fixed charges and (ii) fixed charges consist of interest expense incurred, and the portion of rental expense under leases deemed by the Company to be representative of the interest factor. (3) Adjusted to reflect the issuance and sale of $230 million of 4 3/4% convertible subordinated notes, net of applicable expenses, discounts and commissions on February 3, 1997. -7- 11 RISK FACTORS This Prospectus contains forward-looking statements that involve risks and uncertainties. The statements contained in this Prospectus that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. In evaluating the Company's business, prospective investors should consider carefully the following factors in addition to the other information set forth in this Prospectus. Future Operating Results Subject to Fluctuation. The Company's operating results may fluctuate in the future as a result of a number of factors, including cancellations or postponements of orders, shifts in the mix of the Company's products and sales channels, changes in pricing policies by the Company's suppliers, interruption in the supply of custom integrated circuits, the market acceptance of new and enhanced versions of the Company's products and the timing of acquisitions of other business products and technologies and any associated charges to earnings. The volume and timing of orders received during a quarter are difficult to forecast. The Company's customers from time to time encounter uncertain and changing demand for their products. Customers generally order based on their forecasts. If demand falls below such forecasts or if customers do not control inventories effectively, they may cancel or reschedule shipments previously ordered from the Company. Additionally, the Company has historically operated with a relatively small backlog, especially relating to orders of its board-based I/O solutions. Further, the Company's expense levels are based in part on expectations of future revenues, and the Company has been significantly increasing and intends to continue to increase operating expenditures and working capital balances as it expands its operations. As a result of the difficulty of forecasting revenues and the Company's planned growth in spending, operating expenses could be disproportionately high for a given quarter, and the Company's operating results for that quarter, and potentially future quarters, would be adversely affected. Operating results in any particular quarter which do not meet the expectations of securities analysts could cause volatility in the price of the Company's Common Stock. Dependence on the High-Performance Microcomputer Market. The Company's board-based I/O solutions are used primarily in high performance computer systems designed to support bandwidth-intensive applications and operating systems. Historically, the Company's growth has been supported by increasing demand for systems which support client/server and Internet/intranet applications, computer-aided engineering, desktop publishing, multimedia, and video. Should the growth of demand for such systems slow, the Company's business or operating results could be materially adversely affected by a decline in demand for the Company's products. Certain Risks Associated with the Computer Peripherals Market. As a supplier of controller circuits to manufacturers of computer peripherals such as disk drives and other storage devices, a portion of the Company's business is dependent on the overall market for computer peripherals. This market, which itself is dependent on the market for personal computers, has historically been characterized by periods of rapid growth followed by periods of oversupply and contraction. As a result, suppliers to the computer peripherals industry from time to time experience large and sudden fluctuations in demand for their products as their customers adjust to changing conditions in their markets. If these fluctuations are not accurately anticipated, such suppliers, including the Company, could produce excessive or insufficient inventories of various components which could -8- 12 materially and adversely affect the Company's business and operating results. The computer peripherals industry is also characterized by intense price-competition which in turn creates pricing pressures on the suppliers to that industry. If the Company is unable to correspondingly decrease its manufacturing or component costs, such pricing pressures could have a material adverse effect on the Company's business or operating results. Reliance on Industry Standards; Technological Change; Dependence on New Products. The computer industry is characterized by various standards and protocols that evolve with time. The Company's current products are designed to conform to certain industry standards and protocols such as SCSI, UltraSCSI, PCI, RAID, ATM and Fast Ethernet. In particular, a majority of the Company's revenues are currently derived from products based on the SCSI standard. If consumer acceptance of these standards was to decline or if they were replaced with new standards, and if the Company did not anticipate these changes and develop new products, the Company's business or operating results could be materially adversely affected. The markets for the Company's products are characterized by rapidly changing technology, frequent new product introductions and declining average selling prices over product life cycles. The Company's future success is therefore highly dependent upon the timely completion and introduction of new products at competitive price/performance levels. The success of new product introductions is dependent on several factors, including proper new product definition, product cost, timely completion and introduction of new product designs, quality of new products, differentiation of new products from those of the Company's competitors and market acceptance of the Company's and its customers' products. As a result, the Company believes that continued significant expenditures for research and development will be required in the future. There can be no assurance that the Company will successfully identify new product opportunities and develop and bring new products to market in a timely manner, that products or technologies developed by others will not render the Company's products or technologies obsolete or noncompetitive, or that the Company's products will be selected for design into the products of its targeted customers. The failure of any of the Company's new product development efforts could have a material adverse effect on the Company's business or operating results. In addition, the Company's revenues and operating results could be adversely impacted if its customers shifted their demand to a significant extent away from board-based I/O solutions to application-specific ICs. Dependence on Wafer Suppliers and Other Subcontractors. All of the finished silicon wafers used for the Company's products are currently manufactured to the Company's specifications by independent foundries. The Company currently purchases a substantial majority of its wafers through a supply agreement with Taiwan Semiconductor Manufacturing Company, Ltd. ("TSMC"). The Company also purchases wafers from SGS-Thomson Microelectronics and Seiko Epson. The manufacture of semiconductor devices is sensitive to a wide variety of factors, including the availability of raw materials, the level of contaminants in the manufacturing environment, impurities in the materials used, and the performance of personnel and equipment. While the quality, yield and timeliness of wafer deliveries to date have been acceptable, there can be no assurance that manufacturing yield problems will not occur in the future. In addition, although the Company has various supply agreements with its suppliers, a shortage of raw materials or production capacity could lead any of the Company's wafer suppliers to allocate available capacity to customers other than the Company, or to internal uses. Any prolonged inability to obtain wafers with competitive performance and cost attributes, adequate yields or timely deliveries from its foundries would delay production and product shipments and could have a material adverse effect on the Company's business or operating results. The Company expects that it will in the future seek to convert its fabrication process arrangements to smaller geometries and to more advanced process technologies. Such conversions entail inherent technological risks that can affect yields and delivery times. If for any reason the Company's current suppliers were unable or unwilling to satisfy the Company's wafer needs, the Company would be required to identify and qualify additional foundries. There can be no assurance that any additional -9- 13 wafer foundries would become available, that such foundries would be successfully qualified, or that such foundries would be able to satisfy the Company's requirements on a timely basis. The Company's future growth will depend in large part on increasing its wafer capacity allocation from current foundries, adding additional foundries and gaining access to advanced process technologies. There can be no assurance that the Company will be able to satisfy its future wafer needs from current or alternative sources. Any increase in general demand for wafers within the industry, or any reduction of existing wafer supply from any of the Company's foundry sources, could materially adversely affect the Company's business, financial condition or operating results. In order to secure wafer capacity, the Company from time to time has entered into "take or pay" contracts that committed the Company to purchase specified wafer quantities over extended periods, and has made prepayments to foundries. In the future, the Company may enter into similar transactions or other transactions, including, without limitation, non-refundable deposits with or loans to foundries, or equity investments in, joint ventures with or other partnership relationships with foundries. Any such transaction could require the Company to seek additional equity or debt financing to fund such activities. There can be no assurance that the Company will be able to obtain any required financing on terms acceptable to the Company. Additionally, the Company relies on subcontractors for the assembly and packaging of the ICs included in its products. The Company has no long-term agreements with its assembly and packaging subcontractors. There can be no assurance that such subcontractors will continue to be able and willing to meet the Company's requirements for such components or services. Any significant disruption in supplies from, or degradation in the quality of components or services supplied by, such subcontractors could delay shipments and result in the loss of customers or revenues or otherwise have a material adverse effect on the Company's business or operating results. Certain Risks Associated With Acquisitions. Since the beginning of fiscal 1996, the Company has acquired eleven complementary companies and businesses. As part of its overall strategy, the Company plans to continue to acquire or invest in complementary companies, products or technologies and to enter into joint ventures and strategic alliances with other companies. Risks commonly encountered in such transactions include the difficulty of assimilating the operations and personnel of the combined companies, the potential disruption of the Company's ongoing business, the inability to retain key technical and managerial personnel, the inability of management to maximize the financial and strategic position of the Company through the successful integration of acquired businesses, additional expenses associated with amortization of acquired intangible assets, dilution of existing equity holders, the maintenance of uniform standards, controls, procedures and policies and the impairment of relationships with employees and customers as a result of any integration of new personnel. There can be no assurance that the Company would be successful in overcoming these risks or any other problems encountered in connection with such business combinations, investments or joint ventures or that such transactions will not materially adversely affect the Company's business, financial condition or operating results. Competition. The markets for the Company's products are intensely competitive and are characterized by rapid technological advances, frequent new product introductions, evolving industry standards and price erosion. The Company's principal competitors in the host adapter market are Symbios Logic Inc., a subsidiary of Hyundai Electronics America, and other smaller manufacturers of host adapters. The Company's principal competitors in the mass storage market are captive suppliers and Cirrus Logic, Inc. As the Company has continued to broaden its bandwidth management product offerings into the desktop, server and networking environments, it has experienced, and expects to experience in the future, significantly increased competition both from existing competitors and from additional companies that may enter its markets. Some of these companies -10- 14 have greater technical, marketing, manufacturing and financial resources than the Company. There can be no assurance that the Company will be able to make timely introduction of new leading-edge solutions in response to competitive threats, that the Company will be able to compete successfully in the future against existing or potential competitors or that the Company's business or operating results will not be materially adversely affected by price competition. Certain Issues Related to Distributors. The Company's distributors generally offer a diverse array of products from several different manufacturers. Accordingly, there is a risk that these distributors may give higher priority to selling products from other suppliers, thus reducing their efforts to sell the Company's products. A reduction in sales efforts by the Company's current distributors could have a materially adverse effect on its business or operating results. The Company's distributors may on occasion build inventories in anticipation of substantial growth in sales, and if such growth does not occur as rapidly as anticipated, distributors may decrease the amount of product ordered from the Company in subsequent quarters. Such a slowdown in orders could reduce the Company's revenues in any given quarter and give rise to fluctuation in the Company's operating results. Dependence on Key Personnel. The Company's future success depends in large part on the continued service of its key technical, marketing and management personnel and on its ability to continue to attract and retain qualified employees, particularly those highly skilled design, process and test engineers involved in the manufacture of existing products and the development of new products and processes. The competition for such personnel is intense, and the loss of key employees could have a material adverse effect on the Company's business or operating results. Certain Risks Associated with International Operations. The Company's manufacturing facility and various subcontractors it utilizes from time to time are located primarily in Asia. Additionally, the Company has various sales offices and customers throughout Europe, Japan, and other countries. The Company's international operations and sales are subject to political and economic risks, including political instability, currency controls, exchange rate fluctuations, and changes in import/export regulations, tariffs and freight rates. In addition, because the Company's principal wafer supplier, TSMC, is located in Taiwan, the Company is subject to the risk of political instability in Taiwan, including the potential for conflict between Taiwan and the People's Republic of China. Intellectual Property Protection and Disputes. The Company has historically devoted significant resources to research and development and believes that the intellectual property derived from such research and development is a valuable asset that has been and will continue to be important to the success of the Company's business. Although the Company actively maintains and defends its intellectual property rights, no assurance can be given that the steps taken by the Company will be adequate to protect its proprietary rights. In addition, the laws of certain territories in which the Company's products are or may be developed, manufactured, or sold, including Asia and Europe, may not protect the Company's products and intellectual property rights to the same extent as the laws of the United States. The Company has from time to time discovered counterfeit copies of its products being manufactured or sold by others. Although the Company maintains an active program to detect and deter the counterfeiting of its products, should counterfeit products become available in the market to any significant degree it could materially adversely affect the business or operating results of the Company. From time to time, third parties may assert exclusive patent, copyright and other intellectual property rights to technologies that are important to the Company. There can be no assurance that third parties will not assert infringement claims against the Company in the future, that assertions by third parties will not result in costly litigation or that the Company would prevail in such litigation or be able to license any valid and infringed -11- 15 patents from third parties on commercially reasonable terms. Litigation, regardless of its outcome, could result in substantial cost and diversion of resources of the Company. Any infringement claim or other litigation against or by the Company could materially adversely affect the Company's business or operating results. Need for Interoperability. The Company's products must be designed to interoperate effectively with a variety of hardware and software products supplied by other manufacturers, including microprocessors, peripherals and operating system software. The Company depends on significant cooperation with these manufacturers in order to achieve its design objectives and produce products that interoperate successfully. While the Company believes that it generally has good relationships with leading system, peripheral and microprocessor suppliers, there can be no assurance that such suppliers will not from time to time make it more difficult for the Company to design its products for successful interoperability or decide to compete with the Company. Volatility of Stock Price. The market price of the Notes could be significantly affected by changes in the market price of the Common Stock. The stock market in general, and the market for shares of technology companies in particular, have from time to time experienced extreme price fluctuations, which have often been unrelated to the operating performance of the affected companies. In addition, factors such as technological innovations or new product introductions by the Company, its competitors or its customers may have a significant impact on the market price of the Company's Common Stock. Furthermore, 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 Common Stock and, in turn, the price of the Notes, to fluctuate substantially over short periods. Subordination. The Notes are unsecured and subordinated in right of payment in full to all existing and future Senior Indebtedness of the Company. As a result of such subordination, in the event of bankruptcy, liquidation or reorganization of the Company, or upon the acceleration of any Senior Indebtedness, the assets of the Company will be available to pay obligations on the Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The Company expects from time to time to incur indebtedness constituting Senior Indebtedness. The Indenture does not prohibit or limit the incurrence of additional indebtedness by the Company or its subsidiaries and the incurrence of additional indebtedness by the Company or its subsidiaries could adversely affect the Company's ability to pay its obligations on the Notes. As of December 27, 1996, the Company had $5.1 million of indebtedness outstanding that would have constituted Senior Indebtedness (excluding accrued interest and Senior Indebtedness constituting liabilities of a type not required to be reflected as a liability on the balance sheet of the Company in accordance with generally accepted accounting principles). In addition, the Notes are structurally subordinated to the liabilities, including trade payables, of the Company's subsidiaries. As of December 27, 1996, subsidiaries of the Company had outstanding $22.9 million of aggregate liabilities (excluding intercompany liabilities and liabilities of a type not required to be reflected as a liability on the balance sheets of such subsidiaries in accordance with generally accepted accounting principles). See "Description of Notes -- Subordination." Limitations on Repurchase of Notes. Upon a Change of Control (as defined), each Holder of Notes will have certain rights, at the Holder's option, to require the Company to repurchase all or a portion of such Holder's Notes. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the purchase price for all Notes tendered by the Holders thereof. In addition, the terms of the Company's existing primary bank facility prohibit the Company from repurchasing any Notes and also provide that under certain circumstances a Change of Control would constitute an event of default thereunder. Any future -12- 16 credit agreements or other agreements relating to other indebtedness (including other Senior Indebtedness) to which the Company becomes a party may contain similar restrictions and provisions. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing Notes by the terms of any indebtedness, the Company could seek the consent of its lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company would remain prohibited from repurchasing Notes. In such case, the Company's failure to repurchase tendered Notes would constitute an Event of Default under the Indenture, which would, in turn, constitute a further default under the Company's existing bank facility and may constitute a default under the terms of other indebtedness that the Company may enter into from time to time. In such circumstances, the subordination provisions in the Indenture would restrict payments to the Holders of Notes. See "Description of Notes -- Repurchase at Option of Holders." -13- 17 USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Notes or the Common Stock issuable upon conversion thereof by the Selling Securityholders. PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded on the Nasdaq National Market under the symbol "ADPT." The following table shows for the periods indicated the high and low sale prices for the Common Stock as reported by the Nasdaq National Market.
HIGH LOW ----------- ----------- FISCAL YEAR ENDED MARCH 31, 1995 First quarter ................ $ 9 3/4 $ 7 Second quarter ............... 10 5/8 8 1/8 Third quarter ................ 12 3/8 8 5/8 Fourth quarter ............... 18 1/2 10 7/8 FISCAL YEAR ENDED MARCH 31, 1996 First quarter ................ 19 15/16 14 5/8 Second quarter ............... 23 5/8 17 1/4 Third quarter ................ 24 3/16 17 13/16 Fourth quarter ............... 28 3/16 17 9/16 FISCAL YEAR ENDED MARCH 31, 1997 First quarter ................ 30 3/4 22 5/16 Second Quarter ............... 29 13/16 17 1/2 Third Quarter ................ 41 1/8 29 1/6 Fourth Quarter ............... 46 7/8 35 1/8
On April 2, 1997, the last reported sale price of the Common Stock as reported by the Nasdaq National Market was $35.75 per share. As of December 27, 1996, there were approximately 768 holders of record of the Company's Common Stock. DIVIDEND POLICY The Company has not paid any cash dividends on its capital stock to date. The Company currently anticipates that it will retain all future earnings, if any, to fund the development and growth of its business and does not anticipate paying any cash dividends in the foreseeable future. -14- 18 SELECTED CONSOLIDATED FINANCIAL DATA The following selected historical consolidated financial data of Adaptec, Inc., insofar as it relates to each of the fiscal years ended March 31, 1992 through March 31, 1996, has been derived from the audited consolidated financial statements of Adaptec, including the consolidated balance sheets at March 31, 1995 and 1996 and the related consolidated statements of operations and of cash flows for each of the three fiscal years in the period ended March 31, 1996 and the related notes thereto included herein. The consolidated financial data as of December 27, 1996 and for the nine months ended December 29, 1995 and December 27, 1996 are derived from unaudited condensed consolidated financial statements included herein, which include all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for a fair presentation of the consolidated financial position and the consolidated results of operations for these periods. Operating results for the nine months ended December 27, 1996 are not necessarily indicative of results that may be expected for future periods. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.
Nine Months Ended Year Ended March 31, ------------------------- --------------------------------------------------------- December 29, December 27, 1992 1993 1994 1995 1996 1995 1996 --------- --------- --------- --------- --------- ------------ ------------ (in thousands, except ratio and per share data) STATEMENT OF OPERATIONS DATA: Net revenues .......................... $ 150,315 $ 311,339 $ 372,245 $ 466,194 $ 659,347 $ 463,322 $ 668,760 Cost of revenues ...................... 84,549 174,179 189,526 205,596 275,939 193,526 281,735 --------- --------- --------- --------- --------- --------- --------- Gross profit ........................ 65,766 137,160 182,719 260,598 383,408 269,796 387,025 --------- --------- --------- --------- --------- --------- --------- Operating expenses: Research and development ............ 17,514 26,324 39,993 60,848 87,628 60,488 93,339 Sales and marketing ................. 21,338 32,525 46,192 58,737 81,548 58,200 79,914 General and administrative .......... 10,517 15,568 19,399 23,229 35,784 23,976 34,988 Write-off of acquired in-process technology and other .............. -- -- -- -- 52,313 52,313 80,663 --------- --------- --------- --------- --------- --------- --------- Total operating expenses .......... 49,369 74,417 105,584 142,814 257,273 194,977 288,904 --------- --------- --------- --------- --------- --------- --------- Income from operations .............. 16,397 62,743 77,135 117,784 126,135 74,819 98,121 --------- --------- --------- --------- --------- --------- --------- Shareholder settlement ................ -- -- (2,409) -- -- -- -- Interest income ....................... 3,248 4,078 5,183 7,932 12,694 9,087 7,990 Interest expense ...................... (159) (967) (1,306) (1,179) (840) (674) (597) --------- --------- --------- --------- --------- --------- --------- Interest income, net .................. 3,089 3,111 1,468 6,753 11,854 8,413 7,393 --------- --------- --------- --------- --------- --------- --------- Income before income taxes .......... 19,486 65,854 78,603 124,537 137,989 83,232 105,514 Provision for income taxes ............ 4,872 16,464 19,653 31,135 34,614 20,925 44,779 --------- --------- --------- --------- --------- --------- --------- Net income ............................ $ 14,614 $ 49,390 $ 58,950 $ 93,402 $ 103,375 $ 62,307 $ 60,735 ========= ========= ========= ========= ========= ========= ========= Net income per share .................... $ 0.18 $ 0.48 $ 0.55 $ 0.88 $ 0.95 $ 0.57 $ 0.53 ========= ========= ========= ========= ========= ========= ========= Weighted average shares outstanding ............................ 83,328 103,304 107,204 106,714 109,138 108,794 114,002 ========= ========= ========= ========= ========= ========= ========= Ratio of earnings to fixed charges(1) ............................. 26.4x 46.5x 43.6x 64.4x 67.8x 51.7x 61.7x
March 31, ------------------------------------------- December 27, 1992 1993 1994 1995 1996 1996 ------- ------- ------- ------- ------- ------------ BALANCE SHEET DATA: Working capital ...................... $101,116 $191,693 $243,451 $294,058 $334,989 $374,707 Total assets ......................... 138,615 282,896 358,475 435,708 646,486 726,487 Long-term debt, net of current portion ............................... 423 14,450 11,050 7,650 4,250 1,700 Shareholders' equity ................. 117,742 225,155 297,616 371,644 511,945 611,999
- ---------- (1) For the purpose of calculating the ratio of earnings to fixed charges, (i) earnings consist of consolidated pre-tax income plus fixed charges and (ii) fixed charges consist of interest expense incurred and the portion of rental expense under leases deemed by the Company to be representative of the interest factor. -15- 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Prospectus contains forward-looking statements that involve risks and uncertainties. The statements contained in this Prospectus that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below, under "Risk Factors" and elsewhere in this Prospectus. RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of net revenues for the periods indicated.
Nine Months Ended Year Ended March 31, ---------------------------- ------------------------------------------------------ December 29, December 27, 1992 1993 1994 1995 1996 1995 1996 ---- ---- ---- ---- ---- -------------- ------------ Net revenues ................... 100% 100% 100% 100% 100% 100% 100% Cost of revenues ............... 56 56 51 44 42 42 42 ---- ---- ---- ---- ---- ---- ---- Gross profit ................ 44 44 49 56 58 58 58 Operating expenses: Research and development .... 12 9 11 13 13 13 14 Sales and marketing ......... 14 10 12 13 13 13 12 General and administrative .. 7 5 5 5 5 5 5 Write-off of acquired in- process technology and other.................... -- -- -- -- 8 11 12 ---- ---- ---- ---- ---- ---- ---- Total operating expenses ........... 33 24 28 31 39 42 43 ---- ---- ---- ---- ---- ---- ---- Income from operations ...... 11 20 21 25 19 16 15 Shareholder settlement ......... -- -- (1) -- -- -- -- Interest income, net of interest expense ........ 2 1 1 2 2 2 1 ---- ---- ---- ---- ---- ---- ---- Income before income taxes .. 13 21 21 27 21 18 16 Provision for income taxes ..... 3 5 5 7 5 5 7 ---- ---- ---- ---- ---- ---- ---- Net income ..................... 10% 16% 16% 20% 16% 13% 9% ==== ==== ==== ==== ==== ==== ====
NINE MONTHS ENDED DECEMBER 27, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 29, 1995 Net revenues increased 44% to $669 million in the first nine months of fiscal 1997 from $463 million in the corresponding period of fiscal 1996. This growth was primarily attributable to increased shipments of the Company's host adapters and proprietary ICs for mass storage devices. These increases were primarily the result of the continued growth in the markets for high-performance PCs and servers for networking applications, continued demand for SCSI in the client/server environment and an increase in the use of diverse peripherals in microcomputer systems. Gross margins for the first nine months of fiscal 1997 were unchanged at 58% compared with the same period in fiscal 1996. For the nine months ended in fiscal 1997, gross margins were positively affected by decreased manufacturing costs, which were offset by the mix of products shipped. -16- 20 Research and development expenses as a percentage of net revenues were 14% during the first nine months of fiscal 1997 compared to 13% for the same period in fiscal 1996. Actual spending for research and development increased from the corresponding period of fiscal 1996 by 54% to $93 million in the first nine months of fiscal 1997. This increased spending was a result of the Company's continued development of products for emerging standards such as Firewire and Fibre Channel, networking products, various peripheral technology solutions, and its ongoing commitment to enhance its core SCSI business. Sales and marketing expenses decreased to 12% of revenues for the nine months of fiscal 1997 compared to 13% for the same period in fiscal 1996. Actual sales and marketing expenses increased from the corresponding period of fiscal 1996 by 37% to $80 million in the first nine months of fiscal 1997. The increase in actual spending was primarily a result of advertising and promotional programs aimed at introducing new technologies and generating demand for the Company's products and increased staffing levels to support the continued growth of the Company. General and administrative expenses as a percentage of net revenues in the first nine months of fiscal 1997 remained relatively consistent with the comparable fiscal 1996 period. Actual spending increased from the prior period primarily due to costs associated with increased staffing levels to support the Company's growth. During the first nine months of fiscal 1997, the Company acquired Western Digital's Connectivity Solutions Group ("CSG"), certain technologies from Corel, Inc. ("Corel"), Data Kinesis, Inc. ("DKI"), and Sigmax Technology, Inc. ("Sigmax") for an aggregate purchase price of $106 million in cash and stock. These acquisitions were accounted for using the purchase method of accounting. Among the assets acquired was in-process technology, resulting in an aggregate write-off of $79 million. In fiscal 1997, the Company acquired all of the outstanding capital stock of Cogent Data Technologies, Inc. ("Cogent") in a $68 million stock transaction. Cogent provides high-performance Fast Ethernet products for the networking market. The Company recorded this acquisition using the pooling method of accounting and recorded acquired assets and assumed liabilities at their book values as of the acquisition date. The results of operations for Cogent for the three year period ended March 31, 1996 were immaterial relative to the Company's financial statements. Also in connection with its acquisition of Cogent Data Technologies, Inc. ("Cogent"), the Company incurred $1.7 million in professional fees, which have been recorded in "write-off of acquired in-process technology and other." Interest income, net of interest expense, decreased 12% to $7.4 million in the first nine months of fiscal 1997 compared to the same period in fiscal 1996. This was due to lower cash, cash equivalents and marketable securities balances in fiscal 1997 primarily as a result of the Company's various strategic acquisitions and payments made to secure additional capacity for wafer fabrication. The Company's tax provision for the first nine months of fiscal 1997 was $45 million or 42% of income before income taxes. The higher effective tax rate for the nine month period ended December 27, 1996 primarily resulted from the write-off of in-process technology for which the Company will receive no corresponding tax benefit. Excluding the effect of the write-off of in-process technology, the Company's effective tax rate was 25% for the nine month period ended December 27, 1996. The difference between the Company's normal 25% rate and the U.S. statutory rate is primarily due to income earned in Singapore, where the Company is subject to a significantly lower effective tax rate. FISCAL 1996 COMPARED TO FISCAL 1995 Adaptec experienced growth worldwide as net revenues increased 41% to $659 million in fiscal 1996 from $466 million in fiscal 1995. The Company's continued increase in net revenues was driven by growth of -17- 21 client/ server networking environments, complex microcomputer-based applications requiring high-performance I/O, and the expanded adoption of various peripheral devices. This growth combined with the Company's market leadership in SCSI solutions resulted in increased net revenues from the Company's host adapters. During the year, the Company also began shipping products incorporating newer technologies such as RAID, ATM and CD-Recordable (CD-R) software. Fiscal 1996 net revenue from sales of mass storage integrated circuits also increased from the prior year as the Company benefitted from next-generation design wins for higher capacity disk drives that are required for advanced applications. Gross margin of 58% in fiscal 1996 increased from 56% in fiscal 1995. Gross margin was favorably affected by the increased revenues from the Company's higher margin products. The Company's focus on design for manufacturability allowed it to continue to experience efficiencies in the manufacturing process and accelerate time to customer volume. Research and development expenditures in fiscal 1996 were $88 million, an increase of 44% over fiscal 1995. As a percentage of net revenues, research and development expenses were 13% for both fiscal 1996 and fiscal 1995. The Company's research and development efforts continue to be focused on solutions which enhance performance in single-user desktop, enterprise-wide computing, and networked environments. This commitment included investing in its current core SCSI business as well as several emerging technologies including RAID, CD-R, ATM, and I/O standards such as Firewire and Fibre Channel. The Company believes these expenditures, consisting primarily of increased staffing levels, have allowed the Company to maintain its position in technology leadership and product innovation. Sales and marketing expenses increased to $82 million in fiscal 1996, an increase of 39% over fiscal 1995. As a percentage of net revenues, sales and marketing expenses were 13% in both fiscal 1996 and fiscal 1995. The increase in actual spending was a result of advertising and promotional programs aimed at generating demand in the consumer and enterprise computer markets and increased staffing levels to support the continued growth of the Company. The Company's promotional and advertising programs have allowed it to leverage its brand image around the globe. General and administrative expenses as a percentage of net revenues were consistent at 5% for both fiscal 1996 and fiscal 1995. Actual spending increased from fiscal 1995, primarily due to increased staffing to support the continued growth of the Company. During fiscal 1996, the Company acquired Trillium Research, Inc., Future Domain Corporation, Incat Systems Software, USA, Inc., and Power I/O, Inc. These acquisitions were accounted for using the purchase method of accounting. Among the assets acquired was in-process technology, resulting in write-offs totaling $52 million. Excluding these write-offs, the Company's results of operations for fiscal 1996 were not materially affected by these acquisitions. Interest income, net of interest expense, was $12 million in fiscal 1996, an increase of $5 million over fiscal 1995. The increase was primarily due to the increase in cash and cash equivalents and marketable securities. The Company's effective tax rate for fiscal 1996 was 25%, the same as fiscal 1995. During fiscal 1996, the Company concluded negotiations with the Singapore government extending the tax holiday for the Company's manufacturing subsidiary. The terms of the tax holiday provide that profits derived from certain products will be exempt from tax for a period of 10 years, subject to certain conditions. In addition, profits derived from the -18- 22 Company's remaining products will be taxed at a rate of 15%, which is lower than the Singapore statutory rate of 27%, through fiscal 1998. Fiscal 1995 Compared to Fiscal 1994 Net revenues increased 25% to $466 million in fiscal 1995 from $372 million in fiscal 1994. The continued adoption of SCSI in PC's 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 servers where SCSI usage approaches 100%. During fiscal 1995, the Company introduced several new IOware(R) 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 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 also allowed the Company to shorten the manufacturing cycle time and better serve its customers. Research and development expenditures in fiscal 1995 were $61 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 remained 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. Sales and marketing expenses increased to $59 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. 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. Interest income, net of interest expense, was $7 million in fiscal 1995, an increase of $5 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. -19- 23 The Company's effective tax rate for fiscal 1995 was 25%, the same as fiscal 1994. LIQUIDITY AND CAPITAL RESOURCES Operating Activities Net cash generated by operations for the first nine months of fiscal 1997 was $165 million compared with $98 million for the same period in fiscal 1996. During the first nine months of fiscal 1997, the majority of funds generated from operations resulted from $61 million of net income adjusted by non-cash items including a non-recurring write-off of acquired in-process technology of $77 million (net of taxes), and depreciation and amortization of $20 million. Also, contributing to favorable operating cash flows was a $26 million increase in accrued liabilities mainly resulting from increased staffing and the timing of federal income tax payments. Primarily offsetting these items was an increase in accounts receivable of $17 million resulting from the timing and increases of shipments during the third fiscal quarter. Investing Activities During the first nine months of fiscal 1997, the Company paid cash of $89 million towards the acquisitions of CSG, DKI, Sigmax, and certain technologies from Corel. The Company also continued to invest in equipment for product development, IC testing, board-level production, and made various building and leasehold improvements to its facilities. The Company may also make investments for increased capacity for wafer fabrication or acquisitions of complementary businesses, products, or technologies. During the first nine months of fiscal 1997, the Company continued to invest proceeds from operating activities in marketable securities consisting mainly of various U.S. government and municipal securities and used proceeds from the sale of marketable securities primarily for acquisitions, equipment purchases, and to obtain guaranteed future wafer capacity. Financing Activities During February 1997, the Company completed an offering of $230 million of convertible subordinated notes. The Notes bear interest at 4 3/4%, mature in February 2004 and are convertible into the Company's Common Stock at $51.66 per share. In connection with an agreement with TSMC that ensures availability of a portion of the Company's wafer capacity for both current and future technologies, the Company paid a short-term note of $46 million due to TSMC. In return for this pre-payment, the Company will receive guaranteed future wafer capacity and a discount on purchases that exceed certain prescribed minimum quantities. Additionally, in connection with this agreement, the Company will receive access to future process technology. Subsequent to December 27, 1996, the Company entered into an agreement with Lucent Technologies Inc. ("Lucent") to sell equipment that it had previously purchased in connection with a separate agreement that ensured availability of certain levels of wafer capacity from Lucent. This agreement cancels the initial capacity agreement and requires Lucent to purchase the equipment from the Company at agreed upon installments over a twelve month period. During the first nine months of fiscal 1997, the Company received proceeds from common stock issued under its employee stock option and employee stock purchase plans totaling $21 million. The Company believes its existing working capital, expected cash flows from operations and available sources of bank, equity, debt and equipment financing, will be sufficient to support its operations at least through fiscal 1998. -20- 24 BUSINESS Adaptec is a leading supplier of bandwidth management solutions that significantly enhance total system performance by increasing the data transfer rates between PCs, servers, peripherals and networks. The Company's products include host adapters, which are primarily based on the SCSI standard, peripheral technology solutions, consisting primarily of ASIC controllers for hard disk and CD-ROM drives and network products, which include ATM and Fast Ethernet adapters. Adaptec provides its customers with complete solutions, consisting of hardware, software, and firmware, which are incorporated into the products of substantially all of the major Intel-based PC and server manufacturers worldwide. INDUSTRY BACKGROUND A number of trends are driving the need to increase effective I/O bandwidth between PCs, servers, peripherals and networks: (i) the introduction of increasingly powerful CPUs, which require more rapidly accessed and intelligently managed data to function at their optimal performance level, (ii) new advanced operating systems, such as Windows NT and Windows 95 that allow for faster I/O and multitasking, (iii) the growth of data-intensive software applications, such as graphics and video, which require significantly more bandwidth, (iv) the proliferation of client/server networks, the Internet and corporate intranets, which is in turn driving growth in the number and processing power of servers, and (v) growth in high performance peripherals, such as high capacity hard disk drives, scanners, CD-ROMs, and new CD-R and DVD drives. These factors have created a rapid increase in the transfer of data between desktop PC's, servers, peripherals and networks, resulting in substantial I/O and network bottlenecks. Industry standards have been developed to enable I/O to keep up with these trends, of which the most important for high performance applications is SCSI (Small Computer System Interface). SCSI has become the industry standard I/O bus specification for high performance systems. SCSI allows the "intelligent" transfer of data between computers, peripherals and networks by enabling multitasking and by offloading the system CPU from I/O management. SCSI solutions include an application specific integrated circuit ("ASIC"), which can be incorporated onto the motherboard or placed on a board for add-in applications, and firmware and software for operating system drivers, peripheral drivers and I/O utilities. Nearly all servers utilize SCSI, and as many as 10% of desktop PCs now incorporate SCSI, with this percentage expected to increase as microprocessors become more powerful and as more complex, data-intensive applications are performed on the desktop. In addition to SCSI, other high-performance, standards-based host adapter solutions, such as Firewire and Fibre Channel, are emerging in support of new applications. Firewire is today primarily used with consumer peripherals, such as digital cameras and professional video editing systems, and should benefit as the convergence of computers and consumer electronics continues at a rapid pace. Fibre Channel is a bus technology targeted for applications with very high-capacity I/O demands, such as data warehousing and video server applications. The increase in the usage of data is also creating demand for increasing amounts of data storage as well as new high-capacity peripheral devices. Virtually every microcomputer is shipped with mass storage peripherals such as hard disk drives, CD-ROMs and more recently DVD-ROMs. Each peripheral requires an ASIC controller to manage the operations of that peripheral and to interface with the system bus. Recently, new peripherals, such as CD-ROMs and removable storage devices, have been increasingly used alongside hard disks to provide additional storage capacity. Such devices frequently have SCSI interfaces. In addition, the increasing need for mass storage is also driving the need for controller solutions which can support multi-gigabyte drives. -21- 25 Another I/O-related market that is benefiting from the need for increased bandwidth is the market for network interface cards that reside on servers and PCs and use such standards as ATM and Fast Ethernet. ATM is a high speed standard which is designed to be suitable for all types of applications and mixed data types, from simple text to video. ATM is based on a packet switching architecture that allows for "bandwidth- on-demand" and faster performance than Ethernet, but requires substantial network upgrading. Fast Ethernet provides a low-cost, high-speed bandwidth solution to the already installed base of Ethernet networks. PRODUCTS The Company's products are designed and manufactured using a core set of technologies and resources. The Company's semiconductor technology design centers develop products for all markets the Company serves. The Company continues to utilize a process called concurrent engineering, in which manufacturing, marketing and engineering work together early in the development cycle, to meet the demands of emerging technologies as well as decrease the "time to volume" of product shipments. The Company maintains an Internet Web site to provide its customers with detailed company and product information. Board-based I/O Solutions The Company's board-based I/O solutions, which include SCSI host adapters, ATM and Fast Ethernet network interface cards, and related firmware and software, meet the demanding I/O and connectivity requirements of enterprise servers, high-performance desktop and portable computers, and technical workstations across all important microprocessor-based platforms. The Company's board-based I/O products, which incorporate the Company's proprietary single chip architectures and an extensive array of related software products, provide customers the most comprehensive board-based I/O solutions available in the markets it serves. The Company provides bus mastering, SCSI host adapters that manage all I/O processing activity, thereby freeing the CPU to perform other operations. The Company offers these host adapters across all ranges of bus architectures including PCI, ISA, EISA, VL, PCMCIA and Micro Channel. The Company also provides non-bus mastering host adapters that provide standardized SCSI connectivity between the CPU and its peripherals. 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 servers where SCSI usage approaches 100%. To meet this increased demand, the Company continues to develop and market I/O 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 more readily connect SCSI peripherals to their microcomputer. The Company has undertaken numerous initiatives to increase the accessibility, ease of use and versatility of the SCSI standard. Advanced SCSI Programming Interface ("ASPI"), an industry standard developed by the Company, enables users to integrate high-performance SCSI peripherals with microcomputers using popular operating systems, such as DOS, Windows, Windows 95, Windows NT, NetWare, OS/2 and UNIX. In addition, 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. The Company has also 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. The Company has developed and continues to develop products for emerging standards such as Firewire and Fibre Channel. -22- 26 The proliferation of client server architectures, the Internet and corporate intranets have caused both the expansion and upgrading of corporate networks, thereby creating demand for more powerful bandwidth management solutions for networked environments. In fiscal 1996, the Company began shipping its family of ATM network interface cards ("NICs"), which provide a very robust solution for managing mixed data types such as graphics, video and voice. As a result of the acquisition of Cogent in fiscal 1997, the Company has expanded its product offerings to include a family of Fast Ethernet NICs which provide a high performance solution to the installed base of servers used in Ethernet networks. Integrated Circuits The Company develops proprietary ICs for use in mass storage devices and microcomputer systems and for use in its own board-based SCSI host adapters and NICs. Adaptec's proprietary ICs 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 ICs, firmware and software that optimize overall subsystem design. The Company's current IC products include SCSI and EIDE programmable storage controllers, single-chip SCSI host adapters and single-chip "RAID-on-the-motherboard" solutions. 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 EIDE 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 as well as non-hard disk drives. The Company's SCSI host adapter ICs incorporate similar technology and are used by system manufacturers to embed SCSI on the system motherboard. RESEARCH AND DEVELOPMENT The Company believes research and development is fundamental to its success, especially in integrated circuit design, software development and I/O solutions that encompass emerging technologies. 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 ICs circuits and knowledge of operating system software is essential. The Company's research and development efforts continue to focus on the development of complete solutions that include proprietary ASICs, firmware and software that support multiple architectures and peripheral devices. These I/O solutions facilitate high-speed data transfer rates, which are essential to the enhanced performance of client/server networking environments, applications requiring high-performance I/O, and the adoption of various peripheral devices. The Company continues to leverage its technical expertise and product innovation capabilities to address I/O solutions across a broad range of users and platforms. The Company also continues to invest significant resources to develop products for its core SCSI business. Additionally, the Company is investing in newer products and technologies, including ATM, RAID, CD-R, Firewire and Fibre Channel. Approximately 25% of the Company's employees are engaged in research and development, of which approximately 50% are engaged in software development. In fiscal 1996, 1995 and 1994, the Company spent approximately $88 million (13% of net revenues), $61 million (13% of net revenues), and $40 million (11% of net revenues), respectively, for research and development. -23- 27 MARKETING AND CUSTOMERS The Company believes it has successfully positioned itself as a leading supplier of a full range of I/O solutions providing bandwidth management. The Company sells its products through a direct sales force to substantially all major server and PC manufacturers, as well as most of the major electronic distributors worldwide. The Company works closely with its OEM customers on the design of current and next generation products to meet the specific requirements of system integrators and end users. The Company provides its OEM customers with extensive applications and system design support. The Company also sells board-based products to end users through major computer product distributors and provides technical support to its customers worldwide. The Company's OEM customers include Acer, Compaq, Digital Equipment Corporation, Dell Computer Corporation, Fujitsu, Gateway 2000, Hewlett-Packard Company, IBM Corporation, Intel Corporation, Iomega, Maxtor Corporation, NEC Technologies, Samsung, Siemens Nixdorf and Toshiba America. The Company's major distributors include Actebis, Computer 2000, Gates/Arrow, Ingram Micro, Merisel, Nissho, and Tech Data. In fiscal 1996, sales to Nissho represented 10% of net revenues. In fiscal 1995 and 1994 no customer accounted for more than 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 system designers. The systems-level expertise and software experience of the Company's engineering staff are also available to customers with 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 56%, 62% and 58% of net revenues in fiscal 1996, 1995, and 1994, 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. COMPETITION The Company's principal competitors in the host adapter market are Symbios Logic, Inc., a subsidiary of Hyundai Electronics America, and other smaller host adapter manufacturers. The Company's competitive strategy is to continue 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 the principal competitive factors in this market are performance, a comprehensive array of solutions ranging from connectivity products for the personal computing market to high performance products for the enterprise-wide computing and networked environments, product features, brand awareness, financial resources and technical and administrative support. The Company believes that it presently competes favorably with respect to each of these factors. The Company's principal competitors in the mass storage market are captive suppliers and Cirrus Logic, Inc. The Company believes that its competitive strengths in the mass storage market include its systems level expertise, integrated circuit design capability and substantial experience in I/O applications. The Company believes the principal competitive factors in achieving design wins are performance, product features, price, -24- 28 quality and technical and administrative support. The Company believes that it presently competes favorably with respect to each of these factors. 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. As the Company has continued to broaden its bandwidth management product offerings into the desktop, server and networking environments, it has experienced, and expects to experience in the future, significantly increased competition both from existing competitors and from additional companies that may enter its markets. Some of these companies have greater technical, marketing, manufacturing and financial resources than the Company. The Company will have to continue to develop and market appropriate products to remain competitive. The Company believes one of the significant factors in its competitive success is its continued commitment of significant resources to research and development. BACKLOG The Company's backlog was approximately $138 million at December 27, 1996. This backlog figure includes only orders scheduled for shipment within six months, of which the majority are scheduled for delivery within 90 days. 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. MANUFACTURING The Company's Singapore manufacturing facility produces and tests high volume host adapter products. The Singapore facility has earned ISO 9001 certification, a stringent quality standard that has become a requirement for doing business globally. By establishing this facility in Singapore in 1988, the Company has experienced 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 random access memory supplied by several outside sources. All semiconductor wafers used in manufacturing the Company's products are processed to its specifications by outside suppliers. The Company believes that its current wafer volume and manufacturing technology requirements are best met with subcontracting relationships. In fiscal 1996, the Company secured capacity through an agreement with Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC") that ensures availability of a portion of the Company's wafer capacity for both current and future technologies. Under this agreement, which is effective through 2001, the Company made advance payments totaling $66 million. This agreement is in addition to an existing deposit and supply agreement with TSMC which expires in June 1997. EMPLOYEES At December 27, 1996, the Company had 2,652 employees, including 697 in engineering, 1,172 in manufacturing (including 997 at its Singapore facility), 122 in customer technical support, 203 in marketing, 189 in sales, and 269 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 are represented by a labor union. -25- 29 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. PROPERTIES The Company owns six buildings (approximately 375,000 square feet) in Milpitas, California which are primarily used by the Company for corporate offices, research, manufacturing, marketing and sales. The Company leases another building which is mainly occupied to support administrative and sales functions. The Company also leases facilities in Boulder, Colorado (47,000 square feet), Irvine, California (82,000 square feet) and Hudson, Wisconsin (5,000 square feet) and Nashua, New Hampshire (17,102 square feet) to support technical design efforts and sales. Adaptec Manufacturing Singapore is located in two leased facilities (approximately 150,000 square feet). The two buildings are used by the Company for research, manufacturing and sales. The Company also leases ten sales offices in the United States, and one sales office each in Brussels, Belgium; Munich, Germany; Bretonneux, France; Fleet, England; Singapore; Seoul, Korea; Taiwan; and Tokyo, Japan. The Tokyo office also provides technical design efforts and technical support with the Brussels office providing technical support to Europe. 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 1998. During fiscal 1996, the Company acquired a parcel of land in Fremont, California for approximately $12 million cash to support anticipated future growth. 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. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. -26- 30 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The names of the Directors and executive officers of Adaptec, Inc., their ages as of March 31, 1997 and certain information about them are set forth below.
NAME OF DIRECTORS AND EXECUTIVE OFFICERS AGE PRINCIPAL OCCUPATION - ------------------------------------------ --- --------------------------------------------------------------------------- John G. Adler 60 Chairman of the Board of Directors F. Grant Saviers 52 President and Chief Executive Officer of the Company Robert N. Stephens 51 Chief Operating Officer Andrew J. Brown 37 Vice President, Corporate Controller and Principal Accounting Officer Richard J. Clayton 56 Vice President and General Manager Michael G. Fisher 38 Vice President and General Manager Richard S. Gourley 44 Vice President, Worldwide Sales Paul G. Hansen 49 Vice President of Finance, Chief Financial Officer and Assistant Secretary Drew Hoffman 40 Vice President and General Manager E.J. Tim Harris 49 Vice President of Administration Sam Kazarian 54 Vice President of Operations Christopher G. O'Meara 39 Vice President and Treasurer Subramanian Sundaresh 40 Vice President and General Manager Henry P. Massey, Jr. 57 Secretary Laurence B. Boucher 54 Director Carl J. Conti 59 Director John East 52 Director Robert J. Loarie 54 Director B.J. Moore 61 Director W. Ferrell Sanders 60 Director Phillip E. White 54 Director
Except as set forth below, each of the Directors and executive officers has been engaged in his principal occupation described above during the past five years. These is no family relationship between any director or executive officer of Adaptec. Mr. Adler served as President of Adaptec from May 1985 to August 1992, as Chief Executive Officer from December 1986 to July 1995, as a director since February 1986 and as Chairman of the Board of Directors since May 1990. Mr. Saviers has served as President and Chief Executive Officer of Adaptec since August 1992 and July 1995 respectively, and was Chief Operating Officer from August 1992 to July 1995. Prior to joining Adaptec, Mr. Saviers was employed with Digital Equipment Corporation for more than five years, last serving as Vice President of its personal computer systems and peripherals operation. Mr. Stephens has served as Chief Operating Officer since November 1995. From 1993 to 1995, he founded, and served as Chairman for Power I/O Corporation. From 1990 to 1993, Mr. Stephens held the position of President and CEO of Emulex Corporation. 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. Mr. Clayton has served as Vice President and General Manager since May 1996. From October 1995 until February 1996 he served as Vice President of AVID Technology Corp. and from January 1984 until February 1996 he served as Vice President of Thinking Machines Corp. -27- 31 Mr. Fisher has served as Vice President and General Manager since November 1994. Between May 1994 and October 1994 he held the position of General Manager, Mass Storage Electronics Product Group. Before then, Mr. Fisher held the position of Director of Hard Disk Drive Products at Exar Corporation from November 1990 until 1994. Mr. Gourley has served as Vice President, Worldwide Sales since April 1996. From September 1994 to April 1996 he was Senior Director at Oracle; from May 1993 to August 1994 served as Segment Manager, Client/Server at IBM; April 1991 to April 1993 as Branch Manager of Silicon Valley at IBM. 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 1985. Mr. Harris has served as Vice President of Administration since December 1996. From January 1984 to November 1996, he served in various positions at Novell, Inc. most recently as Senior Vice President, Human Resources. Mr. Hoffman has served as Vice President and General Manager since August 1995. Mr. Hoffman served as Vice President, Engineering of Eschelon Systems Corp. from 1991 to 1995. 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. 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. Mr. Boucher has served as President from December 1987 to June 1995, as Chief Executive Officer from December 1987 to January 1996, Chairman of the Board of Directors from February 1994 to June 1996, and a director since 1987 of Auspex Systems, Inc., a manufacturer of computer systems. He is a founder of Adaptec and served as Chairman of the Board of Directors from May 1981 to May 1990 and as Chief Executive Officer from May 1981 to December 1986. Mr. Conti is an independent management consultant. From 1959 to 1991, he held a variety of technical and managerial positions with International Business Machines Corporation, a manufacturer of computer hardware and software, concluding with four years as a Senior Vice President. Mr. East has, since December 1988, served as a director, President and Chief Executive Officer of Actel Corporation, a manufacturer of field programmable gate arrays. -28- 32 Mr. Loarie has, since August 1992, served as a principal of Morgan Stanley & Co. Incorporated, a diversified investment firm, and as a general partner of certain venture capital investment partnerships affiliated with Morgan Stanley. Prior to that time and for more than the previous five years, Mr. Loarie was a general partner of Weiss, Peck & Greer, an investment management firm, and of several venture capital partnerships affiliated with Weiss Peck & Greer. Mr. Loarie is also a director of Telcom Semiconductor, Inc. and Aurum Software, Inc. Mr. Moore is an independent management consultant. Mr. Moore served as President of Outlook Technology, Inc., a company engaged in the development, manufacture and marketing of digital test instrumentation, from February 1986 to July 1991. Mr. Moore is also a director of Dionex Inc. Mr. Sanders has served as a general partner of Asset Management Co. since February 1989 and served as a senior associate of Asset Management Co. from March 1987 to February 1989. Mr. Sanders is also a director of Solectron Corporation. Mr. White has served as President, Chief Executive Officer, director, and Chairman of the Board of Informix Software, Inc., a software company, since January 1989. Prior to that time and for more than the last five years, Mr. White was President of Wyse Technology, Inc., a manufacturer of computers and computer terminals. Mr. White is also a director of Legato Systems, Inc. COMPENSATION OF DIRECTORS Cash Compensation Non-employee directors receive $3,000 per fiscal quarter and $2,000 for each meeting of the Board of Directors attended other than telephonic meetings and are reimbursed for their expenses incurred in attending meetings of the Board of Directors. Directors do not receive compensation for committee or telephonic meetings. Employee directors do not receive additional compensation for attendance at Board Meetings. 1990 Directors' Option Plan Non-employee directors also receive stock options under the Company's 1990 Directors' Option Plan (the "Directors' Plan"). The Directors' Plan was adopted and approved by the shareholders of the Company in 1990. A total of 2,200,000 shares of Common Stock have been reserved for issuance under the Directors' Plan, as it has been subsequently amended. The Directors' Plan provides for the grant of non-statutory stock options to non-employee directors of the Company. All eligible directors are granted an option to purchase 40,000 shares of Common Stock on the date on which such person first becomes a director (the "Initial Option"), whether through election by the shareholders or appointment by the Board to fill a vacancy. On March 31 of each year, each non-employee director is granted an additional option to purchase 10,000 shares of Common Stock ("Annual Options"). Initial Options and Annual Options granted before March 31, 1997 become exercisable for 25% of the shares subject to the option on the first anniversary of the date of grant and for 6.25% of the shares subject to the option for each full calendar quarter thereafter that the optionee remains a director. Annual Options granted on or after March 31, 1997 become exercisable for 25% of the shares subject to the option for each full calendar quarter that the optionee remains a director after the date of grant. The per share exercise price of options is established at the fair market value of the Company's Common Stock on the date the option is granted. Options granted prior to March 31, 1997 have a term of five years; all subsequent options have a term of ten years. -29- 33 Directors Conti and East were granted options to purchase 80,000 shares of Common Stock on November 1, 1995 at $22.25 and on December 7, 1995 at $22.25, respectively. Pursuant to the Directors' Plan, Directors Boucher, Conti, East, Loarie, Moore, Sanders and White were granted options to purchase 20,000 shares of Common Stock each on March 29, 1996 at an exercise price of $24.125 per share. BOARD MEETINGS AND COMMITTEES The Board of Directors of the Company held a total of seven meetings during the fiscal year ended March 31, 1996. The Board of Directors has an Audit Committee, a Compensation Committee and a Nominating Committee. The Audit Committee of the Board of Directors consists of Messrs. Loarie, Sanders and Saviers and held six meetings during the last fiscal year. Mr. Adler resigned from the committee during the fiscal year. The Audit Committee recommends engagement of the Company's independent accountants and is primarily responsible for approving the services performed by the Company's independent accountants and for reviewing and evaluating the Company's accounting principles and its system of internal accounting controls. The Compensation Committee of the Board of Directors consists of Messrs. East, Moore and White and held three meetings during the last fiscal year. Mr. Boucher resigned from the Committee during the fiscal year. The Compensation Committee establishes the Company's executive compensation policy, determines the salary and bonuses of the Company's executive officers and recommends to the Board of Directors stock option grants for executive officers. The Nominating Committee consists of Messrs. Moore and Sanders. The Nominating Committee is responsible for reviewing qualifications for possible Board membership and recommending candidates for election to the Board of Directors. The Nominating Committee held two meetings during fiscal 1996. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Neither B. J. Moore, John East nor Phillip E. White, the members of the Company's Compensation Committee, is an executive officer of any entity for which any executive officer of the Company serves as a director or a member of the Compensation Committee. -30- 34 EXECUTIVE COMPENSATION The table below sets forth information for the three most recently completed fiscal years concerning the compensation of the Chief Executive Officer of the Company and the four other most highly compensated executive officers of the Company in the fiscal year ended March 31, 1996: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------- ------------------------ RESTRICTED SECURITIES FISCAL SALARY BONUS STOCK UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) AWARD ($) OPTIONS(#) COMPENSATION($)(2) - ------------------------------------- ------ -------- -------- ----------- ----------- ------------------ John G. Adler ....................... 1996 $494,135 $558,000 -- 120,000 $4,080 Chairman and former Chief Executive 1995 450,000 625,000 -- 400,000 3,720 Officer 1994 420,000 315,000 -- 320,000 3,720 F. Grant Saviers .................... 1996 468,462 533,000 -- 279,200 2,520 President, Chief Executive Officer 1995 350,000 475,000 -- 400,000 2,780 and Chief Operating Officer 1994 310,000 235,000 -- 160,000 1,260 John D. Hamm ........................ 1996 229,711 260,750 -- 107,600 54 Vice President and General 1995 215,000 322,500 -- 100,000 48 Manager(4) 1994 180,000 135,000 -- 100,000 36 Paul G. Hansen ...................... 1996 229,615 259,500 -- 107,600 1,380 Vice President, Finance and Chief 1995 222,115 291,058 -- 100,000 1,260 Financial Officer 1994 190,000 145,000 -- 80,000 1,260 Sam Kazarian ........................ 1996 214,712 243,500 -- 105,800 2,520 Vice President, Operations 1995 200,000 270,000 -- 120,000 2,280 1994 174,615 110,000 -- 80,000 2,280 Subramanian Sundaresh ............... 1996 199,327 221,250 $ 19,992(3) 48,000 332 Vice President and General Manager 1995 165,000 140,000 -- 100,000 475 1994 104,115 50,000 -- 168,000 540
- ---------- (1) In each case, the fiscal year 1995 bonus amounts include an amount equal to one-half of the individual's base salary for fiscal year 1995 that was accrued but not paid by the Company in fiscal year 1995. Half of such amounts were paid to the individuals at the end of fiscal year 1996 and the remaining half will be paid at the end of fiscal year 1997 if the individual remains in the employ of the Company at that date. (2) Life insurance premiums. (3) Represents the grant of 784 Incentive Stock Units pursuant to the Company's 1990 Stock Plan. On the first and second anniversaries of the date of grant, if Mr. Sundaresh is still in the employ of the Company, the Company will redeem one-half of the Incentive Stock Units by giving Mr. Sundaresh either 392 shares of Common Stock of the Company or the fair market value of such shares at the Company's discretion. The value of the grant is based on the fair market value of 784 shares of the Company's Common Stock on the date of grant. As of the March 31, 1996, Mr. Sundaresh held 784 Incentive Stock Units with a value of $18,914 (based on the fair market value of the Company's Common Stock on that date). (4) Mr. Hamm resigned from the Company on August 30, 1996. -31- 35 The table below provides the specified information concerning grants of options to purchase the Company's Common Stock made during the fiscal year ended March 31, 1996 to the persons named in the Summary Compensation Table: OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS - --------------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED NUMBER OF ANNUAL RATES OF STOCK SECURITIES % OF TOTAL PRICE APPRECIATION UNDERLYING OPTIONS FOR OPTION TERM(3)(4) OPTIONS GRANTED TO EXERCISE OR ---------------------------- GRANTED EMPLOYEES IN BASE PRICE EXPIRATION NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($) - --------------------- ---------- ------------ ----------- ---------- ---------------------------- John G. Adler ....... 120,000(1) 2.6% $ 22.38 8/24/05 $1,688,582 $4,279,199 F. Grant Saviers .... 200,000(1) 4.4 22.38 8/24/05 2,814,303 7,131,998 79,200(2) 1.7 28.00 3/22/00 1,394,637 3,534,283 John D. Hamm ........ 80,000(1) 1.7 22.38 8/24/05 1,125,721 2,852,799 27,600(2) 0.6 28.00 3/22/00 486,010 1,231,644 Paul G. Hansen ...... 80,000(1) 1.7 22.38 8/24/05 1,125,721 2,852,799 27,600(2) 0.6 28.00 3/22/00 486,010 1,231,644 Sam Kazarian ........ 80,000(1) 1.7 22.38 8/24/05 1,125,721 2,852,799 25,800(2) 0.5 28.00 3/22/00 454,313 1,151,320 Subramanian Sundaresh ....... 40,000(1) 0.8 22.38 8/24/05 562,861 1,426,400 8,000(2) 0.2 28.00 3/22/00 140,872 356,998
- ---------- (1) These options were granted pursuant to the Company's 1990 Stock Plan. The option exercise prices were at the fair market value of the Company's Common Stock on the date of grant. All options expire 10 years from the date of grant, are not transferable by the optionee (other than by will or the laws of descent and distribution), and are exercisable during the optionee's lifetime only by the optionee. The options become exercisable at the rate of 12.5% of the shares subject to the option six months after the date of grant and at the rate of 6.25% of the shares subject to the option at the end of each of the next 14 quarters. To the extent exercisable at the time of employment termination, options may be exercised for an additional three months unless termination is the result of total and permanent disability, in which case the options may be exercised within six months following termination, or unless termination is the result of death, in which case unvested options become exercisable to a maximum of 50,000 shares per individual and may be exercised within six months following death by the individual's estate or other successor. (2) These options were granted pursuant to the Company's 1990 Stock Plan. The option exercise prices were at 110% of the fair market value of the Company's Common Stock on the date of grant. All options expire 4 years from the date of grant, are not transferable by the optionee (other than by will or the laws of descent and distribution), and are exercisable during the optionee's lifetime only by the optionee. 50% of the options subject to the grant become exercisable one year after the date of the grant with the remaining 50% becoming exercisable two years after the date of grant. To the extent exercisable at the time of employment termination, options may be exercised for an additional three months unless termination is the result of total and permanent disability, in which case the options may be exercised within six months following termination, or unless termination is the result of death, in which case unvested options become exercisable to a maximum of 50,000 shares per individual and may be exercised within six months following death by the individual's estate or other successor. (3) Potential gains are net of exercise price, but before taxes associated with exercise. The amounts represent certain assumed rates of appreciation only, based on the Securities and Exchange Commission rules. Actual gains, if any, on stock option exercises are dependent on the future performance of the Common Stock, overall market conditions and the optionholders' continued employment through the vesting period. The amounts reflected in this table may not necessarily be achieved and do not reflect the Company's estimate of future stock price growth. -32- 36 The table below provides the specified information concerning the exercise of options to purchase the Company's Common Stock in the fiscal year ended March 31, 1996 and the unexercised options held as of March 31, 1996 by the persons named in the Summary Compensation Table. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY ON VALUE OPTIONS AT FY-END (#): OPTIONS AT FY-END ($): NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2) - ----------------------------- ----------- -------------- ------------------------- ---------------------------- John G. Adler .............. 454,898 $7,082,720 15,000/526,250 $ 26,250/$6,654,258 F. Grant Saviers ........... 100,000 2,037,440 523,346/646,768 8,585,137/6,427,230 John D. Hamm(3) ............ 20,000 472,813 218,126/209,474 3,956,639/1,838,361 Paul G. Hansen ............. 50,000 1,060,938 130,000/197,600 2,037,813/1,644,688 Sam Kazarian ............... 2,488 46,483 146,144/211,424 2,326,389/1,874,494 Subramanian Sundaresh ...... 20,000 266,188 115,500/180,500 1,713,406/2,091,531
- ---------- (1) Market value of underlying securities on date of exercise, minus the exercise or base price. (2) Market value of underlying securities at fiscal year end, minus the exercise or base price. (3) Mr. Hamm resigned from the Company on August 30, 1996. CHANGE IN CONTROL ARRANGEMENTS The Company's 1990 Stock Plan authorizes the acceleration or payment of awards and related shares in the event of a Change in Control as defined in the Plan. Such acceleration or payment may cause part or all of the consideration involved to be treated as a "parachute payment" under the Internal Revenue Code of 1986 as amended (the "Code"), which may subject the recipient thereof to a 20% excise tax and which may not be deductible by the participant's employer. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During fiscal 1996, the Company purchased approximately $291,532 of computer equipment in the ordinary course of business from Auspex Systems, Inc., a supplier of computer network file servers. Mr. Boucher is the Chairman of the Board of Directors and a shareholder of Auspex Systems, Inc. -33- 37 PRINCIPAL SHAREHOLDERS The table below sets forth as of May 31, 1996 certain information with respect to the beneficial ownership of the Company's Common Stock by (i) each person known by the Company to own beneficially more than five percent (5%) of the outstanding shares of Common Stock; (ii) each director of the Company, (iii) each executive officer named in the Summary Compensation Table, and (iv) all directors and executive officers as a group.
SHARES APPROXIMATE BENEFICIALLY PERCENT NAME OF PERSON OR IDENTITY OF GROUP OWNED(1) OWNED - ------------------------------------------------------------- ------------ ----------- FMR Corp.(2) ................................................ 11,958,720 11.2% 82 Devonshire Street Boston, MA 02109-3614 John G. Adler ............................................... 260,638 * Laurence B. Boucher ......................................... 16,290 * Carl J. Conti ............................................... 0 * John East ................................................... 0 * John D. Hamm(3) ............................................. 226,014 * Paul G. Hansen .............................................. 115,162 * Sam Kazarian ................................................ 173,372 * Robert J. Loarie ............................................ 132,854 * B.J. Moore .................................................. 95,820 * W. Ferrell Sanders .......................................... 109,750 * F. Grant Saviers ............................................ 603,502 * Subramanian Sundaresh ....................................... 119,114 * Phillip E. White ............................................ 22,500 * All current directors and officers as a group (19 persons) .. 1,975,174 1.8
- ---------- * Less than 1% (1) Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons and entities named in the table have sole voting and sole investment power with respect to all shares of Common Stock beneficially owned. Amounts shown include the following number of shares, options for which are presently exercisable or will become exercisable within 60 days of May 31, 1996: Mr. Adler, 112,500; Mr. Boucher, 16,250; Mr. Conti, 0; Mr. East, 0; Mr. Hamm, 205,626; Mr. Hansen, 113,750; Sam Kazarian, 172,394; Mr. Loarie, 53,750; Mr. Moore, 53,750; Mr. Sanders, 33,750; Mr. Saviers, 498,952; Mr. Sundaresh, 115,750; Mr. White, 22,500; and all current officers and directors as a group, 1,485,284. (2) Includes 9,305,540 shares beneficially owned by Fidelity Management & Research Company as a result of serving as investment advisor to various registered investment companies and 2,452,780 shares beneficially owned by Fidelity Management Trust Company as a result of serving as trustee or managing agent for various private investment accounts. FMR Corp. has sole voting power with respect to 1,223,980 shares and sole dispositive power with respect to 11,758,320 shares. (3) Includes 10,666 shares held in the name of Mr. Hamm's wife. Mr. Hamm resigned from the Company on August 30, 1996. -34- 38 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 400,000,000 shares of Common Stock, $.001 par value, and 1,000,000 shares of Preferred Stock, $.001 par value, of which 250,000 shares are designated Series A Participating Preferred Stock, $.001 par value (the "Series A Preferred"). COMMON STOCK As of December 27, 1996, there were 110,956,012 shares of Common Stock outstanding held of record by 768 registered shareholders. Subject to preferences that may be applicable to any outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. The Company has not paid any cash dividends on its Common Stock. Each holder of Common Stock is entitled to one vote for each share held of record on all matters submitted to a vote in the election of directors. In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any outstanding Preferred Stock. Holders of Common Stock have no preemptive rights and have no rights to convert their Common Stock into any other securities and there are no redemption provisions with respect to such shares. All of the outstanding shares of Common Stock are, and the shares of Common Stock issuable upon conversion of the Notes will be, fully paid and non-assessable. The transfer agent and registrar for the Company's Common Stock is ChaseMellon Shareholder Services, L.L.C. PREFERRED STOCK As of December 27, 1996, there were no shares of Preferred Stock outstanding. The Preferred Stock may be issued from time to time in one or more series. The Company's Board of Directors has authority to fix the designation, powers, preferences and rights of each such series and the qualifications, limitations and restrictions thereon and to increase or decrease the number of shares of such series (but not below the number of shares of such series then outstanding), without any further vote or action by the shareholders. Except in accordance with the Rights Plan (described below), the Company has no present plans to issue any shares of Preferred Stock. Preferred Share Rights Plan On April 25, 1989, the Board of Directors of the Company declared a dividend of one common share purchase right (a "Right" or "Rights" collectively) for each outstanding share of Common Stock, $.001 par value (the "Common Shares"), of the Company. The dividend was paid on May 9, 1989 to shareholders of record at the close of business on that date, and Rights have been issued in connection with all Common Shares issued since that date. On December 5, 1996, the Company and ChaseMellon Shareholder Services, LLC (the "Rights Agent") entered into the Second Amended and Restated Rights Agreement (the "1996 Rights Agreement") which, under the circumstances described below, entitles the registered holder of a Right to purchase from the Company one one-thousandth of a share of Series A Preferred at a price of $180.00 (the "Exercise Price"), subject to adjustment. The Rights will not be exercisable until the Distribution Date (defined below). Certificates for the Rights ("Rights Certificates") will not be sent to shareholders and the Rights will attach to and trade only together with -35- 39 the Common Shares. Accordingly, Common Share certificates outstanding on the Record Date will evidence the Rights related thereto, and Common Share certificates issued after the Record Date will contain a notation incorporating the Rights Agreement by reference. Until the Distribution Date (or earlier redemption or expiration of the Rights), the surrender or transfer of any certificates for Common Shares, outstanding as of the Record Date, even without notation or a copy of the Summary of Rights being attached thereto, will also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. The Rights will separate from the Common Shares, Rights Certificates will be issued and the Rights will become exercisable upon the earlier of: (i) the tenth day (or such later date as may be determined by a majority of the Board of Directors, excluding directors affiliated with the Acquiring Person, as defined below (the "Continuing Directors")) following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding Common Shares, or (ii) 10 days (or such later date as may be determined by a majority of the Continuing Directors) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 20% or more of the outstanding Common Shares. The earlier of such dates is referred to as the "Distribution Date." As soon as practicable following the Distribution Date, separate Rights Certificates will be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and such separate Rights Certificates alone will evidence the Rights from and after the Distribution Date. All Common Shares issued prior to the Distribution Date will be issued with Rights. Common Shares issued after the Distribution Date may be issued with Rights if such shares are issued (i) upon the conversion of outstanding convertible debentures or any other convertible securities issued after adoption of the Rights Agreement or (ii) pursuant to the exercise of stock options or under employee benefit plans or arrangements, unless any such issuance would result in (or create a risk that) such options, plans or arrangements would not qualify for otherwise available special tax treatment. Except as otherwise determined by the Board of Directors, no other Common Shares issued after the Distribution Date will be issued with Rights. The Rights will expire on the earliest of (i) December 5, 2006 (the "Final Expiration Date"), (ii) redemption or exchange of the Rights as described below, or (iii) consummation of an acquisition of the Company satisfying certain conditions by a person who acquired shares pursuant to a Permitted Offer as described below. Following the Distribution Date, and until one of the further events described below, holders of the Rights will be entitled to receive, upon exercise and the payment of $180.00 per Right, one one-thousandth of a share of the Series A Preferred. In the event that the Company does not have sufficient Series A Preferred available for all Rights to be exercised, or the Board decides that such action is necessary and not contrary to the interests of Rights holders, the Company may instead substitute cash, assets or other securities for the Series A Preferred for which the Rights would have been exercisable under this provision or as described below. Unless the Rights are earlier redeemed, in the event that an Acquiring Person becomes the beneficial owner of 20% or more of the Company's Common Shares then outstanding (other than pursuant to a Permitted Offer), then proper provision will be made so that each holder of a Right which has not theretofore been exercised (other than Rights beneficially owned by the Acquiring Person, which will thereafter be void) will thereafter have the right to receive, upon exercise, Common Shares (or, in certain circumstances as determined by the Board of Directors, cash, other property or other securities) having a market value equal to two times the Exercise Price. Rights are not exercisable following the occurrence of an event as described above until such time as the Rights are no longer redeemable by the Company as set forth below. -36- 40 Similarly, unless the Rights are earlier redeemed, in the event that, after the Shares Acquisition Date (as defined below), (i) the Company is acquired in a merger or other business combination transaction, or (ii) 50% or more of the Company's consolidated assets or earning power are sold (other than in transactions in the ordinary course of business), proper provision must be made so that each holder of a Right which has not theretofore been exercised (other than Rights beneficially owned by the Acquiring Person, which will thereafter be void) will thereafter have the right to receive, upon exercise, shares of common stock of the acquiring company having a value equal to two times the Exercise Price (unless the transaction satisfies certain conditions and is consummated with a person who acquired shares pursuant to a Permitted Offer, in which case the Rights will expire). A Permitted Offer means a tender offer for all outstanding Common Shares that has been made in the manner prescribed by Section 14(d) of the Securities and Exchange Act of 1934, as amended, and determined by a majority of the Continuing Directors to be fair and otherwise in the best interests of the Company and its stockholders. Where the Board of Directors has determined that a tender offer constitutes a Permitted Offer, the Rights will not become exercisable to purchase Common Shares or shares of the acquiring company (as the case may be) at the discounted price described above. At any time after the acquisition by an Acquiring Person of 20% or more of the Company's outstanding Common Shares and prior to the acquisition by such Acquiring Person of 50% or more of the Company's outstanding Common Shares, the Board of Directors of the Company may exchange the Rights (other than Rights owned by the Acquiring Person), in whole or in part, at an exchange ratio of one Common Share per Right. At any time on or prior to the close of business on the earlier of (i) the tenth day following the acquisition by an Acquiring Person of 20% or more of the Company's outstanding Common Shares (the "Shares Acquisition Date") or such later date as may be determined by a majority of the Continuing Directors and publicly announced by the Company, or (ii) the Final Expiration Date of the Rights, the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right. The Purchase Price payable, the number of Rights, and the number of Series A Preferred or Common Shares or other securities or property issuable upon exercise of the Rights are subject to adjustment from time to time in connection with the dilutive issuances by the Company as set forth in the Rights Agreement. No fractional portion less than integral multiples of one Common Share will be issued upon exercise of a Right and in lieu thereof, an adjustment in cash will be made based on the market price of the Common Shares on the last trading date prior to the date of exercise. Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company (other than any rights resulting from such holder's ownership of Common Shares), including, without limitation, the right to vote or to receive dividends. The Series A Preferred purchasable upon exercise of the Rights will not be redeemable. Each share of Series A Preferred will be entitled to an aggregate dividend of 1,000 times the dividend declared per Common Share. In the event of liquidation, the holders of the Series A Preferred will be entitled to a preferential liquidation payment equal to 1,000 times the per share amount to be distributed to the holders of the Common Shares. Each share of Series A Preferred will have 1,000 votes, voting together with the Common Shares. In the event of any merger, consolidation or other transaction in which the Common Shares are changed or exchanged, each share of Series A Preferred will be entitled to receive 1,000 times the amount received per Common Share. These rights are protected by customary anti-dilution provisions. The description above is qualified in its entirety by the 1996 Rights Agreement which is included as an exhibit to the Registration Statement of which this Prospectus is a part. -37- 41 DESCRIPTION OF NOTES The Notes were issued under an Indenture dated as of February 3, 1997 (the "Indenture") between the Company and State Street Bank and Trust Company, as trustee (the "Trustee"). The terms of the Indenture are also governed by certain provisions contained in the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The following summaries of certain provisions of the Notes and the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the Notes and the Indenture, including the definitions therein of certain terms which are not otherwise defined in this Prospectus and those terms made a part of the Indenture by reference to the Trust Indenture Act as in effect on the date of the Indenture. Wherever particular provisions or defined terms of the Indenture (or of the forms of Notes which are a part thereof) are referred to, such provisions or defined terms are incorporated herein by reference in their entirety. As used in this "Description of Notes," the "Company" refers to Adaptec, Inc., a California corporation, and does not, unless the context otherwise indicates, include its subsidiaries. GENERAL The Notes represent general unsecured subordinated obligations of the Company and are convertible into Common Stock as described below under "--Conversion of Notes." The Notes will mature on February 1, 2004, unless earlier redeemed at the option of the Company or repurchased at the option of the holders upon a Change of Control. The Indenture does not contain any financial covenants or any restrictions on the payment of dividends, the repurchase of securities of the Company or the incurrence of debt by the Company or any of its subsidiaries. The Indenture contains no covenants or other provisions to afford protection to holders of Notes in the event of a highly leveraged transaction or a change in control of the Company except to the extent described under "-- Repurchase at Option of Holders" below. The Notes bear interest from the date of original issue at the annual rate set forth on the cover page hereof, payable semi-annually on February 1 and August 1, commencing on August 1, 1997, to Holders of record at the close of business on the preceding January 15 and July 15, respectively. Interest will be computed on the basis of a 360-day year composed of twelve 30-day months. Unless other arrangements are made, interest will be paid by check mailed to holders entitled thereto, provided that with respect to any holder of Notes with an aggregate principal amount equal to or in excess of $5,000,000, at the request (such request to include appropriate wire instructions) of such holder in writing to the Trustee on or before the record date preceding any interest payment date, interest on such holder's Notes shall be paid by wire transfer in immediately available funds. Principal will be payable, and the Notes may be presented for conversion, registration of transfer and exchange, without service charge, at the office of the Trustee or its agent in New York, New York. CONVERSION OF NOTES The holders of Notes are entitled at any time on or after May 5, 1997 through the close of business on February 1, 2004, subject to prior redemption and repurchase, to convert any Notes or portions thereof (in denominations of $1,000 in principal amount or multiples thereof) into Common Stock at a conversion price of $51.66 per share, subject to adjustment as described below; provided that in the case of Notes called for redemption, conversion rights will expire immediately prior to the close of business on the last business day before the date fixed for redemption, unless the Company defaults in payment of the redemption price. A Note (or portion thereof) in respect of which a holder is exercising its option to require repurchase upon a Change of -38- 42 Control may be converted only if such holder withdraws its election to exercise such repurchase option in accordance with the terms of the Indenture. Except as described below, no adjustment will be made on conversion of any Notes for interest accrued thereon or for dividends paid on any Common Stock issued. Holders of Notes at the close of business on a record date will be entitled to receive the interest payable on such Note on the corresponding interest payment date. However, Notes surrendered for conversion after the close of business on a record date and before the opening of business on the corresponding interest payment date must be accompanied by funds equal to the interest payable on such succeeding interest payment date on the principal amount so converted (unless such Note is subject to redemption on a redemption date between such record date and the close of business on the business day following the corresponding interest payment date). The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any record date to the close of business on the business day following the corresponding payment date will be payable on the corresponding interest payment date to the registered holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date) and a holder of Notes who elects to convert need not include funds equal to the interest paid. The Company is not required to issue fractional shares of Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash adjustment based upon the closing price of the Common Stock on the last business day prior to the date of conversion. The conversion price is subject to adjustment by the Company (under formulae set forth in the Indenture) upon the occurrence of certain events, including: (i) the issuance of Common Stock as a dividend or distribution on the outstanding Common Stock, (ii) the issuance to all holders of Common Stock of certain rights, options or warrants to purchase Common Stock at less than the current market price, (iii) certain subdivisions, combinations and reclassifications of Common Stock, (iv) distributions to all holders of Common Stock of capital stock of the Company (other than Common Stock) or evidences of indebtedness of the Company or assets (including securities, but excluding those dividends, rights, options, warrants and distributions referred to above and dividends and distributions in connection with the liquidation, dissolution or winding up of the Company and dividends and distributions paid exclusively in cash), (v) distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in clause (iv) or in connection with a consolidation, merger or sale of assets of the Company as referred to in clause (ii) of the third paragraph below) to all holders of Common Stock in an aggregate amount that, together with (x) all other such all-cash distributions made within the preceding 12 months in respect of which no adjustment has been made and (y) any cash and the fair market value of other consideration payable in respect of any tender offers by the Company or any of its subsidiaries for Common Stock concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 20% of the Company's market capitalization (being the product of the then current market price of the Common Stock times the number of shares of Common Stock then outstanding) on the record date for such distribution and (vi) the purchase of Common Stock pursuant to a tender offer made by the Company or any of its subsidiaries which involves an aggregate consideration that, together with (x) any cash and the fair market value of any other consideration payable in any other tender offer by the Company or any of its subsidiaries for Common Stock expiring within the 12 months preceding such tender offer in respect of which no adjustment has been made and (y) the aggregate amount of any such all-cash distributions referred to in clause (v) above to all holders of Common Stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 20% of the Company's market capitalization on the expiration of such tender offer. No adjustment of the conversion price will be made for shares issued pursuant to a plan for reinvestment of dividends or interest. Except as stated above, the conversion price will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing. No adjustment in the conversion price will be required unless such adjustment would require a change of at least 1% in the conversion price then in effect; provided that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. -39- 43 No adjustment will be made pursuant to clause (iv) of the preceding paragraph if the Company makes proper provision for each holder of Notes who converts a Note to receive, in addition to the Common Stock issuable upon such conversion, the kind and amount of assets (including securities) that the holder would have been entitled to receive if such holder had been a holder of the Common Stock at the time of the distribution of such assets or securities. Rights, options or warrants distributed by the Company to all holders of the Common Stock that entitle the holders thereof to purchase shares of the Company's capital stock and that, until the occurrence of an event (a "Triggering Event"), (i) are deemed to be transferred with the Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, shall not be deemed to be distributed until the occurrence of the Triggering Event. Under the provisions of the Company's 1996 Rights Agreement, upon conversion of the Notes, the holders will receive, in addition to the Common Stock issuable upon such conversion, the Rights (whether or not the Rights have separated from the Common Stock at the time of the conversion). See "Description of Capital Stock -- Preferred Stock -- Preferred Share Rights Plan." In addition, the Indenture will provide that, if the Company implements a new shareholder rights plan, such rights plan must provide that upon conversion of the Notes the holders will receive, in addition to the Common Stock issuable upon such conversion, such rights (whether or not such rights have separated from the Common Stock at the time of such conversion). In the case of (i) any reclassification or change of the Common Stock (other than changes in par value or from par value to no par value or resulting from a subdivision or a combination) or (ii) a consolidation or merger involving the Company or a sale or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety (determined on a consolidated basis), in each case as a result of which holders of Common Stock shall be entitled to receive stock, other securities, other property or assets (including cash) with respect to or in exchange for such Common Stock, the holders of the Notes then outstanding will be entitled thereafter to convert such Notes into the kind and amount of shares of stock, other securities or other property or assets which they would have owned or been entitled to receive upon such reclassification, change, consolidation, merger, sale or conveyance had such Notes been converted into Common Stock immediately prior to such reclassification, change, consolidation, merger, sale or conveyance, after giving effect to any adjustment event, assuming that a holder of Notes would not have exercised any rights of election as to the stock, other securities or other property or assets receivable in connection therewith and received per share the kind and amount received per share by a plurality of non-electing shareholders. In the event of a taxable distribution to holders of Common Stock (or other transaction) which results in any adjustment of the conversion price, the holders of Notes may, in certain circumstances, be deemed to have received a distribution subject to the United States income tax as a dividend; in certain other circumstances, the absence of such an adjustment may result in a taxable dividend to the holders of Common Stock. See "Certain Tax Considerations -- U.S. Holders -- Adjustments to Conversion Price." The Company from time to time may to the extent permitted by law reduce the conversion price by any amount for any period of at least 20 days, in which case the Company shall give at least 15 days' notice of such decrease, if the Board of Directors has made a determination that such decrease would be in the best interests of the Company, which determination shall be conclusive. The Company may, at its option, make such reductions in the conversion price, in addition to those set forth above, as the Company deems advisable to avoid or diminish any income tax to its shareholders resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. See "Certain Tax Considerations." SUBORDINATION The payment of principal of, premium, if any, and interest on the Notes is, to the extent set forth in the Indenture, subordinated in right of payment to the prior payment in full of all Senior Indebtedness. Upon any -40- 44 distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding related to the Company or its property, in an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities, the holders of all Senior Indebtedness will first be entitled to receive payment in full of all amounts due or to become due thereon before the holders of the Notes will be entitled to receive any payment in respect of the principal of, premium, if any, or interest on the Notes (except that holders of Notes may receive securities that are subordinated at least to the same extent as the Notes to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness). In the event of any acceleration of the Notes because of an Event of Default, the holders of any Senior Indebtedness then outstanding would be entitled to payment in full of all obligations in respect of such Senior Indebtedness before the holders of the Notes are entitled to receive any payment or distribution in respect thereof (except that holders of Notes may receive securities that are subordinated at least to the same extent as the Notes are subordinated to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness). The Indenture will further require that the Company promptly notify holders of Senior Indebtedness if payment of the Notes is accelerated because of an Event of Default. The Company also may not make any payment upon or in respect of the Notes (except that holders of Notes may receive securities that are subordinated at least to the same extent as the Notes are subordinated to Senior Indebtedness and any securities issued in exchange for Senior Indebtedness) if (a) a default in the payment of the principal of, premium, if any, interest, rent under or other obligations in respect of Senior Indebtedness occurs and is continuing beyond any applicable period of grace or (b) any other default occurs and is continuing with respect to Designated Senior Indebtedness that permits holders of the Designated Senior Indebtedness as to which such default relates to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from a person entitled to give such notice under the Indenture. Payments on the Notes may and shall be resumed (i) in the case of a payment default, upon the date on which such default is cured or waived, and (ii) in the case of a non-payment default, 179 days after the date on which the applicable Payment Blockage Notice is received (or sooner, if such default is cured or waived), unless the maturity of any Senior Indebtedness has been accelerated. No new period of payment blockage based on a non-payment default may be commenced within 365 days after the receipt by the Trustee of any prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. "Senior Indebtedness" means the principal of, premium, if any, and interest on, rent under, and any other amounts payable on or in or in respect of the Company's existing credit agreement and any other Indebtedness of the Company (including, without limitation, any interest accruing after the filing of a petition by or against the Company under any bankruptcy law, whether or not allowed as a claim after such filing in any proceeding under such bankruptcy law), whether outstanding on the date of the Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company (including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to the foregoing); provided, however, that Senior Indebtedness does not include (v) Indebtedness evidenced by the Notes, (w) any liability for federal, state, local or other taxes owed or owing by the Company, (x) Indebtedness of the Company to any subsidiary of the Company except to the extent such Indebtedness may have been pledged, assigned or otherwise transferred to a third party, (y) any indebtedness for the purchase of services, goods or materials if such indebtedness is a trade payable of the Company incurred in the ordinary course of business, except to the extent such indebtedness may have been pledged, assigned or otherwise transferred to a third party, and (z) any Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Indebtedness shall not be senior in right of payment to, or is pari passu with, or is subordinated or junior to, the Notes. -41- 45 "Indebtedness" means, with respect to any person, all obligations, whether or not contingent, of such person (i) (a) for borrowed money (including, but not limited to, any indebtedness secured by a security interest, mortgage or other lien on the assets of the Company that is (1) given to secure all or part of the purchase price of property subject thereto, whether given to the vendor of such property or to another, or (2) existing on property at the time of acquisition thereof), (b) evidenced by a note, debenture, bond or other written instrument, (c) under a lease required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles or entered into as part of a sale and buy back transaction, whether or not required to be capitalized, or under any lease or related document (including a purchase agreement) that provides that the Company is contractually obligated to purchase or cause a third party to purchase and thereby guarantee a minimum residual value of the lease property to the lessor and the obligations of the Company under such lease or related document to purchase or to cause a third party to purchase such leased property, (d) in respect of letters of credit, bank guarantees or bankers' acceptances (including reimbursement obligations with respect to any of the foregoing), (e) with respect to indebtedness secured by a mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance to which the property or assets of such person are subject, whether or not the obligation secured thereby shall have been assumed by or shall otherwise be such person's legal liability, (f) in respect of the balance of deferred and unpaid purchase price of any property or assets, (g) under interest rate or currency swap agreements, cap, floor and collar agreements, spot and forward contracts and similar agreements and arrangements; (ii) with respect to any obligation of others of the type described in the preceding clause (i) or under clause (iii) below assumed by or guaranteed in any manner by such person or in effect guaranteed by such person through an agreement to purchase (including, without limitation, "take or pay" and similar arrangements), contingent or otherwise (and the obligations of such person under any such assumptions, guarantees or other such arrangements); and (iii) any and all Indebtedness constituting deferrals, renewals, extensions, refinancings and refundings of, or amendments, modifications or supplements to, any of the foregoing. "Designated Senior Indebtedness" means any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Indebtedness shall be "Designated Senior Indebtedness" for purposes of the Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). By reason of the subordination provisions described above, in the event of the Company's liquidation or insolvency, holders of Senior Indebtedness may receive more, ratably, and holders of the Notes may receive less, ratably, than the other creditors of the Company. Such subordination will not prevent the occurrences of any Event of Default under the Indenture. In the event that the Trustee (or paying agent if other than the Trustee) or any holder receives any payment of principal or interest with respect to the Notes at a time when such payment is prohibited under the Indenture, such payment shall be held in trust for the benefit of, and shall be paid over and delivered to, the holders of Senior Indebtedness or their representative as their respective interests may appear. After all Senior Indebtedness is paid in full and until the Notes are paid in full, holders shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the holders have been applied to the payment of Senior Indebtedness. The Notes are obligations exclusively of the Company. Since the operations of the Company are partially conducted through its subsidiaries, the cash flow and the consequent ability to service debt, including the Notes, of the Company, is partially dependent upon the earnings of the Company's subsidiaries and the distribution of those earnings to, or upon loans or other payments of funds by those subsidiaries to, the Company. The payment -42- 46 of dividends and the making of loans and advances to the Company by its subsidiaries may be subject to statutory or contractual restrictions, are dependent upon the earnings of those subsidiaries and are subject to various business considerations. Any right of the Company to receive assets of any of its subsidiaries upon their liquidation or reorganization (and the consequent right of the holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that subsidiary's creditors (including trade creditors), except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subordinate to any security interests in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. As of December 27, 1996, the Company had approximately $5.1 million of indebtedness outstanding that would have constituted Senior Indebtedness (excluding accrued interest and Senior Indebtedness constituting liabilities of a type not required to be reflected as a liability on the balance sheet of the Company in accordance with generally accepted accounting principles). As of December 27, 1996, there was also outstanding approximately $22.9 million of aggregate liabilities of subsidiaries of the Company (excluding intercompany liabilities and liabilities of a type not required to be reflected as a liability on the balance sheets of such subsidiaries in accordance with generally accepted accounting principles) as to which the Notes would have been structurally subordinated. The Indenture does not limit the amount of additional indebtedness, including Senior Indebtedness, that the Company can create, incur, assume or guarantee, nor will the Indenture limit the amount of indebtedness and other liabilities that any subsidiary can create, incur, assume or guarantee. OPTIONAL REDEMPTION BY THE COMPANY The Notes are not redeemable at the option of the Company prior to February 3, 2000. At any time on or after that date, the Notes may be redeemed at the Company's option on at least 15 but not more than 60 days' notice, in whole at any time or in part from time to time, at the following prices (expressed in percentages of the principal amount), together with accrued interest to the date fixed for redemption if redeemed during the 12-month period beginning February 1 (beginning February 3, 2000 and ending January 31, 2001, in the case of the first such period):
YEAR REDEMPTION PRICE ---- ---------------- 2000 .............................. 102.71% 2001 .............................. 102.04 2002 .............................. 101.36 2003 .............................. 100.68 and 100% at February 1, 2004.
If fewer than all the Notes are to be redeemed, the Trustee will select the Notes to be redeemed in principal amounts of $1,000 or integral multiples thereof by lot or, in its discretion, on a pro rata basis. If any Note is to be redeemed in part only, a new Note or Notes in principal amount equal to the unredeemed principal portion thereof will be issued. If a portion of a holder's Notes is selected for partial redemption and such holder converts a portion of such Notes, such converted portion shall be deemed to be taken from the portion selected for redemption. No sinking fund is provided for the Notes. -43- 47 REPURCHASE AT OPTION OF HOLDERS Upon the occurrence of a Change of Control, each holder of Notes shall have the right, at the holder's option, to require that the Company repurchase such holder's Notes in whole or in part in integral multiples of $1,000, at a purchase price in cash in an amount equal to 101% of the principal amount thereof, together with accrued and unpaid interest to the date of repurchase, pursuant to an offer (the "Change of Control Offer") made in accordance with the procedures described below and the other provisions of the Indenture. A "Change of Control" means an event or series of events as a result of which (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) acquires "beneficial ownership" (as determined in accordance with Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the combined voting power of the then outstanding securities entitled to vote generally in elections of directors of the Company (the "Voting Stock"), (ii) the Company consolidates with or merges into any other corporation, or conveys, transfers or leases all or substantially all of its assets to any person, or any other corporation merges into the Company, and, in the case of any such transaction, the outstanding Common Stock of the Company is changed or exchanged as a result, unless the shareholders of the Company immediately before such transaction own, directly or indirectly, at least 51% of the combined voting power of the outstanding voting securities of the corporation resulting from such transaction in substantially the same proportion as their ownership of the Voting Stock immediately before such transaction, or (iii) Continuing Directors do not constitute a majority of the Board of Directors of the Company (or, if applicable, a successor corporation to the Company); provided that a Change of Control shall not be deemed to have occurred if either (i) the closing price per share of the Common Stock for any 5 trading days within the period of 10 consecutive trading days ending immediately after the announcement of such Change of Control shall equal or exceed 105% of the conversion price of the Notes in effect on such trading day or (ii) at least 90% of the consideration in the transaction or transactions constituting the Change of Control transaction consists of shares of common stock traded on a national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted immediately following the Change of Control) and, as a result of such transaction or transactions, the Notes become convertible solely into such common stock (and any rights attached thereto). "Continuing Directors" shall mean, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the Indenture or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. Within 30 days following any Change of Control, the Company shall send by first-class mail, postage prepaid, to the Trustee and to each holder of Notes, at such holder's address appearing in the security register, a notice stating, among other things, that a Change of Control has occurred, the purchase price, the purchase date, which shall be a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed, and certain other procedures that a holder of Notes must follow to accept a Change of Control Offer or to withdraw such acceptance. No quantitative or other established meaning has been given to the phrase "all or substantially all" (which appears in the definition of Change of Control) by courts which have interpreted this phrase in various contexts under the laws of the State of New York. To the extent the meaning of such phrase is uncertain, uncertainty will exist as to whether or not a Change of Control may have occurred (and, accordingly, as to whether or not the holders of Notes will have the right to require the Company to repurchase their Notes). Rule 13e-4 under the Exchange Act requires, among other things, the dissemination of certain information to security holders in the event of an issuer tender offer and may apply in the event that the repurchase option becomes available to holders of the Notes. The Company will comply with this rule to the -44- 48 extent applicable at that time. In the event any of the provisions governing a Change of Control Offer conflict with the federal securities laws of the United States, such securities laws shall control. The right to require the Company to repurchase Notes as a result of a Change of Control could have the effect of delaying, deferring or preventing a change of control or other attempts to acquire control of the Company unless arrangements have been made to enable the Company to repurchase all the Notes on the applicable purchase date. Consequently, this right may render more difficult or discourage a merger, consolidation or tender offer (even if such transaction is supported by the Company's Board of Directors or is favorable to the shareholders), the assumption of control by a holder of a large block of the Company's shares and the removal of incumbent management. The foregoing provisions would not necessarily afford holders of the Notes protection in the event of highly leveraged or other transactions involving the Company that may adversely affect holders. Moreover, certain transactions and events that would constitute an actual change of control may not be a Change of Control for purposes of the Indenture. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar restructuring. Subject to the limitation on mergers and consolidations described below, the Company, its management or its subsidiaries could in the future enter into certain transactions, including refinancings, certain recapitalizations, acquisitions, the sale of all or substantially all of its assets, the liquidation of the Company or similar transactions, that would not constitute a Change of Control under the Indenture, but that would increase the amount of Senior Indebtedness (or any other indebtedness) outstanding at such time or substantially reduce or eliminate the Company's assets. There are no restrictions in the Indenture on the creation of Senior Indebtedness (or any other indebtedness) and, under certain circumstances, the incurrence of significant amounts of additional indebtedness could have an adverse effect on the Company's ability to service its indebtedness, including the Notes. The Company's ability to repurchase Notes upon the occurrence of a Change of Control is subject to limitations. There can be no assurance that the Company would have the financial resources, or would be able to arrange financing, to pay the purchase price for all the Notes that might be delivered by holders of Notes seeking to exercise the repurchase right. Moreover, the terms of the Company's existing primary bank facility prohibit the repurchase of Notes by the Company or its subsidiaries, and the Company's ability to repurchase Notes may be limited or prohibited by the terms of any future borrowing arrangements, including Senior Indebtedness existing at the time of a Change of Control. The Company's ability to repurchase Notes with cash may also be limited by the terms of its subsidiaries' borrowing arrangements due to dividend restrictions. Any failure by the Company to repurchase the Notes when required following a Change of Control would result in an Event of Default under the Indenture whether or not such repurchase is prohibited by the subordination provisions of the Indenture. Any such default may, in turn, cause a default under Senior Indebtedness or other indebtedness of the Company. Moreover, the occurrence of a Change of Control could result in an event of default under the Company's existing primary bank facility and may cause an event of default under terms of other indebtedness (including Senior Indebtedness) of the Company. As a result, in each case, any repurchase of the Notes would, absent a waiver, be prohibited under the subordination provisions of the Indenture until the Senior Indebtedness is paid in full. See "-- Subordination" MERGER, CONSOLIDATION AND SALE OF ASSETS The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets (determined on a consolidated basis), whether in a single transaction or a series of related transactions, to, any person unless: (i) either the Company is the resulting, surviving or transferee person (the "Successor Company") or the Successor Company is a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia, and the Successor Company (if not the -45- 49 Company) expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Indenture and the Notes, including the conversion rights described above under "-- Conversion of Notes," (ii) immediately after giving effect to such transaction no default or Event of Default has occurred and is continuing and (iii) the Company delivers to the Trustee an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and such supplemental indenture comply with the Indenture. EVENTS OF DEFAULT AND REMEDIES An Event of Default is defined in the Indenture as being: default in payment of the principal of or premium, if any, on the Notes when due at maturity, upon redemption or otherwise, including failure by the Company to purchase the Notes when required as described under "-Change of Control" (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); default for 30 days in payment of any installment of interest on the Notes (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); default by the Company for 90 days after notice in the observance or performance of any other covenants in the Indenture; or certain events involving bankruptcy, insolvency or reorganization of the Company. The Indenture provides that the Trustee may withhold notice to the Holders of Notes of any default (except in payment of principal, premium, if any, or interest with respect to the Notes) if the Trustee considers it in the interest of the Holders of Notes to do so. The Indenture provides that if any Event of Default shall have occurred and be continuing, the Trustee or the Holders of not less than 25% in principal amount of the Notes then outstanding may declare the principal of and premium, if any, on the Notes to be due and payable immediately, but if the Company shall cure all defaults (except the nonpayment of interest on, premium, if any, and principal of any Notes which shall have become due by acceleration) and certain other conditions are met, such declaration may be canceled and past defaults may be waived by the Holders of a majority in principal amount of Notes then outstanding. The Holders of a majority in principal amount of the Notes then outstanding shall have the right to direct the time, method and place of conducting any proceedings for any remedy available to the Trustee, subject to certain limitations specified in the Indenture. The Indenture provides that, subject to the duty of the Trustee following an Event of Default to act with the required standard of care, the Trustee will not be under an obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless the Trustee receives satisfactory indemnity against any associated loss, liability or expense. SATISFACTION AND DISCHARGE The Indenture will cease to be of further effect as to all outstanding Notes (except as to (i) rights of registration of transfer and exchange and the Company's right of optional redemption, (ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of Holders of Notes to receive payments of principal of, premium, if any, and interest on, the Notes, (iv) rights of Holders of Notes to convert to Common Stock, (v) rights, obligations and immunities of the Trustee under the Indenture and (vi) rights of the Holders of Notes as beneficiaries of the Indenture with respect to the property so deposited with the Trustee payable to all or any of them), if (A) the Company will have paid or caused to be paid the principal of, premium, if any, and interest on the Notes as and when the same will have become due and payable or (B) all outstanding Notes (except lost, stolen or destroyed Notes which have been replaced or paid) have been delivered to the Trustee for cancellation or (C) (x) the Notes not previously delivered to the Trustee for cancellation will have become due and payable or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee upon delivery of notice and (y) the Company will have irrevocably deposited with the Trustee, as trust funds, cash, in an amount sufficient to pay principal of and interest on the outstanding Notes, to maturity or redemption, as the case may be. Such trust may only be -46- 50 established if such deposit will not result in a breach or violation of, or constitute a default under, any agreement or instrument pursuant to which the Company is a party or by which it is bound and the Company has delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions related to such defeasance have been complied with. MODIFICATIONS OF THE INDENTURE The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in principal amount of the Notes at the time outstanding, to modify the Indenture or any supplemental indenture or the rights of the Holders of Notes, except that no such modification shall (i) extend the fixed maturity of any Note, reduce the rate or extend the time of payment of interest thereon, reduce the principal amount thereof or premium, if any, thereon, reduce any amount payable upon redemption thereof, change the obligation of the Company to repurchase Notes upon the happening of a Change of Control, impair or affect the right of a Holder to institute suit for the payment thereof, change the currency in which the Notes are payable, modify the subordination provisions of the Indenture in a manner adverse to the Holders of Notes or impair the right to convert the Notes into Common Stock subject to the terms set forth in the Indenture, without the consent of the Holder of each Note so affected, or (ii) reduce the aforesaid percentage of Notes, without the consent of the Holders of all of the Notes then outstanding. The Indenture also provides that the Company and the Trustee may amend the Indenture without the consent of any holder of the Notes under certain circumstances, (i) to cure any ambiguity, omission, defect or inconsistency, (ii) to provide for the assumption by a successor corporation of the obligations of the Company under the Indenture, (iii) to provide for uncertificated Notes in addition to or in place of certificated Notes or vice versa, (iv) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company, (v) to comply with any requirements of the Commission in connection with qualifying the Indenture under the Trust Indenture Act, or (vi) to make any change that does not adversely affect the rights of any Holder of the Notes. GOVERNING LAW The Indenture will provide that the Notes will be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to applicable principles of conflicts of law. CONCERNING THE TRUSTEE State Street Bank and Trust Company, the Trustee under the Indenture, has been appointed by the Company as the paying agent, conversion agent, registrar and custodian with regard to the Notes. The Trustee and/or its affiliates may in the future provide banking and other services to the Company in the ordinary course of their respective businesses. -47- 51 CERTAIN TAX CONSIDERATIONS GENERAL THE FOLLOWING IS A DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX AND ESTATE TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AS OF THE DATE HEREOF. FOR PURPOSES OF THIS DISCUSSION, A "U.S. HOLDER" IS A HOLDER THAT IS AN INDIVIDUAL WHO IS A CITIZEN OR RESIDENT OF THE UNITED STATES, A CORPORATION OR A PARTNERSHIP THAT IS ORGANIZED UNDER THE LAWS OF THE UNITED STATES OR ANY STATE THEREOF OR AN ESTATE OR TRUST WHOSE INCOME IS INCLUDIBLE IN GROSS INCOME REGARDLESS OF ITS SOURCE. A "NON-U.S. HOLDER" IS A HOLDER THAT IS NOT A U.S. HOLDER. THIS SUMMARY APPLIES ONLY TO NOTES AND COMMON STOCK HELD AS CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). IT DOES NOT DISCUSS ALL OF THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A HOLDER IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES OR TO HOLDERS SUBJECT TO SPECIAL RULES, SUCH AS FORMER CITIZENS OR LONG-TERM RESIDENTS OF THE UNITED STATES, DEALERS IN SECURITIES OR FOREIGN CURRENCIES, FINANCIAL INSTITUTIONS, LIFE INSURANCE COMPANIES, OR REGULATED INVESTMENT COMPANIES, OR TO HOLDERS WHOSE FUNCTIONAL CURRENCY IS NOT THE UNITED STATES DOLLAR OR WHO HOLD THE NOTES OR THE COMMON STOCK AS PART OF A SYNTHETIC SECURITY, CONVERSION TRANSACTION, OR CERTAIN "STRADDLE" OR HEDGING TRANSACTIONS. THE U.S. FEDERAL INCOME TAX AND ESTATE TAX CONSIDERATIONS SET FORTH BELOW ARE BASED UPON THE CODE AND REGULATIONS AND RULINGS AND JUDICIAL DECISIONS THEREUNDER AS OF THE DATE HEREOF. SUCH AUTHORITIES MAY BE REPEALED, REVOKED OR MODIFIED, POSSIBLY WITH RETROACTIVE EFFECT, SO AS TO RESULT IN U.S. FEDERAL INCOME TAX CONSEQUENCES DIFFERENT FROM THOSE PRESENTED BELOW. U.S. HOLDERS Interest. Interest on a Note should be taxable to a U.S. Holder as ordinary interest income in accordance with the U.S. Holder's method of accounting for U.S. federal income tax purposes. Sale, Exchange or Retirement of a Note. A U.S. Holder should recognize gain or loss, if any, on the sale, retirement or other taxable disposition of a Note in an amount equal to the difference, if any, between the U.S. Holder's adjusted tax basis in the Note and the amount received therefor (other than amounts attributable to accrued and unpaid interest on the Notes, which should be treated as interest for U.S. federal income tax purposes). Subject to the market discount rules noted under "U.S. Holders -- Market Discount and Bond Premium" below, gain or loss, if any, recognized on the sale, retirement or other taxable disposition of a Note generally should be long-term capital gain or loss if the Note was held for more than one year as of the date of disposition. Market Discount and Bond Premium. If a U.S. Holder acquires a Note subsequent to its original issuance and the Note's stated redemption price at maturity exceeds the U.S. Holder's initial tax basis in the Note by more than a de minimis amount, the U.S. Holder should generally be treated as having acquired the Note at a "market discount" equal to such excess. In addition, if a U.S. Holder's initial tax basis in a Note exceeds the stated redemption price at maturity of the Note, the U.S. Holder should generally be treated as having acquired the Note with "bond premium" in an amount equal to such excess. U.S. Holders should consult their tax advisers regarding the existence, if any, and tax consequences of market discount and bond premium. Conversion of the Notes. A U.S. Holder should not recognize gain or loss upon conversion of the Notes into Common Stock. The U.S. Holder's tax basis in shares of Common Stock received upon conversion should be the same as the U.S. Holder's adjusted tax basis of the Notes converted (reduced by the portion of such basis allocable to any fractional Common Stock interest for which the U.S. Holder receives a cash payment from the Company). The holding period of the Common Stock received in the conversion should include the holding period -48- 52 of the Notes that were converted. A U.S. Holder generally should recognize gain (or loss) upon a conversion to the extent that any cash paid in lieu of a fractional share of Common Stock exceeds (or is less than) its tax basis allocable to such fractional share. Dividends. Dividends paid on Common Stock received upon conversion will be taxable to a U.S. Holder as ordinary income, to the extent paid out of the Company's current or accumulated earnings and profits. Subject to certain restrictions, dividends received by a corporate U.S. Holder generally should be eligible for the 70% dividends received deduction. Sale of Common Stock. A U.S. Holder of Common Stock received on conversion who sells or otherwise disposes of such stock in a taxable transaction will recognize capital gain or loss equal to the difference between the cash and the fair market value of any property received on such sale and the U.S. Holder's tax basis in such stock. Such gain or loss will be long term gain or loss if the holding period for such Common Stock was more than one year. Adjustments to Conversion Price. Pursuant to Treasury Regulations promulgated under Section 305 of the Code, a U.S. Holder of a Note should be treated as having received a constructive distribution from the Company upon an adjustment in the conversion price of the Notes if (i) as a result of such adjustment, the proportionate interest of such U.S. Holder in the assets or earnings and profits of the Company is increased and (ii) the adjustment is not made pursuant to a bona fide, reasonable, anti-dilution formula. An adjustment in the conversion price would not be considered made pursuant to such a formula if the adjustment were made to compensate for certain taxable distributions with respect to the Common Stock into which the Notes are convertible. Thus, under certain circumstances, a decrease in the conversion price of the Notes may be taxable to a U.S. Holder of a Note as a dividend to the extent of the current or accumulated earnings and profits of the Company. In addition, the failure to adjust fully the conversion price of the Notes to reflect distributions of stock dividends with respect to the Common Stock may result in a taxable dividend to the U.S. Holders of the Common Stock. Backup Withholding and Information Reporting. A U.S. Holder of a Note, or of Common Stock issued upon conversion of a Note, may be subject to information reporting and possible backup withholding. If applicable, backup withholding would apply at a rate of 31% with respect to dividends or interest on, or the proceeds of a sale, exchange, redemption, retirement, or other disposition of, such Note or Common Stock, as the case may be, unless (i) such U.S. Holder is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (ii) provides a taxpayer identification number, certifies that the U.S. Holder is not subject to backup withholding, and otherwise complies with applicable backup withholding rules. NON-U.S. HOLDERS The Notes. The payment of interest on a Note should generally not be subject to U.S. federal income tax, if (1) the interest is not effectively connected with the conduct of a trade or business within the United States, (2) the Non-U.S. Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote, (3) the Non-U.S. Holder is not a controlled foreign corporation that is related to the Company actually or constructively through stock ownership and (4) either (i) the beneficial owner of the Note certifies to the Company or its agent, under penalties of perjury, that it is not a U.S. Holder and provides its name and address on U.S. Treasury Form W-8 (or on a suitable substitute form) or (ii) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business (a "financial institution") and holds the Note certifies under penalties of perjury that such a Form W-8 (or suitable substitute form) has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes the payer with a copy thereof. -49- 53 A Non-U.S. Holder generally should not be subject to U.S. federal income tax on any gain or income realized in connection with (1) the conversion of a Note into Common Stock or (2) the sale, exchange, retirement, or other disposition of a Note unless (i) the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met, or (ii) the gain from the disposition is effectively connected to the conduct of a trade or business by the Non-U.S. Holder in the United States. A Note held directly by an individual who, at the time of death, is not a citizen or resident of the United States should not be includible in such individual's gross estate for U.S. estate tax purposes as a result of such individual's death if the individual does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote and, at the time of the individual's death, if payments with respect to such Note would not have been effectively connected with the conduct by such individual of a trade or business in the United States. Even if the Note was includible in the gross estate under the foregoing rules, the Note may be excluded under the provisions of an applicable estate tax treaty. The Common Stock. In general, dividends (including any amounts that are treated as dividends as described above) paid to a Non-U.S. Holder of the Common Stock should be subject to U.S. federal income tax withholding at a 30% rate unless such rate is reduced by an applicable income tax treaty. Dividends that are effectively connected with such Non-U.S. Holder's conduct of a trade or business in the United States or, if a tax treaty applies, attributable to a permanent establishment, or, in the case of an individual, a "fixed base," in the United States ("U.S. trade or business income") are generally subject to U.S. federal income tax at regular rates, but are not generally subject to the 30% withholding tax if the Non-U.S. Holder files the appropriate form with the payer. Any U.S. trade or business income received by a Non-U.S. Holder that is a corporation may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate or such lower rate as may be applicable under an income tax treaty. Dividends paid to an address in a foreign country are presumed (absent actual knowledge to the contrary) to be paid to a resident of such country for purposes of the withholding tax discussed above and, under the current interpretation of Treasury Regulations, for purposes of determining the applicability of a tax treaty rate. Under proposed Treasury Regulations not currently in effect, however, a Non-U.S. Holder of the Common Stock who wishes to claim the benefit of an applicable tax treaty rate would be required to satisfy applicable certification requirements. It is not certain whether, or in what form, the proposed Treasury Regulations will be adopted as final regulations. A Non-U.S. Holder of the Common Stock that is eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS. A Non-U.S. Holder of the Common Stock should generally not be subject to U.S. income or withholding tax on gain realized on the sale or exchange of such stock, unless the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met, or (ii) the gain from the disposition is effectively connected to the conduct of a trade or business by the Non-U.S. Holder in the United States. Common Stock held directly by an individual who at the time of death is not a citizen or resident of the United States will generally be includible in the gross estate of such individual for U.S. estate tax purposes, subject to contrary provisions of an applicable estate tax treaty. Backup Withholding and Information Reporting. Payments on the Notes made by the Company or any paying agent of the Company and payments of dividends on the Common Stock to certain noncorporate Non-U.S. -50- 54 Holders generally should be subject to information reporting and possibly to "backup withholding" at a rate of 31%. Information reporting and backup withholding do not apply, however, to payments made outside the United States by the Company or a paying agent on a Note or to payments of dividends on the Common Stock if the certification described under "Non-U.S. Holders -- The Notes" above is received, provided in each case that the payer does not have actual knowledge that the Holder is a U.S. Holder. Payment of proceeds from a sale of a Note or the Common Stock to or through the U.S. office of a broker is subject to information reporting and backup withholding unless the Non-U.S. Holder certifies as to its non U.S. status or otherwise establishes an exemption from information reporting and backup withholding. Payment outside the United States of the proceeds of the sale of a Note or the Common Stock to or through a foreign office of a "broker" (as defined in applicable U.S. Treasury Regulations) should not be subject to information reporting or backup withholding, except that if the broker is a U.S. person, a controlled foreign corporation for U.S. federal income tax purposes or a foreign person 50% or more of whose gross income is from a U.S. trade or business, information reporting should apply to such payment unless the broker has documentary evidence in its records that the beneficial owner is not a U.S. Holder and certain other conditions are not met or the beneficial owner otherwise establishes an exemption. THE U.S. FEDERAL INCOME TAX AND ESTATE TAX DISCUSSION SET FORTH ABOVE IS INTENDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A PARTICULAR HOLDER'S SITUATION. PERSONS CONSIDERING A PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF THE NOTES AND THE COMMON STOCK, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL OR FOREIGN LAWS AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES (POSSIBLY INCLUDING RETROACTIVE, CHANGES) IN U.S. FEDERAL AND OTHER TAX LAWS. -51- 55 SELLING SECURITYHOLDERS The Notes offered hereby were originally issued by the Company and sold by the Initial Purchasers, in a transaction exempt from the registration requirements of the Securities Act, to persons reasonably believed by such initial purchaser to be "qualified institutional buyers" (as defined in Rule 144A under the Securities Act), or other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act or in compliance with the provisions of Regulation S under the Securities Act. The Selling Securityholders (which term includes their transferees, pledgees, donees or their successors) may from time to time offer and sell pursuant to this Prospectus any or all of the Notes and Common Stock issued upon conversion of the Notes. The following table sets forth information with respect to the Selling Securityholders and the respective principal amounts of Notes beneficially owned by each Selling Securityholder that may be offered pursuant to this Prospectus. Such information has been obtained from the Selling Securityholders. None of the Selling Securityholders has, or within the past three years has had, any position, office or other material relationship with the Company or any of its predecessors or affiliates, except as noted below. Because the Selling Securityholders may offer all or some portion of the Notes or the Common Stock issuable upon conversion thereof pursuant to this Prospectus, no estimate can be given as to the amount of the Notes or the Common Stock issuable upon conversion thereof that will be held by the Selling Holders upon termination of any such sales. In addition, the Selling Securityholders identified below may have sold, transferred or otherwise disposed of all or a portion of their Notes since the date on which they provided the information regarding their Notes in transactions exempt from the registration requirements of the Securities Act. From time to time, Bear, Stearns & Co. has provided, and it continues to provide, investment banking services to the Company, for which it received or will receive customer fees. None of the other Selling Securityholders has had any position, office or other materials relationship with the Company or its affiliates within the last three years.
NUMBER OF SHARES OF COMMON STOCK PRINCIPAL AMOUNT OF ---------------------------------- NOTES BENEFICIALLY OFFERED SELLING OWNED AND OFFERED BENEFICIALLY SECURITYHOLDER NAME HEREBY OWNED(1)(2) HEREBY(2) - --------------------------------------------------------- ------------------- ------------ --------------- [TO BE ADDED BY AMENDMENT] Any other holder of Notes or future transferee from any such holder (3)(4) .............................. ---------- ---------- ---------- Total .................................... ========== ========== ==========
(1) Includes shares of Common Stock issuable upon conversion of the Notes. (2) Assumes a conversion price of $51.66 per share, and a cash payment in lieu of any fractional share interest; such conversion price is subject to adjustment as described under "Description of Notes -- Conversion." Accordingly the number of shares of Common Stock issuable upon conversion of the Notes may increase or decrease from time to time. Under the terms of Indenture, fractional shares will not be issued upon conversion of the Notes; cash will be paid in lieu of fractional shares, if any. (3) Information concerning other Selling Securityholders will be set forth in Prospectus Supplements from time to time, if required. (4) Assumes that any other holders of Notes or any future transferee from any such holder does not beneficially own any Common Stock other than the Common Stock issuable upon conversion of the Notes at the initial conversion rate. The Selling Securityholders identified above may have sold, transferred or otherwise disposed of, in transactions exempt from the registration requirements of the Securities Act, all or a portion of their Notes since -52- 56 the date on which the information in the preceding table is presented. Information concerning the Selling Securityholders may change from time to time and any such changed information will be set forth in supplements to this Prospectus if and when necessary. Because the Selling Securityholders may offer all or some of the Notes that they hold and/or Conversion Shares pursuant to the offering contemplated by this Prospectus, no estimate can be given as to the amount of the Notes or Conversion Shares that will be held by the Selling Securityholders upon the termination of this offering. See "Plan of Distribution." Information concerning the Selling Securityholders may change from time to time and any such changed information will be set forth in supplements to this Prospectus if and when necessary. In addition, the per share conversion price, and therefore the number of shares issuable upon conversion of the Notes, is subject to adjustment under certain circumstances. Accordingly, the aggregate principal amount of Notes and the number of shares of Common Stock issuable upon conversion thereof offered hereby may increase or decrease. -53- 57 PLAN OF DISTRIBUTION The Company will not receive any of the proceeds of the sale of the Securities offered hereby. The Securities may be sold from time to time to purchasers directly by the Selling Securityholders. Alternatively, the Selling Securityholders may from time to time offer the Securities through brokers, dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders and/or the purchasers of the Securities for whom they may act as agent. The Selling Securityholders and any such brokers, dealers or agents who participate in the distribution of the Securities may be deemed to be "underwriters," and any profits on the sale of the Securities by them and any discounts, commissions or concessions received by any such brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. To the extent the Selling Securityholders may be deemed to be underwriters, the Selling Securityholders may be subject to certain statutory liabilities of, including, but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. The Securities offered hereby may be sold from time to time in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale or at negotiated prices. The Securities may be sold by one or more of the following methods, without limitation: (a) a block trade in which the broker or dealer so engaged will attempt to sell the Securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; (c) ordinary brokerage transactions and transactions in which the broker solicits purchasers; (d) an exchange distribution in accordance with the rules of such exchange; (e) face-to-face transactions between sellers and purchasers without a broker-dealer; (f) through the writing of options; and (g) other. At any time a particular offer of the Securities is made, a revised Prospectus or Prospectus Supplement, if required, will be distributed which will set forth the aggregate amount and type of Securities being offered and the terms of the offering, including the name or names of any underwriters, dealers or agents, any discounts, commissions, concessions and other items constituting compensation from the Selling Securityholders and any discounts, commissions or concessions allowed or reallowed or paid to dealers. Such Prospectus Supplement and, if necessary, a post-effective amendment to the Registration Statement of which this Prospectus is a part, will be filed with the Commission to reflect the disclosure of additional information with respect to the distribution of the Securities. In addition, the Securities covered by this Prospectus may be sold in private transactions or under Rule 144 rather than pursuant to this Prospectus. To the best knowledge of the Company, there are currently no plans, arrangement or understandings between any Selling Securityholders and any broker, dealer, agent or underwriter regarding the sale of the Securities by the Selling Securityholders. There is no assurance that any Selling Securityholder will sell any or all of the Securities offered by it hereunder or that any such Selling Securityholder will not transfer, devise or gift such Securities by other means not described herein. The Selling Securityholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M which may limit the timing of purchases and sales of any of the Securities by the Selling Securityholders and any other such person. Furthermore, Regulation M of the Exchange Act may restrict the ability of any person engaged in the distribution of the Securities to engage in market-making activities with respect to the particular Securities being distributed for a period of up to five business days prior to the commencement of such distribution. All of the foregoing may affect the marketability of the Securities and the ability of any person or entity to engage in market-making activities with respect to the Securities. -54- 58 Pursuant to the Registration Rights Agreement entered into in connection with the offer and sale of the Notes by the Company, each of the Company and the Selling Securityholders will be indemnified by the other against certain liabilities, including certain liabilities under the Securities Act, or will be entitled to contribution in connection therewith. The Company has agreed to pay substantially all of the expenses incidental to the registration, offering and sale of the Securities to the public other than commissions, fees and discounts of underwriters, brokers, dealers and agents. LEGAL MATTERS The validity of the Notes and the Common Stock being offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. EXPERTS The consolidated financial statements of Adaptec as of March 31, 1996 and 1995 and for each of the two fiscal years in the period ended March 31, 1996 included in this Registration Statement have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The consolidated financial statements of Adaptec, Inc. for the year ended March 31, 1994 included in this Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. -55- 59 ADAPTEC, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Audited Financial Statements: Report of Independent Accountants .................................................. F-2 Report of Independent Public Accountants ........................................... F-3 Consolidated Balance Sheets as of March 31, 1996 and 1995 .......................... F-4 Consolidated Statements of Operations for the three years ended March 31, 1996 ..... F-5 Consolidated Statements of Changes in Shareholders' Equity for the three years ended March 31, 1996 .................................................................. F-6 Consolidated Statements of Cash Flows for the three years ended March 31, 1996 ..... F-7 Notes to Consolidated Financial Statements ......................................... F-8 Unaudited Interim Financial Statements: Condensed Consolidated Balance Sheets as of December 27, 1996 and March 31, 1996 ... F-18 Condensed Consolidated Statements of Operations for the three and nine months ended December 27, 1996 and December 29, 1995 ......................................... F-19 Condensed Consolidated Statements of Cash Flows for the nine months ended December 27, 1996 and December 29, 1995 ......................................... F-20 Notes to Condensed Consolidated Financial Statements ............................... F-21
60 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Adaptec, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements 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, 1996 and 1995, and the results of their operations and their cash flows for the years then ended 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 audits. We conducted our audits 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 audits provide a reasonable basis for the opinion expressed above. /s/ PRICE WATERHOUSE LLP San Jose, California April 22, 1996, except for Note 12 which is as of December 5, 1996 F-2 61 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Adaptec, Inc.: We have audited the consolidated statements of operations, shareholders'equity and cash flows of Adaptec, Inc. (a California corporation) and subsidiaries for the year ended March 31, 1994. These financial statements are the responsibility of the Company=s management. Our responsibility is to express an opinion on these financial statements. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Adaptec, Inc. and subsidiaries for the year ended March 31, 1994 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP San Jose, California April 25, 1994 F-3 62 ADAPTEC, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
AS OF MARCH 31 --------------------- 1996 1995 -------- -------- ASSETS Current assets Cash and cash equivalents .................................... $ 91,211 $ 66,835 Marketable securities ........................................ 204,283 179,911 Accounts receivable, net of allowance for doubtful accounts of $4,220 in 1996 and $4,431 in 1995............................. 89,487 56,495 Inventories .................................................. 55,028 31,712 Prepaid expenses and other ................................... 25,271 15,519 -------- -------- Total current assets ........................... 465,280 350,472 Property and equipment, net .................................... 92,778 67,863 Other assets ................................................... 88,428 17,373 -------- -------- $646,486 $435,708 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt ............................ $ 3,400 $ 3,400 Note payable ................................................. 46,200 -- Accounts payable ............................................. 23,974 22,008 Accrued liabilities .......................................... 56,717 31,006 -------- -------- Total current liabilities ................................ 130,291 56,414 -------- -------- Long-term debt, net of current portion ......................... 4,250 7,650 -------- -------- Commitments (Note 7) Shareholders' equity: Preferred stock; $.001 par value Authorized shares, 1,000 Outstanding shares, none ................................... -- -- Common stock; $.001 par value Authorized shares, 400,000 Outstanding shares, 106,040 in 1996 and 103,354 in 1995 .... 182,932 140,191 Retained earnings ............................................ 329,013 231,453 -------- -------- Total shareholders' equity ............................... 511,945 371,644 -------- -------- $646,486 $435,708 ======== ========
See accompanying notes. F-4 63 ADAPTEC, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED MARCH 31, --------------------------------------- 1996 1995 1994 --------- --------- --------- Net revenues ................................ $ 659,347 $ 466,194 $ 372,245 Cost of revenues ............................ 275,939 205,596 189,526 --------- --------- --------- Gross profit .......................... 383,408 260,598 182,719 --------- --------- --------- Operating expenses: Research and development .................. 87,628 60,848 39,993 Sales and marketing ....................... 81,548 58,737 46,192 General and administrative ................ 35,784 23,229 19,399 Write-off of acquired in-process technology .............................. 52,313 -- -- --------- --------- --------- 257,273 142,814 105,584 --------- --------- --------- Income from operations .................... 126,135 117,784 77,135 --------- --------- --------- Shareholder settlement ...................... -- -- (2,409) Interest income ............................. 12,694 7,932 5,183 Interest expense ............................ (840) (1,179) (1,306) --------- --------- --------- 11,854 6,753 1,468 --------- --------- --------- Income before income taxes ................ 137,989 124,537 78,603 Provision for income taxes .................. 34,614 31,135 19,653 --------- --------- --------- Net income ................................ $ 103,375 $ 93,402 $ 58,950 ========= ========= ========= Net income per share ........................ $ .95 $ .88 $ .55 ========= ========= ========= Weighted average number of common and common equivalent shares outstanding ... 109,138 106,714 107,204 ========= ========= =========
See accompanying notes. F-5 64 ADAPTEC, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK ----------------------- RETAINED SHARES AMOUNT EARNINGS TOTAL -------- --------- --------- --------- Balance, March 31, 1993 ............................. 101,428 $ 124,806 $ 100,349 $ 225,155 Sale of common stock under employee purchase and option plans .................................... 3,154 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 ............................. 104,582 138,317 159,299 297,616 Sale of common stock under employee purchase and option plans .................................... 2,852 11,245 -- 11,245 Income tax benefit of employees' stock transactions..................................... -- 5,929 -- 5,929 Repurchases of common stock ....................... (4,080) (15,300) (21,248) (36,548) Net income ........................................ -- -- 93,402 93,402 -------- --------- --------- --------- Balance, March 31, 1995 ............................. 103,354 140,191 231,453 371,644 Sale of common stock under employee purchase and option plans .................................... 2,436 16,512 -- 16,512 Issuance of common stock in connection with acquisition ..................................... 770 17,232 -- 17,232 Income tax benefit of employees' stock transactions..................................... -- 10,947 -- 10,947 Repurchases of common stock ....................... (520) (1,950) (5,815) (7,765) Net income ........................................ -- -- 103,375 103,375 -------- --------- --------- --------- Balance, March 31, 1996 ............................. 106,040 $ 182,932 $ 329,013 $ 511,945 ======== ========= ========= =========
See accompanying notes. F-6 65 ADAPTEC, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED MARCH 31, -------------------------------------- 1996 1995 1994 --------- --------- -------- Cash Flows from Operating Activities: Net income ................................................ $ 103,375 $ 93,402 $ 58,950 Adjustments to reconcile net income to net cash provided by operating activities: Write-off of acquired in-process technology, net of taxes........................................... 39,686 -- -- Depreciation and amortization ........................... 17,593 15,662 11,489 Provision for doubtful accounts ......................... 250 150 2,069 Changes in assets and liabilities net of the effect of acquisitions: Accounts receivable ................................... (30,727) (1,311) (13,020) Inventories ........................................... (20,516) 7,228 (5,563) Prepaid expenses ...................................... (8,973) 460 (5,470) Other assets .......................................... (19,111) (4,107) (11,478) Accounts payable ...................................... (167) 2,354 (2,781) Accrued liabilities ................................... 21,969 4,251 8,867 --------- --------- -------- Net cash provided by operating activities ................. 103,379 118,089 43,063 --------- --------- -------- Cash Flows from Investing Activities: Purchase of Trillium, Future Domain and Power I/O, net of cash acquired .................................... (31,177) -- -- Investments in property and equipment ..................... (39,748) (31,576) (17,314) Investments in marketable securities, net ................. (24,372) (32,291) (20,250) --------- --------- -------- Net cash used for investing activities .................... (95,297) (63,867) (37,564) --------- --------- -------- Cash Flows from Financing Activities: Proceeds from issuance of common stock .................... 27,459 17,174 13,511 Repurchase of common stock ................................ (7,765) (36,548) -- Principal payments on debt ................................ (3,400) (3,400) (2,968) --------- --------- -------- Net cash provided by (used for) financing activities: ..... 16,294 (22,774) 10,543 --------- --------- -------- Net increase in cash and cash equivalents ................. 24,376 31,448 16,042 Cash and cash equivalents at beginning of year .......... 66,835 35,387 19,345 --------- --------- -------- Cash and cash equivalents at end of year ................ $ 91,211 $ 66,835 $ 35,387 ========= ========= ========
See accompanying notes. F-7 66 ADAPTEC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE ONE: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation. 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. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. At March 31, 1996, the Company's marketable securities are classified as available for sale and are reported at fair market value which approximates cost. Marketable securities with maturities after one through three years totaled $153,996,000 with all remaining securities maturing less than one year. Realized gains and losses are based on the book value of the specific securities sold and were immaterial during fiscal 1996, 1995 and 1994. 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 primarily in municipal securities. The Company, by policy, limits the amount of credit exposure through diversification and investment in 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. During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment F-8 67 of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121) which will be effective for the Company in fiscal 1997. The Company does not expect that adoption of SFAS 121 to have a material impact on its financial position or results of operations. Income Taxes. The Company accounts for income taxes under the asset and liability method. Under this method, 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. 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. NOTE TWO: SUPPLEMENTAL FINANCIAL INFORMATION MARKETABLE SECURITIES (IN THOUSANDS)
1996 1995 -------- -------- Municipal securities ...................... $203,305 $169,972 U.S. Government securities and other ...... 978 9,939 -------- -------- $204,283 $179,911 ======== ========
INVENTORIES (IN THOUSANDS)
1996 1995 -------- -------- Raw materials ............................. $ 23,415 $ 12,230 Work-in-process ........................... 12,865 5,839 Finished goods ............................ 18,748 13,643 -------- -------- $ 55,028 $ 31,712 ======== ========
PROPERTY AND EQUIPMENT (IN THOUSANDS)
LIFE 1996 1995 ------------- --------- -------- Land .................................... -- $ 25,154 $ 13,240 Buildings and improvements .............. 5-40 years 20,328 18,088 Machinery and equipment ................. 3-5 years 59,290 42,810 Furniture and fixtures .................. 3-8 years 22,944 17,005 Leasehold improvements .................. Life of lease 5,245 3,968 --------- -------- 132,961 95,111 Accumulated depreciation and amortization (40,183) (27,248) --------- -------- $ 92,778 $ 67,863 ========= ========
F-9 68 ACCRUED LIABILITIES (IN THOUSANDS)
1996 1995 ------- ------- Accrued compensation and related taxes ....... $22,440 $15,740 Sales and marketing related .................. 7,443 4,877 Tax related .................................. 16,218 5,746 Other ........................................ 10,616 4,643 ------- ------- $56,717 $31,006 ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS (IN THOUSANDS)
1996 1995 1994 ------- ------- ------- Interest paid ............... $ 764 $ 1,125 $ 1,300 Income taxes paid ........... 32,869 29,411 14,927
NOTE THREE: LINE OF CREDIT The Company has available an unsecured $17 million revolving line of credit which expires on December 31, 1997. Of the total line of credit available, $7 million 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, 1996, 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, 1996. NOTE FOUR: LONG-TERM DEBT The Company entered into a $17 million 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, 1996. NOTE FIVE: ACQUISITIONS During fiscal 1996, the Company acquired all of the outstanding capital stock of Future Domain, Power I/O, Trillium, and Incat for $25 million, $7 million, $3 million, and 770,000 shares of the Company's common stock with a fair market value of $17 million, respectively. Also in connection with the Incat acquisition, the Company will pay consideration, contingent upon certain future performance criteria. These companies design and develop high-performance I/O products, networking technologies and software for recordable CD peripherals for both the consumer and enterprise computing markets. The Company accounted for these acquisitions using the purchase method of accounting, and excluding the aggregate $52 million write-off of purchased in-process technology from these companies, the aggregate impact on the Company's results of operations from the acquisition date was not material. F-10 69 The allocation of the Company's aggregate purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed was based on independent appraisals and is summarized as follows:
(IN THOUSANDS) -------------- Tangible assets ................................ $ 8,108 In-process technology .......................... 52,313 Goodwill ....................................... 8,200 ------- Assets acquired ................................ 68,621 ------- Accounts payable and accrued liabilities ....... 3,125 Deferred tax liability ......................... 12,627 ------- Liabilities assumed ............................ 15,752 ------- Net assets acquired ............................ $52,869 =======
Subsequent to year end, the Company acquired certain assets and the ongoing business of Western Digital's Connectivity Solutions Group (CSG), which primarily designs, manufactures and markets controller ICs for high-capacity disk drives. In connection with the acquisition, the Company was assigned capacity for wafer fabrication. The Company paid $33 million cash for CSG and will pay future consideration based on certain performance criteria. The Company will account for this acquisition using the purchase method of accounting and will evaluate the allocation of the purchase price to assets acquired, which includes in-process technology that will be written off. The results of operations for CSG were immaterial relative to the Company's financial statements. Also subsequent to year end, the Company acquired all of the outstanding capital stock of Cogent Data Technologies, Inc. (Cogent) in a $68 million stock transaction. Cogent provides high-performance Fast Ethernet products for the networking market. The Company will record this acquisition using the pooling method of accounting and will record acquired assets and assumed liabilities at their book values as of the acquisition date. The results of operations for Cogent for the three year period ended March 31, 1996 were immaterial relative to the Company's financial statements. NOTE SIX: STOCK PLANS 1986 EMPLOYEE STOCK PURCHASE PLAN. The Company has authorized 5,600,000 shares of common stock for issuance under the 1986 Employee Stock Purchase Plan (1986 Plan). Qualified employees 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, 278,550 shares were issued during fiscal 1996, representing approximately $4,578,000 in employee contributions. 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 the 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. Generally, options vest and become exercisable over a four year period. F-11 70 Option activity under the 1990 Stock Plan is as follows:
OPTIONS OUTSTANDING -------------------------------- OPTIONS AVAILABLE SHARES PRICE ----------------- ---------- ---------------- Balance, March 31, 1993............ 4,560,824 7,502,104 $ 1.24 to $ 6.94 Authorized ..................... 4,000,000 -- -- Granted ........................ (3,675,000) 3,675,000 $ 5.66 to $10.69 Exercised ...................... -- (1,719,026) $ 1.24 to $ 7.72 Terminated ..................... 661,324 (661,324) $ 1.43 to $ 8.25 ---------- ---------- Balance, March 31, 1994............ 5,547,148 8,796,754 $ 1.24 to $10.69 Authorized ..................... 5,000,000 -- -- Granted ........................ (3,829,000) 3,829,000 $ 7.82 to $17.94 Exercised ...................... -- (1,861,148) $ 1.24 to $10.69 Terminated ...................... 1,198,106 (1,198,106) $ 1.42 to $13.82 ---------- ---------- Balance, March 31, 1995............ 7,916,254 9,566,500 $ 1.24 to $17.94 Authorized ..................... 4,387,800 -- -- Granted ........................ (4,589,500) 4,589,500 $11.44 to $28.00 Exercised ...................... -- (2,034,262) $ 1.24 to $22.38 Terminated ..................... 482,076 (482,076) $ 1.53 to $22.88 ---------- ---------- Balance, March 31, 1996............ 8,196,630 11,639,662 $ 1.24 to $28.00 ========== ==========
At March 31, 1996, there were 3,913,534 exercisable options under this Plan at prices ranging from $1.24 to $22.94 per share. 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, 1993............ 80,000 315,000 $ 1.46 to $ 6.94 Authorized ..................... 1,000,000 -- -- Granted ........................ (100,000) 100,000 $ 9.19 Exercised ...................... -- (10,000) $ 1.46 --------- -------- Balance, March 31, 1994............ 980,000 405,000 $ 1.46 to $ 9.19 Granted ........................ (100,000) 100,000 $16.50 Exercised ...................... -- (42,500) $ 1.46 to $ 6.94 --------- -------- Balance, March 31, 1995............ 880,000 462,500 $ 1.46 to $16.50 Granted ........................ (300,000) 300,000 $22.25 to $24.13 Exercised ...................... -- (110,000) $ 1.46 to $ 9.19 --------- -------- Balance, March 31, 1996............ 580,000 652,500 $ 3.85 to $24.13 ========= ========
F-12 71 At March 31, 1996 there were 187,500 exercisable options under this Plan at prices ranging from $3.85 to $16.50 per share. At March 31, 1996, the Company has reserved the following shares of authorized but unissued common stock: 1986 Employee Stock Purchase Plan ...................... 1,738,374 1990 Stock Plan ........................................ 19,836,292 1990 Directors' Option Plan ............................ 1,232,500 ---------- 22,807,166 ==========
NOTE SEVEN: COMMITMENTS The Company leases certain office facilities, vehicles and certain equipment under operating lease agreements that expire at various dates through fiscal 2001. As of March 31, 1996, the minimum future payments on existing leases totaled $7,290,000. Rent expense was approximately $3,715,000, $2,377,000 and $1,640,000 during fiscal 1996, 1995 and 1994, respectively. During fiscal 1996, the Company signed an agreement with TSMC totaling $66 million that ensures availability of a portion of the Company's wafer capacity for both current and future technologies. The agreement runs through 2001 providing the Company with a guarantee of increased capacity for wafer fabrication in return for advance payments. As of March 31, 1996, the Company made advance payments to TSMC totaling $20 million and has signed a $46 million promissory note payable which becomes due June 30, 1996. The majority of these amounts are included in other assets in the fiscal 1996 consolidated balance sheets. In addition to this agreement, the Company has an existing deposit and supply agreement with TSMC to secure supply of silicon wafers. Under the deposit and supply agreement, the Company has made deposits aggregating $14,650,000 which are classified as other assets in the accompanying consolidated balance sheets. These advances are repayable at the expiration of the agreement in June 1997. The supplier has provided an irrevocable standby letter of credit to the Company in an equal amount to guarantee the repayment of deposits made by the Company. Under the agreement, the Company is committed to minimum purchases of $19,800,000 and $4,950,000 in fiscal 1997 and 1998, respectively. During fiscal 1996, the Company signed an agreement with AT&T, acting through it Microelectronics business division, that will ensure availability of a portion of the Company's wafer capacity for both current and future technologies. This contract, which runs through 2001, provides the Company with a guaranteed supply of wafers at a specified level in return for an investment in fabrication equipment of up to $25 million for AT&T's fabrication facility located in Madrid, Spain. As of March 31, 1996 the Company has not made any payments in connection with this agreement. F-13 72 NOTE EIGHT: INCOME TAXES The components of income before income taxes for the years ended March 31 are as follows:
1996 1995 1994 -------- -------- ------- (IN THOUSANDS) Domestic ......................... $ 57,882 $ 74,397 $54,972 Foreign .......................... 80,107 50,140 23,631 -------- -------- ------- Income before income taxes ....... $137,989 $124,537 $78,603 ======== ======== =======
The split of domestic and foreign income was impacted mainly by the acquisition related write-offs of in-process technology, which reduced domestic income by $52,313,000. The components of the provision for income taxes for the years ended March 31 are as follows:
1996 1995 1994 -------- -------- -------- (IN THOUSANDS) Federal Current ....................... $ 22,066 $ 26,455 $ 13,899 Deferred ...................... (4,263) (311) 2,658 -------- -------- -------- 17,803 26,144 16,557 -------- -------- -------- Foreign Current ....................... $ 15,074 $ 1,106 $ 317 Deferred ...................... (1,491) -- -- -------- -------- -------- 13,583 1,106 317 -------- -------- -------- State Current ....................... $ 3,611 $ 3,177 $ 3,474 Deferred ...................... (383) 708 (695) -------- -------- -------- 3,228 3,885 2,779 -------- -------- -------- Provision for income taxes ...... $ 34,614 $ 31,135 $ 19,653 ======== ======== ========
Significant components of the Company's deferred tax assets, included in prepaid expenses in the accompanying consolidated balance sheets as of March 31 are as follows:
1996 1995 ------- ------- (IN THOUSANDS) Inventory reserves ....................... $ 3,426 $ 1,048 State taxes .............................. 1,323 990 Bad debt reserve ......................... 1,901 1,829 Compensatory accruals .................... 5,091 4,355 Various expense accruals ................. 5,581 3,725 Other, net ............................... 764 2 ------- ------- Net deferred tax assets .................. $18,086 $11,949 ======= =======
F-14 73 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:
1996 1995 1994 ------ ------ ------ Federal statutory rate ................................... 35.0% 35.0% 35.0% State taxes, net of federal benefit ...................... 2.7 2.2 2.9 Foreign subsidiary income at other than the U.S. tax rate (11.8) (9.9) (10.5) Tax-exempt interest income, net .......................... (2.1) (1.7) (1.6) Other .................................................... 1.3 (.6) (.8) ------ ------ ------ Effective income tax rate ................................ 25.1% 25.0% 25.0% ====== ====== ======
The Company's effective tax rate for fiscal 1996 was 25%, the same as fiscal 1995 and 1994. During fiscal 1996, the Company concluded negotiations with the Singapore government extending the tax holiday for the Company's manufacturing subsidiary. The terms of the tax holiday provide that profits derived from certain products will be exempt from tax for a period of 10 years, subject to certain conditions. In addition, profits derived from the Company's remaining products will be taxed at a rate of 15%, which is lower than the Singapore statutory rate of 27%, through fiscal 1998. As of March 31, 1996, the Company had not accrued income taxes on $186,100,000 of accumulated undistributed earnings of its Singapore subsidiary, as these earnings will be reinvested indefinitely. NOTE NINE: SEGMENT INFORMATION Adaptec operates 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. The Company's write-offs of acquired in-process technology are included in the corporate income from operations. 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. F-15 74
SINGAPORE, ADJUSTMENTS UNITED FAR EAST, AND CONSOLIDATED STATES OTHER EUROPE CORPORATE ELIMINATIONS TOTAL -------- --------- ------ --------- ------------ ------------ (IN THOUSANDS) FISCAL 1996 Revenues Sales to customers ......... $609,060 $ 49,211 $1,076 $ -- $ -- $659,347 Intercompany sales between geographical areas 7,205 399,036 6,175 -- (412,416) -- -------- -------- ------ ------- --------- -------- Net revenues ......... $616,265 $448,247 $7,251 $ -- $(412,416) $659,347 ======== ======== ====== ======= ========= ======== Income from operations ........ 100,838 76,942 668 (52,313) -- 126,135 Identifiable assets ........... 201,128 259,179 2,644 322,910 (139,375) 646,486 FISCAL 1995 Revenues Sales to customers ......... $464,707 $ 1,487 $ -- $ -- $ -- $466,194 Intercompany sales between geographical 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 geographical 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
EXPORT REVENUES. The following table represents export revenues by geographic region as a percentage of total revenues:
1996 1995 1994 ---- ---- ---- Singapore, Far East, Other ........ 32% 37% 38% Europe ............................ 24 25 20 --- --- --- 56% 62% 58% === === ===
MAJOR CUSTOMERS. In fiscal 1996, sales to one distributor represented 10% of net revenues. In fiscal 1995 and 1994, no customer accounted for more than 10% of net revenues. NOTE TEN: 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 on February 21, 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. Final settlement of the class action lawsuit was made on May 15, 1995 pursuant to the Court's final judgment and order of dismissal. F-16 75 NOTE ELEVEN: COMPARATIVE QUARTERLY FINANCIAL DATA UNAUDITED Summarized quarterly financial data is as follows:
QUARTERS -------------------------------------------- FIRST SECOND THIRD FOURTH YEAR -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FISCAL 1996 Net revenues .......... $138,025 $149,110 $176,187 $196,025 $659,347 Gross profit .......... 81,359 86,451 101,986 113,612 383,408 Net income* ........... 31,163 557 30,587 41,068 103,375 Net income per share* . $ .29 $ .01 $ .28 $ .37 $ .95 Weighted average shares outstanding .......... 107,884 108,992 109,584 110,122 109,138
- -------------------- * The second and third quarters of fiscal 1996 include write-offs of acquired in-process technology, net of taxes, totaling $33 million and $7 million, respectively.
QUARTERS -------------------------------------------- FIRST SECOND THIRD FOURTH YEAR -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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 .. $ .16 $ .17 $ .26 $ .28 $ .88 Weighted average shares outstanding .......... 107,888 106,364 105,916 107,604 106,714
NOTE TWELVE: SUBSEQUENT EVENTS Subsequent to March 31, 1996, the Company's Board of Directors approved a two-for-one split of its common stock for shareholders of record as of November 1, 1996. The effect of the stock split has been reflected in the Company's consolidated financial statements and accompanying notes for all periods presented herein. The Company has reserved 250,000 shares of Series A Preferred Stock for issuance under the 1996 Rights Agreement which was amended and restated as of December 5, 1996. Under this plan, shareholders have received one Preferred Stock Purchase Right ("Right") for each outstanding share of the Company's common stock. Each Right will entitle shareholders to buy one one-thousandth of a share of Series A Preferred Stock at an exercise price of $180.00 per Right. The Rights trade automatically with shares of the Company's common stock. The Rights are not exercisable until ten days after a person or group announces the 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. F-17 76 The Company is entitled to redeem the Rights at $.01 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 $180.00 per share, common stock having a then current market value of $360.00 per share. F-18 77 ADAPTEC, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)
DECEMBER 27, MARCH 31, 1996 1996* ------------ --------- ASSETS Current assets: Cash and cash equivalents .................... $ 89,436 $ 91,211 Marketable securities ........................ 199,542 204,283 Accounts receivable, net ..................... 108,428 89,487 Inventories .................................. 59,821 55,028 Prepaid expenses and other ................... 30,268 25,271 -------- -------- Total current assets ..................... 487,495 465,280 Property and equipment, net .................... 133,157 92,778 Other assets ................................... 105,835 88,428 -------- -------- $726,487 $646,486 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ............ $ 3,400 $ 3,400 Note payable ................................. -- 46,200 Accounts payable ............................. 26,189 23,974 Accrued liabilities .......................... 83,199 56,717 -------- -------- Total current liabilities ................ 112,788 130,291 -------- -------- Long-term debt, net of current portion ......... 1,700 4,250 -------- -------- Shareholders' equity: Common stock ................................. 222,334 182,932 Retained earnings ............................ 389,665 329,013 -------- -------- Total shareholders' equity ............... 611,999 511,945 -------- -------- $726,487 $646,486 ======== ========
- -------------------- * Amounts are derived from the March 31, 1996 audited financial statements. See accompanying notes. F-19 78 ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT FOR PER SHARE DATA) (UNAUDITED)
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED ------------------------ ------------------------ DEC. 27, DEC. 29, DEC. 27, DEC. 29, 1996 1995 1996 1995 -------- -------- -------- -------- Net revenues ................................. $251,703 $176,187 $668,760 $463,322 Cost of revenues ............................. 103,139 74,201 281,735 193,526 -------- -------- -------- -------- Gross profit ............................. 148,564 101,986 387,025 269,796 -------- -------- -------- -------- Operating expenses: Research and development .................. 34,859 23,321 93,339 60,488 Sales and marketing ....................... 31,311 22,350 79,914 58,200 General and administrative ................ 13,731 9,241 34,988 23,976 Write-off of acquired in-process technology and other .............................. 11,758 11,759 80,663 52,313 -------- -------- -------- -------- Total operating expenses ................. 91,659 66,671 288,904 194,977 -------- -------- -------- -------- Income from operations .................... 56,905 35,315 98,121 74,819 Interest income, net of interest expense ..... 2,460 3,116 7,393 8,413 -------- -------- -------- -------- Income before provision for income taxes .. 59,365 38,431 105,514 83,232 Provision for income taxes ................... 17,781 7,844 44,779 20,925 -------- -------- -------- -------- Net income ............................... $ 41,584 $ 30,587 $ 60,735 $ 62,307 ======== ======== ======== ======== Net income per share ......................... $ .36 $ .28 $ .53 $ .57 ======== ======== ======== ======== Weighted average common and common equivalent shares outstanding ........... 116,786 109,584 114,002 108,794 ======== ======== ======== ========
See accompanying notes. F-20 79 ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE-MONTH PERIOD ENDED ---------------------------- DECEMBER 27, DECEMBER 29, 1996 1995 ------------ ------------ Cash Flows from Operating Activities: Net income .................................................. $ 60,735 $ 62,307 Adjustments to reconcile net income to net cash provided by operating activities: Write-off of acquired in-process technology, net of taxes 77,192 39,686 Depreciation and amortization ........................... 20,179 12,591 Changes in assets and liabilities net of the effect of acquisitions: Accounts receivable ................................... (16,545) (25,786) Inventories ........................................... 5,361 (8,740) Prepaid expenses ...................................... (3,118) (4,872) Other assets .......................................... (4,378) (17,255) Accounts payable ...................................... (243) 817 Accrued liabilities ................................... 25,628 39,306 --------- --------- Net Cash Provided by Operating Activities ..................... 164,811 98,054 --------- --------- Cash Flows from Investing Activities: Purchase of certain net assets in connection with (89,264) (31,177) acquisitions accounted for under the purchase method of accounting (see Note 5)............................ Purchase of property and equipment .......................... (54,280) (19,407) Sales of (investment in) marketable securities, net ......... 4,741 (12,646) --------- --------- Net Cash Used for Investing Activities ...................... (138,803) (63,230) --------- --------- Cash Flows Form Financing Activities: Payment of short-term note .................................. (46,200) -- Proceeds from issuance of common stock ...................... 20,967 9,483 Repurchase of common stock .................................. -- (7,765) Principal payments on long-term debt ........................ (2,550) (2,550) --------- --------- Net cash used for financing activities ...................... (27,783) (832) --------- --------- Net increase (decrease) in cash and cash equivalents ........ (1,775) 33,992 Cash and cash equivalents at beginning of period .......... 91,211 66,835 --------- --------- Cash and cash equivalents at end of period ................ $ 89,436 $ 100,827 ========= =========
See accompanying notes. F-21 80 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 27, 1996 (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of management, the unaudited condensed consolidated interim financial statements included herein have been prepared on the same basis as the March 31, 1996 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission, but omit certain information and footnote disclosures necessary to present the statements in accordance with generally accepted accounting principles. The Company's net income per share, weighted average common and common equivalent shares outstanding, and other share information included in these financial statements reflect the two-for-one split of the Company's common stock approved by its Board of Directors in November 1996. These interim financial statements should be read in conjunction with the financial statements and footnotes thereto included herein. The results of operations for the three and nine month periods ended December 27, 1996 are not necessarily indicative of the results to be expected for the entire year. 2. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS Cash paid for interest and income taxes is as follows (in thousands):
Nine-months ended ------------------------------ December 27, December 29, 1996 1995 ------------ ------------ Interest ..... $ 461 $ 604 Income taxes.. $49,956 $14,751
3. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventory are as follows (in thousands):
December 27, March 31, 1996 1996 ------------ --------- Raw materials ......... $13,523 $23,415 Work in process ....... 13,292 12,865 Finished goods ........ 33,006 18,748 ------- ------- $59,821 $55,028 ======= =======
4. NET INCOME PER SHARE Net income per share for the three and nine month periods ended December 27, 1996 and December 29, 1995, is computed under the treasury stock method using the weighted average number of common and common equivalent shares from dilutive stock options outstanding during the respective periods. F-22 81 5. ACQUISITIONS On April 9, 1996, the Company acquired certain assets and the ongoing business of Western Digital's Connectivity Solutions Group (CSG) for $33 million cash. CSG supplies silicon solutions to meet the demands of the multi-gigabyte SCSI disk drive market. On June 28, 1996, the Company acquired certain technologies from Corel, Inc. for $12 million cash. Included in these technologies was Corel's CD creator product for the CD-recordable software market. On September 16, 1996, the Company acquired Data Kinesis, Inc. (DKI) for $32 million and $15 million in cash and stock, respectively. DKI develops software for improving system performance in file management and RAID applications. On November 15, 1996, the Company acquired Sigmax Technology, Inc. (Sigmax) for $14 million cash. Sigmax develops CD-ROM controllers for ATAPI CD-ROM drives. The Company accounted for these acquisitions using the purchase method of accounting, and excluding the $79 million write-off of purchased in-process technology from these companies, the aggregate impact on the Company's results of operations from the acquisition date was not material. The allocation of the Company's aggregate purchase price to the tangible and identifiable intangible assets acquired was primarily based on preliminary independent appraisals and is summarized as follows (in thousands): Tangible assets .............. $ 10,979 In-process technology ........ 78,958 Goodwill ..................... 16,404 -------- Assets acquired .............. $106,341 ========
The tangible assets acquired were primarily comprised of inventory and fixed assets. Acquired in-process technology was written off in the periods in which the acquisitions were completed, and the goodwill is being amortized over respective benefit periods ranging from three to five years. On August 12, 1996, the Company completed its acquisition of Cogent Data Technologies, Inc. (Cogent). Cogent provides high-performance Fast Ethernet products for the networking market. The Company acquired all of the outstanding capital stock of Cogent in exchange for 2.6 million shares of its common stock. Additionally, the Company incurred $1.7 million in professional fees related to this acquisition which have been included in "write-off of acquired in-process technology and other." The Company has recorded this acquisition using the pooling of interests method of accounting. Cogent's historical operations, net assets and cash flows have not been material to the Company's consolidated financial statements and, therefore, have not been reflected in the Company's consolidated financial results prior to the acquisition. Beginning at the date of acquisition, the book value of the acquired assets and assumed liabilities as well as the results of Cogent's operations and cash flows, all of which are not material to the Company have been combined with those of the Company. F-23 82 6. INCOME TAXES The Company recorded a tax provision of $17.8 million (30% of income before income taxes) for the three month period ended December 27, 1996. The higher effective tax rate for the three and nine month periods ended December 27, 1996 primarily resulted from the write-off of in-process technology for which the Company will receive no corresponding tax benefit. Excluding the effect of the write-off of in-process technology, the Company's effective tax rate was 25% for both the three and nine month periods ended December 27, 1996. The difference between the Company's normal 25% tax rate and the U.S. statutory rate is primarily due to income earned in Singapore where the Company is subject to a significantly lower effective tax rate. 7. RECENT PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issued Financial Accounting Standards No. 128 (FAS 128) in March 1997. This standard requires the Company to present basic earnings per share and diluted earnings per share beginning in the third quarter of fiscal 1998. The impact of adopting this standard has not yet been determined. During 1995, the FASB issued FAS 123 "Accounting for Stock-Based Compensation". The Company will only adopt the disclosure requirements of FAS 123 for the year ended March 31, 1997, and therefore there will be no impact on the Company's consolidated financial position or results of operations as a result of implementing FAS 123. 8. SUBSEQUENT EVENTS In February 1997, the Company issued $230,000,000 of 4 3/4% convertible subordinated notes due on February 1, 2004. The Company received net proceeds of $223,905,000. The notes provide for semi-annual interest payments each February 1 and August 1, commencing on August 1, 1997. The holders of the notes will be entitled at any time on or after May 5, 1997 through February 1, 2004 to convert the notes into common stock at a conversion price of $51.66 per share. The notes are redeemable, in whole or in part, at the option of the Company, at any time on or after February 3, 2000 at declining premiums to par. Debt issuance costs are being amortized over the term of the notes. The issuance of these notes is not expected to have a material impact on the Company's results of operation or cash flows as the amortization and interest expense will be substantially offset by interest income. Subsequent to December 27, 1996, the Company entered into an agreement with Lucent Technologies Inc. ("Lucent") to sell equipment that it had previously purchased in connection with a separate agreement that ensured availability of certain levels of wafer capacity from Lucent. This agreement cancels the initial capacity agreement and requires Lucent to purchase the equipment from the Company at agreed upon installments over a twelve month period. Subsequent to December 27, 1996, the Company completed its acquisition of Toast technology ("Toast") for $7.5 million in cash. Toast is Macintosh-based CD-Recordable software. The Company also completed its acquisition of substantially all of the assets of Skipstone, Inc. ("Skipstone") for $7.5 million in cash. Skipstone is a supplier of IEEE 1394 products including software, engineering services and developer toolkits. The Company will account for both of these acquisitions using the purchase method of accounting and will evaluate the allocation of the purchase price to assets acquired which includes in-process technology that will be written-off. The results of operations for Toast and Skipstone were immaterial relative to the Company's financial statements. F-24 83 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 new elected director. Each current director receives an option at the end of each fiscal year for 10,000 shares, which vests quarterly and over a one year period. Upon joining the board, each new non-employee director receives an option for 40,000 shares which vests over four years. Prior to March 31, 1997, annual grants vested over a four year period. All options granted prior to March 31, 1997 expire five years after the date of grant, whereas all subsequent grants expire ten years after the date of grant. F-25 84 ================================================================================ No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus, in connection with the offer made by this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the corporation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of the corporation since the date hereof. This Prospectus does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not authorized to do so or to anyone to whom it is unlawful to make such offer or solicitation in such jurisdiction. ----------------- TABLE OF CONTENTS ----------------- Page Available Information ...................................... 2 Prospectus Summary ......................................... 3 The Offering ............................................... 4 The Company ................................................ 5 Risk Factors ............................................... 8 Use of Proceeds ............................................ 14 Price Range of Common Stock ................................ 14 Dividend Policy ............................................ 14 Selected Consolidated Financial Data ....................... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations .............. 16 Business ................................................... 21 Management ................................................. 27 Certain Relationships and Related Transactions ............................................... 33 Principal Shareholders ..................................... 34 Description of Capital Stock ............................... 35 Description of Notes ....................................... 38 Certain Tax Considerations ................................. 48 Selling Securityholders .................................... 52 Plan of Distribution ....................................... 54 Legal Matters .............................................. 55 Experts .................................................... 55 Index to Consolidated Financial Statements ................. F-1 ================================================================================ U.S. $230,000,000 ADAPTEC, INC. 4 3/4% CONVERTIBLE SUBORDINATED NOTES DUE FEBRUARY 1, 2004 AND COMMON STOCK ISSUABLE UPON CONVERSION THEREOF ------------------- PROSPECTUS ------------------- APRIL ___, 1997 ================================================================================ 85 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses payable by the Registrant in connection with the sale and distribution of the securities being registered hereby. Normal commission expenses and brokerage fees are payable individually by the Selling Securityholders. All amounts are estimated except the Securities and Exchange Commission registration fee.
Amount -------- SEC registration fee ....................... $ 69,697 Accounting fees and expenses ............... 15,000 Legal fees and expenses .................... 20,000 Printing expenses .......................... 10,000 Trustee's Fees and Expenses ................ 10,000 Miscellaneous fees and expenses ............ 25,303 -------- Total ...................................... $150,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 317 of the California General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers who are parties or are threatened to be made parties to any proceeding (with certain exceptions) by reason of the fact that the person is or was an agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if that person acted in good faith and in a manner the person reasonably believed to be in the best interests of the corporation. This limitation on liability has no effect on a director's liability (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) relating to any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of a serious injury to the corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders, (vi) under Section 310 of the California General Corporation Law (concerning contracts or transactions between the corporation and a director) or (vii) under Section 316 of the California General Corporation Law (directors' liability for improper dividends, loans and guarantees). The provision does not extend to acts or omissions of a director in his capacity as an officer. Further, the provision has no effect on claims arising under federal or state securities laws and does not affect the availability of injunctions and other equitable remedies available to the Company's shareholders for any violation of a director's fiduciary duty to the Company or its shareholders. Although the validity and scope of the legislation underlying the provision have not yet been interpreted to any significant extent by the California courts, the provision may relieve directors of monetary liability to the Company for grossly negligent conduct, including conduct in situations involving attempted takeovers of the Company. II-1 86 In accordance with Section 317, the Restated Articles of Incorporation, as amended (the "Articles"), of the Company limits the liability of a director to the Company or its shareholders for monetary damages to the fullest extent permissible under California law, and authorizes the Company to provide indemnification to its agents (including officers and directors), subject to the limitations set forth above. The Company's By-Laws further provide for indemnification of corporate agents to the maximum extent permitted by the California General Corporation Law. Pursuant to the authority provided in the Articles, the Company has entered into indemnification agreements with each of its officers and directors, indemnifying them against certain potential liabilities that may arise as a result of their service to the Company, and providing for certain other protection. The Company also maintains insurance policies which insure its officers and directors against certain liabilities. The foregoing summaries are necessarily subject to the complete text of the statute, the Articles, the By-Laws and the agreements referred to above and are qualified in their entirety by reference thereto. Reference is made to the Underwriting Agreements included herein as exhibits to the Registration Statement for provisions regarding indemnification of the Company's officers, directors and controlling persons against liabilities, including liabilities under the Securities Act. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES During February 1997, the Company completed an offering of $230 million of convertible subordinated notes. The notes bear interest at 4 3/4 percent, mature in February 2004, and are convertible into shares of the Company's common stock at $51.66 per share. The notes were sold by the Company to Bear, Stearns & Co. Inc., Lehman Brothers, Robertson, Stephens & Company, and Unterberg Harris (the "Initial Purchasers"). The Initial Purchasers resold $221,250,000 of the Notes, in a transaction exempt from the registration requirements of the Securities Act, to persons reasonably believed by such initial purchaser to be "qualified institutional buyers" (as defined in Rule 144A under the Securities Act), or other institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. An additional $8,750,000 aggregate principal amount of Notes were issued in the Original Offering by the Company and sold by the Initial Purchasers in compliance with the provisions of Regulation S under the Securities Act. Aggregate discounts to the Initial Purchasers totaled $223,905,000. The net proceeds of the Offering to the Company, after deducting the discounts and offering expenses, were $223,405,000. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1(a) Stock Purchase Agreement by and among Adaptec, Inc., Future Domain Corporation, Jack A. Allweiss, Patricia A. Allweiss and Certain Shareholders of Future Domain Corporation dated July 13, 1995 .................... (2) 2.1(b) Stock Purchase Agreement by and between Adaptec, Inc. and Certain Shareholders of Future Domain Corporation dated July 13, 1995 ...... (2)
II-2 87
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.2 Agreement and Plan of Reorganization by and among Adaptec, Inc., Incat Systems Software USA, Inc., ISS Acquisition Corporation and Certain Shareholders of Incat Systems Software USA, Inc. dated August 23, 1995 ........... (2) 2.3 Agreement for Purchase and Sale of Stock by and among Western Digital Corporation, Western Digital CSG Corporation, and Adaptec, Inc. dated April 9, 1996 ........................... (14) 2.4 Agreement and Plan of Reorganization by and among Adaptec, Inc., Cogent Data Technologies, Inc., CDT Acquisition Corp., and Certain Shareholders of Cogent Data Technologies, Inc. dated May 31, 1996. ............. (15) 2.5 Agreement and Plan of Reorganization by and among Adaptec, Inc., Adaptec Acquisition Corporation, and Data Kinesis, Inc. dated August 6, 1996. .................................... (15) 3.1 Eighth Amended and Restate Articles of Incorporation of Registrant filed with California Secretary of State on November 1, 1996 ............................................... (16) 3.2 Bylaws of Registrant, as restated on February 9, 1996 ............................................ (13) 3.3 Certificate of determination of rights, preferences and privileges of Series A participating preferred stock filed with the California Secretary of State on December 31, 1996 ............................................... (16) 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 ........................ (6) 4.2 Indenture dated as of February 3, 1997 between Registrant and State Street Bank and Trust Company ...................................... 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation ........................... 10.1 Registrant's 1986 Employee Stock Purchase Plan ............................................... (4) 10.2 Technology License Agreement dated January 1, 1985 between the Registrant and International Business Machines Corporation ...................... (8) 10.3 Registrant's Savings and Retirement Plan ........... (7) 10.4 1990 Stock Plan, as amended ........................ (10) 10.5 Forms of Stock Option Agreement, Tandem Stock Option/SAR Agreement, Restricted Stock Purchase Agreement, Stock Appreciating Rights Agreement, and Incentive Stock Rights Agreement for use in connection with the 1990 Stock Plan, as amended ............................. (5) 10.6 1990 Directors' Option Plan and forms of Stock Option Agreement ............................. (4) 10.7 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 ........................... (4) 10.8 Amendments 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 ......... (4) 10.9* Option Agreement I Between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd. dated October 23, 1995 ................................... (3) 10.10* Option Agreement II Between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd. dated October 23, 1995 ................................... (3) 10.11 Consignment Agreement between Adaptec, Inc. and AT&T Corp. dated January 10, 1996 .............. (13) 10.12 Form of Indemnification Agreement entered into with directors and officers of the Company ............................................ (9) 10.13 Term Loan Agreement dated June 24, 1992 between the Registrant and Plaza Bank of Commerce expiring June 30, 1988 .................... (9) 10.14* Deposit and Supply Agreement between Taiwan Semiconductor Manufacturing Co., Ltd. and Adaptec Manufacturing Pte. Ltd. .................... (4)
II-3 88
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.15 Industrial Lease Agreement between the Registrant, as Lessee, and Jurong Town Corporation, as Lessor ............................. (1) 10.16 Amendments Seven, Eight and Nine to the Revolving Credit Loan Agreement dated April 29, 1994 between the Registrant and Comerica Bank -- California expiring August 31, 1997 ........ (16) 10.17 Amendments One, Two, Three and Four to the Term Loan Agreement dated June 24, 1992 between the Registrant and Comerica Bank-- California (formerly the Plaza Bank of Commerce) expiring June 30, 1998 ................... (10) 12.1 Computation of Ratio of Earnings to Fixed Charges 21.1 Subsidiaries of Registrant 23.1 Consent of Independent Accountants, Price Waterhouse LLP 23.2 Consent of Independent Public Accountants, Arthur Andersen LLP 23.3 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1) 24.1 Power of Attorney. (See Page II-7). 25.1 Statement of Eligibility and Qualification Under the Trust Indenture Act of 1939 of a Corporation designated to act as Trustee on Form T-1
- ----------------- (1) Incorporated by reference to exhibits filed with Registrant's Annual report on Form 10-K for the year ended March 31, 1995. (2) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended September 29, 1995. (3) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended December 29, 1995. (4) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1994. (5) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1993. (6) 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 Amendment No. 1, No. 2 and No. 3 thereto as filed June 5, 1990, April 8, 1992 and July 20, 1992, respectively. (7) Incorporated by reference to exhibits filed with the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1987. (8) 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 (filed No. 33-5519), which became effective on June 11, 1986. (9) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1992. (10) Incorporated by reference to Exhibit 4.2 to Form S-8 as filed February 7, 1996. (11) Incorporated by reference to Exhibit 16 to Form 8-K/A-2 dated July 11, 1994. (12) 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, 1996. (13) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1996. (14) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 1996. (15) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended September 27, 1996. (16) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended December 27, 1996. II-4 89 * Confidential treatment has been granted for portions of this agreement. (b) Financial Statement Schedules All schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to the Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price, set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Act, each such post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-offering amendment any of the securities being registered which remain unsold at the termination of the offering. II-5 90 (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that such a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in Act and will be governed by the final adjudication of such issue. II-6 91 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Milpitas, State of California, on the 4th day of April, 1997. ADAPTEC, INC. By: F. GRANT SAVIERS ------------------------------------------------ F. Grant Saviers President, Chief Executive Officer, and Director POWER OF ATTORNEY Each person whose signature appears below hereby appoints F. Grant Savers and Paul G. Hansen, and each of them severally, acting alone and without the other, his true and lawful attorney-in-fact with authority to execute in the name of each such person, and to file with the Securities and Exchange Commission, together with any exhibits thereto and other documents therewith, any and all amendments (including without limitation post-effective amendments) to this Registration Statement, and to sign any Registration Statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b), necessary or advisable to enable the Registrant to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which amendments may make such changes in the Registration Statement as the aforesaid attorney-in-fact deems appropriate. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE - --------------------------- ------------------------------------------------ ---------------- /s/ F. Grant Saviers - --------------------------- F. Grant Saviers President, Chief Executive Officer and Director April 4, 1997 /s/ Paul G. Hansen Vice President, Finance, Chief Financial Officer, - --------------------------- (Principal Financial Officer) April 4, 1997 Paul G. Hansen /s/ Andrew J. Brown Vice President, Corporate Controller (Principal - --------------------------- Accounting Officer) April 4, 1997 Andrew J. Brown Director - --------------------------- John G. Adler April , 1997 /s/ Laurence B. Boucher Director - --------------------------- Laurence B. Boucher April 4, 1997 Director - --------------------------- Carl J. Conti April , 1997 Director - --------------------------- John C. East April , 1997 /s/ Robert J. Loarie Director - --------------------------- Robert J. Loarie April 4, 1997 /s/ B.J. Moore Director - --------------------------- B.J. Moore April 4, 1997 /s/ W. Ferrel Sanders Director - --------------------------- W. Ferrel Sanders April 4, 1997 Director - --------------------------- Phillip E. White April , 1997
II-7 EX-4.2 2 INDENTURE DATED FEBRUARY 3, 1997 1 EXHIBIT 4.2 ================================================================================ ADAPTEC, INC. Issuer AND STATE STREET BANK AND TRUST COMPANY Trustee INDENTURE Dated as of February 3, 1997 4-3/4% Convertible Subordinated Notes Due 2004 ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.2 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . 6 Section 1.3 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE II - ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.1 Designation, Amount and Issue of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.2 Form of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 2.3 Date and Denomination of Notes; Payments of Interest . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.4 Execution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 2.5 Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary . . . . . . 11 Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 2.7 Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.8 Cancellation of Notes Paid, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 2.9 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE III - REDEMPTION AND REPURCHASE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 3.1 Redemption Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 3.2 Notice of Redemption; Selection of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 3.3 Payment of Notes Called for Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 3.4 Conversion Arrangement on Call for Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 3.5 Repurchase of Notes Upon a Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE IV - PARTICULAR COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 4.1 Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 4.2 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 4.3 Appointments to Fill Vacancies in Trustee's Office . . . . . . . . . . . . . . . . . . . . . . . 30 Section 4.4 Provisions as to Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 4.5 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 4.6 Rule 144A Information Requirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 4.7 Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 4.8 Compliance Statement; Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-i- 3 TABLE OF CONTENTS (CONTINUED)
PAGE ---- ARTICLE V - NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 5.1 Noteholders' Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 5.2 Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE VI - DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 6.2 Payments of Notes on Default; Suit Therefor . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 6.3 Application of Monies Collected by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 6.4 Proceedings by Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 6.5 Proceedings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 6.6 Remedies Cumulative and Continuing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 6.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders . . . . . . . . . . . 39 Section 6.8 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 6.9 Undertaking to Pay Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE VII - CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 7.1 Duties and Responsibilities of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 7.2 Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 7.3 Reliance on Documents, Opinions, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 7.4 No Responsibility for Recitals, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 7.5 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes . . . . . . . . . . . . . . 42 Section 7.6 Monies to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 7.7 Compensation and Expenses of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 7.8 Officers' Certificate as Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 7.9 Conflicting Interests of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 7.10 Eligibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 7.11 Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 7.12 Acceptance by Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 7.13 Successor, by Merger, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 7.14 Limitation on Rights of Trustee as Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE VIII - CONCERNING THE NOTEHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 8.1 Action by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
-ii- 4 TABLE OF CONTENTS (CONTINUED)
PAGE ---- Section 8.2 Proof of Execution by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 8.3 Who Are Deemed Absolute Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 8.4 Company-Owned Notes Disregarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 8.5 Revocation of Consents, Future Holders Bound . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE IX - NOTEHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 9.1 Purposes for Which Meetings May be Called . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 9.2 Manner of Calling Meetings; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 9.3 Call of Meeting by Company or Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 9.4 Who May Attend and Vote at Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 9.5 Manner of Voting at Meetings and Record to be Kept . . . . . . . . . . . . . . . . . . . . . . . 50 Section 9.6 Exercise of Rights of Trustee and Noteholders Not To Be Hindered or Delayed . . . . . . . . . . . 50 ARTICLE X - SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 10.1 Supplemental Indentures Without Consent of Noteholders . . . . . . . . . . . . . . . . . . . . . 51 Section 10.2 Supplemental Indentures With Consent of Noteholders . . . . . . . . . . . . . . . . . . . . . . . 52 Section 10.3 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 10.4 Notation on Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 10.5 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee . . . . . . . . . . . . 53 ARTICLE XI - CONSOLIDATION, MERGER, SALE, CONVEYANCE, TRANSFER AND LEASE . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 11.1 Company May Consolidate, Etc. on Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 11.2 Successor Company To Be Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 11.3 Opinion of Counsel To Be Given to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 ARTICLE XII - SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 12.1 Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 12.2 Survival of Certain Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 12.3 Acknowledgment of Discharge by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 12.4 Application of Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 12.5 Repayment to the Company; Unclaimed Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-iii- 5 TABLE OF CONTENTS (CONTINUED)
PAGE ---- Section 12.6 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 ARTICLE XIII - IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . . . . . . 56 Section 13.1 Indenture and Notes Solely Corporate Obligations . . . . . . . . . . . . . . . . . . . . . . . . 56 ARTICLE XIV - CONVERSION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 14.1 Right to Convert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 14.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 14.3 Cash Payments in Lieu of Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 14.4 Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 14.5 Adjustment of Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 14.6 Effect of Reclassification, Consolidation, Merger or Sale . . . . . . . . . . . . . . . . . . . . 68 Section 14.7 Taxes on Shares Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 14.8 Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock . . . . . . . . . . . . 69 Section 14.9 Responsibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 14.10 Notice to Holders Prior to Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 ARTICLE XV - SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 15.1 Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 15.2 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 15.3 Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 15.4 Default on Senior Indebtedness; Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . 73 Section 15.5 When Distribution Must Be Paid Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 15.6 Notice by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 15.7 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 15.8 Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 15.9 Subordination May Not Be Impaired by Company . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 15.10 Distribution or Notice to Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 15.11 Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Section 15.12 Authorization to Effect Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 15.13 Conversions Not Deemed Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 15.14 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
-iv- 6 TABLE OF CONTENTS (CONTINUED)
PAGE ---- ARTICLE XVI - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 16.1 Pooling of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Section 16.2 Provisions Binding on Company's Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 16.3 Official Acts by Successor Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 16.4 Addresses for Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 16.5 Communications by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 16.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 Section 16.7 Evidence of Compliance with Conditions Precedent; Certificates to Trustee . . . . . . . . . . . 79 Section 16.8 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 16.9 No Security Interest Created . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 16.10 Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Section 16.11 Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 16.12 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 16.13 Table of Contents, Headings Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 16.14 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Section 16.15 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
-v- 7 CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section - --------------- ----------------- 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5(a); 5.1 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8(a); 5.2 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b) (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a) (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c) (e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9 316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2
8
317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.10; 16.11
N.A. means Not Applicable. ___________ * This Cross-Reference Table is not part of the Indenture. 9 INDENTURE, dated as of February 3, 1997, by and between Adaptec, Inc., a California corporation (the "Company"), and State Street Bank and Trust Company, a Massachusetts Trust Company (the "Trustee"). W I T N E S S E T H: WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issuance of its 4-3/4% Convertible Subordinated Notes Due 2004 (the "Notes"), in an aggregate principal amount not to exceed $230,000,000, and, to provide the terms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery of this Indenture; and WHEREAS, the Notes, the certificate of authentication to be borne by the Notes, a form of assignment, a form of option to require repurchase by the Company upon a Change of Control (as hereinafter defined), a form of conversion notice and a certificate of transfer to be borne by the Notes are to be substantially in the forms hereinafter provided for; and WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee or a duly authorized authenticating agent, as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute valid agreements according to their terms, have been done and performed, and the execution of this Indenture and the issuance hereunder of the Notes have in all respects been duly authorized. NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and delivered, and in consideration of the premises and of the purchase and acceptance of the Notes by the holders thereof, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Notes (except as otherwise provided below) as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. The terms defined in this Section 1.1 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1. The words "herein," "hereof," "hereunder" and words of similar import refer to this Indenture as a whole and not to any particular Article or Section. Acquisition Price: The term "Acquisition Price" shall mean the weighted average price paid by the person or group in acquiring the Voting Stock. 10 Affiliate: An "Affiliate" of any specified person shall mean an "affiliate" as defined in Rule 144(a) as promulgated under the Securities Act. Board of Directors: The term "Board of Directors" shall mean the Board of Directors of the Company or a committee of such Board of Directors duly authorized to act for it hereunder. Board Resolution: The term "Board Resolution" shall mean a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. Business Day: The term "Business Day" shall mean a day, other than a Saturday, a Sunday or a day on which the banking institutions in the State and City of New York are authorized or obligated by law or executive order to close or a day that is declared a national or New York state holiday. Capital Stock: The term "Capital Stock" of any person shall mean any and all shares, interests, participations or other equivalents (however designated) of such person's corporate stock or any and all equivalent ownership interests in a person (other than a corporation) whether now outstanding or issued after the date hereof. Cedel: The term "Cedel" shall mean Cedel Bank Societe Anonyme. Closing Date: The term "Closing Date" shall mean February 3, 1997. Commission: The term "Commission" shall mean the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, the body performing such duties at such time. Common Stock: The term "Common Stock" shall mean any stock of any class of the Company that does not have a preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and that is not subject to redemption by the Company. Subject to the provisions of Section 14.6, however, shares issuable on conversion of Notes shall include only shares of the class designated as common stock of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and that do not have a preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and that are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion that the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. -2- 11 Company: The term "Company" shall mean Adaptec, Inc., a California corporation, and subject to the provisions of Article XI, shall include its successors and assigns. Conversion Price: The term "Conversion Price" shall have the meaning specified in Section 14.4. Corporate Trust Office of the Trustee: The term "Corporate Trust Office of the Trustee," or other similar term, shall mean the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office is, at the date as of which this Indenture is dated, located at Two International Place, 4th Floor, Boston, MA 02110 Attention: Corporate Trust Administration. Credit Agreement: The term "Credit Agreement" shall mean the Revolving Credit Loan Agreement dated as of June 3, 1992, as amended by Amendment Numbers One through Ten, between the Company and Comerica Bank-California and the Term Loan Agreement dated as of June 24, 1992, as amended by Amendment Numbers One through Ten, between the Company and Comerica Bank-California, as each may be amended, supplemented, restated or otherwise modified from time to time. Custodian: The term "Custodian" shall mean the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. default: The term "default" shall mean any event that is, or after notice or passage of time, or both, would be, an Event of Default. definitive Notes; in definitive form: The term "definitive Notes" shall have the meaning specified in Section 2.2. Any reference to Notes "in definitive form" shall mean definitive Notes, and any reference to securities "in definitive form" shall mean definitive Notes or Common Stock as the context requires. Depositary: The term "Depositary" shall mean, with respect to the Notes issuable or issued in whole or in part in global form, the person specified in Section 2.5(c) as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, "Depositary" shall mean or include such successor. DWAC: The term "DWAC" shall mean Deposit and Withdrawal at Custodian Service. Euroclear: The term "Euroclear" shall mean Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System. Event of Default: The term "Event of Default" shall mean any event specified in Section 6.1(a) through (e). -3- 12 Exchange Act: The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. global Note: The term "global Note" shall mean any and all notes in global form. Indenture: The term "Indenture" shall mean this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented. Institutional Accredited Investor: The term "Institutional Accredited Investor" shall have the meaning specified in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. Note or Notes: The terms "Note" or "Notes" shall mean any Note or Notes, as the case may be, authenticated and delivered under this Indenture. Noteholder; holder: The terms "Noteholder" or "holder" as applied to any Note, or other similar terms (but excluding the term "beneficial holder"), shall mean any person in whose name at the time a particular Note is registered on the Note registrar's books. Note register: The term "Note register" shall have the meaning specified in Section 2.5(a). Officers' Certificate: The term "Officers' Certificate," when used with respect to the Company, shall mean a certificate signed by the President, the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer and any Treasurer or Secretary or any Assistant Secretary of the Company, that is delivered to the Trustee. Each such certificate shall include the statements provided for in Section 16.7 if and to the extent required by the provisions of such Section. Opinion of Counsel: The term "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel, who may be an employee of or counsel to the Company or other counsel acceptable to the Trustee, that is delivered to the Trustee. Each such opinion shall include the statements provided for in Section 16.7 if and to the extent required by the provisions of such Section. outstanding: The term "outstanding" with reference to Notes as of any particular time shall mean, subject to the provisions of Section 8.4, all Notes authenticated and delivered by the Trustee under this Indenture, except (a) Notes theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Notes, or portions thereof, for which monies in the necessary amount shall have been deposited in trust with the Trustee for payment or redemption; provided that if such Notes are to be redeemed prior to the maturity -4- 13 thereof, notice of such redemption shall have been given pursuant to Article III or provision satisfactory to the Trustee shall have been made for giving such notice; (c) Notes paid pursuant to Section 2.6 hereof or Notes in lieu of or in substitution for which other Notes shall have been authenticated and delivered pursuant to the terms of Section 2.6 unless proof satisfactory to the Trustee is presented that any such Notes are held by bona fide holders in due course; and (d) Notes converted into Common Stock pursuant to Article XIV and Notes not deemed outstanding pursuant to Section 3.2. person: The term "person" shall mean a corporation, an association, a partnership, an individual, a joint venture, a joint stock company, a trust, an unincorporated organization or a government or an agency or a political subdivision thereof. PORTAL Market: The term "PORTAL Market" shall mean the Private Offerings, Resales and Trading through Automated Linkages Market operated by the National Association of Securities Dealers, Inc. or any successor thereto. Predecessor Note: The term "Predecessor Note" of any particular Note shall mean every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the lost, destroyed or stolen Note. QIB: The term "QIB" shall mean a "qualified institutional buyer" as defined in Rule 144A. Regulation S: The term "Regulation S" shall mean Regulation S under the Securities Act and any successor regulation thereto. Regulation S Global Note: The term "Regulation S Global Note" shall have the meaning specified in Section 2.2. Responsible Officer: The term "Responsible Officer" with respect to the Trustee, shall mean an officer of the Trustee assigned and duly authorized by the Trustee to administer its corporate trust matters. Restricted Global Note: The term "Restricted Global Note" shall have the meaning specified in Section 2.2. Restricted Period: The term "Restricted Period" shall have the meaning specified in Section 2.2. -5- 14 Restricted Securities: The term "Restricted Securities" shall have the meaning specified in Section 2.5(d). Rule 144A: The term "Rule 144A" shall mean Rule 144A as promulgated under the Securities Act. Securities Act: The term "Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. subsidiary: The term "subsidiary" of any specified person shall mean (i) a corporation a majority of whose capital stock with voting power under ordinary circumstances to elect directors is at the time directly or indirectly owned by such person or (ii) any other person (other than a corporation) in which such person or such person and a subsidiary or subsidiaries of such person or a subsidiary or subsidiaries of such person directly or indirectly, at the date of determination thereof, has at least majority ownership. Successor Company: The term "Successor Company" shall have the meaning specified in Section 11.1. Trust Indenture Act: The term "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, as it was in force at the date of execution of this Indenture, except as provided in Sections 10.3 and 14.6; provided that in the event said Trust Indenture Act of 1939 is amended after the date hereof, the term "Trust Indenture Act" shall mean, to the extent required by such amendment, said Trust Indenture Act of 1939 as so amended. Trustee: The term "Trustee" shall mean State Street Bank and Trust Company, its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party and any successor trustee at the time serving as successor trustee hereunder. The definitions of certain other terms are as specified in Sections 2.2, 2.3, 2.5, 3.5, 6.1, 12.1, 14.5, 14.6, 15.2 and 15.4. Section 1.2 Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made a part of this Indenture. The following Trust Indenture Act terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a holder of Notes; -6- 15 "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company and any successor obligor upon the Trust Indenture Act. All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by Commission rule under the Trust Indenture Act have the meanings so assigned to them. Section 1.3 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; and (5) provisions apply to successive events and transactions. ARTICLE II ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES Section 2.1 Designation, Amount and Issue of Notes. The Notes shall be designated as "4-3/4% Convertible Subordinated Notes Due 2004." Notes not to exceed the aggregate principal amount of $230,000,000 upon the execution of this Indenture, or from time to time thereafter, may be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Notes upon the written order of the Company, signed by its (a) Chief Executive Officer, President, Chief Operating Officer or Chief Financial Officer, and (b) any Treasurer or Secretary or any Assistant Secretary, without any further action by the Company hereunder. Section 2.2 Form of Notes. Notes sold to Institutional Accredited Investors that are neither QIBs nor Non-U.S. Persons shall be issued in definitive form in substantially in the form of Exhibit A hereto ("definitive Notes"), with the legends in substantially the form indicated in -7- 16 Exhibit A hereto and such other legends as may be applicable thereto, which definitive Notes shall be registered in the name of the holders thereof, duly executed by the Company and authenticated by the Trustee or the authenticating agent as provided herein. Notes held by QIBs shall be issued initially in the form of one or more global Notes (the "Restricted Global Note"), substantially in the form of Exhibit B hereto, with the legends in substantially the form indicated in Exhibit B hereto and such other legends as may be applicable thereto, which Restricted Global Note shall be deposited on behalf of the holders of the Notes represented thereby with the Depositary and registered in the name of Cede & Co. ("Cede") as nominee of the Depositary, duly executed by the Company and authenticated by the Trustee or the authenticating agent as provided herein. Notes offered and sold to persons outside the United States (each, a "Non-U.S. Person") in reliance on Regulation S shall be issued initially in the form of a global Note (the "Regulation S Global Note"), substantially in the form of Exhibit C hereto, with the legends in substantially the form set forth in Exhibit C hereto and such other legends as may be applicable thereto, which Regulation S Global Note shall be deposited on behalf of the holders of the Notes represented thereby with or on behalf of the Depositary, and registered in the name of Cede & Co. as nominee of the Depositary, duly executed by the Company and authenticated by the Trustee or an authenticating agent as provided herein, for credit to the accounts of Euroclear and Cedel (or such other accounts as they may direct). Prior to and including the 40th day after the later of the commencement of the offering of the Notes and the Closing Date (the "Restricted Period"), beneficial interests in the Regulation S Global Note may only be held through Euroclear or Cedel. During the Restricted Period, interests in the Regulation S Global Note may be exchanged for interests in the Restricted Global Note or for definitive Notes only in accordance with the certification requirements described in this Article II. QIBs and, after the expiration of the Restricted Period, Non-U.S. Persons may request that definitive Notes be issued in exchange for Notes represented by the applicable global Note. In addition, if at any time the Depositary for the global Notes is unable or unwilling to act as Depositary and no successor Depositary is appointed pursuant to Section 2.5(c), definitive Notes may be issued in exchange for Notes represented by the global Notes. Unless determined otherwise by the Company in accordance with applicable law, after the expiration of the Restricted Period, definitive Notes issued upon transfer or exchange of beneficial interests in Notes represented by the Regulation S Global Note shall not bear the legend set forth in Section 2.5(c). Any definitive Note issued to a QIB pursuant to this paragraph shall bear the legend set forth in Section 2.5(c). Any of the Notes may have such letters, numbers or other marks of identification and such notations, legends and endorsements as the Company officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or -8- 17 regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Notes may be listed, or to conform to usage. Any global Note shall represent such of the outstanding Notes as shall be specified therein and shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be increased or reduced to reflect transfers or exchanges permitted hereby. Any endorsement of a global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in such manner and upon written instructions given by the holder of such Notes in accordance with the Indenture. Payment of principal of and interest and premium, if any, on any global Note shall be made in accordance with the provisions of Section 2.3. The terms and provisions contained in the forms of Notes attached as Exhibits A, B and C hereto shall constitute, and are hereby expressly made, a part of this Indenture and to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.3 Date and Denomination of Notes; Payments of Interest. The Notes shall be issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. Every Note shall be dated the date of its authentication, shall bear interest from February 3, 1997 and shall be payable semi-annually on each February 1 and August 1, commencing August 1, 1997, as specified on the face of the form of Notes, attached as Exhibit A hereto. Subject to Section 14.2 hereof, the person in whose name any Note (or its Predecessor Note) is registered at the close of business on any record date with respect to any interest payment date (including any Note that is converted after the record date and on or before the interest payment date) shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of such Note upon any transfer, exchange or conversion subsequent to the record date and prior to such interest payment date. Interest may, at the option of the Company, be paid by check mailed to the address of such person as it appears on the Note register; provided that, with respect to any holder of Notes with an aggregate principal amount equal to or in excess of $5,000,000, at the request (such request to include appropriate wire instructions) of such holder in writing to the Trustee on or before the record date preceding any interest payment date, interest on such holder's Notes shall be paid by wire transfer in immediately available funds. The term "record date" with respect to any interest payment date shall mean the January 15 or July 15 preceding said February 1 or August 1. None of the Company, the Trustee or any paying agent shall have any responsibility or liability for any aspect of the records relating to or payment made on account of beneficial ownership interests in the global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. -9- 18 Interest on the Notes shall be computed on the basis of a 360-day year composed of twelve 30-day months. Any interest on any Note that is payable, but is not punctually paid or duly provided for, on any said February 1 or August 1 (herein called "Defaulted Interest") shall forthwith cease to be payable to the Noteholder on the relevant record date by virtue of his having been such Noteholder; and such Defaulted Interest shall be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest to be paid on each Note and the date of the payment (which shall be not less than 25 days after the receipt by the Trustee of such notice, unless the Trustee shall consent to an earlier date), and at the same time, the Company shall deposit with the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this clause provided. Thereupon, the Trustee shall fix a special record date for the payment of such Defaulted Interest, which shall be not more than 15 days and not less than 10 days prior to the date of the payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the payment of such Defaulted Interest and the special record date therefor to be mailed, first-class postage prepaid, to each Noteholder at his address as it appears in the Note register, not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been so mailed, subject to Section 14.2 hereof, such Defaulted Interest shall be paid to the persons in whose names the Notes (or their respective Predecessor Notes) were registered at the close of business on such special record date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Section 2.4 Execution of Notes. The Notes shall be signed in the name and on behalf of the Company by the signature of its Chief Executive Officer, President, Chief Operating Officer or Chief Financial Officer and attested by the signature of its Treasurer, Secretary or any of its -10- 19 Assistant Secretaries (any of which signatures may be printed, engraved or otherwise reproduced thereon, by facsimile or otherwise). Only such Notes as shall bear thereon a certificate of authentication substantially in the form set forth on forms of Notes attached as Exhibits A, B and C hereto, manually executed by the Trustee (or an authenticating agent appointed by the Trustee as provided by Section 16.14), shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee (or such an authenticating agent) upon any Note executed by the Company shall be conclusive evidence that the Note so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. In case any officer of the Company who shall have signed any of the Notes shall cease to be such officer before the Notes so signed shall have been authenticated and delivered by the Trustee, or disposed of by the Company, such Notes nevertheless may be authenticated and delivered or disposed of as though the person who signed such Notes had not ceased to be such officer of the Company; and any Note may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Note, shall be the proper officers of the Company, although at the date of the execution of this Indenture any such person was not such an officer. Section 2.5 Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary. (a) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company designated pursuant to Section 4.2 being herein sometimes collectively referred to as the "Note register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. Such Note register shall be in written form or in any form capable of being converted into written form within a reasonable period of time. The Trustee is hereby appointed "Note registrar" for the purpose of registering Notes and transfers of Notes as herein provided. The Company may appoint one or more co-registrars. Upon surrender for registration of transfer of any Note to the Note registrar or any co-registrar and satisfaction of the requirements for such transfer set forth in this Section 2.5, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by Sections 2.5(c) and (d). Notes may be exchanged for other Notes of any authorized denominations and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at any such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Notes that the Noteholder -11- 20 making the exchange is entitled to receive bearing certificate numbers not contemporaneously outstanding. All Notes presented or surrendered for registration of transfer or for exchange shall (if so required by the Company, the Trustee, the Note registrar or any co-registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company, executed by the Noteholder thereof or his attorney duly authorized in writing. No service charge shall be charged to the Noteholder for any exchange or registration of transfer of Notes, but the Company may require payment of a sum sufficient to cover any tax, assessments or other governmental charges that may be imposed in connection therewith. None of the Company, the Trustee, the Note registrar or any co-registrar shall be required to exchange or register a transfer of (a) any Notes for a period of 15 days next preceding the mailing of a notice of redemption, (b) any Notes called for redemption or, if a portion of any Note is selected or called for redemption, such portion thereof selected or called for redemption, (c) any Notes surrendered for conversion or, if a portion of any Note is surrendered for conversion, such portion thereof surrendered for conversion or (d) any Notes surrendered for repurchase pursuant to Section 3.5 or, if a portion of any Note is surrendered for repurchase pursuant to Section 3.5, such portion thereof surrendered for repurchase pursuant to Section 3.5. All Notes issued upon any transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt and entitled to the same benefits under this Indenture as the Notes surrendered upon such registration of transfer or exchange. (b) So long as the Notes are eligible for book-entry settlement with the Depositary, or unless otherwise required by law, all Notes to be traded on the PORTAL Market shall be represented by the Restricted Global Note registered in the name of the Depositary or the nominee of the Depositary. The transfer and exchange of beneficial interests in any global Note that does not involve the issuance of a definitive Note or the transfer of interests to another global Note shall be effected through the Depositary (and not the Trustee or the Custodian) in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefor. Neither the Trustee nor the Custodian (in such respective capacities) shall have any responsibility for the transfer and exchange of beneficial interests in such global Note that does not involve the issuance of a definitive Note or the transfer of interests to another global Note. Any beneficial interest in Notes represented by the Restricted Global Note that is transferred to an Institutional Accredited Investor that is not a QIB shall be delivered in the form of a definitive Note in registered form in accordance with Section 2.2 and shall cease to be an interest in Notes represented by such Restricted Global Note and accordingly shall thereafter be subject to all transfer restrictions and other procedures applicable to a definitive Note held by Institutional Accredited Investors. -12- 21 Any transfer of a beneficial interest in a global Note that cannot be effected through book-entry settlement must be effected by the delivery to the transferee (or its nominee) of a definitive Note or Notes registered in the name of the transferee (or its nominee) on the books maintained by the Trustee, in accordance with the transfer instructions set forth herein. With respect to any such transfer, the Trustee or the Custodian, at the direction of the Trustee, shall cause, in accordance with the standing instructions and procedures existing between the Depositary and the Custodian, the aggregate principal amount of the global Note to be reduced by the principal amount of the beneficial interest in the Note being transferred and, following such reduction, the Company shall execute and the Trustee shall authenticate and make available for delivery to the transferee (or such transferee's nominee, as the case may be), a definitive Note or Notes in the appropriate aggregate principal amount in the name of such transferee (or its nominee) and bearing such restrictive legends as may be required by this Indenture. As a condition to such transfer, if such transfer is made to an Institutional Accredited Investor, the Trustee or the Custodian, at the direction of the transferor, shall be provided with such representations and agreements relating to the restrictions on transfer of such Note or Notes from such transferee (or such transferee's nominee) substantially in the form as set forth in Exhibit D hereto and as the Trustee (or the Custodian) may otherwise reasonably require. Any transfer of a definitive Note or Notes must be effected by the delivery to the transferee (or its nominee) of a definitive Note or Notes registered in the name of the transferee (or its nominee) in the Note register maintained by the Trustee. With respect to any such transfer, the Company shall execute and the Trustee shall authenticate and make available for delivery to the transferee (or such transferee's nominee, as the case may be), a definitive Note or Notes in the appropriate aggregate principal amount in the name of such transferee (or its nominee) and bearing such restrictive legends as may be required by this Indenture. As a condition to such transfer, if such transfer is made to an Institutional Accredited Investor, the Trustee or the Custodian, at the direction of the transferor, shall be provided with such representations and agreements relating to the restrictions on transfer of such Note or Notes from such transferee (or such transferee's nominee) substantially in the form as set forth in Exhibit D hereto. So long as the Notes are eligible for book-entry settlement, or unless otherwise required by law, upon any transfer of a definitive Note to a QIB in accordance with Rule 144A, unless otherwise requested by the transferor, and upon receipt of the definitive Note or Notes being so transferred, together with a certificate in the form of Exhibit E hereto from the transferor that the transferor reasonably believes the transferee is a QIB and is obtaining such beneficial interest in a transaction meeting the requirements of Rule 144A and any applicable securities laws of any state of the United States or any other jurisdiction (or other evidence satisfactory to the Trustee), the Trustee shall cancel such definitive Note or Notes and cause, or direct the Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Custodian, the aggregate principal amount of Notes represented by the Restricted Global Note to be increased accordingly. -13- 22 So long as the Notes are eligible for book-entry settlement, or unless otherwise required by law, upon any transfer of a definitive Note in accordance with Regulation S, if requested by the transferor, and upon receipt of the definitive Note or Notes being so transferred, together with a certificate in the form of Exhibit F hereto from the transferor that the transfer was made in accordance with Rule 903 or 904 of Regulation S under the Securities Act (or other evidence satisfactory to the Trustee), the Trustee shall cancel such definitive Note or Notes and cause, or direct the Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Custodian, the aggregate principal amount of Notes represented by the Regulation S Global Note to be increased accordingly. If a holder of a beneficial interest in the Restricted Global Note wishes at any time to exchange its interest in the Restricted Global Note for an interest in the Regulation S Global Note, or to transfer its interest in the Restricted Global Note to a person who wishes to take delivery thereof in the form of an interest in the Regulation S Global Note, whether before or after the expiration of the Restricted Period, such holder may, subject to the rules and procedures of the Depositary and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent beneficial interest in the Regulation S Global Note. Upon receipt by the Trustee, as transfer agent, of (1) written instructions given in accordance with the Depositary's procedures from or on behalf of a holder of a beneficial interest in the Restricted Global Note, directing the Trustee (via DWAC), as transfer agent, to credit or cause to be credited a beneficial interest in the Regulation S Global Note in an amount equal to the beneficial interest in the Restricted Global Note to be exchanged or transferred, (2) a written order given in accordance with the Depositary's procedures containing information regarding the Euroclear or Cedel account to be credited with such increase and the name of such account, and (3) a certificate in the form of Exhibit G given by the holder of such beneficial interest stating that the exchange or transfer of such interest has been made pursuant to and in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act and that if such transfer occurs prior to the expiration of the Restricted Period, the interest transferred shall be held immediately thereafter, until the expiration of the Restricted Period, through Euroclear or Cedel (or other evidence satisfactory to the Trustee), the Trustee, as transfer agent, shall promptly deliver appropriate instructions to the Depositary (via DWAC), its nominee, or the custodian for the Depositary, as the case may be, to reduce or reflect on its records a reduction of the Restricted Global Note by the aggregate principal amount of the beneficial interest in such Restricted Global Note to be so exchanged or transferred from the relevant participant, and the Trustee, as transfer agent, shall promptly deliver appropriate instructions (via DWAC) to the Depositary, its nominee, or the custodian for the Depositary, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Regulation S Global Note by the aggregate principal amount of the beneficial interest in such Restricted Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions (who shall be Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear or Cedel or another agent member of Euroclear or Cedel, or both, as the case may be, acting for and on behalf of them) -14- 23 a beneficial interest in such Regulation S Global Note equal to the reduction in the principal amount of such Restricted Global Note. A beneficial interest in the Regulation S Global Note may be transferred to a person that takes delivery in the form of a beneficial interest in the Restricted Global Note, subject to the rules and procedures of Euroclear or Cedel and the Depositary, as the case may be, and to the requirements set forth in the following sentence. Upon receipt by the Trustee, as transfer agent, from the transferor of (l) written instructions given in accordance with the procedures of Euroclear or Cedel and the Depositary, as the case may be, from or on behalf of a beneficial owner of an interest in the Regulation S Global Note directing the Trustee, as transfer agent, to credit or cause to be credited a beneficial interest in the Restricted Global Note in an amount equal to the beneficial interest in the Regulation S Global Note to be exchanged or transferred, (2) a written order given in accordance with the procedures of Euroclear or Cedel and the Depositary, as the case may be, containing information regarding the account with the Depositary to be credited with such increase and the name of such account, and (3) prior to the expiration of the Restricted Period, a certificate in the form of Exhibit H given by the holder of such beneficial interest and stating that such transfer is being made to a person that the transferor reasonably believes is purchasing for its own account or accounts as to which it exercises sole investment discretion and that such person and each such account is a QIB in each case and is obtaining such beneficial interest in a transaction meeting the requirements of Rule 144A and any applicable securities laws of any state of the United States or any other jurisdiction (or other evidence satisfactory to the Trustee), the Trustee, as transfer agent, shall promptly deliver (via DWAC) appropriate instructions to the Depositary, its nominee, or the custodian for the Depositary, as the case may be, to reduce or reflect on its records a reduction of the Regulation S Global Note by the aggregate principal amount of the beneficial interest in such Regulation S Global Note to be exchanged or transferred, and the Trustee, as transfer agent, shall promptly deliver (via DWAC) appropriate instructions to the Depositary, its nominee, or the custodian for the Depositary, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of the Restricted Global Note by the aggregate principal amount of the beneficial interest in the Regulation S Global Note to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions a beneficial interest in the Restricted Global Note equal to the reduction in the principal amount of the Regulation S Global Note. After the expiration of the Restricted Period, the certification requirement set forth in clause (3) of the second sentence of this paragraph shall no longer apply to such exchanges and transfers. If a holder of a definitive Note wishes at any time to exchange its Note for a beneficial interest in any global Note (or vice versa), or to transfer its definitive Note to a person who wishes to take delivery thereof in the form of a beneficial interest in a global Note (or vice versa), such Notes and beneficial interests may be exchanged or transferred for one another only in accordance with such procedures as are consistent with the provisions of this Section 2.5(b) (including the certification requirements intended to ensure that such exchanges or transfers comply with Rule 144, Rule 144A or Regulation S, as the case may be) and as may be from time -15- 24 to time adopted by the Company with notice to and the consent of the Trustee. Such Notes shall bear the legends required by Sections 2.5(c) and (d) as applicable. Any beneficial interest in one of the global Notes that is transferred to a person who takes delivery in the form of an interest in the other global Note shall, upon transfer, cease to be an interest in such global Note and become an interest in the other global Note and, accordingly, shall thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other global Note for as long as it remains such an interest. Any global Note may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Indenture as may be required by the Company with notice thereof to the Custodian, the Depositary or by the National Association of Securities Dealers, Inc. in order for the Notes to be tradeable on the PORTAL Market or as may be required for the Notes to be tradeable on any market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation thereunder or with Regulation S or with the rules and regulations of any securities exchange upon which the Notes may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject. (c) Every Note that bears or is required under this Section 2.5(c) to bear the legend set forth in this Section 2.5(c) (together with any Common Stock issued upon conversion of the Notes and required to bear the legend set forth in Section 2.5(d), collectively, the "Restricted Securities") shall be subject to the restrictions on transfer set forth in this Section 2.5(c), unless such restrictions on transfer shall have been waived by the written consent of the Company or removed in accordance with the provisions of Section 2.5(e), and the holder of each such Restricted Security, by such holder's acceptance thereof, agrees to be bound by such restrictions on transfer. As used in this Section 2.5(c), the term "transfer" encompasses any sale, pledge, transfer or other disposition of any Restricted Security. Until three years (or such shorter period as may be applicable) after the later of the original issuance date of any Note and the last date on which the Company or an Affiliate of the Company was the owner of such Note, any certificate evidencing such Note (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof, which shall bear the legend set forth in Section 2.5(d), if applicable) shall bear a legend in substantially the following form, unless otherwise agreed by the Company (with notice thereof to the Trustee): THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. -16- 25 BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS (OR SUCH SHORTER PERIOD AS MAY BE APPLICABLE) AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE LAST DATE ON WHICH ADAPTEC, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF -17- 26 THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any Note (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance with their terms may, upon satisfaction of the requirements of Section 2.5(e) and surrender of such Note for exchange to the Note registrar in accordance with the provisions of this Section 2.5, be exchanged for a new Note or Notes, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.5(c). Notwithstanding any other provisions of this Indenture (other than the provisions set forth in this Section 2.5(c)), a global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the global Notes. Initially, the global Notes shall be issued to the Depositary, registered in the name of Cede, as the nominee of the Depositary, and deposited with the Trustee as Custodian for Cede. Neither the Company nor the Trustee (or any registrar, paying agent or conversion agent under this Indenture) shall have responsibility for the performance by the Depositary and its nominees, Euroclear or Cedel or their participants or indirect participants of their respective obligations under the rules and procedures governing their operations. The Depositary shall take any action permitted to be taken by a holder of Notes (including, without limitation, the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose account with the Depositary interests in the global Notes are credited, and only in respect of the principal amount of the Notes represented by the global Notes as to which such participant or participants has or have given such direction. If at any time the Depositary for the global Notes notifies the Company that it is unwilling or unable to continue as Depositary for such Notes, the Company may appoint a successor Depositary with respect to such Notes. If a successor Depositary for the Notes is not appointed by the Company within 90 days after the Company receives such notice, the Company shall execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Notes, shall authenticate and make available for delivery, Notes in definitive form, in an aggregate principal amount equal to the principal amount of the global Notes in exchange for such global Notes. -18- 27 Definitive Notes issued in exchange for all or a part of a global Note pursuant to this Section 2.5(c) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall make available for delivery such definitive Notes to the persons in whose names such definitive Notes are so registered. At such time as all interests in global Notes have been redeemed, converted, repurchased or canceled, such global Notes shall be, upon receipt thereof, canceled by the Trustee in accordance with standing procedures and instructions existing between the Depositary and the Custodian. At any time prior to such cancellation, if any interest in a global Note is exchanged for definitive Notes, redeemed, repurchased, converted, canceled or transferred to a transferee who receives definitive Notes therefor or any definitive Note is exchanged or transferred for part of a global Note, the principal amount of such global Note shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be reduced or increased, as the case may be, and an endorsement shall be made on such global Note by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction or increase. The Company and the Trustee may for all purposes, including the making of payments due on the Notes, deal with the Depositary as the authorized representative of the Noteholders for the purposes of exercising the rights of Noteholders hereunder. The rights of the owner of any beneficial interest in a global Note shall be limited to those established by law and agreements between such owners and depository participants or Euroclear and Cedel; provided that no such agreement shall give any rights to any person against the Company or the Trustee without the written consent of the parties so affected. Multiple requests and directions from and votes of, the Depositary as holder of notes in book entry form with respect to any particular matter shall not be deemed inconsistent to the extent they do not represent an amount of Notes in excess of those held in the name of the Depositary or its nominee. (d) Until three years after the later of the original issuance date of any Note (other than any Note represented by the Regulation S Global Note) and the last date on which the Company or an Affiliate of the Company was the owner of such Note, any stock certificate representing Common Stock issued upon conversion of such Note shall bear a legend in substantially the following form, unless otherwise agreed by the Company (with written notice thereof to the Trustee and any transfer agent for the Common Stock): THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT PRIOR TO THE DATE THAT IS THREE YEARS (OR SUCH SHORTER PERIOD AS MAY BE -19- 28 APPLICABLE) AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED AND THE LAST DATE ON WHICH ADAPTEC, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 OF THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE NOTE UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED OR THE COMMON STOCK EVIDENCED HEREBY (THE "RESTRICTION TERMINATION DATE"), (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRANSFER AGENT FOR THE COMMON STOCK, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRANSFER AGENT), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; (2) PRIOR TO ANY SUCH TRANSFER PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, IT WILL FURNISH TO THE TRANSFER AGENT FOR THE COMMON STOCK, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms may, upon satisfaction of the requirements of Section 2.5(e) and surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a -20- 29 new certificate or certificates for a like aggregate number of shares of Common Stock, which shall not bear the restrictive legend required by this Section 2.5(d). (e) Upon any sale or transfer of any Restricted Security (including any interest in a global Note) (i) that is effected pursuant to an effective registration statement under the Securities Act, (ii) that is effected pursuant to Rule 144 as promulgated under the Securities Act as determined by counsel to the Company or (iii) in connection with which the Trustee (or transfer agent for the Common Stock, in the case of shares of Common Stock) receives certificates and other information (including an opinion of counsel, if requested) reasonably acceptable to the Company to the effect that such security shall no longer be subject to the resale restrictions under federal and state securities laws, then (A) in the case of a Restricted Security in definitive form, the Note registrar or co-registrar (or transfer agent, in the case of Common Stock) shall permit the holder thereof to exchange such Restricted Security for a security that does not bear the legends set forth in Sections 2.5(c) or 2.5(d), as applicable, and shall rescind any such restrictions on transfer and (B) in the case of Restricted Securities represented by a global Note, such Note shall no longer be subject to the restrictions contained in the legend set forth in Section 2.5(c) (but still subject to the other provisions hereof). In addition, any Note (or security issued in exchange or substitution therefor) or shares of Common Stock issued upon conversion of any Note, in either case, as to which the restrictions on transfer described in the legends set forth in Sections 2.5(c) and 2.5(d), respectively, have expired by their terms, may, upon surrender thereof (in accordance with the terms of this Indenture in the case of Notes) together with such certifications and other information (including an opinion of counsel having substantial experience in practice under the Securities Act and otherwise reasonably acceptable to the Company, addressed to the Company and the Trustee and in a form acceptable to the Company, to the effect that the transfer of such Restricted Security has been made in compliance with Rule 144 or such successor provision) acceptable to the Company and the Trustee (or transfer agent, as the case may be) as either of them may reasonably require, be exchanged for a new Note or Notes of like tenor and aggregate principal amount (in the case of Notes), or a new certificate or certificates for a like aggregate number of shares of Common Stock (in the case of Common Stock), or a new certificate or other instrument of like tenor and amount (in the case of securities issued in exchange or substitution for Notes), which shall not bear the restrictive legends set forth in Sections 2.5(c) and 2.5(d). (f) Each holder or former holder of a Note agrees to indemnify the Company and the Trustee against any liability that may result from the transfer, exchange or assignment of such holder's or former holder's Note in violation of any provision of this Indenture and/or applicable U.S. federal or state securities law. (g) The provisions of this Section 2 may be amended to conform transfer provisions and restrictions to any requirements imposed under the securities laws of the United States as a result of any changes to, or interpretation of, Regulation S or Rule 144A. -21- 30 Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute, and upon its request, the Trustee or an authenticating agent appointed by the Trustee shall authenticate and make available for delivery a new Note bearing a number not contemporaneously outstanding in exchange and substitution for the mutilated Note or in lieu of and in substitution for the Note so destroyed, lost or stolen. The Company may charge such applicant for the expenses of the Company in replacing a Note. In every case the applicant for a substituted Note shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless from any loss, liability, cost or expense caused by or connected with such substitution, and in every case of destruction, loss or theft, the applicant shall also furnish to the Company, to the Trustee and, if applicable, to such authenticating agent evidence to their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. The Trustee or such authenticating agent may authenticate any such substituted Note and deliver the same upon the receipt of such security or indemnity as the Trustee, the Company and, if applicable, such authenticating agent may require. Upon the issuance of any substituted Note, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Note that has matured or is about to mature or has been called for redemption or is about to be repurchased or converted into Common Stock shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Note, pay or authorize the payment of or convert or authorize the conversion of the same (without surrender thereof, except in the case of a mutilated Note), as the case may be, if the applicant for such payment or conversion shall furnish to the Company, to the Trustee and, if applicable, to such authenticating agent such security or indemnity as may be required by them to save each of them harmless from any loss, liability, cost or expense caused by or connected with such substitution, and in case of destruction, loss or theft, evidence satisfactory to the Company, the Trustee and, if applicable, any paying agent or conversion agent of the destruction, loss or theft of such Note and of the ownership thereof. Every substitute Note issued pursuant to the provisions of this Section 2.6 in lieu of any Note that is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be enforceable by anyone, and shall be entitled to all the benefits of (but shall be subject to all the limitations set forth in) this Indenture equally and proportionately with any and all other Notes duly issued hereunder. To the extent permitted by law, all Notes shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment or conversion of mutilated, destroyed, lost or stolen Notes and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment or conversion of negotiable instruments or other securities without their surrender. -22- 31 Section 2.7 Temporary Notes. Pending the preparation of definitive Notes, the Company may execute and the Trustee or an authenticating agent appointed by the Trustee shall, upon written request of the Company, authenticate and make available for delivery temporary Notes (printed or lithographed). Temporary Notes shall be issuable in any authorized denomination and shall be substantially in the form of the definitive Notes but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may be determined by the Company. Every such temporary Note shall be executed by the Company and authenticated by the Trustee or such authenticating agent upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Notes. Without unreasonable delay the Company shall execute and deliver to the Trustee or such authenticating agent definitive Notes (other than in the case of Notes in global form) and thereupon any or all temporary Notes (other than any such global Note) may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 4.2 and the Trustee or such authenticating agent shall authenticate and make available for delivery in exchange for such temporary Notes an equal aggregate principal amount of definitive Notes. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as definitive Notes authenticated and delivered hereunder. Section 2.8 Cancellation of Notes Paid, Etc. All Notes surrendered for the purpose of payment, redemption, repurchase, conversion, exchange or registration of transfer shall, if surrendered to the Company or any paying agent or any Note registrar or any conversion agent, be surrendered to the Trustee and promptly canceled by it or, if surrendered to the Trustee, shall be promptly canceled by it and no Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. If required by the Company, the Trustee shall return canceled Notes to the Company. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes unless and until the same are delivered to the Trustee for cancellation. Section 2.9 CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use CUSIP numbers in notices of redemption as a convenience to holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company shall promptly notify the Trustee of any change in the CUSIP numbers. -23- 32 ARTICLE III REDEMPTION AND REPURCHASE OF NOTES Section 3.1 Redemption Prices. The Notes are not redeemable at the option of the Company prior to February 3, 2000. At any time on or after that date, the Notes may be redeemed at the Company's option, upon notice as set forth in Section 3.2, in whole at any time or in part from time to time, at the optional redemption prices set forth in the forms of Notes attached as Exhibits A, B and C hereto, together with accrued interest to the date fixed for redemption. Section 3.2 Notice of Redemption; Selection of Notes. In case the Company shall desire to exercise the right to redeem all or, as the case may be, any part of the Notes pursuant to Section 3.1, it shall fix a date for redemption and, in the case of any redemption pursuant to Section 3.1, it or, at its request accompanied by the proposed form of notice of redemption (which must be received by the Trustee at least ten days prior to the date the Trustee is requested to give notice as described below, unless a shorter period is agreed to by the Trustee), the Trustee in the name of and at the expense of the Company, shall publish a notice in the Wall Street Journal and mail or cause to be mailed a notice of such redemption at least 15 and not more than 60 days prior to the date fixed for redemption to the holders of Notes so to be redeemed as a whole or in part at their last addresses as the same appear on the Note register, provided that if the Company shall give such notice, it shall also give such notice, and notice of the Notes to be redeemed, to the Trustee. Such mailing shall be by first class mail. The notice, if mailed in the manner herein provided, shall be conclusively presumed to have been duly given, whether or not the holder receives such notice. In any case, failure to give such notice by mail or any defect in the notice to the holder of any Note designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of any other Note. Each such notice of redemption shall identify the Notes to be redeemed (including CUSIP numbers), specify the aggregate principal amount of Notes to be redeemed, the date fixed for redemption, the redemption price at which Notes are to be redeemed, the place or places of payment, that payment shall be made upon presentation and surrender of such Notes, that interest accrued to the date fixed for redemption shall be paid as specified in said notice and that on and after said date, interest thereon or on the portion thereof to be redeemed shall cease to accrue. Such notice shall also state the current Conversion Price and the date on which the right to convert such Notes or portions thereof into Common Stock shall expire. If fewer than all the Notes are to be redeemed, the notice of redemption shall identify the Notes to be redeemed. In case any Note is to be redeemed in part only, the notice of redemption shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the date fixed for redemption, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof shall be issued. -24- 33 On or prior to the Business Day prior to the redemption date specified in the notice of redemption given as provided in this Section 3.2, the Company shall deposit with the Trustee or with one or more paying agents (or, if the Company is acting as its own paying agent, set aside, segregate and hold in trust as provided in Section 4.4) an amount of money sufficient to redeem on the redemption date all the Notes so called for redemption (other than those theretofore surrendered for conversion into Common Stock) at the appropriate redemption price, together with accrued interest to the date fixed for redemption. If any Note called for redemption is converted pursuant hereto, any money deposited with the Trustee or any paying agent or so segregated and held in trust for the redemption of such Note shall be paid to the Company upon its request or, if then held by the Company, shall be discharged from such trust. If fewer than all the Notes are to be redeemed, the Company shall give the Trustee written notice in the form of an Officers' Certificate not fewer than 45 days (or such shorter period of time as may be acceptable to the Trustee) prior to the redemption date as to the aggregate principal amount of Notes to be redeemed. If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes or portions thereof to be redeemed (in principal amounts of $1,000 or integral multiples thereof) by lot or, in its discretion, on a pro rata basis. If any Note selected for partial redemption is converted in part after such selection, the converted portion of such Note shall be deemed (so far as may be) to be the portion selected for redemption. The Notes (or portions thereof) so selected shall be deemed duly selected for redemption for all purposes hereof, notwithstanding that any such Note is converted as a whole or in part before the mailing of the notice of redemption. Upon any redemption of less than all Notes, the Company and the Trustee may treat as outstanding any Notes surrendered for conversion during the period of 15 days next preceding the mailing of a notice of redemption and need not treat as outstanding any Note authenticated and delivered during such period in exchange for the unconverted portion of any Note converted in part during such period. Section 3.3 Payment of Notes Called for Redemption. If notice of redemption has been given as above provided, the Notes or portion of Notes with respect to which such notice has been given shall, unless converted into Common Stock pursuant to the terms hereof, become due and payable on the date and at the place or places stated in such notice at the applicable redemption price, together with interest thereon accrued to the date fixed for redemption, and on and after said date (unless the Company shall default in the payment of such Notes at the redemption price, together with interest thereon accrued to said date), interest on the Notes or portion of Notes so called for redemption shall cease to accrue, and such Notes shall cease after the close of business on the Business Day next preceding the date fixed for redemption to be convertible into Common Stock and, except as provided in Sections 7.6 and 12.4, to be entitled to any benefit or security under this Indenture, and the holders thereof shall have no right in respect of such Notes except the right to receive the redemption price thereof and unpaid interest thereon to the date fixed for redemption. On presentation and surrender of such Notes at a place of payment in said notice specified, the said Notes or the specified portions thereof shall be paid and -25- 34 redeemed by the Company at the applicable redemption price, together with interest accrued thereon to the date fixed for redemption; provided that any semi-annual payment of interest becoming due on the date fixed for redemption shall be payable to the holders of such Notes registered as such on the relevant record date subject to the terms and provisions of Section 2.3 hereof. Upon presentation of any Note redeemed in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder thereof, at the expense of the Company, a new Note or Notes, of authorized denominations, in principal amount equal to the unredeemed portion of the Notes so presented. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid or duly provided for, bear interest from the date fixed for redemption at the rate borne by the Note and such Note shall remain convertible into Common Stock until the principal and premium, if any, shall have been paid or duly provided for. Section 3.4 Conversion Arrangement on Call for Redemption. In connection with any redemption of Notes, the Company may arrange for the purchase and conversion of any Notes by an agreement with one or more investment bankers or other purchasers to purchase such Notes by paying to the Trustee in trust for the Noteholders, on or prior to the Business Day prior to the date fixed for redemption, an amount not less than the applicable redemption price, together with interest accrued to the date fixed for redemption, of such Notes. Notwithstanding anything to the contrary contained in this Article III, the obligation of the Company to pay the redemption price of such Notes, together with interest accrued to the date fixed for redemption, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers. If such an agreement is entered into, a copy of which shall be filed with the Trustee prior to the date fixed for redemption, any Notes not duly surrendered for conversion by the holders thereof may, at the option of the Company, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such holders and (notwithstanding anything to the contrary contained in Article XIV) surrendered by such purchasers for conversion, all as of the time immediately prior to the close of business on the date fixed for redemption (and the right to convert any such Notes shall be deemed to have been extended through such time), subject to payment of the above amount as aforesaid. At the direction of the Company, the Trustee shall hold and dispose of any such amount paid to it in the same manner as it would monies deposited with it by the Company for the redemption of Notes. Without the Trustee's prior written consent, no arrangement between the Company and such purchasers for the purchase and conversion of any Notes shall increase or otherwise affect any of the powers, duties, responsibilities or obligations of the Trustee as set forth in this Indenture, and the Company agrees to indemnify the Trustee from, and hold it harmless against, any loss, liability or expense arising out of or in connection with any such arrangement for the purchase and conversion of any Notes between the Company and such purchasers including the costs and expenses incurred by the Trustee in the defense of any claim or -26- 35 liability arising out of or in connection with the exercise or performance of any of its powers, duties, responsibilities or obligations under this Indenture. Section 3.5 Repurchase of Notes Upon a Change of Control. (a) If a Change of Control shall occur at any time, then each holder of Notes shall have the right to require that the Company repurchase such holder's Notes in whole or in part in integral multiples of $1,000 at a purchase price (the "Change of Control Purchase Price") in cash in an amount equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest thereon, if any, to the purchase date (the "Change of Control Purchase Date") pursuant to the offer described below (the "Change of Control Offer") and in accordance with the other procedures set forth in this Indenture. (b) Within 30 days following any Change of Control, the Company shall publish a notice in the Wall Street Journal and shall give written notice of such Change of Control, by first-class mail, postage prepaid, to the Trustee and to each holder of Notes, at the Noteholder's address appearing in the Note register, stating (i) that a Change of Control has occurred, (ii) the Change of Control Purchase Price, (iii) the Change of Control Purchase Date (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed, or such later date as is necessary to comply with requirements under the Exchange Act), (iv) that any Note not tendered shall continue to accrue interest and to have all of the benefits of this Indenture, (v) that, unless the Company defaults in the payment of the Change of Control Purchase Price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Purchase Date, (vi) that Noteholders electing to have any Notes purchased pursuant to a Change of Control Offer shall be required to surrender the Notes, with the form entitled "Option of Noteholder to Elect Repayment Upon a Change of Control" on the reverse of the Notes completed, to the Company at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Purchase Date, (vii) that Noteholders shall be entitled to withdraw their election if the Company receives, not later than the close of business on the second Business Day preceding the Change of Control Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Noteholder, the principal amount of Notes delivered for purchase, and a statement that such Noteholder is withdrawing his election to have such Notes purchased, and (viii) that Noteholders whose Notes are being purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company shall comply with the requirements of Rule 13e-4 and 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes in connection with a Change of Control. -27- 36 (c) On the Change of Control Purchase Date, the Company shall, to the extent lawful, (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Trustee an amount equal to the Change of Control Purchase Price in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof tendered to the Company. The Trustee shall promptly mail to each holder of Notes so accepted payment in an amount equal to the Change of Control Purchase Price with respect to such Notes, and the Trustee shall promptly authenticate and mail to each Noteholder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (d) The term "Change of Control" shall mean an event or series of events as a result of which (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) acquires "beneficial ownership" (as determined in accordance with Rule 13d-3 under the Exchange Act), directly or indirectly, of shares representing more than 50% of the combined voting power of the then outstanding securities entitled to vote generally in elections of directors of the Company (the "Voting Stock"), (ii) the Company consolidates with or merges into any other corporation, or conveys, transfers or leases all or substantially all of its assets to any person, or any other corporation merges into the Company, and, in the case of any such transaction, the outstanding Common Stock of the Company is changed or exchanged as a result, unless the shareholders of the Company immediately before such transaction own, directly or indirectly, at least fifty-one percent (51%) of the combined voting power of the outstanding voting securities of the corporation resulting from such transaction in substantially the same proportion as their ownership of the Voting Stock immediately before such transaction, or (iii) Continuing Directors do not constitute a majority of the Board of Directors of the Company (or, if applicable, a successor corporation to the Company); provided that a Change of Control shall not be deemed to have occurred if either (x) the closing price per share of the Common Stock for any five trading days within the period of ten consecutive trading days ending immediately after the announcement of such Change of Control shall equal or exceed 105% of the Conversion Price of the Notes in effect on such trading day, or (y) at least 90% of the consideration (determined on the date on which the Change of Control is triggered and excluding cash payments for fractional shares) in the transaction or transactions constituting the Change of Control consists of shares of common stock traded on a national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted immediately following the Change of Control) and, as a result of such transaction or transactions, the Notes become convertible solely into such common stock (and any rights attached thereto). "Continuing Directors" shall mean, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the date of the Indenture or (ii) was nominated for -28- 37 election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. ARTICLE IV PARTICULAR COVENANTS OF THE COMPANY Section 4.1 Payment of Principal, Premium and Interest. The Company covenants and agrees that it shall duly and punctually pay or cause to be paid the principal of and premium, if any, and interest on each of the Notes at the places, at the respective times and in the manner provided herein and in the Notes. Each installment of interest on the Notes due on any semi-annual interest payment date may, at the option of the Company, be paid by mailing checks for the interest payable to or upon the written order of the holders of Notes entitled thereto as they shall appear on the Note register; provided that, with respect to any holder of Notes with an aggregate principal amount equal to or in excess of $5,000,000, at the request (such request to include appropriate wire instructions) of such holder in writing to the Trustee on or before the record date preceding any interest payment date, interest on such holder's Notes shall be paid by wire transfer in immediately available funds. An installment of principal or interest shall be considered paid on the date due if the Trustee or paying agent (other than the Company, a subsidiary of the Company or any Affiliate of any of them) holds on that date money designated for and sufficient to pay the installment of principal or interest and is not prohibited from paying such money to the holders of the Notes pursuant to the terms of this Indenture. Section 4.2 Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where the Notes may be surrendered for registration of transfer or exchange or for presentation for payment or for conversion or redemption and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. -29- 38 The Company hereby initially designates the Trustee as paying agent, Note registrar and conversion agent and the corporate trust office of State Street Bank and Trust Company, N.A., an affiliate of the Trustee located at 61 Broadway, Concourse Level, Corporate Trust Window, New York, New York 10006, as one such office or agency of the Company for the purposes set forth in the first paragraph of this Section 4.2. Section 4.3 Appointments to Fill Vacancies in Trustee's Office. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, shall appoint, in the manner provided in Section 7.11, a Trustee, so that there shall at all times be a Trustee hereunder. Section 4.4 Provisions as to Paying Agent. (a) If the Company shall appoint a paying agent other than the Trustee, or if the Trustee shall appoint such a paying agent, the Company or the Trustee, as the case may be, shall cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 4.4: (1) that it shall hold all sums held by it as such agent for the payment of the principal of, premium, if any, or interest on the Notes (whether such sums have been paid to it by the Company or by any other obligor on the Notes) in trust for the benefit of the holders of the Notes; (2) that it shall give the Trustee notice of any failure by the Company (or by any other obligor on the Notes) to make any payment of the principal of, premium, if any, or interest on the Notes when the same shall be due and payable; and (3) that at any time during the continuance of an Event of Default, upon request of the Trustee, it shall forthwith pay to the Trustee all sums so held in trust. The Company shall, before each due date of the principal of, premium, if any, or interest on the Notes, deposit with the paying agent a sum sufficient to pay such principal, premium, if any, or interest, and (unless such paying agent is the Trustee) the Company shall promptly notify the Trustee of any failure to take such action. (b) If the Company shall act as its own paying agent, it shall, on or before each due date of the principal of, premium, if any, or interest on the Notes, set aside, segregate and hold in trust for the benefit of the holders of the Notes a sum sufficient to pay such principal, premium, if any, or interest so becoming due and shall notify the Trustee of any failure to take such action and of any failure by the Company (or any other obligor under the Notes) to make any payment of the principal of, premium, if any, or interest on the Notes when the same shall become due and payable. -30- 39 (c) Anything in this Section 4.4 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by the Company or any paying agent hereunder as required by this Section 4.4, such sums to be held by the Trustee upon the trusts herein contained and upon such payment by the Company or any paying agent to the Trustee, the Company or such paying agent shall be released from all further liability with respect to such sums. (d) Anything in this Section 4.4 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section 4.4 is subject to Sections 12.3 and 12.4. Section 4.5 Corporate Existence. Subject to Article XI, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence. Section 4.6 Rule 144A Information Requirement. During the three-year period following the original issuance date of any Note and during the three-year period (or such shorter period as may be applicable) following the last date on which the Company or an Affiliate of the Company was the owner of any Note (or shares of Common Stock issued upon conversion of any Note), if the Company is subject neither to Section 13 nor Section 15(d) of the Exchange Act, the Company shall at the written request of any holder or beneficial holder of such Note (or shares of Common Stock issued upon conversion of Notes) provide to such holder or beneficial holder of such Note (or shares of Common Stock issued upon conversion of Notes) and any prospective transferee designated by such holder or beneficial holder of such Note (or shares of Common Stock issued upon conversion of Notes) such information, if any, required by Rule 144A(d)(4) under the Securities Act (so long as such information is required to permit such transfer under Rule 144A). Section 4.7 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. -31- 40 Section 4.8 Compliance Statement; Notice of Defaults. (a) The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officer's Certificate stating whether or not to the best knowledge of the signers thereof the Company is in compliance (without regard to periods of grace or notice requirements) with all conditions and covenants under this Indenture, and if the Company shall not be in compliance, specifying such non-compliance and the nature and status thereof of which such signer may have knowledge. (b) The Company shall file with the Trustee written notice of the occurrence of any default or Event of Default within ten days of its becoming aware of any such default or Event of Default. Section 4.9 Taxes. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon the Company or its subsidiaries or upon the income, profits or property of the Company or any such subsidiary and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a lien upon the property of the Company or any such subsidiary; provided that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which disputed amounts adequate reserves have been made. ARTICLE V NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY Section 5.1 Noteholders' Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of holders of Notes and shall otherwise comply with Trust Indenture Act Section 312(a). If the Trustee is not the Notes registrar, the Company shall furnish to the Trustee on or before at least seven Business Days preceding each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee reasonably may require of the names and addresses of holders of Notes, and the Company shall otherwise comply with Trust Indenture Act Section 312(a). Section 5.2 Reports by Company. The Company shall deliver to the Trustee within 15 days after it files the same with the Commission, copies of all reports and information (or copies of such portions of any of the foregoing as the Commission may by its rules and regulations prescribe), if any, which the Company is required to file with the Commission pursuant to -32- 41 Section 13 or 15(d) of the Exchange Act or pursuant to the immediately following sentence. So long as at least $5,000,000 aggregate principal amount of Notes remain outstanding, the Company shall file with the Commission such reports as may be required pursuant to Section 13 of the Exchange Act in respect of a security registered pursuant to Section 12 of the Exchange Act, regardless of whether the Company is otherwise required to file such reports. If the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act (or otherwise required to file reports pursuant to the immediately preceding sentence), the Company shall deliver to the Trustee, within 15 days after it would have been required to file such information with the Commission were it required to do so, annual and quarterly financial statements, including any notes thereto (and, in the case of a fiscal year end, an auditors' report by an independent certified public accounting firm of established national reputation), and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each case substantially equivalent to that which it would have been required to include in such quarterly or annual reports, information, documents or other reports if it had been subject to the requirements of Section 13 or 15(d) of the Exchange Act. The Company shall provide copies of the foregoing materials to the Noteholders to the extent required by the Trust Indenture Act once this Indenture has been qualified. The Company shall also comply with the other provisions of the Trust Indenture Act Section 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE VI DEFAULTS AND REMEDIES Section 6.1 Events of Default. In case one or more of the following Events of Default (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall have occurred and be continuing: (a) default in the payment of the principal of or premium, if any, on the Notes when due at maturity, upon redemption or otherwise, including failure by the Company to purchase the Notes when required under Section 3.5 (whether or not such payment shall be prohibited by Article XV of this Indenture); or (b) default in the payment of any installment of interest on the Notes as and when the same shall become due and payable (whether or not such payment shall be -33- 42 prohibited by Article XV of this Indenture), and continuance of such default for a period of 30 days; or (c) a failure on the part of the Company duly to observe or perform any other covenants or agreements on the part of the Company in this Indenture (other than a default in the performance or breach of a covenant or agreement that is specifically dealt with elsewhere in this Section 6.1) that continues for a period of 90 days after the date on which written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee, or to the Company and a Responsible Officer of the Trustee, by the holders of at least 25% in aggregate principal amount of the Notes at the time outstanding determined in accordance with Section 8.4; or (d) the Company shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect, or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or shall make a general assignment for the benefit of creditors or shall fail generally to pay its debts as they become due; or (e) an involuntary case or other proceeding shall be commenced against the Company seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 consecutive days; then, and in each and every such case (other than an Event of Default specified in Section 6.1(d) or (e)), unless the principal of all of the Notes shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding hereunder determined in accordance with Section 8.4, by notice in writing to the Company (and to the Trustee if given by Noteholders), may declare the principal of, premium, if any, on the Notes and the interest accrued thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Notes contained to the contrary notwithstanding. If an Event of Default specified in Section 6.1(d) or (e) occurs and is continuing, the principal of all the Notes and the interest accrued thereon shall be immediately due and payable. The foregoing provision is subject to the conditions that if, at any time after the principal of the Notes shall have been so declared due and payable, and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all Notes and the principal of and premium, if any, on any and all Notes that shall have become due otherwise than by -34- 43 acceleration (with interest on overdue installments of interest (to the extent that payment of such interest is enforceable under applicable law) and on such principal and premium, if any, at the rate borne by the Notes, to the date of such payment or deposit) and amounts due to the Trustee pursuant to Section 7.7, and if any and all defaults under this Indenture, other than the nonpayment of principal of, premium, if any, and accrued interest on Notes that shall have become due by acceleration, shall have been cured or waived pursuant to Section 6.7, then and in every such case the holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company and to the Trustee, may waive all defaults or Events of Default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or Event of Default, or shall impair any right consequent thereto. The Company shall notify a Responsible Officer of the Trustee, promptly upon becoming aware thereof, of any Event of Default. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such waiver or rescission and annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company, the holders of Notes and the Trustee shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the holders of Notes and the Trustee shall continue as though no such proceeding had been taken. Section 6.2 Payments of Notes on Default; Suit Therefor. The Company covenants that (a) in case default shall be made in the payment of any installment of interest upon any of the Notes as and when the same shall become due and payable, and such default shall have continued for a period of 30 days, or (b) in case default shall be made in the payment of the principal of or premium, if any, on any of the Notes as and when the same shall have become due and payable, whether at maturity of the Notes or in connection with any redemption, by declaration or otherwise, then, upon demand of the Trustee, the Company shall pay to the Trustee, for the benefit of the holders of the Notes, the whole amount that then shall have become due and payable on all such Notes for principal premium, if any, or interest, or both, as the case may be, with interest upon the overdue principal, premium, if any, and (to the extent that payment of such interest is enforceable under applicable law) upon the overdue installments of interest at the rate borne by the Notes; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable compensation to the Trustee, its agents, attorneys and counsel, and any expenses or liabilities incurred by the Trustee hereunder other than through its negligence or bad faith. Until such demand by the Trustee, the Company may pay the principal of and premium, if any, and interest on the Notes to the registered holders, whether or not the Notes are overdue. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any actions or proceedings at law or in equity for the collection of the sums so due and unpaid and may prosecute any such action or proceeding to judgment or final decree, and may -35- 44 enforce any such judgment or final decree against the Company or any other obligor on the Notes and collect in the manner provided by law out of the property of the Company or any other obligor on the Notes wherever situated the monies adjudged or decreed to be payable. In the case there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Notes under Title 11 of the United States Code or any other applicable law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company or such other obligor, the property of the Company or such other obligor, or in the case of any other judicial proceedings relative to the Company or such other obligor upon the Notes, or to the creditors or property of the Company or such other obligor, the Trustee, irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 6.2, shall be entitled and empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal, premium, if any, and interest owing and unpaid in respect of the Notes and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Noteholders allowed in such judicial proceedings relative to the Company or any other obligor on the Notes, its or their creditors, or its or their property and to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same after the deduction of any amounts due the Trustee under Section 7.7; and any receiver, assignee or trustee in bankruptcy or reorganization, liquidator, custodian or similar official is hereby authorized by each of the Noteholders to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due it for reasonable compensation, expenses, advances and disbursements, including counsel fees incurred by it up to the date of such distribution. To the extent that such payment of reasonable compensation, expenses, advances and disbursements out of the estate in any such proceedings shall be denied for any reason, payment of the same shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, monies, securities and other property that the holders of the Notes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or adopt on behalf of any Noteholder any plan of reorganization or arrangement affecting the Notes or the rights of any Noteholder, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceeding. All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Trustee without the possession of any of the Notes or the production thereof on any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, -36- 45 disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the holders of the Notes. In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of this Indenture to which the Trustee shall be a party), the Trustee shall be held to represent all the holders of the Notes, and it shall not be necessary to make any holders of the Notes parties to any such proceedings. Section 6.3 Application of Monies Collected by Trustee. Any monies collected by the Trustee pursuant to this Article VI shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such monies, upon presentation of the several Notes and stamping thereon the payment, if only partially paid, and upon surrender thereof, if fully paid: First: To the payment of all amounts due the Trustee under Section 7.7; Second: Subject to the provisions of Article XV, in case the principal of the outstanding Notes shall not have become due and be unpaid, to the payment of interest on the Notes in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee) upon the overdue installments of interest at the rate borne by the Notes, such payments to be made ratably to the persons entitled thereto; and Third: Subject to the provisions of Article XV, in case the principal of the outstanding Notes shall have become due, by declaration or otherwise, and be unpaid, to the payment of the whole amount then holding and unpaid upon the Notes for principal, premium, if any, and interest, with interest on the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee) upon overdue installments of interest at the rate borne by the Notes; and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Notes, then to the payment of such principal, premium, if any, and interest without preference or priority of principal and premium, if any, over interest, or of interest over principal and premium, if any, or of any installment of interest over any other installment of interest, or of any Note over any other Note, ratably to the aggregate of such principal and premium, if any, and accrued and unpaid interest. Section 6.4 Proceedings by Noteholder. No holder of any Note shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or other similar official, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than 25% in aggregate principal amount of the Notes then outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own -37- 46 name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding, and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 6.7; it being understood and intended, and being expressly covenanted by the taker and holder of every Note with every other taker and holder and the Trustee, that no one or more holders of Notes shall have any right in any manner whatever by virtue of or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other holder of Notes, to obtain or seek to obtain priority over or preference to any other such holder or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Notes (except as otherwise provided herein). For the protection and enforcement of this Section 6.4, each and every Noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Notwithstanding any other provision of this Indenture and any provision of any Note, the right of any holder of any Note to receive payment of the principal of, premium, if any, and interest on such Note, on or after the respective due dates expressed in such Note, or to institute suit for the enforcement of any such payment on or after such respective dates against the Company shall not be impaired or affected without the consent of such holder except as otherwise set forth herein. Anything in this Indenture or the Notes to the contrary notwithstanding, the holder of any Note, without the consent of either the Trustee or the holder of any other Note, in his own behalf and for his own benefit, may enforce, and may institute and maintain any proceeding suitable to enforce, his rights of conversion as provided herein. Section 6.5 Proceedings by Trustee. In case of an Event of Default, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either by suit in equity or by action at law or by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 6.6 Remedies Cumulative and Continuing. Except as provided in Section 2.6, all powers and remedies given by this Article VI to the Trustee or to the Noteholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of such powers and remedies or of any other powers and remedies available to the Trustee or the holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any holder of any of the Notes to exercise any right or power accruing upon any default or Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to -38- 47 be a waiver of any such default or any acquiescence therein; and, subject to the provisions of Section 6.4, every power and remedy given by this Article VI or by law to the Trustee or to the Noteholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Noteholders. Section 6.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders. The holders of a majority in aggregate principal amount of the Notes at the time outstanding (determined in accordance with Section 8.4) shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture and (b) the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. The holders of a majority in aggregate principal amount of the Notes at the time outstanding (determined in accordance with Section 8.4) may on behalf of the holders of all of the Notes waive any past default or Event of Default hereunder and its consequences except (i) a default in the payment of interest or premium, if any, on, or the principal of, the Notes, (ii) a failure by the Company to convert any Notes into Common Stock or (iii) a default in respect of a covenant or provisions hereof that under Article X cannot be modified or amended without the consent of the holders of all Notes then outstanding. Whenever any default or Event of Default hereunder shall have been waived as permitted by this Section 6.7, said default or Event of Default shall for all purposes of the Notes and this Indenture be deemed to have been cured and to be not continuing and the Company, the Trustee and the holders of the Notes shall be restored to their former positions and rights hereunder; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 6.8 Notice of Defaults. The Trustee shall, within 90 days after the occurrence of a default, mail to all Noteholders, as the names and addresses of such holders appear upon the Note register, notice of all defaults known to a Responsible Officer, unless such defaults shall have been cured or waived before the giving of such notice; provided that, except in the case of default in the payment of the principal of, premium, if any, or interest on any of the Notes, the Trustee shall be protected in withholding such notice if and so long as a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Noteholders. Section 6.9 Undertaking to Pay Costs. All parties to this Indenture agree, and each holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may, in its discretion, require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided that the provisions of this Section 6.9 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Noteholder or -39- 48 group of Noteholders holding in the aggregate more than 10% in principal amount of the Notes at the time outstanding determined in accordance with Section 8.4 or to any suit instituted by any Noteholder for the enforcement of the payment of the principal of, premium, if any, or interest on any Note on or after the due date expressed in such Note or to any suit for the enforcement of the right to convert any Note in accordance with the provisions of Article XIV. ARTICLE VII CONCERNING THE TRUSTEE Section 7.1 Duties and Responsibilities of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; provided that in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this paragraph (c) does not limit the effect of paragraph (b) of this Section 7.1; (2) the Trustee shall not be liable for any error of judgment made in good faith by an officer of the Trustee unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and -40- 49 (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.7. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (e) of this Section 7.1. (e) The Trustee may refuse to perform any duty or exercise any right or power or extend or risk its own funds or otherwise incur any financial liability unless it receives indemnity satisfactory to it against any loss, liability or expense. Section 7.2 Reports by Trustee to Holders. Within 60 days after each May 15 commencing with the May 15 following the date of this Indenture, the Trustee shall, if required by the Trust Indenture Act, mail to each Noteholder a brief report dated as of such May 15 that complies with Trust Indenture Act Section 313(a). The Trustee also shall comply with Trust Indenture Act Sections 313(b) and 313(c). The Company shall promptly notify the Trustee in writing if the Notes become listed or delisted on any stock exchange or automatic quotation system. A copy of each report at the time of its mailing to Noteholders shall be mailed to the Company and, to the extent required by Section 5.2 hereof and of the Trust Indenture Act Section 313(d), filed with the Commission and each stock exchange, if any, on which the Notes are listed. Section 7.3 Reliance on Documents, Opinions, Etc. Except as otherwise provided in Section 7.1: (a) The Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, coupon or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties; (b) Any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed or required by the Trust Indenture Act); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company; (c) The Trustee may consult with counsel of its selection and any advice or opinion of counsel shall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in accordance with such advice or opinion of counsel; -41- 50 (d) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder; no Depositary, Custodian or paying agent who is not the Trustee shall be deemed an agent of the Trustee, and the Trustee (in its capacity as Trustee) shall not be responsible for any act or omission by any such Depositary, Custodian or paying agent; (e) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any of the holders pursuant to this Indenture unless such holders have offered the Trustee reasonable security or indemnity against the costs, expenses and liabilities that would be incurred by it in compliance with such request or direction. (f) Subject to the provisions of Section 7.1(c), the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers; (g) In connection with any request to transfer or exchange any Note, the Trustee may request a direction (in the form of an Officers' Certificate) from the Company and an Opinion of Counsel with respect to compliance with any restrictions on transfer or exchange imposed by this Indenture, the Securities Act, other applicable law or the rules and regulations of any exchange on which the Notes or the Capital Stock may be traded, and the Trustee may rely and shall be protected in acting upon such direction and in accordance with such Officers' Certificate and Opinion of Counsel; (h) The Trustee may rely and shall be fully protected in acting upon the determination and notice by the Company of the Conversion Price; and (i) The Trustee shall not be deemed to have knowledge of any Event of Default or other fact or event upon the occurrence of which it may be required to take action hereunder unless one of its Responsible Officers has actual knowledge thereof. Section 7.4 No Responsibility for Recitals, Etc. The recitals contained herein and in the Notes (except in the Trustee's certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes. The Trustee shall not be accountable for the use or application by the Company of any Notes or the proceeds of any Notes authenticated and delivered by the Trustee in conformity with the provisions of this Indenture. Section 7.5 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes. The Trustee, any paying agent, any conversion agent or any Note registrar, in its individual or any -42- 51 other capacity, may become the owner or pledgee of Notes with the same rights it would have if it were not Trustee, paying agent, conversion agent or Note registrar. Section 7.6 Monies to Be Held in Trust. Subject to the provisions of Section 12.3, all monies received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as may be agreed to in writing from time to time by the Company and the Trustee. Section 7.7 Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as the Company and the Trustee shall from time to time agree in writing, for all services rendered by it hereunder in any capacity (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), and the Company shall pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify each of the Trustee or any predecessor Trustee in any capacity under this Indenture and its agents and any authenticating agent for, and to hold them harmless against, any and all loss, liability, damage, claim or expense, including taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on the part of the Trustee or such agent or authenticating agent, as the case may be, and arising out of or in connection with the acceptance or administration of this trust or in any other capacity hereunder, including the costs and expenses of defending themselves against any claim of liability in the premises. The obligations of the Company under this Section 7.7 to compensate or indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall be secured by a lien prior to that of the Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Notes. The obligation of the Company under this Section shall survive the satisfaction and discharge of this Indenture. Section 7.8 Officers' Certificate as Evidence. Except as otherwise provided in Section 7.1, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee, and such Officers' Certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken or omitted by it under the provisions of this Indenture upon the faith thereof. -43- 52 Section 7.9 Conflicting Interests of Trustee. In the event that the Trust Indenture Act is applicable hereto, and if the Trustee has or shall acquire a conflicting interest within the meaning of Trust Indenture Act Section 310(b), and there exists an Event of Default hereunder (exclusive of any period of grace or requirement of notice), the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. Section 7.10 Eligibility of Trustee. There shall at all times be a Trustee hereunder that shall be a person that satisfied the requirements of Trust Indenture Act Section 310(a)(1) and Section 310(a)(5) and that has a combined capital and surplus of at least $50,000,000. If such person publishes reports of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VII. Section 7.11 Resignation or Removal of Trustee. (a) The Trustee may at any time resign by giving written notice of such resignation to the Company; and the Company shall mail, or cause to be mailed, notice thereof to the holders of Notes at their addresses as they shall appear on the Note register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. (b) In case at any time any of the following shall occur: (1) the Trustee shall fail to comply with Section 7.9 after written request therefor by the Company or by any Noteholder who has been a bona fide holder of a Note or Notes for at least six months; or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 7.10 and shall fail to resign after written request therefor by the Company or by any such Noteholder; or (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, -44- 53 then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee or any Noteholder who has been a bona fide holder of a Note or Notes for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Notes at the time outstanding may at any time remove the Trustee and nominate a successor trustee, which shall be deemed appointed as successor trustee unless within ten days after notice to the Company of such nomination the Company objects thereto, in which case the Trustee so removed or any Noteholder, upon the terms and conditions and otherwise as provided in the next paragraph, may petition any court of competent jurisdiction for an appointment of a successor trustee. (d) If no successor trustee shall have been appointed and have accepted appointment within 60 days after removal pursuant to subparagraph (c) above or the mailing of such notice of resignation to the Noteholders pursuant to subparagraph (a) above, the Trustee resigning or being removed may petition any court of competent jurisdiction for the appointment of a successor trustee, or, in the case of either resignation or removal, any Noteholder who has been a bona fide holder of a Note or Notes for at least six months may, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section 7.11 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 7.12. Section 7.12 Acceptance by Successor Trustee. Any successor trustee appointed as provided in Section 7.11 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon, the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein; but on the written request of the Company or of the successor trustee, the Trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of Section 7.7, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the Trustee so ceasing to act. Upon request of any such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien upon all property and funds held or collected by such trustee -45- 54 as such, except for funds held in trust for the benefit of holders of particular Notes, to secure any amounts then due it pursuant to the provisions of Section 7.7. No successor trustee shall accept appointment as provided in this Section 7.12 unless at the time of such acceptance such successor trustee shall be qualified under the provisions of Section 7.9 and eligible under the provisions of Section 7.10. Upon acceptance of appointment by a successor trustee as provided in this Section 7.12, the Company shall mail or cause to be mailed notice of the succession of such Trustee hereunder to the holders of Notes at their addresses as they shall appear on the Note register. If the Company fails to mail such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company. Section 7.13 Successor, by Merger, Etc. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor to the Trustee hereunder, provided such corporation shall be qualified under the provisions of Section 7.9 and eligible under the provisions of Section 7.10 without the execution or filing of any paper or any further act on the part of any of the parties hereto. Section 7.14 Limitation on Rights of Trustee as Creditor. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Notes) and the Trust Indenture Act is applicable hereto, the Trustee shall be subject to the provisions of Trust Indenture Act Section 311(a) or, if applicable, Trust Indenture Act Section 311(b) regarding the collection of the claims against the Company (or any such other obligor). -46- 55 ARTICLE VIII CONCERNING THE NOTEHOLDERS Section 8.1 Action by Noteholders. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Notes may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action, the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Noteholders in person or by agent or proxy appointed in writing, (b) by the record of the holders of Notes voting in favor thereof at any meeting of Noteholders duly called and held in accordance with the provisions of Article IX or (c) by a combination of such instrument or instruments and any such record of such a meeting of Noteholders. Whenever the Company or the Trustee solicits the taking of any action by the holders of the Notes, the Company or the Trustee may fix in advance of such solicitation, a date as the record date for determining holders entitled to take such action. The record date shall be not more than 15 days prior to the date of commencement of solicitation of such action. Section 8.2 Proof of Execution by Noteholders. Subject to the provisions of Sections 7.1, 7.2 and 9.5, proof of the execution of any instrument by a Noteholder or by agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Notes shall be proved by the Note register or by a certificate of the Note registrar. The record of any Noteholders' meeting shall be proved in the manner provided in Section 9.5. Section 8.3 Who Are Deemed Absolute Owners. The Company, the Trustee, any paying agent, any conversion agent and any Note registrar may deem the person in whose name such Note shall be registered upon the books of the Company to be, and may treat such person as, the absolute owner of such Note (whether or not such Note shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of the principal of, premium, if any, and interest on such Note, for conversion of such Note and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any conversion agent nor any Note registrar shall be affected by any notice to the contrary. All such payments so made to any holder for the time being, or upon order of such holder, shall be valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for monies payable upon any such Note. The Depositary shall be deemed to be the owner of any global Note for all purposes, including receipt of notices to Noteholders and payment of principal of, premium, if any, and interest on the Notes. None of the Company, the Trustee (in its capacity as Trustee), any paying agent or the Note registrar (or co-registrar) shall have any responsibility for any aspect of the -47- 56 records relating to or payments made on account of beneficial interests of a global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests; provided that the foregoing shall not apply to the Trustee or any other person acting in its capacity as Custodian. Section 8.4 Company-Owned Notes Disregarded. In determining whether the holders of the requisite aggregate principal amount of Notes have concurred in any direction, consent, waiver or other action under this Indenture, Notes that are owned by the Company or any other obligor on the Notes or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Notes shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent, waiver or other action, only Notes that a Responsible Officer actually knows are so owned shall be so disregarded. Notes so owned that have been pledged in good faith may be regarded as outstanding for the purposes of this Section 8.4 if the pledgee shall establish to the satisfaction of the Trustee the pledgor's right to vote such Notes and that the pledgee is not the Company, any other obligor on the Notes or a person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In the case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Company shall furnish to the Trustee promptly an Officers' Certificate listing and identifying all Notes, if any, known by the Company to be owned or held by or for the account of any of the above described persons; and subject to Section 7.1, the Trustee shall be entitled to accept such Officers' Certificate as conclusive evidence of the facts therein set forth and of the fact that all Notes not listed therein are outstanding for the purpose of any such determination. Section 8.5 Revocation of Consents, Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 8.1, of the taking of any action by the holders of the percentage in aggregate principal amount of the Notes specified in this Indenture in connection with such action, any holder of a Note that is shown by the evidence to be included in the Notes the holders of which have consented to such action may, by filing written notice with the Trustee at its Corporate Trust Office and upon proof of holding as provided in Section 8.2, revoke such action so far as concerns such Note. Except as aforesaid, any such action taken by the holder of any Note shall be conclusive and binding upon such holder and upon all future holders and owners of such Note and of any Notes issued in exchange or substitution therefor, irrespective of whether any notation in regard thereto is made upon such Note or any Note issued in exchange or substitution therefor. -48- 57 ARTICLE IX NOTEHOLDERS' MEETINGS Section 9.1 Purposes for Which Meetings May be Called. A meeting of Noteholders may be called at any time and from time to time pursuant to the provisions of this Article IX for any of the following purposes: (i) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Noteholders pursuant to any of the provisions of Article VI; (ii) to remove the Trustee and appoint a successor trustee pursuant to the provisions of Article VII; (iii) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 10.2; or (iv) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Notes under any other provisions of this Indenture or under applicable law. Section 9.2 Manner of Calling Meetings; Record Date. The Trustee may at any time call a meeting of Noteholders to take any action specified in Section 9.1, to be held at such time and at such place in the City of New York, State of New York, or at such location in the United States that is reasonably convenient to holders of Notes, as the Trustee shall determine. Notice of every meeting of the Noteholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed not less than 30 nor more than 60 days prior to the date fixed for the meeting to such Noteholders at their addresses as such addresses appear in the Note register. For the purpose of determining Noteholders entitled to notice of any meeting of Noteholders, the Trustee shall fix in advance a date as the record date for such determination, such date to be a business day not more than ten days prior to the date of the mailing of such notice as hereinabove provided. Only persons in whose name any Note shall be registered in the Note register at the close of business on a record date fixed by the Trustee as aforesaid, or by the Company or the Noteholders as provided in Section 9.3, shall be entitled to notice of the meeting of Noteholders with respect to which such record date was so fixed. Section 9.3 Call of Meeting by Company or Noteholders. In case at any time the Company, pursuant to a Board Resolution or the holders of at least 10% in aggregate principal amount of the Notes then outstanding shall have requested the Trustee to call a meeting of Noteholders to take any action authorized in Section 9.1 by written request setting forth in -49- 58 reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of such meeting within 20 days after receipt of such request, then the Company or the holders of Notes in the amount above specified, as the case may be, may fix the record date with respect to, and determine the time and the place for, such meeting and may call such meeting to take any action authorized in Section 9.1, by mailing notice thereof as provided in Section 9.2. The record date fixed as provided in the preceding sentence shall be set forth in a written notice to the Trustee and shall be a Business Day not less than 15 nor more than 20 days after the date on which the original request is sent to the Trustee. Section 9.4 Who May Attend and Vote at Meetings. Only persons entitled to receive notice of a meeting of Noteholders and their respective proxies duly appointed by an instrument in writing shall be entitled to vote at such meeting. The only persons who shall be entitled to be present or to speak at any meeting of Noteholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. When a determination of Noteholders entitled to vote at any meeting of Noteholders has been made as provided in this Section, such determination shall apply to any adjournments thereof. Section 9.5 Manner of Voting at Meetings and Record to be Kept. The vote upon any resolution submitted to any meeting of Noteholders shall be by written ballots on each of which shall be subscribed the signature of the Noteholder or proxy casting such ballot and the identifying number or numbers of the Notes held or represented in respect of which such ballot is cast. The chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Noteholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 9.2. The record shall show the identifying numbers of the Notes voting in favor of or against any resolution. Each counterpart of such record shall be signed and verified by the affidavits of the chairman and secretary of the meeting and one of the counterparts shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee. Any counterpart record so signed and verified shall be conclusive evidence of the matters therein stated and shall be the record referred to in clause (b) of Section 8.1. Section 9.6 Exercise of Rights of Trustee and Noteholders Not To Be Hindered or Delayed. Nothing in this Article IX contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Noteholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Noteholders under any of the provisions of this Indenture or of the Notes. -50- 59 ARTICLE X SUPPLEMENTAL INDENTURES Section 10.1 Supplemental Indentures Without Consent of Noteholders. The Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: (a) to make provision with respect to the conversion rights of the holders of Notes pursuant to the requirements of Section 14.6; (b) subject to Article XV, to convey, transfer, assign, mortgage or pledge to the Trustee as security for the Notes, any property or assets; (c) to evidence the succession of another person to the Company, or successive successions, and the assumption by the Successor Company of the covenants, agreements and obligations of the Company pursuant to Article XI; (d) to add to the covenants of the Company such further covenants, restrictions or conditions as the Board of Directors and the Trustee shall consider to be for the benefit of the holders of Notes and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided that in respect of any such additional covenant, restriction or condition, such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; (e) to provide for the issuance under this Indenture of Notes in coupon form (including Notes registrable as to principal only) and to provide for exchangeability of such Notes with the Notes issued hereunder in fully registered form and to make all appropriate changes for such purpose; (f) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture that may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture that shall not adversely affect the interests of the holders of the Notes; -51- 60 (g) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes; or (h) to modify, eliminate or add to the provisions of this Indenture to such extent necessary to effect the qualification of this Indenture under the Trust Indenture Act (if applicable), or under any similar federal statute hereafter enacted (if applicable); or (i) to amend the transfer procedures or restrictions pursuant to Section 2.5. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations that may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to, but may in its discretion, enter into any supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 10.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Notes at the time outstanding, notwithstanding any of the provisions of Section 10.2. Section 10.2 Supplemental Indentures With Consent of Noteholders. With the consent (evidenced as provided in Article VIII) of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, the Company, when authorized by a Board Resolution, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or any supplemental indenture or of modifying in any manner the rights of the holders of the Notes; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Note, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof or premium, if any, thereon, or reduce any amount payable on redemption thereof, or change the obligation of the Company to repurchase the Notes at the option of the holder upon the happening of a Change of Control, or impair or affect the right of any Noteholder to institute suit for the payment thereof, or make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, or modify the subordination provisions hereof in a manner adverse to the holders of the Notes, or impair the right to convert the Notes into Common Stock subject to the terms set forth herein without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, in each such case, without the consent of the holders of all Notes then outstanding. Upon the request of the Company, accompanied by a copy of a Board Resolution authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Noteholders as aforesaid, the Trustee shall join with the Company in -52- 61 the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Noteholders under this Section 10.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Section 10.3 Effect of Supplemental Indentures. Any supplemental indenture executed pursuant to the provisions of this Article X shall comply with the Trust Indenture Act, as then in effect, if such supplemental indenture is then required to so comply. Upon the execution of any supplemental indenture pursuant to the provisions of this Article X, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Notes shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 10.4 Notation on Notes. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article X may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture, but they need not do so. If the Company or the Trustee shall determine to add such a notation, new Notes so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may, at the Company's expense, be prepared and executed by the Company, authenticated by the Trustee (or an authenticating agent duly appointed by the Trustee pursuant to Section 16.14] and delivered in exchange for the Notes then outstanding, upon surrender of such Notes then outstanding. Section 10.5 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee. The Trustee shall be furnished with and, subject to the provisions of Sections 7.1 and 7.2, may rely upon an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Article X. ARTICLE XI CONSOLIDATION, MERGER, SALE, CONVEYANCE, TRANSFER AND LEASE Section 11.1 Company May Consolidate, Etc. on Certain Terms. The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all of -53- 62 its assets (determined on a consolidated basis), whether in a single transaction or a series of related transactions, to, any person unless: (i) either the Company is the resulting, surviving or transferee person (the "Successor Company") or the Successor Company is a person organized and existing under the laws of the United States or any State thereof or the District of Columbia, and the Successor Company (if not the Company) expressly assumes by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under this Indenture and the Notes, including the rights pursuant to Article XIV hereof, (ii) immediately after giving effect to such transaction, no default or Event of Default has happened and is continuing and (iii) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture. Section 11.2 Successor Company To Be Substituted. In case of any such consolidation, merger, sale, conveyance, transfer or lease and upon the assumption by the Successor Company, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of, premium, if any, and interest on all of the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such Successor Company shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party hereto. When a Successor Company duly assumes all the obligations of the Company pursuant to this Indenture and the Notes, the predecessor shall be released from all such obligations. Section 11.3 Opinion of Counsel To Be Given to Trustee. The Trustee subject to Sections 7.1 and 7.2, shall receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or lease and any such assumption complies with the provisions of this Article XI. ARTICLE XII SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS Section 12.1 Discharge of Indenture. The Company may terminate all of its obligations under this Indenture (subject to Section 12.2) when: (a) (i) all Notes theretofore authenticated and delivered (other than Notes that have been destroyed, lost or stolen and that have been replaced or paid as provided in Section 2.6) have been delivered to the Trustee for cancellation; and (ii) the Company has paid or caused to be paid all other sums payable hereunder and under the Notes by the Company; or -54- 63 (b) (i) the Notes not previously delivered to the Trustee for cancellation shall have become due and payable or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee upon delivery of notice, (ii) the Company shall have irrevocably deposited with the Trustee, as trust funds, cash, in an amount sufficient to pay principal of and interest on the outstanding Notes, to maturity or redemption, as the case may be, (iii) such deposit shall not result in a breach or violation of, or constitute a default under, any agreement or instrument pursuant to which the Company is a party or by which it or its property is bound and (iv) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions related to such defeasance have been complied with. Section 12.2 Survival of Certain Obligations. Notwithstanding the satisfaction and discharge of this Indenture and of the Notes referred to in Section 12.1, the respective obligations of the Company and the Trustee under Sections 2.3, 2.4, 2.5, 2.6, 3.1, 4.2, 5.1, 6.4, 6.9, 7.6, 7.7 7.11, 12.4, 12.5, 12.6, Articles XIV and XV shall survive until the Notes are no longer outstanding, and thereafter, the obligations of the Company and the Trustee under Sections 6.9, 7.6, 7.7, 12.4, 12.5 and 12.6 shall survive. Nothing contained in this Article XII shall abrogate any of the rights, obligations or duties of the Trustee under this Indenture. Section 12.3 Acknowledgment of Discharge by Trustee. Subject to Section 12.6, after (i) the conditions of Section 12.1 have been satisfied, (ii) the Company has paid or caused to be paid all other sums payable hereunder by the Company and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent referred to in clause (i) above relating to the satisfaction and discharge of this Indenture have been complied with, the Trustee upon written request shall acknowledge in writing the discharge of the Company's obligations under this Indenture except for those surviving obligations specified in Section 12.2. Section 12.4 Application of Trust Assets. The Trustee shall hold any cash deposited with it in the irrevocable trust established pursuant to Section 12.1. The Trustee shall apply the deposited cash, together with earnings thereon in accordance with this Indenture and the terms of the irrevocable trust agreement established pursuant to Section 12.1 to the payment of principal of, premium, if any, and interest on the Notes. The cash so held in trust and deposited with the Trustee in compliance with Section 12.1 shall not be part of the trust estate under this Indenture, but shall constitute a separate trust fund for the benefit of all holders entitled thereto. Except as specifically provided herein, the Trustee shall not be requested to invest any amounts held by it for the benefit of the holders or pay interest on uninvested amounts to any holder. Section 12.5 Repayment to the Company; Unclaimed Money. Subject to applicable laws governing escheat of such property, and upon termination of the trust established pursuant to Section 12.1 hereof, the Trustee shall promptly pay to the Company upon written request any excess cash held by it. Additionally, if amounts for the payment of principal, premium, if any, or -55- 64 interest remains unclaimed for two years, the Trustee shall, upon written request, pay such amounts back to the Company forthwith. Thereafter, all liability of the Trustee with respect to such amounts shall cease. After payment to the Company, holders entitled to such payment must look to the Company for such payment as general creditors unless an applicable abandoned property law designates another person. Section 12.6 Reinstatement. If the Trustee is unable to apply any cash in accordance with Section 12.1 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.1 until such time as the Trustee is permitted to apply all such cash in accordance with Section 12.1; provided that if the Company makes any payment of principal of, premium, if any, or interest on any Notes following the reinstatement of its obligations, the Company shall be subrogated to the rights of the holders of such Notes to receive such payment from the amounts held by the Trustee. ARTICLE XIII IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS Section 13.1 Indenture and Notes Solely Corporate Obligations. No recourse for the payment of the principal of, or premium, if any, or interest on any Note, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture or in any supplemental indenture or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or of any successor entity, either directly or through the Company or any successor entity, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of the Notes. ARTICLE XIV CONVERSION OF NOTES Section 14.1 Right to Convert. Subject to and upon compliance with the provisions of this Indenture, the holder of any Note shall have the right, at the option of such holder, at any time after 90 days following the date of original issuance of the Note and prior to the close of business on February 1, 2004 (except that, with respect to any Note or portion of a Note that -56- 65 shall be called for redemption or delivered for repurchase, such right shall terminate immediately prior to the close of business on the last Business Day before the date fixed for redemption of such Note or portion of a Note, unless the Company shall default in payment due upon redemption thereof) to convert the principal amount of any such Note, or any portion of such principal amount that is $1,000 or an integral multiple thereof, into that number of fully paid and nonassessable shares of Common Stock (as such shares shall then be constituted) obtained by dividing the aggregate principal amount of the Notes or portion thereof surrendered for conversion by the Conversion Price in effect at such time rounded to the nearest 1/100,000th of a share (with .0000005 being rolled upward), by surrender of the Note so to be converted in whole or in part in the manner provided in Section 14.2. A holder of Notes is not entitled to any rights of a holder of Common Stock until such holder has converted such holder's Notes to Common Stock and only to the extent such Notes are deemed to have been converted to Common Stock under this Article XIV. Section 14.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to exercise the conversion privilege with respect to any Note in definitive form, the holder of any such Note to be converted in whole or in part shall surrender such Note, duly endorsed, at an office or agency maintained by the Company pursuant to Section 4.2, accompanied by the funds, if any, required by the penultimate paragraph of this Section 14.2, and shall give written notice of conversion in the form provided on the form of Note (or such other notice that is acceptable to the Company) to the office or agency that the holder elects to convert such Note or the portion thereof specified in said notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Common Stock that shall be issuable on such conversion shall be issued and shall be accompanied by transfer taxes, if required pursuant to Section 14.7. Each such Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the name of the holder of such Note as it appears on the Note register, be duly endorsed by, or be accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or his duly authorized attorney. In order to exercise the conversion privilege with respect to any interest in a global Note, the beneficial holder must complete the appropriate instruction form for conversion pursuant to the Depositary's book-entry conversion program and follow the other procedures set forth in such program. As promptly as practicable after satisfaction of the requirements for conversion set forth above, subject to compliance with any restrictions on transfer if shares issuable on conversion are to be issued in a name other than that of the Noteholder (as if such transfer were a transfer of the Note or Notes (or portion thereof) so converted), the Company shall issue and shall deliver to such holder at the office or agency maintained by the Company for such purpose pursuant to Section 4.2, a certificate or certificates for the number of full shares issuable upon the conversion of such Note or portion thereof in accordance with the provisions of this Article XIV and a check or cash in respect of any fractional interest in respect of a share of Common Stock arising upon -57- 66 such conversion, as provided in Section 14.3. In case any Note of a denomination greater than $1,000 shall be surrendered for partial conversion, and subject to Section 2.3, the Company shall execute and the Trustee shall authenticate and make available for delivery to the holder of the Note so surrendered, without charge to him, a new Note or Notes in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Note. Each conversion shall be deemed to have been effected as to any such Note (or portion thereof) on the date on which the requirements set forth above in this Section 14.2 have been satisfied as to such Note (or portion thereof), and the person in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become on said date the holder of record of the shares represented thereby; provided that any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the person in whose name the certificates are to be issued as the record holder thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such Note shall have been surrendered. Any Note or portion thereof surrendered for conversion during the period from after the close of business on a record date and before the opening of business on the corresponding interest payment date shall (unless such Note or portion thereof being converted shall have been called for redemption on a date during the period from the close of business on or after any record date to the close of business on the Business Day following corresponding interest payment date) be accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest payable on such interest payment date on the principal amount being converted; provided that no such payment need be made if there shall exist at the time of conversion a default in the payment of interest on the Notes. An amount equal to such payment shall be paid by the Company on such interest payment date to the holder of such Note at the close of business on such record date; provided that if the Company shall default in the payment of interest on such interest payment date, such amount shall be paid to the person who made such required payment. The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any record date to the close of business on the Business Day following the corresponding interest payment date shall be payable on the corresponding interest payment date to the registered holder of Notes at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date) and a holder of Notes who elects to convert need not include funds equal to the interest paid. Except as provided above in this Section 14.2, no adjustment shall be made for interest accrued on any Note converted or for dividends on any shares issued upon the conversion of such Note as provided in this Article XIV. Upon the conversion of an interest in a global Note, the Trustee, or the Custodian at the direction of the Trustee, shall make a notation on such global Note as to the reduction in the principal amount represented thereby. -58- 67 Section 14.3 Cash Payments in Lieu of Fractional Shares. No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of Notes. If more than one Note shall be surrendered for conversion at one time by the same holder, the number of fully paid and non-assessable shares of Common Stock issuable upon conversion of a Note shall be determined by dividing the aggregate principal amount of Notes or portions thereof surrendered for conversion by the Conversion Price in effect at such time. The aggregate number of shares of Common Stock issuable upon conversion shall be rounded to the nearest 1/100,000th of a share (with .0000005 being rolled upward). If any fractional share of stock would be issuable upon the conversion of any Note or Notes, the Company shall make an adjustment therefor in cash at the current market value thereof. The current market value of a share of Common Stock shall be determined by multiplying the fractional share by the Closing Price (as defined in Section 14.5) on the Trading Day (as defined in Section 14.5) immediately preceding the date on which the Notes (or specified portions thereof) are deemed to have been converted. Section 14.4 Conversion Price. The Conversion Price shall be as specified in the forms of Notes (herein called the "Conversion Price") attached as Exhibits A, B and C hereto, subject to adjustment as provided in this Article XIV. Section 14.5 Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company shall (i) pay a dividend or make a distribution on its Common Stock in shares of its Common Stock, (ii) subdivide or split its outstanding Common Stock into a greater number of shares, (iii) combine its outstanding Common Stock into a smaller number of shares or (iv) issue any shares of capital stock by reclassification of its Common Stock, the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of any Notes thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock of the Company which such Holder would have owned or have been entitled to receive after the occurrence of any of the events described above had such Notes been surrendered for conversion immediately prior to the occurrence of such event or the record date therefor, whichever is earlier. An adjustment made pursuant to this subsection (a) shall become effective immediately after the close of business on the record date for determination of shareholders entitled to receive such dividend or distribution in the case of a dividend or distribution (except as provided in Section 14.5(d)) and shall become effective immediately after the close of business on the effective date in the case of a subdivision, split, combination or reclassification. Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock under Sections 14.5(b) and (c). (b) In case the Company shall issue rights, options or warrants to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within 45 -59- 68 days after the date fixed for determination of shareholders entitled to receive such rights, options or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined in Section 14.5(g)) on the Record Date (as defined in Section 14.5(g)) fixed for determination of shareholders entitled to receive such rights, options or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after the Record Date by a fraction the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the Record Date plus the number of shares that the aggregate offering price of the total number of shares so offered would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Common Stock outstanding on the close of business on the Record Date plus the total number of additional shares of Common Stock so offered for subscription or purchase. Such adjustment shall become effective immediately after the opening of business on the day following the Record Date fixed for determination of shareholders entitled to receive such rights, options or warrants. To the extent that shares of Common Stock are not delivered after the expiration or termination of such rights, options or warrants, the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights, options or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such date fixed for the determination of shareholders entitled to receive such rights, options or warrants had not been fixed. In determining whether any rights, options or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights, options or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) In case outstanding shares of Common Stock shall be subdivided or split into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision or split becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other -60- 69 than any dividends or distributions to which Section 14.5(a) applies) or evidences of its indebtedness or assets (including securities, but excluding any rights, options or warrants referred to in Section 14.5(b), and excluding any dividend or distribution (x) in connection with the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, (y) exclusively in cash or (z) referred to in Section 14.5(a) (any of the foregoing hereinafter in this Section 14.5(d) called the "Securities")), then, in each such case, the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date (as defined in Section 14.5(g)) with respect to such distribution by a fraction of which the numerator shall be the Current Market Price (determined as provided in Section 14.5(g)) on such date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) on such date of the portion of the Securities so distributed applicable to one share of Common Stock and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the Business Day following the Record Date; provided that in the event the then fair market value (as so determined) of the portion of the Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of Securities such holder would have received had such holder converted each Note on such date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 14.5(d) by reference to the actual or when issued trading market for any securities comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price pursuant to Section 14.5(g) to the extent possible. Notwithstanding the foregoing provisions of this Section 14.5(d), no adjustment shall be made hereunder for any distribution of Securities if the Company makes proper provision so that each Noteholder who converts a Note (or any portion thereof) after the date fixed for determination of shareholders entitled to receive such distribution shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the amount and kind of Securities that such holder would have been entitled to receive if such holder had, immediately prior to such determination date, converted such Note into Common Stock; provided that, with respect to any Securities that are convertible, exchangeable or exercisable, the foregoing provision shall only apply to the extent (and so long as) the Securities receivable upon conversion of such Note would be convertible, exchangeable or exercisable, as applicable, without any loss of rights or privileges for a period of at least 60 days following conversion of such Note. -61- 70 Rights, options or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights, options or warrants, until the occurrence of a specified event or events (the "Trigger Event") (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, shall not be deemed distributed for purposes of this Section 14.5(d) (and no adjustment to the Conversion Price under this Section 14.5(d) shall be required) until the occurrence of the earliest Trigger Event. In addition, in the event of any distribution of rights, options or warrants, or any Trigger Event with respect thereto, that shall have resulted in an adjustment to the Conversion Price under this Section 14.5(d), (1) in the case of any such rights, options or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder of Common Stock with respect to such rights, options or warrants (assuming such holder had retained such rights, options or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights, options or warrants all of which shall have expired or been terminated without exercise by any holder thereof, the Conversion Price shall be readjusted as if such issuance had not occurred. In case the Company shall implement a shareholder rights plan not covered by the preceding paragraph, the holders of Notes shall be entitled to receive, upon conversion of any such Note, in addition to Common Stock issuable upon such conversion, all such rights as would have been applicable to such shares of Common Stock had it been outstanding when such plan was implemented. For purposes of this Section 14.5(d) and Sections 14.5(a) and (b), any dividend or distribution to which this Section 14.5(d) is applicable that also includes shares of Common Stock, or rights, options or warrants to subscribe for or purchase shares of Common Stock (or both), shall instead be treated as (1) a dividend or distribution of the evidences of indebtedness, assets or shares of capital stock other than such shares of Common Stock or rights, options or warrants (and any Conversion Price reduction required by this Section 14.5(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights, options or warrants (and any further Conversion Price reduction required by Sections 14.5(a) and (b) with respect to such dividend or distribution shall then be made) except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of shareholders entitled to receive such dividend or other distribution" and "the date fixed for such determination" within the meaning of Sections 14.5(a) and (b) and (B) any shares of Common Stock included in -62- 71 such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" within the meaning of Section 14.5(a). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 14.6 applies or as part of a distribution referred to in Section 14.5(d) for which an adjustment to the Conversion Price is provided therein) in an aggregate amount that, combined together with (1) the aggregate amount of any other such distributions to all holders of its Common Stock made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 14.5(e) has been made, and (2) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender offers, by the Company or any of its subsidiaries for all or any portion of the Common Stock concluded within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to Section 14.5(f) has been made, exceeds 20.0% of the product of the Current Market Price (determined as provided in Section 14.5(g)) on the Record Date with respect to such distribution times the number of shares of Common Stock outstanding on such date, then, and in each such case, immediately after the close of business on such date, unless the Company elects to reserve such cash for distribution to the holders of the Notes upon the conversion of the Notes so that any such holder converting Notes shall receive upon such conversion, in addition to the shares of Common Stock to which such holder is entitled, the amount of cash which such holder would have received if such holder had, immediately prior to the Record Date for such distribution of cash, converted its Notes into Common Stock, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such date by a fraction (i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount equal to the quotient of (x) the excess of such combined amount over such 20.0% and (y) the number of shares of Common Stock outstanding on the Record Date and (ii) the denominator of which shall be equal to the Current Market Price on such date; provided that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Noteholder shall have the right to receive upon conversion the amount of cash such holder would have received had such holder converted each Note on the Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such dividend or distribution had not been declared. (f) In case a tender offer made by the Company or any of its subsidiaries for all or any portion of the Common Stock shall expire and such tender offer (as amended upon -63- 72 the expiration thereof) shall require the payment to shareholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (1) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender offer, of consideration payable in respect of any other tender offer, by the Company or any of its subsidiaries for all or any portion of the Common Stock expiring within the 12 months preceding the expiration of such tender offer, and in respect of which no adjustment pursuant to Section 14.5(f) has been made, and (2) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within 12 months preceding the expiration of such tender offer, and in respect of which no adjustment pursuant to Section 14.5(e) has been made, exceeds 20.0% of the product of the Current Market Price (determined as provided in Section 14.5(g)) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the Business Day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to close of business on the date of the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the Business Day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such tender offer had not been made. (g) For purposes of this Section 14.5, the following terms shall have the meaning indicated: -64- 73 (1) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the New York Stock Exchange, or, if such security is not listed or admitted to trading on such Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution. (2) "Current Market Price" shall mean the average of the daily Closing Prices per share of Common Stock for the ten consecutive Trading Days immediately prior to the date in question; provided that (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution or Change of Control requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 14.5(a), (b), (c), (d), (e) or (f) occurs during such ten consecutive Trading Days, the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (2) if the "ex" date for any event (other than the issuance, distribution or Change of Control requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 14.5(a), (b), (c), (d), (e) or (f) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event and (3) if the "ex" date for the issuance, distribution or Change of Control requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 14.5(d) or (f), whose determination shall be conclusive and described in a Board Resolution) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any -65- 74 computation under Section 14.5(f), the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided that if the "ex" date for any event (other than the tender or exchange offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 14.5(a), (b), (c), (d), (e) or (f) occurs on or after the Expiration Time for the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective and (3) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the expiration of such offer. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this Section 14.5, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 14.5 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors. (3) "fair market value" shall mean the amount that a willing buyer would pay a willing seller in an arm's-length transaction. (4) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (5) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or such other national security exchange is open for business or (y) if the applicable security is -66- 75 quoted on the Nasdaq National Market, a day on which trades may be made thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (h) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 14.5(a), (b), (c), (d), (e) and (f), as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least 20 days, the reduction is irrevocable during the period and the Board of Directors shall have made a determination that such reduction would be in the best interests of the Company, which determination shall be conclusive and described in a Board Resolution. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to all holders of record of the Notes a notice of the reduction at least 15 days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period it shall be in effect. (i) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided that any adjustments that by reason of this Section 14.5(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article XIV shall be made by the Company and shall be made to the nearest 1/100,000 (with 0.0000005 being rolled upward). No adjustment need be made for rights to purchase Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value, or to or from no par value, of the Common Stock. To the extent the Notes become convertible into cash, assets, property or securities (other than Common Stock of the Company), no adjustment need be made thereafter as to the cash, assets, property or such securities (except as such securities may otherwise by their terms provide), and interest shall not accrue on such cash. (j) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee and any conversion agent other than the Trustee an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after -67- 76 delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each Note at his last address appearing on the Note register provided for in Section 2.5, within 20 days after execution thereof. Failure to deliver such notice shall not effect the legality or validity of any such adjustment. (k) In any case in which this Section 14.5 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Note converted after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fraction pursuant to Section 14.3. Section 14.6 Effect of Reclassification, Consolidation, Merger or Sale. If any of the following events occur, namely (i) any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or to or from no par value, as a result of a subdivision or combination), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety (determined on a consolidated basis) to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture if such supplemental indenture is then required to so comply) providing that the Notes shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Notes (assuming, for such purposes, a sufficient number of authorized shares of Common Stock available to convert all such Notes) immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance, assuming such holder of Common Stock did not exercise his rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance (provided that, if the kind or amount of securities, cash or other property receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("non- electing share"), then for the purposes of this Section 14.6 the kind and amount of securities, cash or other property receivable upon such reclassification, change, consolidation, -68- 77 merger, combination, sale or conveyance for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article XIV. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each holder of Notes, at his address appearing on the Note register provided for in Section 2.5, within 20 days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section 14.6 shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. Section 14.7 Taxes on Shares Issued. The issuance of stock certificates on conversions of Notes shall be made without charge to the converting Noteholder for any transfer or similar tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the holder of any Note converted, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. Section 14.8 Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock. The Company shall provide, free from preemptive rights, out of its authorized but unissued shares or shares held in treasury, sufficient shares to provide for the conversion of the Notes from time to time as such Notes are presented for conversion. Before taking any action that would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of the Notes, the Company shall take all corporate action that may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue shares of such Common Stock at such adjusted Conversion Price. The Company covenants that all shares of Common Stock that may be issued upon conversion of Notes shall, upon issuance, be fully paid and nonassessable by the Company and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants that it shall, if permitted by the rules of the Nasdaq National Market, list and keep listed, so long as the Common Stock shall be so listed on the Nasdaq National Market, all Common Stock issuable upon conversion of the Notes. Section 14.9 Responsibility of Trustee. The Trustee and any other conversion agent shall not at any time be under any duty or responsibility to any holder of Notes to determine -69- 78 whether any facts exist that may require any adjustment of the Conversion Price, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, that may at any time be issued or delivered upon the conversion of any Note; and the Trustee and any other conversion agent make no representations with respect thereto. Subject to the provisions of Section 7.1, neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Note for the purpose of conversion or to comply with any of the duties, responsibilities or covenants of the Company contained in this Article XIV. Without limiting the generality of the foregoing, neither the Trustee nor any conversion agent shall be under any responsibility to determine whether a supplemental indenture under Section 14.6 hereof need to be entered into or the correctness of any provisions contained in any supplemental indenture entered into pursuant to Section 14.6 relating either to the kind or amount of shares of stock or securities or property (including cash) receivable by Noteholders upon the conversion of their Notes after any event referred to in such Section 14.6 or to any adjustment to be made with respect thereto, but, subject to the provisions of Section 7.1, may accept as conclusive evidence of the correctness of any such provisions, and shall be protected in relying upon, the Officers' Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any such supplemental indenture) with respect thereto. Section 14.10 Notice to Holders Prior to Certain Actions. In case: (a) the Company makes any distribution or dividend that would require an adjustment in the Conversion Price pursuant to Section 14.5; or (b) the Company takes any action that would require a supplemental indenture pursuant to Section 14.6; or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, the Company shall cause to be filed with the Trustee and to be mailed to each holder of Notes at his address appearing on the Note register, as promptly as possible but in any event at least 15 days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record date is to be taken for the purpose of such dividend, distribution, rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined or (y) the date on which such reclassification, change, consolidation, merger, sale, conveyance, transfer, dissolution, liquidation or winding-up is expected to become effective or occur and the date as of which it is expected that holders of record of Common Stock shall be -70- 79 entitled to exchange their Common Stock for securities or other property deliverable upon such reclassification, change, consolidation, merger, sale, conveyance, transfer, dissolution, liquidation or winding-up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings referenced in clauses (a) through (c) of this Section 14.10. ARTICLE XV SUBORDINATION Section 15.1 Agreement to Subordinate. The Company agrees, and each Noteholder by accepting a Note agrees, that the indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article XV, to the prior payment in full of all Senior Indebtedness and that such subordination is for the benefit of the holders of Senior Indebtedness. Section 15.2 Certain Definitions. For purposes of this Article XV, the following terms shall have the meaning indicated: (a) "Designated Senior Indebtedness" means any particular Senior Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) expressly provides that such Indebtedness shall be "Designated Senior Indebtedness" for purposes of this Indenture (provided that such instrument, agreement or other document may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness provided herein). (b) "Indebtedness" means, with respect to any person, all obligations, whether or not contingent, of such person (i) (A) for borrowed money (including, but not limited to, any indebtedness secured by a security interest, mortgage or other lien on the assets of the Company that is (1) given to secure all or part of the purchase price of property subject thereto, whether given to the vendor of such property or to another, or (2) existing on property at the time of acquisition thereof), (B) evidenced by a note, debenture, bond or other written instrument, (C) under a lease required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles or entered into as part of a sale and buyback transaction, whether or not required to be capitalized, or under any lease or related document (including a purchase agreement) that provides that the Company is contractually obligated to purchase or cause a third party to purchase and thereby guarantee a minimum residual value of the lease property to the lessor and the obligations of the Company under such lease or related document to purchase or to cause a third party to purchase such leased property, (D) in respect of letters of credit, bank guarantees or bankers' acceptances (including reimbursement obligations with respect to any of the foregoing), (E) with respect to indebtedness secured by a mortgage, pledge, -71- 80 lien, encumbrance, charge or adverse claim affecting title or resulting in an encumbrance to which the property or assets of such person are subject, whether or not the obligation secured thereby shall have been assumed by or shall otherwise be such person's legal liability, (F) in respect of the balance of deferred and unpaid purchase price of any property or assets, (G) under interest rate or currency swap agreements, cap, floor and collar agreements, spot and forward contracts and similar agreements and arrangements; (ii) with respect to any obligation of others of the type described in the preceding clause (i) or under clause (iii) below assumed by or guaranteed in any manner by such person or in effect guaranteed by such person through an agreement to purchase (including, without limitation, "take or pay" and similar arrangements), contingent or otherwise (and the obligations of such person under any such assumptions, guarantees or other such arrangements); and (iii) any and all Indebtedness constituting deferrals, renewals, extensions, refinancings and refundings of, or amendments, modifications or supplements to, any of the foregoing. (c) "Representative" shall mean (A) the Indenture trustee or other trustee, agent or representative for any Senior Indebtedness or (B) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative, (i) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required persons necessary to bind such holders or owners of such Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness. (d) "Senior Indebtedness" means principal of, premium, if any, and interest on, rent under, and any other amounts payable on or in or in respect of the Credit Agreement and any other Indebtedness of the Company (including, without limitation, any interest accruing after the filing of a petition by or against the Company under any bankruptcy law, whether or not allowed as a claim after such filing in any proceeding under such bankruptcy law), whether outstanding on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company (including all deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to the foregoing); provided, however, that Senior Indebtedness shall not include (i) Indebtedness evidenced by the Notes, (ii) any liability for federal, state, local or other taxes owed or owing by the Company, (iii) Indebtedness of the Company to any subsidiary of the Company except to the extent such Indebtedness may have been pledged, assigned or otherwise transferred to a third party, (iv) any indebtedness for the purchase of services, goods or materials if such indebtedness is a trade payable of the Company incurred in the ordinary course of business, except to the extent such indebtedness may have been pledged, assigned or otherwise transferred to a third party, and (v) any Indebtedness in which the instrument creating or evidencing the same or the assumption or guarantee thereof (or related agreements or documents to which the Company is a party) -72- 81 expressly provides that such Indebtedness shall not be senior in right of payment to, or is pari passu with, or is subordinated or junior to, the Notes. For the purposes of this Indenture, Senior Indebtedness shall not be deemed to have been paid in full until the holders of the Senior Indebtedness shall have indefeasibly received payment in full in cash of all Senior Indebtedness; provided that if any holder of Senior Indebtedness agrees to accept payment in full of such Senior Indebtedness for consideration other than cash, such holder shall be deemed to have indefeasibly received payment in full of such Senior Indebtedness. The provisions of this Article XV shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Senior Indebtedness is rescinded or must otherwise be returned by any holder of Senior Indebtedness upon the insolvency, bankruptcy or organization of the Company or otherwise, all as though such payment had not been made. Section 15.3 Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities, (a) holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to become due thereon before Noteholders shall be entitled to receive any payment with respect to the principal of, premium, if any, or interest on the Notes (except that Noteholders may receive securities that are subordinated to at least the same extent as the Notes to (x) Senior Indebtedness and (y) any securities issued in exchange for Senior Indebtedness) and (b) until all Senior Indebtedness (as provided in clause (a) above) is paid in full, any distribution to which Noteholders would be entitled but for this Article shall be made to holders of Senior Indebtedness (except that Noteholders may receive securities that are subordinated to at least the same extent as the Notes to (x) Senior Indebtedness and (y) any securities issued in exchange for Senior Indebtedness), as their interests may appear. A distribution may consist of cash, securities or other property, by set-off or otherwise. Section 15.4 Default on Senior Indebtedness; Acceleration of Notes. (a) The Company may not make any payment upon or in respect of the Notes (except in such subordinated securities) and may not acquire from the Trustee or any Noteholder any Note for cash or property (other than securities that are subordinated to at least the same extent as the Note to (i) Senior Indebtedness and (ii) any securities issued in exchange for Senior Indebtedness) until all Senior Indebtedness has been paid in full if: (i) a default in the payment of the principal of, premium, if any, interest, rent under or other obligations in respect of Senior Indebtedness occurs and is continuing beyond any applicable period of grace (a "Payment Default"); or (ii) a default, other than a Payment Default on Designated Senior Indebtedness, occurs and is continuing with respect to Designated Senior -73- 82 Indebtedness that permits holders of the Designated Senior Indebtedness as to which such default relates to accelerate its maturity (a "Nonpayment Default") and the Trustee receives a notice of such default (a "Payment Blockage Notice") from a Representative. No Nonpayment Default that existed or was continuing on the date of delivery of any such Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice. No new period of payment blockage based on a Nonpayment Default may be commenced within 365 days after the receipt by the Trustee of any prior Payment Blockage Notice. The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (i) in the case of a Payment Default, upon the date on which the default is cured or waived, or (ii) in the case of a Nonpayment Default, 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of such Senior Indebtedness has been accelerated, if this Article XV otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. (b) In the event of the acceleration of the Notes because of an Event of Default, no payment or distribution shall be made to the Trustee or any holder of Notes in respect of the principal of, premium, if any, or interest on the Notes (including, but not limited to, the redemption price with respect to the Notes called for redemption in accordance with Section 3.3 or submitted for redemption in accordance with Section 3.5, as the case may be), until all Senior Indebtedness has been paid in full in cash or other payment satisfactory to the holders of Senior Indebtedness or such acceleration is rescinded in accordance with the terms of this Indenture. If payment of the Notes is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Indebtedness of the acceleration. Section 15.5 When Distribution Must Be Paid Over. In the event that the Trustee (or paying agent if other than the Trustee) or any Noteholder receives any payment of principal or interest with respect to the Notes at a time when such payment is prohibited by Section 15.3 or 15.4 hereof, such payment shall be held by the Trustee (or paying agent if other than the Trustee) or such Noteholder, in trust for the benefit of, and immediately shall be paid over and delivered, upon written request, to, the holders of Senior Indebtedness or their Representative under the indenture or other agreement (if any) pursuant to which Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in -74- 83 accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article XV, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Noteholders or the Company or any other person money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Article XV, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 15.6 Notice by Company. The Company shall promptly notify the Trustee and the paying agent of any facts known to the Company that would cause a payment of any principal or interest with respect to the Notes to violate this Article XV, but failure to give such notice shall not affect the subordination of the Notes to the Senior Indebtedness as provided in this Article XV. Section 15.7 Subrogation. After all Senior Indebtedness is paid in full and until the Notes are paid in full, Noteholders shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Noteholders have been applied to the payment of Senior Indebtedness. A distribution made under this Article XV to holders of Senior Indebtedness that otherwise would have been made to Noteholders is not, as between the Company and Noteholders, a payment by the Company on the Notes. Section 15.8 Relative Rights. This Article XV defines the relative rights of Noteholders and holders of Senior Indebtedness. Nothing in this Indenture shall: (a) impair, as between the Company and the Noteholders, the obligation of the Company, which is absolute and unconditional, to pay principal of, premium, if any, and interest on the Notes in accordance with their terms; (b) affect the relative rights of Noteholders and creditors of the Company other than their rights in relation to holders of Senior Indebtedness; or (c) prevent the Trustee or any Noteholder from exercising its available remedies upon a default or Event of Default, subject to the rights of holders and owners of Senior Indebtedness to receive distributions and payments otherwise payable to Noteholders. -75- 84 If the Company fails because of this Article XV to pay principal of, premium, if any, or interest on a Note on the due date, the failure is still a default or Event of Default. Section 15.9 Subordination May Not Be Impaired by Company. No right of any holder of Senior Indebtedness to enforce the subordination of the indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any holder of Notes or by the failure of the Company or any holder of Notes to comply with this Indenture. Section 15.10 Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article XV, the Trustee and the Noteholders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other person making any distribution to the Trustee or to the Noteholders for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XV. Section 15.11 Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article XV or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the paying agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least three Business Days prior to the date of such payment written notice of facts that would cause the payment of any principal, premium, if any, and interest with respect to the Notes to violate this Article XV. Only the Company or a Representative may give the notice. Nothing in this Article XV shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof. The Trustee shall be entitled to rely on the delivery to it of a written notice by a person representing such person to be a holder of Senior Indebtedness (or a trustee or agent on behalf of such holder) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee or agent on behalf of any such holder). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article XV, the Trustee may request such person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Article XV, and if such evidence is not furnished, the Trustee may defer any payment which it may be required to make for the benefit of such person pursuant to the terms of -76- 85 this Indenture pending judicial determination as to the rights of such person to receive such payment. The Trustee in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not Trustee. Any paying agent, any authenticating agent, any conversion agent, any Note registrar and their successors may do the same with like rights. Section 15.12 Authorization to Effect Subordination. Each holder of a Note by the holder's acceptance thereof authorizes and directs the Trustee on the holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article XV and appoints the Trustee to act as the holder's attorney-in-fact for any and all such purposes. Without limiting the foregoing, each Representative is hereby irrevocably authorized and empowered (in its own name or in the name of the Noteholders or the Trustee or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution referred to in Section 15.3 above and give acquittance therefor and to file claims and proofs of claim and take such other action as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the holders or owners of the Senior Indebtedness hereunder; provided that for purposes of this Section 15.12 holders or owners of Senior Indebtedness may act only through such Representative. Section 15.13 Conversions Not Deemed Payment. For the purposes of this Article XV only, the issuance and delivery of Common Stock upon conversion of the Notes in accordance with Article XIV shall not be deemed to constitute a payment or distribution on account of the principal of or interest on the Notes or on account of the purchase or other acquisition of Notes. Nothing contained in this Article or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the holders, the right, which is absolute and unconditional, of the holder of any Note to convert such Note in accordance with Article XIV. Section 15.14 Amendments. The provisions of this Article XV shall not be amended or modified without the written consent of the holders of Senior Indebtedness. ARTICLE XVI MISCELLANEOUS PROVISIONS Section 16.1 Pooling of Interests. The Company desires to preserve its ability to account for acquisition and other business combination transactions using the pooling-of-interests method where appropriate, and the provisions of this Indenture shall be interpreted accordingly. -77- 86 Section 16.2 Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this Indenture made by the Company shall bind its successors and assigns whether so expressed or not. Section 16.3 Official Acts by Successor Company. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board (including the Board of Directors), committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. Section 16.4 Addresses for Notices, Etc. Any notice or demand that by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Notes on the Company shall be deemed to have been sufficiently given or made, for all purposes if given or served by being sent by prepaid overnight delivery or being deposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee) to Adaptec, Inc., 691 S. Milpitas Blvd., Milpitas, California 95035, Attention: Chief Financial Officer with a copy to John A. Fore, Esq., Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304. Any notice, direction, request or demand hereunder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or served by being sent by prepaid overnight delivery or being deposited postage prepaid by registered or certified mail in a post office letter box addressed to the Corporate Trust Office of the Trustee, which office is, at the date as of which this Indenture is dated, located at Two International Place, 4th Floor, Boston, MA 02110 Attention: Corporate Trust Administration. The Trustee, by notice to the Company, may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Noteholder shall be mailed to him by first class mail, postage prepaid, at the address of such Noteholder as it appears on the Note register and shall be sufficiently given to such Noteholder if so mailed within the time prescribed. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. Section 16.5 Communications by Holders with Other Holders. Noteholders may communicate pursuant to Trust Indenture Act Section 312(b) with other Noteholders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Note registrar and any other person shall have the protection of Trust Indenture Act Section 312(c). Section 16.6 Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE -78- 87 STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Section 16.7 Evidence of Compliance with Conditions Precedent; Certificates to Trustee. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, including those actions set forth in Trust Indenture Act Section 314(c), the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with, and an Opinion of Counsel stating that, in the Opinion of such Counsel, all such conditions precedent have been complied with. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition, (2) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based, (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Section 16.8 Legal Holidays. In any case where any interest payment date, date fixed for redemption, stated maturity or Change of Control Purchase Date of any Note or the last date on which a Holder has the right to convert his Notes shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) payment of interest or principal (and premium, if any) or conversion of the Notes need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, date fixed for redemption, Change of Control Purchase Date, or at the stated maturity, or on such last day for conversion, provided that no interest shall accrue for the period from and after such interest payment date, date fixed for redemption, Change of Control Purchase Date or stated maturity, as the case may be. Section 16.9 No Security Interest Created. Nothing in this Indenture or in the Notes, expressed or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction where property of the Company or its subsidiaries is located. Section 16.10 Trust Indenture Act. This Indenture is hereby made subject to, and shall be governed by, the provisions of the Trust Indenture Act required to be part of and to govern indentures qualified under the Trust Indenture Act. -79- 88 Section 16.11 Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies, or conflicts with the duties imposed by operation of the Trust Indenture Act, the imposed duties, upon qualification of this Indenture under the Trust Indenture Act, shall control. Section 16.12 Benefits of Indenture. Nothing in this Indenture or in the Notes, expressed or implied, shall give to any person, other than the parties hereto, any paying agent, any authenticating agent, any conversion agent, any Note registrar and their successors hereunder and the holders of Notes, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 16.13 Table of Contents, Headings Etc. The table of contents and the titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 16.14 Authenticating Agent. The Trustee may appoint an authenticating agent that shall be authorized to act on its behalf and subject to its direction in the authentication and delivery of Notes in connection with the original issuance thereof and transfers and exchanges of Notes hereunder, including under Sections 2.4, 2.5, 2.6, 2.7 and 3.3, as fully to all intents and purposes as though the authenticating agent had been expressly authorized by this Indenture and those Sections to authenticate and deliver Notes. For all purposes of this Indenture, the authentication and delivery of Notes by the authenticating agent shall be deemed to be authentication and delivery of such Notes "by the Trustee" and a certificate of authentication executed on behalf of the Trustee by an authenticating agent shall be deemed to satisfy any requirement hereunder or in the Notes for the Trustee's certificate of authentication. Such authenticating agent shall at all times be a person eligible to serve as Trustee hereunder pursuant to Section 7.10. Any corporation into which any authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any authenticating agent shall be a party, or any corporation succeeding to the corporate trust business of any authenticating agent, shall be the successor of the authenticating agent hereunder, if such successor company is otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the parties hereto or the authenticating agent or such successor company. Any authenticating agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any authenticating agent by giving written notice of termination to such authenticating agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any authenticating agent shall cease to be eligible under this Section, the Trustee shall promptly appoint a successor authenticating agent (which may be the Trustee), shall give written -80- 89 notice of such appointment to the Company and shall mail notice of such appointment to all holders of Notes as the names and addresses of such holders appear on the Note register. The Company agrees to pay to the authenticating agent from time to time reasonable compensation for its services. The provisions of Sections 7.3, 7.4, 7.5, 8.3 and this Section 16.14 shall be applicable to any authenticating agent. Section 16.15 Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. State Street Bank and Trust Company hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. -81- 90 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly signed and attested, all as of the date first written above. ADAPTEC, INC. By: ___________________________________ Name: Title: Attest: _________________________________ STATE STREET BANK AND TRUST COMPANY, as Trustee By: ___________________________________ Name: Title: Attest: _________________________________ -82- 91 EXHIBIT A - FORM OF DEFINITIVE NOTE [FORM OF FACE OF NOTE] No. A-1 $____________ CUSIP________ ADAPTEC, INC. __% Convertible Subordinated Notes Due 2004 THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE LAST DATE ON WHICH ADAPTEC, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER A-1 92 THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Adaptec, Inc., a corporation duly organized and validly existing under the laws of the State of California (the "Company"), which term includes any Successor Company under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to ________________, or registered assigns, the principal sum of ___________________________ Dollars on February 1, 2004, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of the holder of this Note, at the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on February 1 and August 1 of each year, commencing August 1, 1997, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Note, from the February 1 or August 1, as the case may be, next preceding the date of this Note to which interest has been paid or A-2 93 duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Note, or unless no interest has been paid or duly provided for on the Notes, in which case from February __, 1997, until payment of said principal sum has been made or duly provided for; provided that if the Company shall default in the payment of interest due on such February 1 or August 1, then this Note shall bear interest from the next preceding February 1 or August 1 to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from February __, 1997. The interest so payable on any February 1 or August 1 will be paid to the person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the record date, which shall be the January 15 or July 15 (whether or not a Business Day) next preceding such February 1 or August 1, respectively; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest shall be paid by check mailed to the registered holder at the registered address of such person unless other arrangements are made in accordance with the provisions of the Indenture. Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal of and premium, if any, and interest on the Notes to the prior payment in full of all Senior Indebtedness as defined in the Indenture and provisions giving the holder of this Note the right to convert this Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State, without regard to conflicts of laws principles thereof. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee, or a duly authorized authenticating agent under the Indenture. A-3 94 IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under its corporate seal. ADAPTEC, INC. By: ___________________________________ Name: Title: Dated: Attest: __________________________________ Secretary [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-named indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee By: ___________________________________ Authorized Signatory A-4 95 [FORM OF REVERSE OF NOTE] ADAPTEC, INC. __% Convertible Subordinated Notes Due 2004 This Note is one of a duly authorized issue of Notes of the Company, designated as its __% Convertible Subordinated Notes Due 2004 (herein called the "Notes"), limited to the aggregate principal amount of $230,000,000 all issued or to be issued under and pursuant to an Indenture dated as of February __, 1997 (the "Indenture"), between the Company and State Street Bank and Trust Company, as trustee (the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a complete description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. Each Note is subject to, and qualified by, all such terms as set forth in the Indenture certain of which are summarized hereon and each holder of a Note is referred to the corresponding provisions of the Indenture for a complete statement of such terms. To the extent that there is any inconsistency between the summary provisions set forth in the Notes and the Indenture, the provisions of the Indenture shall govern. Capitalized terms used but not defined in this Note shall have the meanings ascribed to them in the Indenture. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The payment of principal of, premium, if any, and interest on the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture). The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Note, reduce the rate or extend the time of payment of interest thereon, reduce the principal amount thereof or premium, if any, thereon, reduce any amount payable on redemption thereof, change the obligation of the Company to repurchase the Notes at the option of the holders upon the happening of a Change of Control, impair or affect the right of any Noteholder to institute suit for the payment thereof, make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, modify the subordination provisions of the Indenture in a manner adverse to the holders of the Notes, or impair the right to convert the A-5 96 Notes into Common Stock subject to the terms set forth in the Indenture, without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. It is also provided in the Indenture that, prior to any declaration accelerating the maturity of the Notes, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest or any premium on or the principal of any of the Notes, a failure by the Company to convert any Notes into Common Stock of the Company or a default in respect of a covenant or provision of the Indenture that under Article X thereof cannot be modified or amended without the consent of the holders of all Notes then outstanding. Any such consent or waiver by the holder of this Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Note and any Notes that may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Note or such other Notes. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Notes shall be computed on the basis of a 360-day year composed of twelve 30-day months. The Notes are issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. The Notes are not redeemable at the option of the Company prior to February 3, 2000. At any time on or after that date, the Notes may be redeemed at the Company's option, upon notice as set forth in the Indenture, in whole at any time or in part from time to time, at the optional redemption prices set forth below (expressed in percentages of the principal amount), together with accrued interest to the date fixed for redemption. If redeemed during the 12-month period beginning February 1 (beginning February 3, 2000 and ending January 31, 2001, in the case of the first such period):
Year Percentage ---- ---------- 2000 ___._% 2001 ___._% 2002 ___._% 2003 ___._%
A-6 97 and 100% at February 1, 2004; provided that if the date fixed for redemption is February 1 or August 1, then the interest payable on such date shall be paid to the holder of record on the next preceding January 15 or July 15, respectively. If a Change of Control (as defined in the Indenture) shall occur at any time, then each holder of Notes shall have the right, at the holder's option, to require that the Company repurchase such holder's Notes in whole or in part in integral multiples of $1,000, at a purchase price in cash in an amount equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to the repurchase date pursuant to an offer to be made by the Company and in accordance with the procedures set forth in the Indenture. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after 90 days following the date of original issuance of this Note and through the close of business on February 1, 2004, or, as to all or any portion hereof called for redemption, immediately prior to the close of business on the last business day before the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal that is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Note or portion thereof to be converted by the conversion price of $_______ or such conversion price as adjusted from time to time as provided in the Indenture, upon surrender of this Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of such holder, the Corporate Trust Office of the Trustee, and, unless the shares issuable on conversion are to be issued in the same name as this Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided that if this Note shall be surrendered for conversion after the close of business on a record date for the payment of interest and before the opening of business on the next succeeding interest payment date, this Note (unless it or the portion being converted shall have been called for redemption on a date after the close of business on a record date and before the close of business on the business day following the corresponding interest payment date) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any record date to the close of business on the business day following the corresponding interest payment date will be payable on the corresponding interest payment date to the registered Holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date) and a Holder who elects to convert need not include funds equal to the interest paid. No fractional shares will be issued upon any conversion, but an adjustment in cash will be made, as provided in the Indenture, in respect of any fraction of a share that would otherwise be issuable upon the surrender of any Note or Notes for conversion. A-7 98 Upon due presentment for registration of transfer of this Note at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at the option of the holder of this Note, at the Corporate Trust Office of the Trustee, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the conditions and limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Note. No recourse for the payment of the principal of or any premium or interest on this Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or of any Successor Company, either directly or through the Company or any Successor Company, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. Terms used in this Note and defined in the Indenture are used herein as therein defined. A-8 99 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - TEN ENT - as tenants by the entireties __________________________ Custodian (Cust) JT TEN - as joint tenants with right of survivorship and not as tenants in __________________________ under common (Minor) Uniform Gifts to Minors Act___________________________ (State)
Additional abbreviations may also be used though not in the above list. A-9 100 [FORM OF CONVERSION NOTICE] CONVERSION NOTICE To: Adaptec, Inc. The undersigned registered owner of this Note hereby irrevocably exercises the option to convert this Note, or the portion hereof (which is $1,000 principal amount or an integral multiple thereof) below designated, into shares of Common Stock, par value $.001 per share, of the Company in accordance with the terms of the Indenture referred to in this Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Note. Dated:____________________________ ____________________________________ ____________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes are to be delivered, other than to and in the name of the registered holder. __________________________________ Signature Guarantee A-10 101 Fill in for registration of shares of Common Stock if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: __________________________________ (Name) __________________________________ (Street Address) __________________________________ (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all) $________________ ____________________________________ Social Security or other Taxpayer Identification Number A-11 102 [FORM OF OPTION TO ELECT REPAYMENT UPON A CHANGE OF CONTROL] To: Adaptec, Inc. The undersigned registered owner of this Note hereby irrevocably acknowledges receipt of a notice from Adaptec, Inc. (the "Company") as to the occurrence of a Change of Control with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Note, or the portion thereof (which is $1,000 principal amount or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Note, together with accrued interest to such date, to the registered holder hereof. Dated:____________________________ ____________________________________ ____________________________________ Signature(s) Principal amount to be repaid (if less than all): $_______________ ____________________________________ Social Security or Other Taxpayer Identification Number A-12 103 [FORM OF ASSIGNMENT] For value received _____________________________ hereby sell(s), assign(s) and transfer(s) unto _________________________ (Please insert social security or other identifying number of assignee) the within Note, and hereby irrevocably constitutes and appoints ________________________________ attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within Note (or any issuance of shares of Common Stock upon conversion of the within Note) occurring prior to the third anniversary of the date of original issuance of such Note, the undersigned confirms that such Note (or shares of Common Stock, as the case may be) are being transferred: [ ] To Adaptec, Inc. or a subsidiary thereof; or [ ] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or [ ] To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended. Unless one of the boxes above is checked, the Trustee will refuse to register any of the within Notes (or such shares of Common Stock, as the case may be) in the name of any person other than the registered holder thereof (or hereof); provided, however, that the Trustee may, in its sole discretion, register the transfer of such Notes (or such shares of Common Stock, as the case may be) if it has received such certifications, legal opinions and/or other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. A-13 104 In addition, if the transferee is an Institutional Accredited Investor or a purchaser who is not a U.S. person, the holder must furnish to the Trustee (i) in the case of an institutional accredited investor, a signed letter containing certain representations and agreements relating to the restrictions on transfer of the security evidenced hereby in substantially the form of Exhibit D to the Indenture and (ii) such other certifications, legal opinions or other information as it may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. Dated:_____________________________________ ___________________________________________ ___________________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15. ___________________________________________ Signature Guarantee NOTICE: The signature on the conversion notice, the option to elect payment upon a Change of Control or the assignment must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. A-14 105 EXHIBIT B - FORM OF RESTRICTED GLOBAL NOTE [FORM OF FACE OF NOTE] No. B-1 $________________ CUSIP ________________ ADAPTEC, INC. ___% Convertible Subordinated Notes Due 2004 UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS RESTRICTED GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITARY"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL B-1 106 ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE LAST DATE ON WHICH ADAPTEC, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" B-2 107 AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Adaptec, Inc., a corporation duly organized and validly existing under the laws of the State of California (the "Company"), which term includes any Successor Company under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to ______________________, or registered assigns, the principal sum of ________________________ Dollars (subject to adjustment as set forth in the next paragraph hereof) on February 1, 2004, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of the holder of this Restricted Global Note, at the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on February 1 and August 1 of each year, commencing August 1, 1997, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Restricted Global Note, from the February 1 or August 1, as the case may be, next preceding the date of this Restricted Global Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Restricted Global Note, or unless no interest has been paid or duly provided for on the Notes, in which case from February __, 1997, until payment of said principal sum has been made or duly provided for; provided that if the Company shall default in the payment of interest due on such February 1 or August 1, then this Restricted Global Note shall bear interest from the next preceding February 1 or August 1 to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from February __, 1997. The interest so payable on any February 1 or August 1 will be paid to the person in whose name this Restricted Global Note (or one or more Predecessor Notes) is registered at the close of business on the record date, which shall be the January 15 or July 15 (whether or not a Business Day) next preceding such February 1 or August 1, respectively; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest shall be paid by check mailed to the registered holder at the registered address of such person unless other arrangements are made in accordance with the provisions of the Indenture. The aggregate principal amount of this Restricted Global Note represented hereby may from time to time be reduced or increased to reflect exchanges of a part of this Restricted Global Note for interests in the Regulation S Global Note or definitive Notes or exchanges of interests in the Regulation S Global Note or definitive Notes for a part of this Restricted Global Note or conversions, redemptions or repurchases of a part of this Restricted Global Note or cancellations of a part of this Restricted Global Note or transfers of interests in the Regulation S Global Note or definitive Notes in return for a part of this Restricted Global Note or transfers of a part of this Restricted Global Note effected by delivery of interests in the Regulation S Global Note or definitive Notes, in each case, and in any such case, by means of notations on the Schedule of Exchanges, Conversions, Redemptions, Repurchases, Cancellations and Transfers on the last page hereof. Notwithstanding any provision of this Restricted Global Note to the contrary, (i) B-3 108 exchanges of a part of this Restricted Global Note for interests in the Regulation S Global Note or definitive Notes, (ii) exchanges of interests in the Regulation S Global Note or definitive Notes for a part of this Restricted Global Note, (iii) conversions, redemptions or repurchases of a part of this Restricted Global Note, (iv) cancellations of a part of this Restricted Global Note, (v) transfers of interests in the Regulation S Global Note or definitive Notes in return for a part of this Restricted Global Note and (vi) transfers of a part of this Restricted Global Note effected by delivery of interests in the Regulation S Global Note or definitive Notes may be effected without the surrendering of this Restricted Global Note, provided that appropriate notations on the Schedule of Exchanges, Conversions, Redemptions, Repurchases, Cancellations and Transfers are made by the Trustee, or the Custodian at the direction of the Trustee, to reflect the appropriate reduction or increase, as the case may be, in the aggregate principal amount of this Restricted Global Note resulting therefrom or as a consequence thereof. Reference is made to the further provisions of this Restricted Global Note set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal of and premium, if any, and interest on this Restricted Global Note to the prior payment in full of all Senior Indebtedness as defined in the Indenture and provisions giving the holder of this Restricted Global Note the right to convert this Restricted Global Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Restricted Global Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State, without regard to conflicts of laws principles thereof. This Restricted Global Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. B-4 109 IN WITNESS WHEREOF, the Company has caused this Restricted Global Note to be duly executed under its corporate seal. ADAPTEC, INC. By: ___________________________________ Name: Title: Dated: Attest: ___________________________ Secretary [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-named indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee By: ___________________________________ Authorized Signatory B-5 110 [FORM OF REVERSE OF RESTRICTED GLOBAL NOTE] ADAPTEC, INC. __% Convertible Subordinated Notes Due 2004 This Restricted Global Note is one of a duly authorized issue of Notes of the Company, designated as its __% Convertible Subordinated Notes Due 2004 (herein called the "Notes"), limited to the aggregate principal amount of $230,000,000 all issued or to be issued under and pursuant to an Indenture dated as of February __, 1997 (the "Indenture"), between the Company and State Street Bank and Trust Company, as trustee (the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a complete description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. Each Note is subject to, and qualified by, all such terms as set forth in the Indenture certain of which are summarized hereon and each holder of a Note is referred to the corresponding provisions of the Indenture for a complete statement of such terms. To the extent that there is any inconsistency between the summary provisions set forth in the Notes and the Indenture, the provisions of the Indenture shall govern. Capitalized terms used but not defined in this Note shall have the meanings ascribed to them in the Indenture. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The payment of principal of, premium, if any, and interest on the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture). The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Note, reduce the rate or extend the time of payment of interest thereon, reduce the principal amount thereof or premium, if any, thereon, reduce any amount payable on redemption thereof, change the obligation of the Company to repurchase the Notes at the option of the holders upon the happening of a Change of Control, impair or affect the right of any Noteholder to institute suit for the payment thereof, make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, modify the subordination provisions of the Indenture in a manner adverse to the holders of the Notes, or impair the right to convert the B-6 111 Notes into Common Stock subject to the terms set forth in the Indenture, without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. It is also provided in the Indenture that, prior to any declaration accelerating the maturity of the Notes, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest or any premium on or the principal of any of the Notes, a failure by the Company to convert any Notes into Common Stock of the Company or a default in respect of a covenant or provision of the Indenture that under Article X thereof cannot be modified or amended without the consent of the holders of all Notes then outstanding. Any such consent or waiver by the holder of this Restricted Global Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Restricted Global Note and any Notes that may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Restricted Global Note or such other Notes. No reference herein to the Indenture and no provision of this Restricted Global Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Restricted Global Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Notes shall be computed on the basis of a 360-day year composed of twelve 30-day months. The Notes are issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. The Notes are not redeemable at the option of the Company prior to February 3, 2000. At any time on or after that date, the Notes may be redeemed at the Company's option, upon notice as set forth in the Indenture, in whole at any time or in part from time to time, at the optional redemption prices set forth below (expressed in percentages of the principal amount), together with accrued interest to the date fixed for redemption. If redeemed during the 12-month period beginning February 1 (beginning February 3, 2000 and ending January 31, 2001, in the case of the first such period):
Year Percentage ---- ---------- 2000 ___._% 2001 ___._% 2002 ___._% 2003 ___._%
B-7 112 and 100% at February 1, 2004; provided that if the date fixed for redemption is February 1 or August 1, then the interest payable on such date shall be paid to the holder of record on the next preceding January 15 or July 15, respectively. If a Change of Control (as defined in the Indenture) shall occur at any time, then each holder of Notes shall have the right, at the holder's option, to require that the Company repurchase such holder's Notes in whole or in part in integral multiples of $1,000, at a purchase price in cash in an amount equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to the repurchase date pursuant to an offer to be made by the Company and in accordance with the procedures set forth in the Indenture. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after 90 days following the date of original issuance of this Note and through the close of business on February 1, 2004, or, as to all or any portion hereof called for redemption, immediately prior to the close of business on the last business day before the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal that is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Restricted Global Note or portion thereof to be converted by the conversion price of $_______ or such conversion price as adjusted from time to time as provided in the Indenture, upon surrender of this Restricted Global Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of such holder, the Corporate Trust Office of the Trustee, and, unless the shares issuable on conversion are to be issued in the same name as this Restricted Global Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided that if this Restricted Global Note shall be surrendered for conversion after the close of business on a record date for the payment of interest and before the opening of business on the next succeeding interest payment date, this Restricted Global Note (unless it or the portion being converted shall have been called for redemption on a date after the close of business on a record date and before the close of business on the business day following the corresponding interest payment date) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any record date to the close of business on the business day following the corresponding interest payment date will be payable on the corresponding interest payment date to the registered Holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date) and a Holder who elects to convert need not include funds equal to the interest paid. No fractional shares will be issued upon any conversion, but an adjustment in cash will be B-8 113 made, as provided in the Indenture, in respect of any fraction of a share that would otherwise be issuable upon the surrender of any Note or Notes for conversion. Upon due presentment for registration of transfer of this Restricted Global Note at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at the option of the holder of this Restricted Global Note, at the Corporate Trust Office of the Trustee, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the conditions and limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Restricted Global Note (whether or not this Restricted Global Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Restricted Global Note. No recourse for the payment of the principal of or any premium or interest on this Restricted Global Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or of any Successor Company, either directly or through the Company or any Successor Company, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. B-9 114 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Restricted Global Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - TEN ENT - as tenants by the entireties ________________ Custodian JT TEN - as joint tenants with right of (Cust) survivorship and not as tenants in ________________ under common (Minor) Uniform Gifts to Minors Act ___________________ (State)
Additional abbreviations may also be used though not in the above list. B-10 115 [FORM OF CONVERSION NOTICE] CONVERSION NOTICE To: Adaptec, Inc. The undersigned registered owner of this Restricted Global Note hereby irrevocably exercises the option to convert this Restricted Global Note, or the portion hereof (which is $1,000 principal amount or an integral multiple thereof) below designated, into shares of Common Stock, par value $.001 per share, of the Company in accordance with the terms of the Indenture referred to in this Restricted Global Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Restricted Global Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Restricted Global Note. Dated:____________________________ ____________________________________ ____________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes are to be delivered, other than to and in the name of the registered holder. __________________________________ Signature Guarantee B-11 116 Fill in for registration of shares of Common Stock if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: _______________________________________ (Name) _______________________________________ (Street Address) _______________________________________ (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all) $_______________ ___________________________________ Social Security or Other Taxpayer Identification Number B-12 117 [FORM OF OPTION TO ELECT REPAYMENT UPON A CHANGE OF CONTROL] To: Adaptec, Inc. The undersigned registered owner of this Restricted Global Note hereby irrevocably acknowledges receipt of a notice from Adaptec, Inc. (the "Company") as to the occurrence of a Change of Control with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Restricted Global Note, or the portion thereof (which is $1,000 principal amount or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Restricted Global Note, together with accrued interest to such date, to the registered holder hereof. Dated:____________________________ ____________________________________ ____________________________________ Signature(s) Principal amount to be repaid (if less than all): $_______________ ____________________________________ Social Security or Other Taxpayer Identification Number B-13 118 [FORM OF ASSIGNMENT] For value received _____________________________ hereby sell(s), assign(s) and transfer(s) unto _____________ (please insert social security or other identifying number of assignee) the within Note, and hereby irrevocably constitutes and appoints ____________________________ attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within Note (or any issuance of shares of Common Stock upon conversion of the within Note) occurring prior to the third anniversary of the date of original issuance of such Note, the undersigned confirms that such Note (or shares of Common Stock, as the case may be) are being transferred: [ ] To Adaptec, Inc. or a subsidiary thereof; or [ ] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or [ ] To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended. Unless one of the boxes above is checked, the Trustee will refuse to register any of the within Notes (or such shares of Common Stock, as the case may be) in the name of any person other than the registered holder thereof (or hereof); provided, however, that the Trustee may, in its sole discretion, register the transfer of such Notes (or such shares of Common Stock, as the case may be) if it has received such certifications, legal opinions and/or other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. In addition, if the transferee is an Institutional Accredited Investor or a purchaser who is not a U.S. person, the holder must furnish to the Trustee (i) in the case of an institutional accredited investor, a signed letter containing certain representations and agreements relating to the restrictions on transfer of the security evidenced hereby in substantially the form of Exhibit D to the Indenture, and (ii) such other certifications, legal opinions or other information as it may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or B-14 119 in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. Dated:_________________________________ _______________________________________ _______________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15. ___________________________________________________ Signature Guarantee NOTICE: The signature on the Conversion Notice, the Option to Elect Repayment Upon a Change of Control or the Assignment must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. B-15 120 SCHEDULE OF EXCHANGES, CONVERSIONS, REDEMPTIONS, REPURCHASES CANCELLATIONS AND TRANSFERS The initial principal amount of this Restricted Global Note is U.S. $_____________. The following additions to principal, redemptions, repurchases, exchanges of a part of this Restricted Global Note for an interest in the Regulation S Global Note or definitive Notes and conversions into Common Stock have been made: =================================================================================================== Principal Amount Redeemed, Repurchased, Principal Amount Added Exchanged for Interest on in the Regulation S Date of Addition to Exchange of Interest Global Note or Remaining Principal Principal, Redemption, in the Regulation S Definitive Notes or Amount Outstanding Notation Made by or Repurchase, Exchange Global Note or Converted into Common Following such on behalf of the or Conversion Definitive Notes Stock Transaction Trustee - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- ===================================================================================================
B-16 121 EXHIBIT C - FORM OF REGULATION S GLOBAL NOTE [FORM OF FACE OF NOTE] No. C-1 $_____________ CUSIP ________ ADAPTEC, INC. __% Convertible Subordinated Notes Due 2004 UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS REGULATION S GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS REGULATION S GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITARY"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) C-1 122 (1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE LAST DATE ON WHICH ADAPTEC, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" C-2 123 AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Adaptec, Inc., a corporation duly organized and validly existing under the laws of the State of California (the "Company"), which term includes any Successor Company under the Indenture referred to on the reverse hereof, for value received hereby promises to pay to _________________, or registered assigns, the principal sum of _________________ ___________ Dollars (subject to adjustment as set forth in the next paragraph hereof) on February 1, 2004, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of the holder of this Regulation S Global Note, at the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest, semi-annually on February 1 and August 1 of each year, commencing August 1, 1997, on said principal sum at said office or agency, in like coin or currency, at the rate per annum specified in the title of this Regulation S Global Note, from the February 1 or August 1, as the case may be, next preceding the date of this Regulation S Global Note to which interest has been paid or duly provided for, unless the date hereof is a date to which interest has been paid or duly provided for, in which case from the date of this Regulation S Global Note, or unless no interest has been paid or duly provided for on the Notes, in which case from February __, 1997, until payment of said principal sum has been made or duly provided for; provided that if the Company shall default in the payment of interest due on such February 1 or August 1, then this Regulation S Global Note shall bear interest from the next preceding February 1 or August 1 to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for on such Note, from February __, 1997. The interest so payable on any February 1 or August 1 will be paid to the person in whose name this Regulation S Global Note (or one or more Predecessor Notes) is registered at the close of business on the record date, which shall be the January 15 or July 15 (whether or not a Business Day) next preceding such February 1 or August 1, respectively; provided that any such interest not punctually paid or duly provided for shall be payable as provided in the Indenture. Interest shall be paid by check mailed to the registered holder at the registered address of such person unless other arrangements are made in accordance with the provisions of the Indenture. The aggregate principal amount of this Regulation S Global Note represented hereby may from time to time be reduced or increased to reflect exchanges of a part of this Regulation S Global Note for interests in the Restricted Global Note or definitive Notes or exchanges of interests in the Restricted Global Note or definitive Notes for a part of this Regulation S Global Note or conversions, redemptions or repurchases of a part of this Regulation S Global Note or cancellations of a part of this Regulation S Global Note or transfers of interests in the Restricted Global Note or definitive Notes in return for a part of this Regulation S Global Note or transfers of a part of this Regulation S Global Note effected by delivery of interests in the Restricted Global Note or definitive Notes, in each case, and in any such case, by means of notations on the Schedule of Exchanges, Conversions, Redemptions, Repurchases, Cancellations and Transfers on the last page hereof. Notwithstanding any provision of this Regulation S Global Note to the C-3 124 contrary, (i) exchanges of a part of this Regulation S Global Note for interests in the Restricted Global Note or definitive Notes, (ii) exchanges of interests in the Restricted Global Note or definitive Notes for a part of this Regulation S Global Note, (iii) conversions, redemptions or repurchases of a part of this Regulation S Global Note, (iv) cancellations of a part of this Regulation S Global Note, (v) transfers of interests in the Restricted Global Note or definitive Notes in return for a part of this Regulation S Global Note and (vi) transfers of a part of this Regulation S Global Note effected by delivery of interests in the Restricted Global Note or definitive Notes may be effected without the surrendering of this Regulation S Global Note, provided that appropriate notations on the Schedule of Exchanges, Conversions, Redemptions, Repurchases, Cancellations and Transfers are made by the Trustee, or the Custodian at the direction of the Trustee, to reflect the appropriate reduction or increase, as the case may be, in the aggregate principal amount of this Regulation S Global Note resulting therefrom or as a consequence thereof. Reference is made to the further provisions of this Regulation S Global Note set forth on the reverse hereof, including, without limitation, provisions subordinating the payment of principal of and premium, if any, and interest on this Regulation S Global Note to the prior payment in full of all Senior Indebtedness as defined in the Indenture and provisions giving the holder of this Regulation S Global Note the right to convert this Regulation S Global Note into Common Stock of the Company on the terms and subject to the limitations referred to on the reverse hereof and as more fully specified in the Indenture. Such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Regulation S Global Note shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with and governed by the laws of said State, without regard to conflicts of laws principles thereof. This Regulation S Global Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been manually signed by the Trustee or a duly authorized authenticating agent under the Indenture. C-4 125 IN WITNESS WHEREOF, the Company has caused this Regulation S Global Note to be duly executed under its corporate seal. ADAPTEC, INC. By: ___________________________________ Name: Title: Dated: Attest: __________________________________ Secretary [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Notes described in the within-named indenture. STATE STREET BANK AND TRUST COMPANY, as Trustee By: ___________________________________ Authorized Signatory As Authenticating Agent (if different from Trustee) C-5 126 [FORM OF REVERSE OF REGULATION S GLOBAL NOTE] ADAPTEC, INC. __% Convertible Subordinated Notes Due 2004 This Regulation S Global Note is one of a duly authorized issue of Notes of the Company, designated as its __% Convertible Subordinated Notes Due 2004 (herein called the "Notes"), limited to the aggregate principal amount of $230,000,000 all issued or to be issued under and pursuant to an Indenture dated as of February __, 1997 (the "Indenture"), between the Company and State Street Bank and Trust Company, the trustee (the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a complete description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Notes. Each Note is subject to, and qualified by, all such terms as set forth in the Indenture certain of which are summarized hereon and each holder of a Note is referred to the corresponding provisions of the Indenture for a complete statement of such terms. To the extent that there is any inconsistency between the summary provisions set forth in the Notes and the Indenture, the provisions of the Indenture shall govern. Capitalized terms used but not defined in this Note shall have the meanings ascribed to them in the Indenture. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, premium, if any, and accrued interest on all Notes may be declared, and upon said declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The payment of principal of, premium, if any, and interest on the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness (as defined in the Indenture). The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or modifying in any manner the rights of the holders of the Notes; provided that no such supplemental indenture shall (i) extend the fixed maturity of any Note, reduce the rate or extend the time of payment of interest thereon, reduce the principal amount thereof or premium, if any, thereon, reduce any amount payable on redemption thereof, change the obligation of the Company to repurchase the Notes at the option of the holders upon the happening of a Change of Control, impair or affect the right of any Noteholder to institute suit for the payment thereof, make the principal thereof or interest or premium, if any, thereon payable in any coin or currency other than that provided in the Notes, modify the subordination provisions of the Indenture in a manner adverse to the holders of the Notes, or impair the right to convert the C-6 127 Notes into Common Stock subject to the terms set forth in the Indenture, without the consent of the holder of each Note so affected or (ii) reduce the aforesaid percentage of Notes, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Notes then outstanding. It is also provided in the Indenture that, prior to any declaration accelerating the maturity of the Notes, the holders of a majority in aggregate principal amount of the Notes at the time outstanding may on behalf of the holders of all of the Notes waive any past default or Event of Default under the Indenture and its consequences except a default in the payment of interest or any premium on or the principal of any of the Notes, a failure by the Company to convert any Notes into Common Stock of the Company or a default in respect of a covenant or provision of the Indenture that under Article X thereof cannot be modified or amended without the consent of the holders of all Notes then outstanding. Any such consent or waiver by the holder of this Regulation S Global Note (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Regulation S Global Note and any Notes that may be issued in exchange or substitution hereof, irrespective of whether or not any notation thereof is made upon this Regulation S Global Note or such other Notes. No reference herein to the Indenture and no provision of this Regulation S Global Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Note at the place, at the respective times, at the rate and in the coin or currency herein prescribed. Interest on the Notes shall be computed on the basis of a 360-day year composed of twelve 30-day months. The Notes are issuable in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. The Notes are not redeemable at the option of the Company prior to February 3, 2000. At any time on or after that date, the Notes may be redeemed at the Company's option, upon notice as set forth in the Indenture, in whole at any time or in part from time to time, at the optional redemption prices set forth below (expressed in percentages of the principal amount), together with accrued interest to the date fixed for redemption. If redeemed during the 12-month period beginning February 1 (beginning February 3, 2000 and ending January 31, 2001, in the case of the first such period):
Year Percentage ---- ---------- 2000 ___._% 2001 ___._% 2002 ___._% 2003 ___._%
C-7 128 and 100% at February 1, 2004; provided that if the date fixed for redemption is February 1 or August 1, then the interest payable on such date shall be paid to the holder of record on the next preceding January 15 or July 15, respectively. If a Change of Control (as defined in the Indenture) shall occur at any time, then each holder of Notes shall have the right, at the holder's option, to require that the Company repurchase such holder's Notes in whole or in part in integral multiples of $1,000, at a purchase price in cash in an amount equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to the repurchase date pursuant to an offer to be made by the Company and in accordance with the procedures set forth in the Indenture. Subject to the provisions of the Indenture, the holder hereof has the right, at its option, at any time after 90 days following the date of original issuance of this Note and through the close of business on February 1, 2004, or, as to all or any portion hereof called for redemption, immediately prior to the close of business on the last business day before the date fixed for redemption (unless the Company shall default in payment due upon redemption thereof), to convert the principal hereof or any portion of such principal that is $1,000 or an integral multiple thereof, into that number of fully paid and non-assessable shares of Company's Common Stock, as said shares shall be constituted at the date of conversion, obtained by dividing the principal amount of this Regulation S Global Note or portion thereof to be converted by the conversion price of $_______ or such conversion price as adjusted from time to time as provided in the Indenture, upon surrender of this Regulation S Global Note, together with a conversion notice as provided in the Indenture, to the Company at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, or, at the option of such holder, the Corporate Trust Office of the Trustee, and, unless the shares issuable on conversion are to be issued in the same name as this Regulation S Global Note, duly endorsed by, or accompanied by instruments of transfer in form satisfactory to the Company duly executed by, the holder or by his duly authorized attorney. No adjustment in respect of interest or dividends will be made upon any conversion; provided that if this Regulation S Global Note shall be surrendered for conversion after the close of business on a record date for the payment of interest and before the opening of business on the next succeeding interest payment date, this Regulation S Note (unless it or the portion being converted shall have been called for redemption on a date after the close of business on a record date and before the close of business on the business day following the corresponding interest payment date) must be accompanied by an amount, in funds acceptable to the Company, equal to the interest payable on such interest payment date on the principal amount being converted. The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any record date to the close of business on the business day following the corresponding interest payment date will be payable on the corresponding interest payment date to the registered Holder at the close of business on that record date (notwithstanding the conversion of such Note before the corresponding interest payment date) and a Holder who elects to convert need not include funds equal to the interest paid. No fractional shares will be issued upon any conversion, but an adjustment in cash will be C-8 129 made, as provided in the Indenture, in respect of any fraction of a share that would otherwise be issuable upon the surrender of any Note or Notes for conversion. Upon due presentment for registration of transfer of this Regulation S Global Note at the office or agency of the Company in the Borough of Manhattan, The City of New York, or at the option of the holder of this Regulation S Global Note, at the Corporate Trust Office of the Trustee, a new Note or Notes of authorized denominations for an equal aggregate principal amount will be issued to the transferee in exchange thereof, subject to the conditions and limitations provided in the Indenture, without charge except for any tax or other governmental charge imposed in connection therewith. The Company, the Trustee, any authenticating agent, any paying agent, any conversion agent and any Note registrar may deem and treat the registered holder hereof as the absolute owner of this Regulation S Global Note (whether or not this Regulation S Global Note shall be overdue and notwithstanding any notation of ownership or other writing hereon made by anyone other than the Company or any Note registrar), for the purpose of receiving payment hereof, or on account hereof, for the conversion hereof and for all other purposes, and neither the Company nor the Trustee nor any other authenticating agent nor any paying agent nor any other conversion agent nor any Note registrar shall be affected by any notice to the contrary. All payments made to or upon the order of such registered holder shall, to the extent of the sum or sums paid, satisfy and discharge liability for monies payable on this Regulation S Global Note. No recourse for the payment of the principal of or any premium or interest on this Regulation S Global Note, or for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the Indenture or any indenture supplemental thereto or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or of any Successor Company, either directly or through the Company or any Successor Company, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. C-9 130 ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Regulation S Global Note, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - TEN ENT - as tenants by the entireties __________________ Custodian JT TEN - as joint tenants with right of (Cust) survivorship and not as tenants in __________________ under common (Minor) Uniform Gifts to Minors Act ___________________ (State)
Additional abbreviations may also be used though not in the above list. C-10 131 [FORM OF CONVERSION NOTICE] CONVERSION NOTICE To: Adaptec, Inc. The undersigned registered owner of this Regulation S Global Note hereby irrevocably exercises the option to convert this Regulation S Global Note, or the portion hereof (which is $1,000 principal amount or an integral multiple thereof) below designated, into shares of Common Stock, par value $.001 per share, of the Company in accordance with the terms of the Indenture referred to in this Regulation S Global Note, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Notes representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Regulation S Global Note not converted are to be issued in the name of a person other than the undersigned, the undersigned will check the appropriate box below and pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest accompanies this Regulation S Global Note. Dated: __________________________ ____________________________________ ____________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Notes are to be delivered, other than to and in the name of the registered holder. __________________________________ Signature Guarantee C-11 132 Fill in for registration of shares of Common Stock if to be issued, and Notes if to be delivered, other than to and in the name of the registered holder: _______________________________________ (Name) _______________________________________ (Street Address) _______________________________________ (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all) $____________ __________________________________ Social Security or Other Taxpayer Identification Number C-12 133 [FORM OF OPTION TO ELECT REPAYMENT UPON A CHANGE OF CONTROL] To: Adaptec, Inc. The undersigned registered owner of this Regulation S Global Note hereby irrevocably acknowledges receipt of a notice from Adaptec, Inc. (the "Company") as to the occurrence of a Change of Control with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Regulation S Global Note, or the portion thereof (which is $1,000 principal amount or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Regulation S Global Note, together with accrued interest to such date, to the registered holder hereof. Dated:_______________ _______________________________________ _______________________________________ Signature(s) Principal amount to be repaid (if less than all): $__________________ _______________________________________ Social Security or Other Taxpayer Identification Number C-13 134 [FORM OF ASSIGNMENT] For value received _____________________________ hereby sell(s), assign(s) and transfer(s) unto ___________________ (please insert social security or other identifying number of assignee) the within Note, and hereby irrevocably constitutes and appoints ______________________ _______ attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within Note (or any issuance of shares of Common Stock upon conversion of the within Note) occurring prior to the third anniversary of the date of original issuance of such Note, the undersigned confirms that such Note (or shares of Common Stock, as the case may be) are being transferred: [ ] To Adaptec, Inc. or a subsidiary thereof; or [ ] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or [ ] To an Institutional Accredited Investor pursuant to and in compliance with the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended. Unless one of the boxes above is checked, the Trustee will refuse to register any of the within Notes (or such shares of Common Stock, as the case may be) in the name of any person other than the registered holder thereof (or hereof); provided, however, that the Trustee may, in its sole discretion, register the transfer of such Notes (or such shares of Common Stock, as the case may be) if it has received such certifications, legal opinions and/or other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. C-14 135 In addition, if the transferee is an Institutional Accredited Investor or a purchaser who is not a U.S. person, the holder must furnish to the Trustee (i) in the case of an institutional accredited investor, a signed letter containing certain representations and agreements relating to the restrictions on transfer of the security evidenced hereby in substantially the form of Exhibit D to the Indenture, and (ii) such other certifications, legal opinions or other information as it may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. Dated: ___________________________ __________________________________ __________________________________ Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15. __________________________________ Signature Guarantee NOTICE: The signature on the Conversion Notice, the Option to Elect Payment Upon a Change of Control or the Assignment must correspond with the name as written upon the face of the Note in every particular without alteration or enlargement or any change whatever. C-15 136 SCHEDULE OF EXCHANGES, CONVERSIONS, REDEMPTIONS, REPURCHASES, CANCELLATIONS AND TRANSFERS The initial principal amount of this Regulation S Global Note is U.S. $_____________. The following additions to principal, redemptions, repurchases, exchanges of a part of this Regulation S Global Note for an interest in the Restricted Global Note, definitive Notes and conversions into Common Stock have been made: =================================================================================================== Principal Amount Redeemed, Repurchased, Principal Amount Added Exchanged for Interest on in the Restricted Date of Addition to Exchange of Interest Global Note or Remaining Principal Principal, Redemption, in the Restricted Definitive Notes or Amount Outstanding Notation Made by or Repurchase, Exchange Global Note or Converted into Common Following such on behalf of the or Conversion Definitive Notes Stock Transaction Trustee - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- ===================================================================================================
C-16 137 EXHIBIT D - FORM OF TRANSFEREE CERTIFICATE FOR NOTES TO BE ISSUED TO INSTITUTIONAL ACCREDITED INVESTORS State Street Bank and Trust Company, as Trustee [Address] Attention: Corporate Trust Administration Re: Adaptec, Inc. __% Convertible Subordinated Notes Due 2004 (the "Notes") Reference is hereby made to the Indenture dated as of February __, 1997 (as supplemented from time to time, the "Indenture") between Adaptec, Inc. and State Street Bank and Trust Company, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. The undersigned is delivering this letter in connection with the transfer of Notes to the undersigned, which Notes are to be held by the undersigned in definitive registered form. The undersigned hereby confirms that: (i) the undersigned is an "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the "Securities Act"), or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act (an "Institutional Accredited Investor"); (ii) (A) any purchase of Notes by the undersigned will be for the undersigned's own account or for the account of one or more other Institutional Accredited Investors or as fiduciary for the account of one or more trusts, each of which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act and for each of which we exercise sole investment discretion or (B) we are a "bank," within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and loan association" or other institution described in Section 3(a)(5)(A) of the Securities Act that is acquiring Notes as fiduciary for the account of one or more institutions for which we exercise sole investment discretion; (iii) the undersigned is acquiring Notes having a minimum principal amount off not less than $250,000 for the undersigned's own account or for any separate account for which the undersigned is acting; (iv) the undersigned has such knowledge and experience in financial and business matters that the undersigned is capable of evaluating the merits and risks of purchasing Notes; D-1 138 (v) the undersigned is not acquiring Notes with a view to distribution thereof or with any present intention of offering or selling Notes or the Common Stock issuable upon conversion thereof, except as permitted below; provided that the disposition of the undersigned's property and property of any accounts for which the undersigned is acting as fiduciary shall remain at all times within the undersigned's control; and (vi) the undersigned acknowledges that it has had access to such financial and other information as the undersigned deems necessary in connection with the undersigned's decision to purchase Notes. The undersigned understands that the Notes have been issued in a transaction not involving any public offering within the United States within the meaning of the Securities Act and that the Notes and the shares of Common Stock issuable upon conversion thereof (collectively, the "Securities") have not been registered under the Securities Act or any applicable state securities laws, and the undersigned agrees, on the undersigned's own behalf and on behalf of each account for which the undersigned acquires any Securities, that if in the future the undersigned decides to resell or otherwise transfer such Securities, such Securities may be resold or otherwise transferred only (a) to the Company or any subsidiary thereof, (b) to a person who is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, (c) to an Institutional Accredited Investor that, prior to such transfer, furnishes to the trustee (or transfer agent, as the case may be) for such Securities a signed letter containing certain representations and agreements relating to the restrictions on transfer of such Securities (the form of which letter can be obtained from such trustee, or transfer agent, as the case may be), (d) outside the United States in a transaction meeting the requirements of Regulation S under the Securities Act, (e) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if applicable) or (f) pursuant to a registration statement which has been declared effective under the Securities Act. The undersigned agrees that any such transfer of Securities referred to in this paragraph shall be in accordance with applicable securities laws of any State of the United States or any other applicable jurisdiction and in accordance with the legends set forth on the Securities. The undersigned further agrees to provide any person purchasing any of the Securities from the undersigned a notice advising such purchaser that resales of such Securities are restricted as stated herein. The undersigned understands that the registrar and transfer agent for the Securities will not be required to accept for registration or transfer any Securities, except upon presentation of evidence satisfactory to the Company that the foregoing restrictions on transfer have been complied with. The undersigned further understands that any Securities will be in the form of definitive physical certificates and that such certificates will bear a legend (unless the sale of the Securities has been registered under the Securities Act) reflecting the substance of this paragraph. D-2 139 The undersigned acknowledges that the Transferor, others and you will rely upon the undersigned's confirmation, acknowledgments and agreements set forth herein, and the undersigned agrees to notify you promptly in writing if any of the undersigned's representations or warranties herein ceases to be accurate and complete. Dated: __________, ____ _____________________________________ (Signature of Transferor) By:__________________________________ Title: Address: D-3 140 EXHIBIT E - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM DEFINITIVE REGISTERED FORM TO RESTRICTED GLOBAL NOTE State Street Bank and Trust Company as Trustee [Address] Attention: Corporate Trust Administration Re: Adaptec, Inc. __% Convertible Subordinated Notes Due 2004 (the "Notes") Reference is hereby made to the Indenture dated as of February __, 1997 (as supplemented from time to time, the "Indenture") between Adaptec, Inc. and State Street Bank and Trust Company, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This letter relates to U.S.$__________ (being U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes held of record in definitive registered form through Note No. _______ (the "Definitive Note") in the name of _______________ (the "Transferor"). The Transferor hereby requests that on [INSERT DATE] such beneficial interest represented by the Definitive Note be transferred or exchanged for an interest in the Restricted Global Note (CUSIP No. _________) in the same principal denomination and transferred to ______________ (Depositary account no. ________). If this is a partial transfer, a minimum of U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof of the Definitive Note will remain outstanding. In connection with such request, and in respect of such Notes, the Transferor does hereby certify that such Notes are being transferred in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), to a transferee that the Transferor reasonably believes is purchasing the Notes for its own account or an account with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any State of the United States or any other jurisdiction. The Transferor does hereby certify that it has notified the transferee that it has relied on Rule 144A under the Securities Act on a basis for the exemption from the registration requirements of the Securities Act used in connection with such transfer. E-1 141 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. Dated: _________________, ______ [Name of Transferor] By: ___________________________________ Title: Telephone No.: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the transfer agent, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the transfer agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. _________________________________ Signature Guarantee Please print name and address (including zip code number) _________________________________ _________________________________ _________________________________ cc: Adaptec, Inc. E-2 142 EXHIBIT F - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM DEFINITIVE REGISTERED FORM TO REGULATION S GLOBAL NOTE State Street Bank and Trust Company, as Trustee [Address] Attention: Corporate Trust Administration Re: Adaptec, Inc. __% Convertible Subordinated Notes Due 2004 (the "Notes") Reference is hereby made to the Indenture dated as of February __, 1997 (as supplemented from time to time, the "Indenture") between Adaptec, Inc. and State Street Bank and Trust Company, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This letter relates to U.S.$_________ (being U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes held of record in definitive registered form through Note No. _________ (the "Definitive Note") in the name of ________(the "Transferor"). The Transferor hereby requests that on [INSERT DATE] such beneficial interest represented by the Definitive Note be transferred or exchanged for an interest in the Regulation S Global Note (CINS) No. _________) in the same principal denomination and transferred to __________ (account no. ________). If this is a partial transfer, a minimum amount of U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof of the Definitive Note will remain outstanding. In connection with such request and in respect of such Notes, the Transferor does hereby certify that such transfer has been effected in accordance with the transfer restrictions set forth in the Indenture and the Notes and pursuant to and in accordance with Rule 903 or 904 of Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and accordingly, the Transferor further certifies that: (A) (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on our behalf knows that the transaction was prearranged with a buyer in the United States; F-1 143 (3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. OR (B) Such transfer is being made in accordance with Rule 144A under the Securities Act to a transferee that the Transferor reasonably believes is purchasing the Notes for its own account or an account with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. The Transferor does hereby certify that it has notified the transferee that it has relied on Rule 144A under the Securities Act as a basis for the exemption from the registration requirements of the Securities Act used in connection with such transfer. F-2 144 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. Terms used in this certificate and not otherwise defined in the Indenture have the meaning set forth in Regulation S under the Securities Act. Dated: _________________, ______ [Name of Transferor] By: ___________________________________ Title: Telephone No.: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the transfer agent, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the transfer agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. _________________________________ Signature Guarantee Please print name and address (including zip code number) _________________________________ _________________________________ _________________________________ cc: Adaptec, Inc. F-3 145 EXHIBIT G - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM RESTRICTED GLOBAL NOTE TO REGULATION S GLOBAL NOTE (TRANSFERS PURSUANT TO Section 2.5(c) OF THE INDENTURE) State Street Bank and Trust Company, as Trustee [Address] Attention: Corporate Trust Administration Re: Adaptec, Inc. __% Convertible Subordinated Notes Due 2004 (the "Notes") Reference is hereby made to the Indenture dated as of February __, 1997 (as supplemented from time to time, the "Indenture") between Adaptec, Inc. and State Street Bank and Trust Company, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This letter relates to U.S.$_________ (being U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes beneficially held through interests in the Restricted Global Note (CUSIP No. _________) in the name of ________ (the "Transferor") (Depositary account no. _________). The Transferor hereby requests that on [INSERT DATE] such beneficial interest in the Restricted Global Note be transferred or exchanged for an interest in the Regulation S Global Note (CINS No. _________) in the same principal denomination and transferred to ___________ (account no. ________). If this is a partial transfer, a minimum amount of U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof of the Restricted Global Note will remain outstanding. In connection with such request and in respect of such Notes, the Transferor does hereby certify that such transfer has been effected in accordance with the transfer restrictions set forth in the Indenture and the Notes and pursuant to and in accordance with Rule 903 or 904 of Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and accordingly, the Transferor further certifies that: (A) (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and G-1 146 neither the Transferor nor any person acting on our behalf knows that the transaction was prearranged with a buyer in the United States; (3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. OR (B) Such transfer is being made in accordance with Rule 144A under the Securities Act to a transferee that the Transferor reasonably believes is purchasing the Notes for its own account or an account with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. The Transferor does hereby certify that it has notified the transferee that it has relied on Rule 144A under the Securities Act as a basis for the exemption from the registration requirements of the Securities Act used in connection with such transfer. G-ii 147 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. Terms used in this certificate and not otherwise defined in the Indenture have the meaning set forth in Regulation S under the Securities Act. Dated: _________________, ______ [Name of Transferor] By: ___________________________________ Title: Telephone No.: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the transfer agent, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the transfer agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. _________________________________ Signature Guarantee Please print name and address (including zip code number) _________________________________ _________________________________ _________________________________ cc: Adaptec, Inc. G-3 148 EXHIBIT H - FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM REGULATION S GLOBAL NOTE TO RESTRICTED GLOBAL NOTE PRIOR TO EXPIRATION OF RESTRICTED PERIOD (TRANSFERS PURSUANT TO Section 2.5(c) OF THE INDENTURE) State Street Bank and Trust Company, as Trustee [Address] Attention: Corporate Trust Administration Re: Adaptec, Inc. __% Convertible Subordinated Notes Due 2004 (the "Notes") Reference is hereby made to the Indenture dated as of February __, 1997 (as supplemented from time to time, the "Indenture") between Adaptec, Inc. and State Street Bank and Trust Company, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This letter relates to U.S.$_________ (being U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes beneficially held through interests in the Regulation S Global Note (CINS No. _________) in the name of ________ (the "Transferor") account no. _________. The Transferor hereby requests that on [INSERT DATE] such beneficial interest in the Regulation S Global Note be transferred or exchanged for an interest in the Restricted Global Note (CUSIP No. _________) in the same principal denomination and transferred to ____________ (account no. ________). If this is a partial transfer, a minimum amount of U.S.$1,000 and any integral multiple of U.S.$1,000 in excess thereof of the Regulation S Global Note will remain outstanding. In connection with such request, and in respect of such Notes, the Transferor does hereby certify that such Notes are being transferred in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), to a transferee that the Transferor reasonably believes is purchasing the Notes for its own account or an amount with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. The Transferor does hereby certify that it has notified the transferee that it has relied on Rule 144A under the Securities Act as a basis for the exemption from the registration requirements of the Securities Act used in connection with such transfer. H-1 149 This certificate and the statements contained herein are made for your benefit and the benefit of the Company. Terms used in this certificate and not otherwise defined in the Indenture have the meaning set forth in Regulation S under the Securities Act. Dated: _________________, ______ [Name of Transferor] By: ___________________________________ Title: Telephone No.: Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the transfer agent, which requirements include membership or participation in STAMP or such other "signature guarantee program" as may be determined by the transfer agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. _________________________________ Signature Guarantee Please print name and address (including zip code number) _________________________________ _________________________________ _________________________________ cc: Adaptec, Inc. H-2 EX-5.1 3 OPINION OF WILSON SONSINI GOODRICH & ROSATI 1 EXHIBIT 5.1 [WILSON SONSINI GOODRICH & ROSATI LETTERHEAD] April 4, 1997 Adaptec, Inc. 691 S. Milpitas Blvd. Milpitas, CA 95035 Re: Adaptec, Inc. Registration Statement on Form S-1 Ladies and Gentlemen: We have examined the Registration Statement on Form S-1 to be filed by Adaptec, Inc. (the "Company") with the Securities and Exchange Commission on April 4, 1997 (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended, of 4,452,188 shares of Common Stock of the Company upon conversion of $230,000,000 aggregate principal amount of 4-3/4% Convertible Subordinate Notes (the "Registrable Notes") of the Company due February 1, 2004 (equal to conversion rate of 19.3573 shares per $1,000 principal amount of Registrable Notes). It is our opinion that, upon completion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of Shares, and upon the completion of the proceedings being taken in order to permit such transactions to be carried out in accordance with securities laws of various states, where required, the Shares, when issued and sold in the manner referred to in the Registration Statement, will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the Prospectus constituting a part thereof, and any amendment thereto. Very truly yours, /s/ WILSON SONSINI GOODRICH & ROSATI Professional Corporation EX-12.1 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 ADAPTEC, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Amounts in thousands)
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED MARCH 31, -------------------------- ----------------------------------------------- DECEMBER 29, DECEMBER 27, 1992 1993 1994 1995 1996 1995 1996 ------- ------- ------- -------- -------- ----------- ----------- Pre-tax income from continuing operations $19,486 $65,854 $78,603 $124,537 $137,989 $83,232 $105,514 ------- ------- ------- -------- -------- ------- -------- Fixed charges: Interest expense 159 967 1,306 1,179 840 674 597 Rentals - 33% 608 480 541 784 1,226 968 1,141 ------- ------- ------- -------- -------- ------- -------- Total fixed charges 767 1,447 1,847 1,963 2,066 1,642 1,738 ------- ------- ------- -------- -------- ------- -------- Earnings before income taxes and fixed charges $20,253 $67,301 $80,450 $126,500 $140,055 $84,874 $107,252 ======= ======= ======= ======== ======== ======= ======== Ratio of earnings to fixed charges 26.4 46.5 43.6 64.4 67.8 51.7 61.7 ======= ======= ======= ======== ======== ======= ========
EX-21.1 5 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21.1 Adaptec Mfg (S) Pte. Ltd., a Singapore corporation Adaptec GmbH, a German corporation Adaptec Europe SA, a Belgium corporation Adaptec Japan Ltd., a Japanese corporation Adaptec Networking, Inc., a Washington corporation EX-23.1 6 CONSENT OF INDEPENDENT ACCOUTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated April 22, 1996, except as to Note 12 which is as of December 5, 1996, relating to the consolidated financial statements of Adaptec, Inc. as of March 31, 1995 and 1996 and for the years then ended, which appears in such Prospectus. We also consent to the reference to us under the heading "Experts." /s/ PRICE WATERHOUSE LLP San Jose, California April 3, 1997 EX-23.2 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this Registration Statement. /s/ ARTHUR ANDERSEN San Jose, California April 3, 1997 EX-25.1 8 STATEMENT OF ELIGIBILITY AND QUALIFICATION 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) __ STATE STREET BANK AND TRUST COMPANY (Exact name of trustee as specified in its charter) Massachusetts 04-1867445 (Jurisdiction of incorporation (I.R.S. Employe or organization if not a U.S. Identification No.) national bank) 225 Franklin Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) John R. Towers, Esq. Senior Vice President and Corporate Secretary 225 Franklin Street Boston, Massachusetts 02110 Tel: (617) 654-3253 (Name, address and telephone number of agent for service) ___________________ ADAPTEC, INC. (Exact name of obligor as specified in its charter) CALIFORNIA 94-274530 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 691 S. Milpitas Boulevard Milpitas, California 95035 (408) 945-8600 (Address of principal executive offices) (Zip Code) ___________________ 4-3/4% Convertible Subordinated Notes due 2004 (Title of Indenture Securities) -1- 2 General Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervisory authority to which it is subject. Department of Banking and Insurance of The Commonwealth of Massachusetts, 100 Cambridge Street, Boston, Massachusetts. Board of Governors of the Federal Reserve System, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Trustee is authorized to exercise corporate trust powers. Item 2. Affiliations with Obligor. If the Obligor is an affiliate of the trustee, describe each such affiliation. The obligor is not an affiliate of the trustee or of its parent, State Street Boston Corporation. (See note on page 2.) Item 3. through Item 15. Not applicable. Item 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. 1. A copy of the articles of association of the trustee as now in effect. A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 2. A copy of the certificate of authority of the trustee to commence business, if not contained in the articles of association. A copy of a Statement from the Commissioner of Banks of Massachusetts that no certificate of authority for the trustee to commence business was necessary or issued is on file with the Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the -2- 3 Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 3. A copy of the authorization of the trustee to exercise corporate trust powers, if such authorization is not contained in the documents specified in paragraph (1) or (2), above. A copy of the authorization of the trustee to exercise corporate trust powers is on file with the Securities and Exchange Commission as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 4. A copy of the existing by-laws of the trustee, or instruments corresponding thereto. A copy of the by-laws of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 4 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Eastern Edison Company (File No. 33-37823) and is incorporated herein by reference thereto. 5. A copy of each indenture referred to in Item 4. if the obligor is in default. Not applicable. 6. The consents of United States institutional trustees required by Section 321(b) of the Act. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor or any underwriter for the obligor, the trustee has relied upon information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer furnished to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. -3- 4 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on this the third day of April 997. STATE STREET BANK AND TRUST COMPANY By: ___________________________________ Eric J. Donaghey Assistant Vice President -4- 5 EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed registration by Adaptec, Inc. of its 4 3/4% Convertible Subordinated Notes due 2004, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: ___________________________________ Eric J. Donaghey Assistant Vice President Dated: April 3, 1997 -5- 6 EXHIBIT 7 Consolidated Report of Condition of State Street Bank and Trust Company of Boston, Massachusetts and foreign and domestic subsidiaries, a state banking institution organized and operating under the banking laws of this commonwealth and a member of the Federal Reserve System, at the close of business September 30, 1996, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act and in accordance with a call made by the Commissioner of Banks under General Laws, Chapter 172, Section 22(a).
Thousands of Dollars ---------- ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . . . . . . . . . 1,561,409 Interest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,562,240 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,388,513 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,622,962 Loans and lease financing receivables: Loans and leases, net of unearned income . . . . . . . . . . . . . 4,858,187 Allowance for loan and lease losses . . . . . . . . . . . . . . . 72,614 Loans and leases, net of unearned income and allowances. . . . . . . . . . . . . . . . . . . . . . . . . . 4,785,573 Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 874,700 Premises and fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383,955 Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 870 Investments in unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,621 Customers' liability to this bank on acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . 35,022 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,190 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 932,673 ---------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,389,728 ========== LIABILITIES Deposits: In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,508,096 Noninterest-bearing . . . . . . . . . . . . . . . . . . . 6,435,131 Interest-bearing . . . . . . . . . . . . . . . . . . . . . 11,368,216 In foreign offices and Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,395,724 Noninterest-bearing . . . . . . . . . . . . . . . . . . . 27,508 Interest-bearing . . . . . . . . . . . . . . . . . . . . . 11,368,216 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,518,222 Demand notes issued to the U.S. Treasury and Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . 733,935 Other borrowed money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,578 Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 35,022 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770,029 ---------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,611,606 ---------- EQUITY CAPITAL Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,931 Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,146 Undivided profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,389,720 Cumulative foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325 ---------- Total equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,778,122 ---------- Total liabilities and equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,389,728 ==========
-6- 7 I, Rex S. Schuette, Senior Vice President and Comptroller of the above named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Rex S. Schuette We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. David A. Spina Marshall N. Carter Charles F. Kaye -7- 8 5. A copy of each indenture referred to in Item 4. if the obligor is in default. Not applicable. 6. The consents of United States institutional trustees required by Section 321(b) of the Act. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor or any underwriter of the obligor, the trustee has relied upon the information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation duly organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on the 3rd day of April, 1997. STATE STREET BANK AND TRUST COMPANY By: /s/ Eric J. Donaghey ------------------------------------ Eric J. Donaghey Assistant Vice President -8- 9 EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed registration by Adaptec, Inc. of its 4-3/4% Convertible Subordinated Notes due 2004, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: /s/ Eric J. Donaghey ------------------------------------ Eric J. Donaghey Assistant Vice President Dated: April 3, 1997 -9- EX-27.1 9 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS MAR-31-1997 APR-01-1996 DEC-27-1996 1 89,436 199,542 112,658 4,230 59,821 487,495 186,981 53,824 726,487 112,788 1,700 0 0 222,334 389,665 726,487 668,760 668,760 281,735 281,735 288,904 0 597 105,514 44,779 60,735 0 0 0 60,735 .53 .53
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