-----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, BwLP3LmWasJWPHUZz9hD9TILtPOxc6/B6OhRVzKbLfqZmOQc+Tpm/HVVIzHrsJBv uk8wnbtIjqtnLyHrj16aMA== /in/edgar/work/0000912057-00-047250/0000912057-00-047250.txt : 20001107 0000912057-00-047250.hdr.sgml : 20001107 ACCESSION NUMBER: 0000912057-00-047250 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAPTEC INC CENTRAL INDEX KEY: 0000709804 STANDARD INDUSTRIAL CLASSIFICATION: [3576 ] IRS NUMBER: 942748530 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15071 FILM NUMBER: 753350 BUSINESS ADDRESS: STREET 1: 691 S MILPITAS BLVD STREET 2: M/S25 CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4089458600 MAIL ADDRESS: STREET 1: 691 SOUTH MILPITAS BLVD STREET 2: M/S25 CITY: MILPITAS STATE: CA ZIP: 95035 10-Q 1 a2027675z10-q.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 OR OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 0-15071 ------------------------ ADAPTEC, INC. --------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 94-2748530 - -------------------------------------------------------------------------------------------- (State of Incorporation) (I.R.S. Employer Identification No.) 691 S. MILPITAS BLVD., MILPITAS, CALIFORNIA 95035 - -------------------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 945-8600 - --------------------------------------------------------------------------------------------
N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The number of shares outstanding of the Company's common stock as of September 30, 2000 was 98,769,958. This document consists of 31 pages, excluding exhibits, of which this is page 1. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE -------- Part I. Financial Information Item 1. Financial Statements: Condensed Consolidated Statements of Operations............. 3 Condensed Consolidated Balance Sheets....................... 4 Condensed Consolidated Statements of Cash Flows............. 5 Notes to Condensed Consolidated Financial Statements........ 6-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations: Results of Operations....................................... 15-18 Liquidity and Capital Resources............................. 18 Recent Accounting Pronouncements............................ 18-19 Certain Factors Bearing Risk on Future Operating Results.... 19-28 Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 29 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders.............. 30 Item 6. Exhibits and Reports on Form 8-K................................. 30 Signatures................................................................ 31
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED ----------------------------- ----------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues.............................. $185,468 $194,280 $368,895 $386,658 Cost of revenues.......................... 72,830 66,267 143,340 133,054 -------- -------- -------- -------- Gross profit.............................. 112,638 128,013 225,555 253,604 -------- -------- -------- -------- Operating expenses: Research and development................ 30,987 23,210 61,489 47,735 Selling, marketing and administrative... 45,261 40,242 87,641 79,610 Amortization of goodwill and other intangibles........................... 19,476 2,255 38,951 2,750 Write-off of acquired in-process technology............................ -- 3,016 -- 3,016 -------- -------- -------- -------- Total operating expenses.................. 95,724 68,723 188,081 133,111 -------- -------- -------- -------- Income from operations.................... 16,914 59,290 37,474 120,493 Interest and other income................. 90,025 19,113 110,716 31,064 Interest expense.......................... 3,079 2,962 6,123 5,921 -------- -------- -------- -------- Income before provision for income taxes................................... 103,860 75,441 142,067 145,636 Provision for income taxes................ 44,421 23,277 60,980 42,932 -------- -------- -------- -------- Net income................................ $ 59,439 $ 52,164 $ 81,087 $102,704 ======== ======== ======== ======== Net income per share: Basic................................... $ 0.60 $ 0.51 $ 0.81 $ 0.99 -------- -------- -------- -------- Diluted................................. $ 0.58 $ 0.48 $ 0.78 $ 0.94 -------- -------- -------- -------- Shares used in computing net income per share: Basic................................... 99,084 102,523 99,944 103,333 -------- -------- -------- -------- Diluted................................. 105,962 113,062 103,497 113,626 -------- -------- -------- --------
See accompanying notes to condensed consolidated financial statements. 3 ADAPTEC, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, MARCH 31, 2000 2000 ------------- ---------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents................................. $ 163,599 $ 180,519 Marketable securities..................................... 404,367 482,172 Accounts receivable, net.................................. 98,880 90,165 Inventories............................................... 74,559 68,378 Other current assets...................................... 123,470 74,352 ---------- ---------- Total current assets.................................... 864,875 895,586 Property and equipment, net................................. 114,425 135,222 Goodwill and other intangibles.............................. 236,180 275,108 Other long-term assets...................................... 53,615 40,368 ---------- ---------- $1,269,095 $1,346,284 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 41,983 $ 34,009 Accrued liabilities....................................... 211,935 193,217 ---------- ---------- Total current liabilities............................... 253,918 227,226 ---------- ---------- 4 3/4% Convertible Subordinated Notes....................... 229,800 229,800 Other long-term liability................................... 10,800 14,400 Contingencies (Note 14) Stockholders' equity: Common stock.............................................. 99 103 Additional paid-in capital................................ -- 58,535 Deferred stock-based compensation......................... (1,148) (2,444) Accumulated other comprehensive income.................... 13,731 51,800 Retained earnings......................................... 761,895 766,864 ---------- ---------- Total stockholders' equity.............................. 774,577 874,858 ---------- ---------- $1,269,095 $1,346,284 ========== ==========
See accompanying notes to condensed consolidated financial statements. 4 ADAPTEC, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTH PERIOD ENDED ----------------------------- SEPTEMBER 30, SEPTEMBER 30, 2000 1999 ------------- ------------- (IN THOUSANDS) NET CASH PROVIDED BY OPERATING ACTIVITIES................... $ 60,016 $ 138,537 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of certain net assets in connection with acquisitions, net......................................... -- (14,485) Purchases of property and equipment......................... (16,577) (3,866) Net proceeds from the sale of property and equipment........ 43,273 18,518 Purchases of marketable securities.......................... (227,490) (724,266) Purchases of other investments.............................. (350) (1,000) Sales of marketable securities.............................. 216,226 385,563 Maturities of marketable securities......................... 71,712 204,634 ---------- ---------- NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES........ 86,794 (134,902) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of common stock.................. 12,559 61,817 Net proceeds from the issuance of equity contracts.......... -- 3,725 Repurchases of common stock................................. (176,289) (244,132) ---------- ---------- NET CASH USED FOR FINANCING ACTIVITIES...................... (163,730) (178,590) ---------- ---------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (16,920) (174,955) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 180,519 317,580 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 163,599 $ 142,625 ========== ==========
See accompanying notes to condensed consolidated financial statements. 5 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements of Adaptec, Inc. (the "Company") have been prepared on a consistent basis with the March 31, 2000 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, except as described in Notes 7, 8 and 15, necessary to provide a fair statement of the results for the interim periods presented. These interim financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Annual Report to Stockholders and incorporated by reference in the Company's Annual Report on Form 10-K for the year ended March 31, 2000. For presentation purposes, the Company has indicated its second quarters as having ended on September 30, whereas in fact, the Company's second quarter of fiscal 2001 ended on September 29, 2000 and the Company's second quarter of fiscal 2000 ended on October 1, 1999. The results of operations for the six month period ended September 30, 2000, are not necessarily indicative of the results to be expected for the entire year. 2. COMPREHENSIVE INCOME The Company's comprehensive income consists of net income and the change in the net unrealized gain on available-for-sale securities, net of income taxes, primarily related to the Company's investment in JNI Corporation ("JNI") common stock. The components of comprehensive income, net of income taxes, were as follows:
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED ------------------------------- ------------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 -------------- -------------- -------------- -------------- (IN THOUSANDS) Net income................................ $ 59,439 $52,164 $ 81,087 $102,704 Change in net unrealized gain on available-for-sale securities, net of income taxes............................ (12,723) -- (38,069) -- -------- ------- -------- -------- $ 46,716 $52,164 $ 43,018 $102,704 ======== ======= ======== ========
During the second quarter and first half of fiscal 2001, the Company sold 1,520,000 and 1,700,000 shares of JNI common stock and recorded a gain of $81.6 million and $87.2 million, respectively. Total proceeds from the sales were $97.0 million, of which $41.1 million was recorded as a receivable in "Other current assets" in the Condensed Consolidated Balance Sheet at September 30, 2000, and was subsequently received as of the date of this Report on Form 10-Q. As of September 30, 2000, the Company held 272,893 shares of JNI common stock with a fair market value of $24.3 million. Subsequently and as of the date of this Report on Form 10-Q, the Company sold all remaining shares of JNI common stock for $27.1 million. The gain will be recorded in the third quarter of fiscal 2001. The realized gain/loss on available-for-sale securities, other than JNI common stock, was immaterial for all periods presented. Accumulated other comprehensive income presented in the accompanying Condensed Consolidated Balance Sheets represents the net unrealized gain on available-for-sale securities, net of income taxes. The realization of these gains is dependent on the market value of the securities, which is 6 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 2. COMPREHENSIVE INCOME (CONTINUED) subject to fluctuation prior to the date of disposal. There can be no assurance if and when these gains will be realized. 3. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires recognition of all derivatives as assets or liabilities and measurement of those instruments at fair value. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," which deferred the required date of adoption of SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. The Company will adopt this statement in its first quarter of fiscal 2002, and is in the process of determining the impact that adoption will have on its consolidated financial statements. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN No. 44"), "Accounting for Certain Transactions involving Stock Compensation," an interpretation of Accounting Principles Board ("APB") No. 25. FIN No. 44 became effective July 1, 2000, but certain conclusions cover specific events that occurred after either December 15, 1998, or January 12, 2000. The adoption of FIN No. 44 did not have a material effect on the Company's financial position or results of operations. In September 2000, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board issued EITF No. 00-19, "Determination of Whether Share Settlement is Within the Control of the Issuer for Purposes of Applying Issue No. 96-13, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock"'. EITF No. 96-13 did not address embedded settlement features which are contingent on events which are unlikely to occur. EITF No. 00-19 addresses embedded settlement features and states that contracts which could require cash payment cannot be accounted for as equity of the issuer unless certain conditions are met. The adoption of EITF No. 00-19 did not have a material effect on the Company's financial position or results of operations. 4. BALANCE SHEET DETAIL Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventories were as follows:
SEPTEMBER 30, MARCH 31, 2000 2000 -------------- ---------- (IN THOUSANDS) Raw materials......................................... $20,366 $21,806 Work-in-process....................................... 18,999 11,685 Finished goods........................................ 35,194 34,887 ------- ------- $74,559 $68,378 ======= =======
7 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 4. BALANCE SHEET DETAIL (CONTINUED) The components of other current assets were as follows:
SEPTEMBER 30, MARCH 31, 2000 2000 -------------- ---------- (IN THOUSANDS) Deferred income taxes................................. $ 54,628 $29,134 Other................................................. 68,842 45,218 -------- ------- $123,470 $74,352 ======== =======
The components of accrued liabilities were as follows:
SEPTEMBER 30, MARCH 31, 2000 2000 -------------- ---------- (IN THOUSANDS) Tax related.......................................... $144,893 $100,689 Accrued compensation and related taxes............... 21,595 25,430 Acquisition related.................................. 18,694 19,097 Sales and marketing related.......................... 12,811 13,477 Stock repurchase related............................. -- 19,135 Other................................................ 13,942 15,389 -------- -------- $211,935 $193,217 ======== ========
5. LINE OF CREDIT In March 2000, the Company obtained an unsecured $80.0 million revolving line of credit which expires in March 2001. The interest rate and commitment fee are based on a pricing matrix, which correlates with the Company's credit rating and market interest rates. Under the arrangement, the Company is required to maintain certain financial ratios among other restrictive covenants. As of September 30, 2000, the Company was in compliance with all such covenants and no borrowings were outstanding under the line of credit. 6. TAIWAN SEMICONDUCTOR MANUFACTURING AGREEMENT In the first quarter of fiscal 2001, the Company and Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC") amended the Option II Agreement. In accordance with the amendment, the Company paid TSMC an additional $20.0 million in advance payments to secure guaranteed capacity for wafer fabrication through December 31, 2004. No other terms or conditions were amended. 8 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. STATEMENTS OF OPERATIONS The components of interest and other income were as follows:
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED ------------------------------- ------------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Interest income........................... $ 7,101 $ 8,193 $ 14,741 $16,631 Gain on sale of JNI common stock (Note 2)...................................... 81,608 -- 87,155 -- Gain on sale of property (Note 8)......... 1,316 -- 8,820 3,513 Gain on warrants received................. -- 10,920 -- 10,920 ------- ------- -------- ------- $90,025 $19,113 $110,716 $31,064 ======= ======= ======== =======
8. PROPERTY SALES During the second quarter of fiscal 2001, the Company sold its land and building located in Colorado, having a net book value of $21.5 million, for net proceeds of $22.8 million. The sale resulted in a gain of $1.3 million and is included in "Interest and other income" in the Condensed Consolidated Statements of Operations for the three and six month periods ended September 30, 2000. During the first quarter of fiscal 2001, the Company sold land in California, having a net book value of $12.9 million, for net proceeds of $20.4 million. The sale resulted in a gain of $7.5 million and is included in "Interest and other income" in the Condensed Consolidated Statement of Operations for the six month period ended September 30, 2000. 9. STATUS OF IN-PROCESS TECHNOLOGY PROJECT In December 1999, the Company purchased Distributed Processing Technology, Corp., a supplier of high-performance storage solutions, including RAID controllers and storage subsystems. As part of the purchase, the Company acquired in-process technology consisting of next generation RAID controllers. The Company expects to complete the in-process technology project in the first half of fiscal 2002. The completion of the in-process technology project has been delayed by approximately six months due to the lack of availability of compatible industry components and the complexity brought on by additional uses of this technology in the Company's board level products. However, the Company still expects that the costs to complete the in-process technology project will be in line with original estimates. Development of this project remains a significant risk to the Company due to the remaining effort to achieve technical feasibility, rapidly changing customer markets and significant competition from numerous companies. Failure to bring these products to market in a timely manner could adversely impact sales and profitability of the Company in the future. 9 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 10. NET INCOME PER SHARE Following is a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the periods presented below.
THREE MONTH PERIOD ENDED THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 --------------------------------------- --------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- ----------- ------------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BASIC NET INCOME PER SHARE Net income available to common stockholders.................. $ 59,439 99,084 $ 0.60 $ 52,164 102,523 $ 0.51 ======= ======= EFFECT OF DILUTIVE SECURITIES Employee stock options and equity contracts.............. -- 2,430 -- 6,087 4 3/4% Convertible Subordinated Notes......................... 1,981 4,448 1,961 4,452 -------- --------- -------- --------- DILUTED NET INCOME PER SHARE Net income available to common stockholders and assumed conversions................... $ 61,420 105,962 $ 0.58 $ 54,125 113,062 $ 0.48 ======== ========= ======= ======== ========= =======
SIX MONTH PERIOD ENDED SIX MONTH PERIOD ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 --------------------------------------- --------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- ----------- ------------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BASIC NET INCOME PER SHARE Net income available to common stockholders.................. $ 81,087 99,944 $ 0.81 $ 102,704 103,333 $ 0.99 ======= ======= EFFECT OF DILUTIVE SECURITIES Employee stock options and equity contracts.............. -- 3,553 -- 5,841 4 3/4% Convertible Subordinated Notes......................... -- -- 3,965 4,452 -------- --------- --------- --------- DILUTED NET INCOME PER SHARE Net income available to common stockholders and assumed conversions................... $ 81,087 103,497 $ 0.78 $ 106,669 113,626 $ 0.94 ======== ========= ======= ========= ========= =======
10 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 10. NET INCOME PER SHARE (CONTINUED) Additional stock options to purchase 7,533,000 and 584,000 shares of common stock were outstanding at September 30, 2000 and 1999, respectively, but were not included in the computation of diluted weighted average shares outstanding because the options' exercise price was greater than the average market price of the common stock. The conversion of 4,448,000 shares of common stock related to the 4 3/4% Convertible Subordinated Notes was not included in the computation of net income per share for the six month period ended September 30, 2000, because it was anti-dilutive. As of September 30, 2000, the Company had one equity contract outstanding pertaining to its own stock (Note 11). This contract was not included in the computation of net income per share for the three month period ended September 30, 2000, because it was anti-dilutive. 11. STOCK REPURCHASES During the second quarter and first half of fiscal 2001, the Company repurchased and retired a total of 1,000,000 and 5,000,000 shares of its common stock for $45.3 million and $157.2 million, respectively, including shares relating to the settlement of equity contracts as discussed below. The transactions were recorded as reductions to common stock, additional paid-in-capital and retained earnings. During the second quarter of fiscal 2001, the Company physically settled two equity contracts whereby the Company repurchased 1,000,000 shares of its common stock at prices ranging from $44 to $46, resulting in a total cash payment of $45.3 million. During the first quarter of fiscal 2001, the Company physically settled two equity contracts whereby the Company repurchased 1,000,000 shares of its common stock at prices ranging from $40 to $42, resulting in a total cash payment of $40.8 million. During the first quarter of fiscal 2001, the Company entered into one additional equity contract in which the Company sold one put warrant and purchased one call warrant. The equity contract expires in December 2000 and represents the only equity contract outstanding as of September 30, 2000. The put warrant could potentially obligate the Company to buy back up to 500,000 shares of its common stock at a strike price of $23 and the call warrant gives the Company the right to buy back up to 500,000 shares of its common stock at a strike price of $27. The settlement terms include physical settlement, cash settlement or net-share settlement at the option of the Company. 12. STOCK PLANS During the second quarter of fiscal 2001, the Company's Board of Directors amended the Employee Stock Purchase Plan to extend the offering period from six months to twenty-four months. Purchases will continue to be made every six months. During the second quarter of fiscal 2001, the Company's shareholders approved the 2000 Director Option Plan and reserved for issuance thereunder 1,000,000 shares. 11 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 13. INCOME TAXES Income tax provisions for interim periods are based on the Company's estimated annual income tax rate. The Company recorded an income tax provision of 42.8% and 30.9% of income before provision for income taxes for the second quarters of fiscal 2001 and fiscal 2000, respectively. The Company's effective tax rate is generally less than the combined U.S. federal and state statutory income tax rate of 40% due to income earned in Singapore where the Company is subject to a significantly lower income tax rate, resulting from a tax holiday relating to certain products. However, in the second quarter of fiscal 2001, the reduction in the Company's effective income tax rate from the Singapore tax holiday was more than offset primarily by amortization of goodwill and other intangibles in excess of amounts deductible for tax purposes. 14. CONTINGENCIES A class action lawsuit is pending in the United States District Court for the Northern District of California against the Company and certain of its officers and directors. The class action lawsuit alleges that the Company made false and misleading statements at various times during the period between April 1997 and January 1998 in violation of federal securities laws. The Company's motion to dismiss the complaint was granted in April 2000. The plaintiffs filed an amended complaint in July 2000. In October 2000, the Company filed a motion to dismiss the amended complaint. The Company believes the class action lawsuit is without merit and intends to defend itself vigorously. On June 27, 2000, the Company received a statutory notice of deficiency with respect to its federal income tax returns for fiscal 1994 through 1996. The Company filed a Petition with the United States Tax Court on September 25, 2000, contesting the asserted deficiencies. The Company believes it has meritorious defenses against all deficiencies asserted in the notice and intends to contest them. In addition, the IRS is currently auditing the Company's federal income tax returns for fiscal 1997 through 1999, for which no proposed adjustments have been received. The Company believes sufficient taxes have been provided in all prior years and the ultimate outcome of the IRS audits will not have a material adverse impact on the Company's financial position or results of operations. The Company is a party to other litigation matters and claims which are normal in the course of its operations, and while the results of such litigations and claims cannot be predicted with certainty, the Company believes that the final outcome of such matters will not have a materially adverse impact on the Company's consolidated financial position or results of operations. 15. SEGMENT REPORTING The Company's operating segments are organized by technologies and include Direct Attached Storage ("DAS"), Storage Networking Solutions ("SNS"), Software and Other. A complete description of the operating segments can be found in the Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders for the fiscal year ended March 31, 2000. In June 2000, the Company announced its plan to spin-off the Software segment, subsequently incorporated as Roxio, Inc. ("Roxio"), in the form of a fully independent and separate company. The Company expects to complete an initial public offering ("IPO") of approximately 15% of Roxio's stock and distribute the remaining Roxio stock to the Company's stockholders in a tax-free distribution. The IPO will be subject to board approval and regulatory approval, and the stockholder distribution will be 12 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 15. SEGMENT REPORTING (CONTINUED) subject to board approval and receipt of a tax-free ruling from the IRS. In September 2000, Roxio filed a Registration Statement on Form S-1 to register the sale of approximately 15% of its outstanding stock. The S-1 has not become effective as of the date of this Report on Form 10-Q. In October 2000, the Company redefined its operating segments to show the Desktop Products Group ("DPG"), (formerly reported as a component of the DAS segment) as a separate segment to create greater focus and drive additional revenue growth in the desktop market. Net revenues from the DPG segment were $21.0 million in the second quarter of fiscal 2001, compared to $35.6 million in the second quarter of fiscal 2000. Net revenues from the DPG segment were $49.0 million in the first half of fiscal 2001, compared to $81.4 million in the first half of fiscal 2000. The Company is in the process of determining the historical profitability of the DPG segment. The DPG segment will be reported separately beginning in the third quarter of fiscal 2001. Summarized financial information concerning the Company's reportable segments as of September 30, 2000 is shown in the following table. The Company does not separately identify assets or depreciation by operating segments nor are the segments evaluated under these criteria.
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED ----------------------------- ----------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- (IN THOUSANDS) DAS: Net revenues............................ $146,582 $171,968 $294,508 $347,988 Segment profit.......................... 17,753 66,460 38,278 134,018 SNS: Net revenues............................ 9,804 5,988 16,372 11,793 Segment profit (loss)................... (1,588) 1,350 (2,904) 2,870 SOFTWARE: Net revenues............................ 29,082 14,074 58,015 24,627 Segment profit (loss)................... 2,127 (989) 6,835 (1,120) OTHER: Net revenues............................ -- 2,250 -- 2,250 Segment profit.......................... 85,568 8,620 99,858 9,868
13 ADAPTEC, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 15. SEGMENT REPORTING (CONTINUED) The following table presents the details of "Other" segment profit:
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED ----------------------------- ----------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- (IN THOUSANDS) Unallocated corporate expenses, net....... $ 1,365 $(4,515) $ 874 $(12,259) Interest and other income................. 90,025 19,113 110,716 31,064 Interest expense.......................... (3,079) (2,962) (6,123) (5,921) Write-off of acquired in-process technology.............................. -- (3,016) -- (3,016) General and administrative expenses relating to the Software segment spin-off................................ (2,743) -- (5,609) -- ------- ------- -------- -------- $85,568 $ 8,620 $ 99,858 $ 9,868 ======= ======= ======== ========
14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth the items in the Condensed Consolidated Statements of Operations as a percentage of net revenues:
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED ----------------------------- ----------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net revenues.............................. 100% 100% 100% 100% Cost of revenues.......................... 39 34 39 34 --- --- --- --- Gross margin.............................. 61 66 61 66 --- --- --- --- Operating expenses: Research and development................ 17 12 17 12 Selling, marketing and administrative... 24 21 24 20 Amortization of goodwill and other intangibles........................... 11 1 10 1 Write-off of acquired in-process technology............................ -- 1 -- 1 --- --- --- --- Total operating expenses.................. 52 35 51 34 --- --- --- --- Income from operations.................... 9 31 10 32 Interest and other income................. 49 10 30 8 Interest expense.......................... 2 2 2 2 --- --- --- --- Income before provision for income taxes................................... 56 39 38 38 Provision for income taxes................ 24 12 16 11 --- --- --- --- Net income.............................. 32% 27% 22% 27% === === === ===
BUSINESS SEGMENTS. The Company's operating segments are organized by technologies and include Direct Attached Storage ("DAS"), Storage Networking Solutions ("SNS"), Software and Other. A complete description of the operating segments can be found in the Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders for the fiscal year ended March 31, 2000. In June 2000, the Company announced its plan to spin-off the Software segment, subsequently incorporated as Roxio, Inc. ("Roxio"), in the form of a fully independent and separate company. The Company expects to complete an initial public offering ("IPO") of approximately 15% of Roxio's stock and distribute the remaining Roxio stock to the Company's stockholders in a tax-free distribution. The IPO will be subject to board approval and regulatory approval, and the stockholder distribution will be subject to board approval and receipt of a tax-free ruling from the IRS. In September 2000, Roxio filed a Registration Statement on Form S-1 to register the sale of approximately 15% of its outstanding stock. The S-1 has not become effective as of the date of this Report on Form 10-Q. In October 2000, the Company redefined its operating segments to show the Desktop Products Group ("DPG"), (formerly reported as a component of the DAS segment) as a separate segment to create greater focus and drive additional revenue growth in the desktop market. Net revenues from the DPG segment were $21.0 million in the second quarter of fiscal 2001, compared to $35.6 million in the second quarter of fiscal 2000. Net revenues from the DPG segment were $49.0 million in the first half of fiscal 2001, compared to $81.4 million in the first half of fiscal 2000. The Company is in the process of determining the historical profitability of the DPG segment. The DPG segment will be reported separately beginning in the third quarter of fiscal 2001. 15 NET REVENUES. Net revenues were $185.5 million for the second quarter of fiscal 2001, representing a decrease of 4.5% from net revenues of $194.3 million for the second quarter of fiscal 2000. Net revenues were $368.9 million for the first half of fiscal 2001, representing a decrease of 4.6% from net revenues of $386.7 million for the first half of fiscal 2000. Net revenues for the second quarter of fiscal 2001 were comprised of $146.6 million from the DAS segment, a decrease of 14.8% from the second quarter of fiscal 2000, $9.8 million from the SNS segment, an increase of 63.7% from the second quarter of fiscal 2000, and $29.1 million from the Software segment, an increase of 106.6% from the second quarter of fiscal 2000. Net revenues for the first half of fiscal 2001 were comprised of $294.5 million from the DAS segment, a decrease of 15.4% from the first half of fiscal 2000, $16.4 million from the SNS segment, an increase of 38.8% from the first half of fiscal 2000, and $58.0 million from the Software segment, an increase of 135.6% from the second quarter of fiscal 2000. Net revenues from the DAS segment decreased year over year, primarily due to a lack of Intel microprocessors and motherboards in the distribution channel which adversely impacted some server production. Intel underestimated microprocessor demand as they transitioned their production from 0.25 micron technology to 0.18 micron technology and they experienced problems with their 840 memory controller hub, a critical component to motherboards. Because demand for the Company's board level premium DAS products are dependent on server production, the Company's net revenues declined in the first half of fiscal 2001. Additionally, net revenues from the DAS segment in the first half of fiscal 2001 were adversely impacted by a continued decline in demand for desktop products brought about by penetration of products incorporating the less-expensive Ultra-DMA technology. Finally, net revenues from the DAS segment were adversely impacted by defective QLogic, Corp. I/O silicon in one of the Company's mid-range redundant array of independent disks ("RAID") product offerings. These defects necessitated a recall of a limited number of the mid-range Distributed Processing Technology, Corp. ("DPT") based products. This decline in net revenues from the DAS segment in the first half of fiscal 2001 was partially offset by strong demand for the Company's RAID controllers for entry and mid-range servers, as well as design wins with certain original equipment manufacturers ("OEMs"). Net revenues from the SNS segment for the first half of fiscal 2001 and fiscal 2000 were derived primarily from sales of single-port and multi-port network interface cards. Net revenues from the sales of these products increased year over year primarily as a result of design wins with certain OEMs. Additionally, the increase was attributable to the first sale of the Company's one-gigabit fibre channel adapters, utilizing technology licensed from Agilent Technologies, Inc. ("Agilent"), which launched in the second quarter of fiscal 2001. Net revenues from the Software segment increased year over year as a result of sales of the Company's Easy CD Creator 4.0 Deluxe which launched domestically in the second quarter of fiscal 2000 and worldwide in the third quarter of fiscal 2000. Additionally, the increase was attributable to continued worldwide growth in the CD-R and CD-RW drive markets and additional design wins with personal computer ("PC") OEMs. The acquisitions of CeQuadrat GmbH ("CeQuadrat") and Wild File, Inc. ("Wild File") in the second and fourth quarters of fiscal 2000, respectively, also contributed incremental net revenues in the first half of fiscal 2001, as compared to the first half of fiscal 2000. GROSS MARGIN. Gross margin for the second quarter and first half of fiscal 2001 was 60.7% and 61.1%, respectively, compared to 65.9% and 65.6% for the second quarter and first half of fiscal 2000. The Company's gross margin in the first half of fiscal 2001 was adversely impacted by excess manufacturing capacity primarily related to reduced demand for the Company's board level premium DAS products as discussed above. Additionally, the Company's gross margins were impacted by proportionately higher sales of the Company's RAID products, which generally obtain lower margins than most other premium Adaptec products, and proportionately higher sales to OEMs. 16 RESEARCH AND DEVELOPMENT EXPENSES. Spending for research and development was $31.0 million for the second quarter of fiscal 2001, representing an increase of 33.5% from $23.2 million for the second quarter of fiscal 2000. Spending for research and development was $61.5 million for the first half of fiscal 2001, representing an increase of 28.8% from $47.7 million for the first half of fiscal 2000. As a percentage of net revenues, research and development expenses increased to 16.7% in both the second quarter and first half of fiscal 2001, from 11.9% and 12.3% in the second quarter and first half of fiscal 2000, respectively. The increase in research and development expenses was primarily attributable to additional resources obtained through the Company's fiscal 2000 acquisitions and additional research and development efforts focused on driving the convergence of storage and networking technologies, delivering interoperable fibre channel products and building pervasive solutions that broaden the adoption of Storage Area Network Solutions ("SANS"). Additionally, the Company recorded amortization of deferred stock-based compensation of $1.3 million, related to the acquisition of Wild File, in the first half of fiscal 2001. SELLING, MARKETING AND ADMINISTRATIVE EXPENSES. Spending for selling, marketing and administrative activities was $45.3 million for the second quarter of fiscal 2001, representing an increase of 12.5% from $40.2 million for the second quarter of fiscal 2000. Spending for selling, marketing and administrative activities was $87.6 million for the first half of fiscal 2001, representing an increase of 10.1% from $79.6 million for the first half of fiscal 2000. As a percentage of net revenues, selling, marketing and administrative expenses increased to 24.4% and 23.8% in the second quarter and first half of fiscal 2001, respectively, from 20.7% and 20.6% in the second quarter and first half of fiscal 2000, respectively. The increase in selling, marketing and administrative expenses was primarily attributable to $5.6 million of general and administrative expenses incurred in connection with the planned Software segment spin-off during the first half of fiscal 2001. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles was $19.5 million and $39.0 million for the second quarter and first half of fiscal 2001, respectively, compared to $2.3 million and $2.8 million in the second quarter and first half of fiscal 2000, respectively. Amortization of goodwill and other intangibles for the first half of fiscal 2001 resulted from the acquisitions of CeQuadrat, DPT and Wild File, and the amortization of warrant costs associated with the license agreement with Agilent. Amortization of goodwill and other intangibles for the first half of fiscal 2000 resulted from the acquisitions of CeQuadrat and Data Kinesis, Inc. only. INTEREST AND OTHER INCOME. The components of interest and other income were as follows:
THREE MONTH PERIOD ENDED SIX MONTH PERIOD ENDED ----------------------------- ----------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Interest income $ 7,101 $ 8,193 $ 14,741 $16,631 Gain on sale of JNI common stock.......... 81,608 -- 87,155 -- Gain on sale of property.................. 1,316 -- 8,820 3,513 Gain on warrants received................. -- 10,920 -- 10,920 ------- ------- -------- ------- $90,025 $19,113 $110,716 $31,064 ======= ======= ======== =======
The decrease in interest income year over year was due to the lower average cash, cash equivalents and marketable securities balances resulting primarily from repurchases of the Company's common stock. INTEREST EXPENSE. Interest expense was $3.1 million and $6.1 million for the second quarter and first half of fiscal 2001, respectively, compared to $3.0 million and $5.9 million for the second quarter and first half of 2000, respectively. Interest expense during these periods resulted primarily from the Company's 4 3/4% Convertible Subordinated Notes. 17 INCOME TAXES. Income tax provisions for interim periods are based on estimated annual income tax rates. The Company recorded an income tax provision of 42.8% and 30.9% of income before provision for income taxes for the second quarters of fiscal 2001 and fiscal 2000, respectively. The Company's effective tax rate is generally less than the combined U.S. federal and state statutory income tax rate of 40% due to income earned in Singapore where the Company is subject to a significantly lower income tax rate, resulting from a tax holiday relating to certain products. However, in the second quarter of fiscal 2001, the reduction in the Company's effective income tax rate from the Singapore tax holiday was more than offset primarily by amortization of goodwill and other intangibles in excess of amounts deductible for tax purposes. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2000, the Company's principal sources of liquidity consisted of $568.0 million of cash, cash equivalents and marketable securities, and an unsecured $80.0 million revolving line of credit. As of September 30, 2000, there were no borrowings outstanding under the line of credit. Cash, cash equivalents and marketable securities decreased 14.3% from $662.7 million as of March 31, 2000. During the first half of fiscal 2001, the Company used its liquid assets to repurchase and retire 5,000,000 shares of its common stock for $157.2 million, and to pay $19.1 million for stock repurchases on March 31, 2000. Additionally, the Company purchased $16.6 million of property and equipment during the first half of fiscal 2001. The uses of cash were offset by cash generated from operations of $60.0 million, net proceeds of $43.3 million from the sale of property and equipment and proceeds of $12.6 million from the issuance of common stock to employees through its stock option plans. The Company's cash, cash equivalents and marketable securities also decreased due to the sales of JNI Corporation ("JNI") common stock. During the first half of fiscal 2001, the Company sold 1,700,000 shares of JNI common stock, however, $41.1 million of the proceeds was recorded as a broker receivable in "Other current assets" in the Condensed Consolidated Balance Sheet at September 30, 2000. The decrease of $41.1 million related to the broker receivable was partially offset by an increase in the value of the Company's marketable securities of $23.3 million, primarily related to its investment in JNI common stock. The Company believes that its existing working capital, together with expected cash flows from operations and available sources of bank, equity and equipment financing, will be sufficient to support its operations over the next twelve months. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires recognition of all derivatives as assets or liabilities and measurement of those instruments at fair value. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," which deferred the required date of adoption of SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. The Company will adopt this statement in its first quarter of fiscal 2002, and is in the process of determining the impact that adoption will have on its consolidated financial statements. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN No. 44"), "Accounting for Certain Transactions involving Stock Compensation," an interpretation of Accounting Principles Board ("APB") No. 25. FIN No. 44 became effective July 1, 2000, but certain conclusions cover specific events that occurred after either December 15, 1998, or January 12, 2000. 18 The adoption of FIN No. 44 did not have a material effect on the Company's financial position or results of operations. In September 2000, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board issued EITF No. 00-19, "Determination of Whether Share Settlement is Within the Control of the Issuer for Purposes of Applying Issue No. 96-13, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock"'. EITF No. 96-13 did not address embedded settlement features which are contingent on events which are unlikely to occur. EITF No. 00-19 addresses embedded settlement features and states that contracts which could require cash payment cannot be accounted for as equity of the issuer unless certain conditions are met. The adoption of EITF No. 00-19 did not have a material effect on the Company's financial position or results of operations. CERTAIN FACTORS BEARING RISK ON FUTURE OPERATING RESULTS This report contains forward-looking statements that involve risks and uncertainties. For example, Management's Discussion and Analysis of Results of Operations and Financial Condition includes statements relating to sales, gross margins, operating expenditures and the initial public offering and subsequent distribution of Roxio, Inc. stock, and the Notes to Condensed Consolidated Financial Statements include statements relating to the completion of an in-process technology project and the initial public offering and subsequent distribution of Roxio, Inc. stock. The statements contained in this document 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 our expectations, estimates, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our 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 document. In evaluating our business, prospective investors should consider carefully the following factors in addition to the other information set forth in this document. OUR FUTURE OPERATING RESULTS ARE SUBJECT TO FLUCTUATION, WHICH COULD REDUCE OUR STOCK PRICE. Our operating results may fluctuate as a result of a wide variety of factors, including, but not limited to, the following: - cancellations or postponements of orders - shifts in the mix of our products and sales channels - changes in pricing policies by our suppliers - shortages of components or wafer fabrication capacity affecting us, our customers or our suppliers - the market acceptance of new and enhanced versions of our products - product obsolescence - shortage of skilled labor - general worldwide economic and computer industry fluctuations - future accounting pronouncements - changes in accounting policies 19 - the timing of acquisitions of other business products and technologies and any associated charges or earnings - restructuring actions or other involuntary terminations In addition, operating results in any particular quarter or year that do not meet the expectations of securities analysts are likely to cause volatility in the price of our common stock. Fiscal 2001 operating results were materially impacted by unusual charges, including the following: - shortage of computer components resulting in a decline in net revenues in the DAS segment - general and administrative expenses incurred in connection with the Software segment spin-off - amortization of deferred stock-based compensation expense related to the acquisition of Wild File, Inc. Fiscal 2000 operating results were materially impacted by unusual charges, including the following: - write-offs of acquired in-process technology - write-off of estimated license fees attributable to a patent settlement agreement Fiscal 1999 operating results were materially impacted by unusual charges, including the following: - write-offs of acquired in-process technology - costs related to the termination of the Symbios, Inc. acquisition - restructuring charges - impairment of assets - terminations of senior executives In addition to the unusual charges described above, our fiscal 1999 operating results were adversely affected by the following: - shifts in corporate and retail buying patterns - increased competition - emerging technologies - economic instability in Asia - turbulence in the computer disk drive industry. IF DEMAND FOR OUR CUSTOMERS' PRODUCTS DECLINE OR OUR CUSTOMERS DO NOT CONTROL THEIR INVENTORIES EFFECTIVELY, OUR REVENUES MAY BE ADVERSELY AFFECTED. The volume and timing of orders received during a quarter are difficult to forecast. Our 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 us. We have historically operated with a relatively small backlog and have set our operating budget based in part on expectations of future revenues. Because much of our operating budget is relatively fixed in the short-term, if revenues do not meet our expectations, then our operating income and net income will be disproportionately affected. 20 IF DEMAND FOR SERVERS, WORKSTATIONS OR HIGH-PERFORMANCE DESKTOPS DECLINE, OUR REVENUES FROM OUR DAS SEGMENT MAY DECLINE. Our Direct Attached Storage, or DAS, products are used primarily in enterprise-class servers, workstations and high-end desktop computer systems. Our DAS products include host bus adapters, or HBA's, Redundant Array of Independent Disks, or RAID, controllers, boards and chips that allow computers to transfer information to and from peripherals, such as hard-disk drives, scanners, CD-ROMs, CD-Rs, CD-RWs, DVD-ROMs, and Zip and Jaz drives among many other devices. Historically, our growth has been supported by increasing demand for systems that support: - client/server applications - computer-aided engineering - Internet/intranet applications - data storage and digital content - multimedia - video In the second half of fiscal 1998, the demand for such systems slowed as more businesses chose to use relatively inexpensive PC's for desktop applications, and information technology managers shifted resources toward resolving Year 2000 problems and investing in network infrastructure. Our business or operating results could be materially adversely affected by a similar decline in demand for our products. In addition, other technologies may replace our existing technologies and the acceptance of our technologies in the market may not be widespread, which could materially adversely affect our revenues. IF THE DEMAND FOR DESKTOP COMPUTER SYSTEMS AND CD-R AND CD-RW DRIVES DECLINES, REVENUES FROM OUR SOFTWARE SEGMENT MAY DECLINE. Our software products are used primarily in desktop computer systems to enable CD-R and CD-RW capabilities. We sell our software products primarily to major OEMs and distributors. Our business depends on general economic and business conditions and the growth of the CD-R and desktop computer markets. If demand for our products slows or the CD-R market does not develop as quickly as we expect, our business or operating results may decline materially due to the resulting decline in demand for our products. IF WE ARE UNABLE TO PROVIDE ADEQUATE CUSTOMER SERVICE DURING OUR CUSTOMERS' DESIGN AND DEVELOPMENT STAGE OR IF WE ARE UNABLE TO PROVIDE SUCH SERVICE IN A TIMELY MANNER, REVENUES MAY BE LOST TO OUR COMPETITION. Certain of our products are designed to meet our customers specifications and, to the extent we are not able to meet these expectations at all or in timely manner, our customers may choose to buy similar products from another company. As a result, our financial results could be materially adversely impacted. WE MAY BE UNABLE TO GENERATE ENOUGH REVENUES FROM PRODUCTS INCORPORATING TECHNOLOGY LICENSED FROM AGILENT TO OFFSET THE GUARANTEED PAYMENTS TO AGILENT, WHICH COULD MATERIALLY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS. In January 2000, we entered into a four-year agreement with Agilent Technologies, Inc., or Agilent, to co-develop, market and sell fibre channel host adapters. As part of the agreement, we agreed to license Agilent's fibre channel host adapter and software driver technology and pay guaranteed minimum royalty payments of $60.0 million over the term of the agreement as follows: $6.0 million in the first year, $12.0 million in the second year, $18.0 million in the third year and $24.0 million in the fourth year. Additionally, we issued Agilent warrants to purchase Adaptec common stock valued at $37.1 million. The cost of these warrants is being amortized over the term of the agreement. If we are unable to generate sufficient revenues to offset our commitment per the agreement and warrant amortization expenses, our results of operations could be materially adversely impacted. 21 IF THERE IS A SHORTAGE OF COMPUTER COMPONENTS IN THE MARKET, OUR SALES MAY DECLINE, WHICH COULD MATERIALLY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS. If our customers are unable to purchase certain components which are embedded into their products, then their demand for our components may decline. Beginning in the fourth quarter of fiscal 2000, we began to experience the impact of other companies' chip supply shortages, which reduced the demand for some of our DAS products. This resulted in a decline in our net revenues in the first half of fiscal 2001. This shortage, as well as other shortages, could materially adversely impact our sales and thereby our results of operations going forward. OUR RELIANCE ON INDUSTRY STANDARDS AND TECHNOLOGICAL CHANGE IN THE MARKETPLACE MAY CAUSE OUR REVENUES TO FLUCTUATE OR DECLINE. Various standards and protocols that evolve with time characterize the computer industry. We design our products to conform to certain industry standards and protocols such as the following: TECHNOLOGIES: - SCSI - PCI and PCIX - RAID - Ultra-DMA (or UDMA) - Etherstorage - Infiniband - Fibre channel - 1394 - USB OPERATING SYSTEMS: - Windows (including Windows 98 and Windows NT) - OS/2 - Netware - UNIX - Novell - Macintosh - Linux In particular, a majority of our revenues are currently derived from products based on the SCSI standard. If consumer acceptance of these standards declines, or if new standards emerge, and if we did not anticipate these changes and develop new products, these changes could materially adversely affect our business or operating results. For example, we believe that changes in consumers' perceptions of the relative merits of SCSI based products and products incorporating a competing standard, Ultra-DMA, have materially adversely affected the sales of our products beginning in fiscal 1998 and may materially adversely affect our future sales. 22 IF OUR PRODUCTS DO NOT INTEROPERATE EFFECTIVELY, THIS COULD NEGATIVELY IMPACT OUR REVENUES AND REDUCE THE PRICE OF OUR STOCK. We must design our products to interoperate effectively with a variety of hardware and software products supplied by other manufacturers, including the following: - microprocessors - peripherals - operating system software We depend on significant cooperation with these manufacturers to achieve our design objectives and produce products that interoperate successfully. We believe that generally we have good relationships with leading system, peripheral, and microprocessor suppliers; however, these suppliers may, from time to time, make it more difficult for us to design our products for successful interoperability. These suppliers also may decide to compete with us. OUR DEPENDENCE ON NEW PRODUCTS MAY CAUSE OUR REVENUES TO FLUCTUATE OR DECLINE. Our future success is highly dependent upon our completing and introducing new products at competitive price/performance levels in a timely manner. The success of new product introductions depends on several factors, including the following: - defining products to meet customer needs - product costs - timely completion and introduction of new product designs relative to customers' needs and competitor introductions - quality of new products - differentiation of new products from those of our competitors - market acceptance of our products As a result, we believe that continued significant expenditures for research and development will be required in the future. We may fail to identify new product opportunities and develop and bring new products to market in a timely manner. In addition, products or technologies developed by others may render our products or technologies obsolete or noncompetitive, or our targeted customers may not select our products for design or integration into the products. The failure of any of our new product development efforts could have a material adverse effect on our business or operating results. IF WE ARE UNABLE TO COMPETE EFFECTIVELY OUR REVENUES AND OUR STOCK PRICE MAY DECLINE. The markets for all of our products are intensely competitive and are characterized by the following: - rapid technological advances - frequent new product introductions - evolving industry standards - price erosion In the DAS and Storage Networking Solutions, or SNS, segments, we compete with LSI Logic Corporation, QLogic, Corp., American Megatrends, Inc., Mylex Corporation (a subsidiary of IBM) and other captive manufacturers and suppliers. Our principal competitors in the Software segment range from small operations to large consumer software companies. As we have continued to broaden our bandwidth management product offerings into the server, and workstation and desktop environments, we have experienced, and expect to experience in the future, significantly increased competition both from existing competitors and from additional companies that may enter our markets. Some of these 23 companies have greater technical, marketing, manufacturing, and financial resources than we do. We cannot assure that we will have sufficient resources to accomplish any of the following: - meet growing product demand - make timely introduction of new leading-edge solutions in response to competitive threats - compete successfully in the future against existing or potential competitors - provide OEMs with timely design specifications - prevent price competition from eroding margins COSTS ASSOCIATED WITH ACQUISITIONS MAY CAUSE OUR FINANCIAL CONDITION OR OPERATING RESULTS TO DECLINE, WHICH COULD BE EXACERBATED IF WE ARE UNABLE TO INTEGRATE THE ACQUIRED COMPANIES, PRODUCTS OR TECHNOLOGIES. In July 1999, we acquired CeQuadrat, in December 1999, we acquired Distributed Processing Technology, Corp., or DPT, and in March 2000, we acquired Wild File, Inc. Each of the acquisitions was accounted for using the purchase method of accounting. In January 2000, we entered into an agreement with Agilent to co-develop, market and sell fibre channel HBAs. As part of our overall strategy, we may continue to acquire or invest in complementary companies, products, or technologies and enter into joint ventures and strategic alliances with other companies. In order to be successful in these activities, we must: - assimilate the operations and personnel of the combined companies - minimize the potential disruption of our ongoing business - retain key technical and managerial personnel - integrate the acquired company into Adaptec's strategic and financial plans - accurately assess the value of potential target businesses, products or technologies - anticipate changes in the market conditions for acquired products or technologies - harmonize standards, controls, procedures, and policies - minimize the impairment of relationships with employees and customers We may incur expenses associated with amortization of acquired intangible assets. The benefits of acquisitions may prove to be less than anticipated and may not outweigh the costs reported in our financial statements. We may not be successful in overcoming these risks or any other problems encountered in connection with these or other business combinations, investments, or joint ventures. These transactions may materially adversely affect our business, financial condition or operating results. WE DEPEND ON WAFER SUPPLIERS WHOSE FAILURE TO MEET OUR MANUFACTURING NEEDS COULD NEGATIVELY AFFECT OUR OPERATIONS. Independent foundries currently manufacture to our specifications all of the finished silicon wafers used for our products. We currently purchase most of our wafers through a supply agreement with Taiwan Semiconductor Manufacturing Corp., or TSMC. The manufacture of semiconductor devices is sensitive to a wide variety of factors, including the following: - the availability of raw materials - the availability of manufacturing capacity - the level of contaminants in the manufacturing environment - impurities in the materials used - the performance of personnel and equipment 24 While we have been satisfied with the quality, yield, and timeliness of wafer deliveries to date, we cannot assure that manufacturing problems may not occur in the future. In addition, although we have various supply agreements with our suppliers, a shortage of raw materials or production capacity could lead our wafer suppliers to allocate available capacity to other customers, or to the suppliers' internal uses. Any prolonged inability to obtain wafers with competitive performance and cost attributes, adequate yields, or timely deliveries from our foundries would delay our production and our product shipments and could have a material adverse impact on our business or operating results. We expect that our current suppliers will seek to convert their fabrication process arrangements to smaller wafer geometries and to more advanced process technologies. Such conversions entail inherent technological risks that can affect yields and delivery times. If for any reason our current suppliers are unable or unwilling to satisfy our wafer needs, we will be required to identify and qualify additional foundries. Additional wafer foundries may be unavailable, may prove to be unqualified, and may be unable to satisfy our requirements on a timely basis. In order to secure wafer capacity, from time to time we have entered into "take or pay" contracts that have committed us to purchase specified wafer quantities over extended periods, and we have made prepayments to foundries. In the future, we may enter into similar transactions, including, without limitation, the following: - non-refundable deposits - loans - equity investments - joint ventures - other partnership relationships Any such transaction could require us to seek additional equity or debt financing to fund such activities. We may not be able to obtain any required financing on terms acceptable to us. WE DEPEND ON SUBCONTRACTORS WHOSE FAILURE TO MEET OUR MANUFACTURING NEEDS COULD NEGATIVELY AFFECT OUR OPERATIONS. We rely on subcontractors for the assembly and packaging of the integrated circuits, or ICs, included in our products. We have no long-term agreements with our assembly and packaging subcontractors. We also use board subcontractors to better balance production runs and capacity. We cannot assure that such subcontractors will continue to be able and willing to meet our 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 impact on our business or operating results. WE DEPEND ON THE EFFORTS OF OUR DISTRIBUTORS, WHICH IF REDUCED, WOULD RESULT IN LOWER REVENUES AND OPERATING RESULTS. Our distributors generally offer a diverse array of products from several different manufacturers. Accordingly, we are at risk that these distributors may give higher priority to selling products from other suppliers, thus reducing their efforts to sell our products. A reduction in sales efforts by our current distributors could materially adversely impact our business or operating results. Our distributors may on occasion build inventories in anticipation of substantial growth in sales, and if such growth does not occur as rapidly as they anticipate, distributors may decrease the amount of product ordered from us in subsequent quarters. In addition, if we decrease our price protection or distributor-incentive programs, our distributors may temporarily decrease the amounts of product purchased from us. This could result in a change in distributor business habits, and distributors may decide to decrease the amount of product held and reduce their inventory levels. This could reduce our revenues in any given quarter and could negatively impact our operating results. In addition, we may from time to time take actions to reduce levels of products at distributors. These actions could reduce our revenues in any given quarter and could negatively impact our operating results or revenues. 25 Gross revenues from distributors accounted for 54% of our total gross revenues in fiscal 2000. One distributor accounted for 13% of net revenues in fiscal 2000 and 19% of gross trade receivables as of March 31, 2000. Another distributor accounted for 11% of gross trade receivables as of March 31, 2000, but represented less than 10% of net revenues in fiscal 2000. OUR OPERATIONS DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM COULD AFFECT OUR BUSINESS AND REDUCE OUR FUTURE REVENUES. Our future success depends in large part on the continued service of our key technical, marketing, and management personnel, and on our ability to continue to attract and retain qualified employees, particularly those highly skilled design, process, and test engineers who are involved in the design enhancements and 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 materially adversely affect our business, operating results or revenues. Specifically, the expansion of high technology companies in Silicon Valley, where our corporate offices are located, has increased demand and competition for qualified personnel. Our continued growth and future operating results will depend upon our ability to attract, hire and retain significant numbers of qualified employees. CERTAIN OF OUR INTERNATIONAL OPERATIONS ARE RISKY, AND MAY NEGATIVELY AFFECT OUR OPERATIONS OR REVENUES. Our manufacturing facilities and various subcontractors it utilizes from time to time are primarily located in Asia. Additionally, we have various sales offices and customers throughout Europe, Japan, and other countries. Our 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. We may use forward exchange contracts to manage any exposure associated with certain foreign currency-denominated commitments. In addition, because our primary wafer supplier, TSMC is located in Taiwan, we may be subject to certain risks resulting from the political instability in Taiwan, including conflicts between Taiwan and the People's Republic of China. IF WE ARE UNABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS, WE MAY BE UNABLE TO COMPETE EFFECTIVELY. Historically, we have devoted significant resources to research and development, and we believe that the intellectual property derived from such research and development is a valuable asset that is important to the success of our business. Although we actively maintain and defend our intellectual property rights, we may be unable to adequately protect our proprietary rights. In addition, the laws of certain territories in which our products are or may be developed, manufactured, or sold, including Asia and Europe, may not protect our products and intellectual property rights to the same extent as the laws of the United States. Despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property, which could harm our business. We have from time to time discovered counterfeit copies of our products being manufactured or sold by others. Although we maintain an active program to detect and deter the counterfeiting of our products, significant availability of counterfeit products could reduce our revenue and damage our reputation and goodwill with customers. THIRD PARTIES MAY ASSERT INFRINGEMENT CLAIMS AGAINST US, WHICH MAY BE EXPENSIVE TO DEFEND AND RESULT IN ADDITIONAL COSTS AND COULD MATERIALLY ADVERSELY IMPACT OUR OPERATIONS AND REVENUES. From time to time, third parties may assert exclusive patent, copyright, and other intellectual property rights to our key technologies. We cannot assure you that third parties will not assert infringement claims against us in the future, that assertions by third parties will not result in costly litigation, or that we would prevail in such litigation or be able to license any valid and infringed patents from third parties on commercially reasonable terms. Litigation, regardless of the outcome, could result in substantial cost to us and diversion of our resources. Any infringement claim or other litigation against or by us could materially adversely impact our business, operating results or revenues. 26 In May 2000, we entered into an agreement with a third party for a patent cross-license. We will pay the third party a patent settlement fee in return for a release from past infringement claims prior to January 1, 2000 and a fully paid-up license fee for the use of certain of the third party's patents through June 30, 2004. Additionally, we will grant the third party a license to use all of our patents for the same period. The aggregate fee to be paid by us under the cross-license agreement will range from $11.0 million to $25.0 million, depending on the outcome of an evaluation of certain patents by an independent party. Our best estimate of the aggregate fee that will be payable under the cross-license agreement is $18.0 million. WE MAY ENCOUNTER NATURAL DISASTERS, WHICH MAY NEGATIVELY AFFECT OUR OPERATIONS AND OUR FINANCIAL CONDITION. Our corporate headquarters in California are located near major earthquake faults. Any damage to our information systems caused as a result of an earthquake, fire or any other natural disasters could have a material impact on our business, financial condition and results of operations. Additionally, our primary wafer supplier is located in Taiwan, which has experienced significant earthquakes. A severe earthquake could interrupt our manufacturing process and could materially adversely impact our business, financial condition or results of operations. WE MAY EXPERIENCE VOLATILE FLUCTUATIONS IN OUR STOCK PRICE. The stock market in general, and the market for shares of technology companies in particular, has from time to time experienced extreme price fluctuations. Often, these changes have been unrelated to the operating performance of the affected companies. In addition, factors such as technological innovations or new product introductions by us, by our competitors, or by our customers may have a significant impact positively or negatively, on the market price of our common stock. Furthermore, quarter-to-quarter fluctuations in our 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 our common stock. In addition, general market conditions and international macroeconomic factors unrelated to our performance may affect our stock price. These conditions and other conditions and factors that generally affect the market for stocks of technology companies could cause the price of our common stock to fluctuate substantially over short periods. OUR ANNOUNCED SPIN-OFF OF OUR SOFTWARE SEGMENT MAY BE DELAYED OR MAY NOT OCCUR. In June 2000, the Company announced its plan to spin-off the Software segment, subsequently incorporated as Roxio, Inc., or Roxio, in the form of a fully independent and separate company. The Company expects to complete an initial public offering, or IPO, of approximately 15% of Roxio's stock and distribute the remaining Roxio stock to the Company's stockholders in a tax-free distribution. The IPO will be subject to board approval and regulatory approval, and the stockholder distribution will be subject to board approval and receipt of a tax-free ruling from the IRS. In September 2000, Roxio filed a Registration Statement on Form S-1 to register the sale of approximately 15% of its outstanding stock. The S-1 has not become effective as of the date of this report on Form 10-Q. We may not be successful, or we may experience unexpected delays in completing the IPO or the stockholder distribution or both, due to market conditions or delays in obtaining the necessary approvals and IRS ruling. In addition, such delays may adversely impact Roxio's ability to attract and retain qualified employees and require us to incur additional expenses associated with the spin-off, which could have a material adverse effect on our financial condition or operating results. WE ENGAGE IN TRANSACTIONS INVOLVING DERIVATIVES WHICH COULD ADVERSELY AFFECT OUR FINANCIAL POSITION. We engage in transactions involving derivative securities to execute repurchases of our common stock under stock repurchase programs authorized by our board of directors. Some of these transactions may obligate us to buy back shares of our common stock at prices greater than the fair market value at the time of repurchase. In the first half of fiscal 2000, we repurchased shares of our common stock at prices greater than the fair market value at the date of repurchase in accordance with four derivative contracts. Although the impact of these repurchases did not materially adversely impact our financial 27 position, in the future our obligation could be in excess of the amounts recognized in our financial statements and could materially adversely affect our financial position. WE MAY BE ENGAGED IN LEGAL PROCEEDINGS THAT COULD NEGATIVELY AFFECT OUR FINANCIAL CONDITION OR BUSINESS OPERATIONS. From time to time we are subject to litigation or claims that could negatively affect our financial condition or business operations. For instance, a class action lawsuit is pending in the United States District Court for the Northern District of California against us and certain of our officers and directors. This lawsuit alleges that we made false and misleading statements at various times during the period between April 1997 and January 1998 and that these statements violated federal securities laws. Our motion to dismiss the complaint was granted in April 2000. The plaintiffs filed an amended complaint in July 2000. In October 2000, we filed a motion to dismiss the amended complaint. We believe this lawsuit is without merit and we intend to defend ourselves vigorously. However, any dispute, including this lawsuit, could cause us to incur unforeseen expenses, could occupy an inordinate amount of our management's time and attention and could negatively affect our financial condition or business operations. WE MAY BE SUBJECT TO A HIGHER EFFECTIVE TAX RATE THAT COULD NEGATIVELY IMPACT OUR RESULTS OF OPERATIONS AND FINANCIAL POSITION. Our effective tax rate is benefited by a Singapore tax holiday relating to certain of our products. The terms of the tax holiday provide that profits derived from certain products will be exempt from tax through fiscal 2005, subject to certain conditions. If we do not continue to meet the conditions and requirements of the tax holiday in Singapore, our effective tax rate will increase, which could materially adversely impact our results of operations and financial position. WE MAY BE REQUIRED TO PAY ADDITIONAL FEDERAL INCOME TAXES WHICH COULD NEGATIVELY IMPACT OUR FINANCIAL CONDITION. On June 27, 2000, we received a statutory notice of deficiency from the IRS with respect to our federal income tax returns for fiscal 1994 through 1996. The Company filed a Petition with the United States Tax Court on September 25, 2000, contesting the asserted deficiencies. The Company believes it has meritorious defenses against all deficiencies asserted in the notice and intends to contest them. Additionally, the IRS is currently auditing our federal income tax returns for fiscal 1997 through 1999, for which we have received no proposed adjustments. While we believe we have meritorious defenses to the proposed adjustments and that sufficient taxes have been provided, the final outcome of these matters could materially adversely impact our financial condition. 28 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For financial market risks related to changes in interest rates, foreign currency exchange rates and derivative securities, reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in the Registrant's Annual Report to Stockholders for the year ended March 31, 2000. As of September 30, 2000, the Company had an outstanding put warrant that could obligate the Company to buy back 500,000 shares of its common stock at a strike price of $23 in December 2000. The settlement terms include physical settlement, cash settlement or net share settlement at the option of the Company. The put warrant was priced based on the market value of the Company's common stock at the date of issuance. The Company's obligation increases as the market value of its common stock declines. As of September 30, 2000, the market value of the Company's common stock was $20, which is less than the price of the warrant, representing a $1.3 million obligation as of that date. This represents an update to the Quantitative and Qualitative Disclosures About Market Risk contained in the Company's Annual Report to Stockholders for the year ended March 31, 2000. 29 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of Adaptec, Inc. was held on August 24, 2000, in Milpitas, California. Of the total 99,124,506 shares outstanding as of the record date, 86,959,582 shares (87.7%) were present or represented by proxy at the meeting. The table below presents the voting results of election of the Company's Board of Directors:
VOTES VOTES WITHHELD ---------- --------- Laurence B. Boucher................................... 85,816,064 1,143,518 Carl J. Conti......................................... 85,837,245 1,122,337 John East............................................. 85,843,799 1,115,783 Ilene H. Lang......................................... 85,800,868 1,158,714 Robert J. Loarie...................................... 84,558,085 2,401,497 B. J. Moore........................................... 85,800,988 1,158,594 W. Ferrell Sanders.................................... 85,806,288 1,153,294 Robert N. Stephens.................................... 85,783,643 1,175,939 Phillip E. White...................................... 85,788,478 1,171,104
The stockholders approved the Company's 2000 Director Option Plan and reserved for issuance thereunder 1,000,000 shares of common stock. The proposal received 59,382,470 affirmative votes, 26,528,937 negative votes, 1,039,420 abstentions, and 8,755 broker non-votes. The stockholders ratified and approved the appointment of PricewaterhouseCoopers LLP as the independent public accountants of the Company for the fiscal year ended March 31, 2001. The proposal received 86,404,808 affirmative votes, 231,082 negative votes, 323,692 abstentions, and no broker non-votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a.) Exhibits:
EXHIBIT NUMBER DESCRIPTION - ------ ------------------------------------------------------------ 10.1 2000 Director Option Plan and Form of Agreement 27.1 Financial Data Schedule for the quarter ended September 30, 2000
(b.) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter. 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ADAPTEC, INC. By: /s/ DAVID A. YOUNG Date: November 3, 2000 -------------------------------------------- David A. Young Vice President and Chief Financial Officer (principal financial officer) By: /s/ KENNETH B. AROLA Date: November 3, 2000 -------------------------------------------- Kenneth B. Arola Vice President and Corporate Controller (principal accounting officer)
31 EX-10.1 2 a2027675zex-10_1.txt EXHIBIT 10.1 Exhibit 10.1 ADAPTEC, INC. 2000 DIRECTOR OPTION PLAN 1. PURPOSES OF THE PLAN. The purposes of this 2000 Director Option Plan are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "BOARD" means the Board of Directors of the Company. (b) "CHANGE IN CONTROL" means the happening of any of the following: (i) When any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act (other than the Company, a Subsidiary or a Company employee benefit plan, including any trustee of such plan acting as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstanding securities; or (ii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); (iii) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) The consummation of the sale or disposition by the Company of all or substantially all the Company's assets. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMON STOCK" means the common stock of the Company. (e) "COMPANY" means Adaptec, Inc., a Delaware corporation. (f) "DIRECTOR" means a member of the Board. (g) "DISABILITY" means total and permanent disability as defined in section 22(e)(3) of the Code. (h) "EMPLOYEE" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (j) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in THE WALL STREET JOURNAL or such other source as the Board deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (k) "INSIDE DIRECTOR" means a Director who is an Employee. (l) "OPTION" means a stock option granted pursuant to the Plan. (m) "OPTIONED STOCK" means the Common Stock subject to an Option. (n) "OPTIONEE" means a Director who holds an Option. (o) "OUTSIDE DIRECTOR" means a Director who is not an Employee. (p) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (q) "PLAN" means this 2000 Director Option Plan. -2- (r) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. (s) "SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 1,000,000 Shares (the "Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. 4. ADMINISTRATION AND GRANTS OF OPTIONS UNDER THE PLAN. (a) ADMINISTRATION. (i) ADMINISTRATOR Except as otherwise required herein, the Plan shall be administered by the Board. (ii) POWERS OF THE ADMINISTRATOR. Subject to the provisions and restrictions of the Plan, the Board shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock; (ii) to interpret the Plan; (iii) to prescribe, amend and rescind rules and regulations relating to the Plan; (iv) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted hereunder; and (v) to make all other determinations deemed necessary or advisable for the administration of the Plan. (iii) EFFECT OF BOARD'S DECISION. All decisions, determinations and interpretations of the Board shall be final. (b) PROCEDURE FOR GRANTS. All grants of Options to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options. (ii) Each Outside Director shall be automatically granted an Option to purchase 40,000 Shares (the "First Option") upon the date (on or after the effective date of this Plan) on which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a First Option. -3- (iii) Each Outside Director shall be automatically granted an Option to purchase 15,000 Shares (a "Subsequent Option") on March 31st of each year provided he or she is then an Outside Director. (iv) The terms of a First Option granted hereunder shall be as follows: (A) the term of the First Option shall be ten (10) years. (B) the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the First Option. (D) subject to Section 10 hereof, the First Option shall become exercisable as to twenty-five percent (25%) of the Optioned Stock on the first anniversary of the date of grant of the Option and as to six and one-quarter percent (6.25%) of the Optioned Stock for each full calendar quarter thereafter that the Optionee remains a Director. (v) The terms of a Subsequent Option granted hereunder shall be as follows: (A) the term of the Subsequent Option shall be ten (10) years. (B) the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Subsequent Option. (D) subject to Section 10 hereof, the Subsequent Option shall become exercisable as to twenty-five percent (25%) of the Optioned Stock on the last day of each full calendar quarter after the date of grant, provided that the Optionee continues to serve as a Director on such dates. (vi) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. (c) SUSPENSION OR TERMINATION OF OPTION. If the President of the Company or his designee reasonably believes that an Optionee has committed an act of misconduct, the President may suspend the Optionee's right to exercise any Option pending a determination by the Board -4- (excluding the Outside Director accused of such misconduct). If the Board (excluding the Outside Director accused of such misconduct) determines an Optionee has committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary duty or deliberate disregard of the Company rules resulting in loss, damage or injury to the Company, or if an Optionee makes an unauthorized disclosure of any Company trade secret or confidential information, engages in any conduct constituting unfair competition, induces any Company customer to breach a contract with the Company or induces any principal for whom the Company acts as agent to terminate such agency relationship, neither the Optionee nor his estate shall be entitled to exercise any Option whatsoever. In making such determination, the Board (excluding the Outside Director accused of such misconduct) shall act fairly and shall give the Optionee an opportunity to appear and present evidence on Optionee's behalf at a hearing before the Board or a committee of the Board. 5. ELIGIBILITY. Options may be granted only to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time. 6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company as described in Section 16 of the Plan. It shall continue in effect until terminated under Section 11 of the Plan. 7. FORM OF CONSIDERATION. The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Board and may consist entirely of (i) cash, (ii) check, (iii) promissory note, (iv) other shares which (x) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, (vi) by delivering an irrevocable subscription agreement for the Shares which irrevocably obligates the Optionee to take and pay for the Shares not more than twelve (12) months after the date of delivery of the subscription agreement, (vii) any combination of the foregoing methods of payment, or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted under applicable law. 8. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4 hereof; provided, however, that no Options shall be exercisable until stockholder approval of the Plan in accordance with Section 16 hereof has been obtained. -5- An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. In the event an Optionee's status as a Director terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within three (3) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of such termination, or to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (c) DISABILITY OF OPTIONEE. In the event Optionee's status as a Director terminates as a result of Disability, the Optionee may exercise his or her Option, but only within six (6) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (d) DEATH OF OPTIONEE. In the event of an Optionee's death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within six (6) months following the date of death, and only to the extent that the Optionee was entitled to exercise it on the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of death, or to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. -6- 9. NON-TRANSFERABILITY OF OPTIONS. Unless otherwise provided for by the Administrator, the Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. 10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION OR CHANGE IN CONTROL. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Option, the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant to the automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. (b) DISSOLUTION OR LIQUIDATION. Subject to paragraph (d) below, in the event of the proposed dissolution or liquidation of the Company, all outstanding Options will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. (c) CHANGE IN CONTROL. In the event of a "Change in Control" of the Company, as defined above, any Options outstanding upon the date of such Change in Control that are not yet exercisable and vested on such date shall become one hundred percent (100%) exercisable and vested. (d) GOLDEN PARACHUTE EXCISE TAX VESTING ACCELERATION LIMITATION. Notwithstanding any other provision of this Plan, in the event that the vesting acceleration provided for in this Plan or amounts or benefits otherwise payable to an Optionee (i) constitute "parachute payments" within the meaning of Section 280G of the Code, and (ii) but for this Section 10(d), would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Optionee's accelerated vesting hereunder shall be either (i) made in full, or -7- (ii) made as to such lesser extent as would result in no portion of such acceleration, amounts or benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by the Optionee on an after-tax basis, of the greatest amount of severance benefits, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999 of the Code. Unless the Company and the Optionee otherwise agree in writing, any determination required under this Section 10(d) shall be made in writing in good faith by the accounting firm serving as the Company's independent public accountants immediately prior to the Change of Control (the "Accountants"). In the event of a reduction in benefits hereunder, the Optionee shall be given the choice of which benefits to reduce. For purposes of making the calculations required by this Section 10(d), the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and the Optionee shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 10(d). (e) POOLING OF INTERESTS LIMITATION. To the extent that the enforcement of any provision of this Plan, including, but not limited to Section 10(c) hereof, which allows for the acceleration of vesting of options to purchase shares of Common Stock, would cause a contemplated Change of Control transaction that was intended to be accounted for as a "pooling-of-interests" transaction to become ineligible for such accounting treatment under generally accepted accounting principles, as determined by the Company's independent public accountants, then such provision shall automatically be deemed amended to provide Optionee with such lesser benefits as would allow for the contemplated Change of Control transaction to be accounted for as a "pooling-of-interests" transaction. 11. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. -8- 12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4 hereof. 13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 14. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 15. OPTION AGREEMENT. Options shall be evidenced by written option agreements in such form as the Board shall approve. 16. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and any stock exchange rules. -9- ADAPTEC, INC. DIRECTOR'S OPTION AGREEMENT (First Option) Adaptec, Inc., a Delaware corporation (the "Company"), has granted to _______________________ (the "Optionee"), an option to purchase a total of 40,000 shares of the Company's Common Stock (the "Optioned Stock"), at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the 2000 Directors' Option Plan (the "Plan") adopted by the Company which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein. 1. NATURE OF THE OPTION. This is a nonstatutory option and is not intended to qualify for any special tax benefits to the Optionee. 2. EXERCISE PRICE. The exercise price is $ for each share of Common Stock, which is 100% of the fair market value of the Common Stock as determined on the date of grant of this Option. 3. EXERCISE OF OPTION. This Option shall be exercisable during its term in accordance with the provisions of Section 8 of the Plan as follows: (i) RIGHT TO EXERCISE. (a) This Option shall become exercisable cumulatively as to twenty-five percent (25%) of the Optioned Stock on the first anniversary of the date of the grant and as to six and one-quarter percent (6.25%) of the remaining Optioned Stock for each full quarter thereafter that the Optionee remains a Director; provided, however, that in no event shall this Option be exercisable until shareholder approval of the Plan has been obtained in accordance with Section 16 thereof. (b) This Option may not be exercised for a fraction of a share. (c) In the event of Optionee's death, disability or other termination of service as a Director, the exercisability of the Option is governed by Sections 6, 7 and 8 of this Agreement. (ii) METHOD OF EXERCISE. This Option shall be exercisable by written notice (in the form attached hereto as EXHIBIT A) which shall state the election to exercise the Option and the number of Shares in respect of which the Option is being exercised. The written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price. 4. METHOD OF PAYMENT. Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee: (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) promissory note, (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (vi) by delivering an irrevocable subscription agreement for the Shares which irrevocably obligates the Optionee to take and pay for the Shares not more than twelve (12) months after the date of delivery of the subscription agreement. 5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not comply with the requirements of any stock exchange upon which the Shares may then be listed. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. TERMINATION OF STATUS AS A DIRECTOR. If Optionee ceases to serve as a Director, he may, but only within three (3) months after the date he ceases to be a Director of the Company, exercise this Option to the extent that he was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its ten (10) year term has expired. To the extent that he was not entitled to exercise this Option at the date of such termination, or if he does not exercise this Option within the time specified herein, the Option shall terminate. 7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6 above, if Optionee is unable to continue his service as a Director as a result of his Disability he may, but only within six (6) months from the date of termination, exercise this Option to the extent he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise this Option at the date of termination, or if he does not exercise this Option within the time specified herein, the Option shall terminate. 8. DEATH OF OPTIONEE. In the event of the death of Optionee, the Option may be exercised, at any time within six (6) months following the date of death, by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death. 9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 10. TERM OF OPTION. This Option may not be exercised more than ten (10) years from the date of grant of this Option, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 11. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon exercise of this Option, he will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the Shares purchased over the exercise price paid for such Shares. Upon a resale of such Shares by the Optionee, any difference between the sale price and the fair market value of the Shares on the date of exercise of the Option will be treated as capital gain or loss. Optionee acknowledges receipt of a copy of the Plan, a copy of which is annexed hereto, and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan. ---------------------------- Date ---------------------------- Optionee EXHIBIT A DIRECTOR OPTION EXERCISE NOTICE Adaptec, Inc. 691 South Milpitas Boulevard Milpitas, CA 95035 Attention: Corporate Secretary 1. EXERCISE OF OPTION. The undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase ______ shares of the Common Stock (the "Shares") of Adaptec, Inc. (the "Company") under and pursuant to the Company's 2000 Director Option Plan and the Director Option Agreement dated _______________ (the "Agreement"). 2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has received, read and understood the Agreement. 3. TAX CONSEQUENCES. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultant(s) Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 4. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the aggregate purchase price for the Shares that Optionee has elected to purchase and has made provision for the payment of any federal or state withholding taxes required to be paid or withheld by the Company. 5. ENTIRE AGREEMENT. The Agreement is incorporated herein by reference. This Exercise Notice and the Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. This Exercise Notice and the Agreement are governed by California law except for that body of law pertaining to conflict of laws. Submitted by: Accepted by: OPTIONEE: ADAPTEC, INC. By: By: - ------------------------------ ----------------------------------- Its: ----------------------------------- Address: Dated: Dated: ------------------------ -------------------------------- ADAPTEC, INC. DIRECTOR'S OPTION AGREEMENT (Subsequent Option) Adaptec, Inc., a Delaware corporation (the "Company"), has granted to ________________ (the "Optionee"), an option to purchase a total of 15,000 shares of the Company's Common Stock (the "Optioned Stock"), at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the 2000 Directors' Option Plan (the "Plan") adopted by the Company which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein. 1. NATURE OF THE OPTION. This is a nonstatutory option and is not intended to qualify for any special tax benefits to the Optionee. 2. EXERCISE PRICE. The exercise price is $ _______________ for each share of Common Stock, which is 100% of the fair market value of the Common Stock as determined on the date of grant of this Option. 3. EXERCISE OF OPTION. This Option shall be exercisable during its term in accordance with the provisions of Section 8 of the Plan as follows: (i) RIGHT TO EXERCISE. (a) This Option shall become exercisable cumulatively as to twenty-five percent (25%) of the Optioned Stock for each full quarter after the date of grant that the Optione remains a Director; provided, however, that in no event shall this Option be exercisable until shareholder approval of the Plan has been obtained in accordance with Section 16 thereof. (b) This Option may not be exercised for a fraction of a share. (c) In the event of Optionee's death, disability or other termination of service as a Director, the exercisability of the Option is governed by Sections 6, 7 and 8 of this Agreement. (ii) METHOD OF EXERCISE. This Option shall be exercisable by written notice (in the form attached hereto as EXHIBIT A) which shall state the election to exercise the Option and the number of Shares in respect of which the Option is being exercised. The written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price. 4. METHOD OF PAYMENT. Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee: (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six (6) months on the date of surrender or were not acquired, directly or indirectly, from the Company, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) promissory note, (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (vi) by delivering an irrevocable subscription agreement for the Shares which irrevocably obligates the Optionee to take and pay for the Shares not more than twelve (12) months after the date of delivery of the subscription agreement, 5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not comply with the requirements of any stock exchange upon which the Shares may then be listed. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. TERMINATION OF STATUS AS A DIRECTOR. If Optionee ceases to serve as a Director, he may, but only within three (3) months after the date he ceases to be a Director of the Company, exercise this Option to the extent that he was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its ten (10) year term has expired. To the extent that he was not entitled to exercise this Option at the date of such termination, or if he does not exercise this Option within the time specified herein, the Option shall terminate. 7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6 above, if Optionee is unable to continue his service as a Director as a result of his Disability he may, but only within six (6) months from the date of termination, exercise this Option to the extent he was entitled to exercise it at the date of such termination. To the extent that he was not entitled to exercise this Option at the date of termination, or if he does not exercise this Option within the time specified herein, the Option shall terminate. 8. DEATH OF OPTIONEE. In the event of the death of Optionee, the Option may be exercised, at any time within six (6) months following the date of death, by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that had accrued at the date of death. 9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by him. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 10. TERM OF OPTION. This Option may not be exercised more than ten (10) years from the date of grant of this Option, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 11. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon exercise of this Option, he will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the Shares purchased over the exercise price paid for such Shares. Upon a resale of such Shares by the Optionee, any difference between the sale price and the fair market value of the Shares on the date of exercise of the Option will be treated as capital gain or loss. Optionee acknowledges receipt of a copy of the Plan, a copy of which is annexed hereto, and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan. --------------------------------- Date --------------------------------- Optionee EXHIBIT A DIRECTOR OPTION EXERCISE NOTICE Adaptec, Inc. 691 South Milpitas Boulevard Milpitas, CA 95035 Attention: Corporate Secretary 1. EXERCISE OF OPTION. The undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase ______ shares of the Common Stock (the "Shares") of Adaptec, Inc. (the "Company") under and pursuant to the Company's 2000 Director Option Plan and the Director Option Agreement dated _______________ (the "Agreement"). 2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has received, read and understood the Agreement. 3. TAX CONSEQUENCES. Optionee understands that Optionee may suffer adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultant(s) Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 4. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the aggregate purchase price for the Shares that Optionee has elected to purchase and has made provision for the payment of any federal or state withholding taxes required to be paid or withheld by the Company. 5. ENTIRE AGREEMENT. The Agreement is incorporated herein by reference. This Exercise Notice and the Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. This Exercise Notice and the Agreement are governed by California law except for that body of law pertaining to conflict of laws. Submitted by: Accepted by: OPTIONEE: ADAPTEC, INC. By: By: ----------------------------- ----------------------------- Its: ---------------------------- Address: Dated: Dated: -------------------------- -------------------------- EX-27.1 3 a2027675zex-27_1.txt EXHIBIT 27.1
5 1,000 U.S.-DOLLARS 3-MOS MAR-31-2001 JUL-01-2000 SEP-30-2000 1 163,599 404,367 99,771 891 74,559 864,875 227,830 113,405 1,269,095 253,918 229,800 0 0 99 774,478 1,269,095 185,468 185,468 72,830 72,830 95,724 0 3,079 103,860 44,421 59,439 0 0 0 59,439 0.60 0.58
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