<PAGE> 1
As filed with the Securities and Exchange Commission on April 4, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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ADAPTEC, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 36798 94-2748530
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
691 S. MILPITAS BLVD.
MILPITAS, CALIFORNIA 95035
(408) 945-8600
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
-------------------
F. GRANT SAVIERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ADAPTEC, INC.
691 S. MILPITAS BLVD.
MILPITAS, CALIFORNIA 95035
(408) 945-8600
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Copies to:
HENRY P. MASSEY, JR., ESQ.
DAVID C. DRUMMOND, ESQ.
PETER S. HEINECKE, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(415) 493-9300
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Approximate date of commencement of proposed sale to the public: FROM
TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SECURITY PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4 3/4% Convertible Subordinated $230,000,000 100% $230,000,000 $69,697
Notes Due February 1, 2004
- ---------------------------------------------------------------------------------------------------
Common Stock, $.001 par 4,452,188(2) --- --- ---
value
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(i) of the Securities Act of 1933, as amended.
(2) Such number represents the number of shares of Common Stock as are
initially issuable upon conversion of the 4 3/4% Convertible
Subordinated Notes due February 1, 2004 registered hereby and, pursuant
to Rule 416 under the Securities Act of 1933, as amended, such
indeterminate number of shares of Common Stock as shall be required for
issuance upon conversion of the aforesaid notes. Pursuant to Rule
457(i), no registration fee is required.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
ADAPTEC, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEMS AND HEADING IN FORM S-1 REGISTRATION STATEMENT
PROSPECTUS LOCATION IN PROSPECTUS
- ------------------------------------------------------------ ------------------------------------------------------------
<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus ................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus ....................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges ........................ Prospectus Summary; Risk Factors
4. Use of Proceeds .................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price .................. Not applicable
6. Dilution ......................................... Not applicable
7. Selling Security Holders ......................... Principal and Selling Shareholders
8. Plan of Distribution ............................. Outside and Inside Front Cover Pages; Plan of Distribution
9. Description of Securities to be Registered ....... Description of Capital Stock; Description of Notes; Dividend
Policy
10. Interests of Named Experts and Counsel ........... Legal Matters; Experts
11. Information with Respect to the Registrant ....... Outside and Inside Front Cover Pages; Prospectus Summary;
Risk Factors; Price Range of Common Stock; Dividend Policy;
Selected Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and Results
of Operations; Business; Management; Certain Relationships
and Related Transactions; Principal Shareholders;
Description of Capital Stock; Consolidated Financial
Statements; Outside Back Cover Page
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ... Not applicable
</TABLE>
<PAGE> 4
PROSPECTUS
Adaptec, Inc.
U.S. $230,000,000
4 3/4% Convertible Subordinated Notes due February 1, 2004
and
Shares of Common Stock Issuable Upon Conversion Thereof
-----------------------
This Prospectus relates to $230,000,000 aggregate principal amount of
4 3/4% Convertible Subordinated Notes due February 1, 2004 (the "Notes") of
Adaptec, Inc. (the "Company") under the Securities Act of 1933, as amended (the
"Securities Act"), and the shares of Common Stock, $.001 par value of the
Company, ("Common Stock") issuable upon the conversion of the Notes (the
"Conversion Shares"). The Notes registered hereby were issued and sold on
February 3, 1997 (the "Original Offering") in transactions exempt from the
registration requirements of the Securities Act, to persons reasonably believed
by Bear, Stearns & Co. Inc., Lehman Brothers, Robertson Stephens & Company LLC,
and Unterberg Harris, as the initial purchasers (the "Initial Purchasers") of
the Notes, to be "qualified institutional buyers" (as defined by Rule 144A under
the Securities Act) or other institutional "accredited investors" (as defined in
Rule 501(a)(1), (2), (3) or (7) under Regulation D of the Securities Act) or in
compliance with the provisions of Regulation S under the Securities Act. The
Notes and the Common Stock issuable upon conversion thereof may be offered and
sold from time to time by the holders named herein or by their transferees,
pledgees, donees or their successors (collectively, the "Selling
Securityholders") pursuant to this Prospectus. The Registration Statement of
which this Prospectus is a part has been filed with the Securities and Exchange
Commission pursuant to a registration rights agreement dated as of February 3,
1997 (the "Registration Agreement") between the Company and the Initial
Purchasers, entered into in connection with the Original Offering.
The Notes are convertible at the option of the holder into shares of
Common Stock of the Company (at any time on or after May 5, 1997 and prior to
redemption or maturity, at a conversion rate of 19.3573 shares per $1,000
principal amount of Notes), subject to adjustment under certain circumstances.
Interest on the Notes is payable semi-annually in arrears on February 1 and
August 1 of each year, commencing on August 1, 1997. On April 2, 1997, the
closing price of the Common Stock, which is quoted on the Nasdaq National Market
under the symbol "ADPT," was $35.75 per share.
-----------------------
THE NOTES AND THE COMMON STOCK OFFERED HEREBY
INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 8.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 5
The Notes are unsecured general obligations of the Company and are
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined in the Indenture). See "Description of Notes--Subordination." The
Notes will mature on February 1, 2004, and may be redeemed, at the option of the
Company, in whole or in part, at any time on or after February 3, 2000 at the
redemption prices set forth herein plus accrued interest. Each holder of Notes
will have the right to cause the Company to repurchase all of such holder's
Notes, payable in cash or, at the Company's option, in Common Stock, in the
event the Common Stock is no longer publicly traded or in certain circumstances
involving a Change of Control (as defined in the Indenture).
The Notes and the Conversion Shares may be offered by the Selling
Securityholders from time to time in transactions (which may include block
transactions in the case of the Conversion Shares) on any exchange or market on
which such securities are listed or quoted, as applicable, in negotiated
transactions, through a combination of such methods of sale, or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices. The
Selling Securityholders may effect such transactions by selling the Notes or
Conversion Shares directly or to or through broker-dealers, who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of the Notes or Conversion Shares
for whom such broker-dealers may act as agents or to whom they may sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). The Company will not receive any of the
proceeds from the sale of the Notes or Conversion Shares by the Selling
Securityholders. The Company has agreed to pay all expenses incident to the
offer and sale of the Notes and Conversion Shares offered by the Selling
Securityholders hereby, except that the Selling Securityholders will pay all
underwriting discounts and selling commissions, if any. See "Plan of
Distribution."
The Notes have been designated for trading on the PORTAL Market. Notes
sold pursuant to this Prospectus are not eligible for trading on the PORTAL
Market.
The Selling Securityholders will receive all of the net proceeds from
the sale of the Notes and the Common Stock issuable upon conversion of the Notes
and will pay all underwriting discounts and selling commissions, if any,
applicable to the sale of the Notes and the Common Stock issuable upon
conversion of the Notes. The Company is responsible for payment of all other
expenses incident to the offer and sale of the Notes and the Common Stock
issuable upon conversion of the Notes.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements, and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy and information statements, and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the regional offices of the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Such reports, proxy statements and other information can also be
inspected at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a World
Wide Web site that contains reports, proxy and
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<PAGE> 6
information statements, and other information that are filed through the
Commission's Electronic Data Gathering, Analysis and Retrieval System. This Web
site can be accessed at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on
Form S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Notes and Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company, the
Notes and the Common Stock, reference is made to the Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily complete
and, in each instance, reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. Copies of the Registration
Statement, including all exhibits thereto, may be obtained from the Commission's
principal office in Washington, D.C. upon payment of the fees prescribed by the
Commission, or may be examined without charge at the offices of the Commission
described above.
Adaptec, EZ-SCSI and SCSIselect are registered trademarks of Adaptec,
Inc. This Prospectus also uses trademarks and registered trademarks of
companies other than the Company and its subsidiaries.
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<PAGE> 7
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial information appearing elsewhere in this
Prospectus. This Prospectus contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. When used in this Prospectus, the words "believes," "intends,"
"anticipates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Such risks
and uncertainties include the timing and acceptance of new product
introductions, the actions of the Company's competitors and business partners,
and those discussed under the caption "Risk Factors." Share and per share data
in this Prospectus have been adjusted to reflect a two-for-one split of the
outstanding Common Stock of the Company which was effected in November 1996.
Unless the context requires otherwise, all references herein to the "Company" or
"Adaptec" mean Adaptec, Inc. and its wholly-owned subsidiaries.
THE OFFERING
ISSUER ........... Adaptec, Inc. (the "Company")
SECURITIES ....... Offered $230,000,000 of 4 3/4%
Convertible Subordinated Notes Due 2004
issued under an indenture (the
"Indenture") between the Company and
State Street Bank and Trust Company, as
trustee (the "Trustee").
INTEREST PAYMENT
DATES ............ February 1 and August 1 of each year,
commencing August 1, 1997.
MATURITY ......... February 1, 2004
CONVERSION........ Convertible at the option of the holder
at any time on or after May 5, 1997
through the close of business on
February 1, 2004, subject to prior
redemption and repurchase, into Common
Stock of the Company at $51.66 per
share, subject to adjustment as set
forth herein. See "Description of
Notes-- Conversion of Notes."
REDEMPTION........ The Notes are redeemable, in whole or in
part, at the option of the Company, at
any time on or after February 3, 2000,
at the declining redemption prices set
forth herein plus accrued interest to
the date of redemption. See "Description
of Notes-- Optional Redemption by the
Company."
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<PAGE> 8
REPURCHASE AT OPTION OF
HOLDERS UPON A CHANGE OF
CONTROL ......................... In the event of a Change of Control (as
defined), holders of Notes will have the
right to require that the Company repurchase
the Notes in whole or in part at a repurchase
price of 101% of the principal amount thereof
plus accrued interest to the date of
repurchase. See "Description of Notes --
Repurchase at Option of Holders."
RANKING ......................... The Notes constitute general unsecured
obligations of the Company and are
subordinated in right of payment to all
existing and future Senior Indebtedness (as
defined) of the Company. As of December 27,
1996, the Company had approximately $5.1
million of outstanding indebtedness that
would have constituted Senior Indebtedness
(excluding accrued interest and Senior
Indebtedness constituting liabilities of a
type not required to be reflected as a
liability on the balance sheet of the Company
in accordance with generally accepted
accounting principles). In addition, because
certain of the Company's operations are
conducted through operating subsidiaries,
claims of holders of indebtedness of such
subsidiaries, as well as claims of regulators
and creditors of such subsidiaries, will have
priority with respect to the assets and
earnings of such subsidiaries over the claims
of creditors of the Company, including
holders of the Notes. As of December 27,
1996, the aggregate liabilities of such
subsidiaries were approximately $22.9 million
(excluding intercompany liabilities and
liabilities of a type not required to be
reflected on the balance sheets of such
subsidiaries in accordance with generally
accepted accounting principles). The
Indenture does not limit the amount of
additional indebtedness which the Company can
create, incur, assume or guarantee, nor will
the Indenture limit the amount of
indebtedness which any subsidiary can create,
incur, assume or guarantee. See "Description
of Notes-- Subordination."
TRADING ......................... The Notes have been designated for trading in
The PORTAL Market. Notes sold pursuant to
this Prospectus are not eligible for trading
on the PORTAL Market. The Company's Common
Stock is traded on the Nasdaq National Market
under the symbol "ADPT".
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<PAGE> 9
THE COMPANY
Adaptec is a leading supplier of bandwidth management solutions that
significantly enhance total system performance by increasing data transfer rates
between PCs, servers, peripherals and networks. The Company's products include
host adapters, which are primarily based on the SCSI standard, peripheral
technology solutions, which are primarily ASIC controllers for hard disk and
CD-ROM drives, and network products, which include ATM and Fast Ethernet
adapters. Adaptec provides its customers complete solutions, consisting of
hardware, software and firmware, which are incorporated into the products of
substantially all of the major Intel-based PC and server manufacturers
worldwide.
A number of trends are driving the need to increase effective
input-output ("I/O") bandwidth between PCs, servers, peripherals and networks:
(i) the introduction of increasingly powerful CPUs, which require more rapidly
accessed and intelligently managed data to function at their optimal performance
level, (ii) new advanced operating systems, such as Windows 95 and Windows NT
that allow for faster I/O and multitasking, (iii) the growth of data-intensive
software applications, such as graphics and video, which require significantly
more bandwidth, (iv) the proliferation of client/server networks, the Internet
and corporate intranets, which is in turn driving growth in the number and
processing power of servers, and (v) growth in high performance peripherals,
such as high capacity hard disk drives, scanners, CD-ROMs, and new CD-R and DVD
drives. These factors have created a rapid increase in the transfer of data
between the desktop, servers, peripherals and networks, resulting in substantial
I/O and network bottlenecks.
The majority of the Company's products are based on the SCSI standard,
which was pioneered by Adaptec. SCSI has been widely adopted as the industry
standard I/O bus specification for high performance PCs, servers and
peripherals. SCSI allows the "intelligent" transfer of data between computers,
peripherals and networks by enabling multitasking and by off-loading the CPU
from I/O management, and provides a high performance, system-independent
interface that supports multiple peripherals. SCSI adapters are used in servers,
where the Company believes that virtually every system now has at least one SCSI
adapter and more recently, in high performance desktop PCs. Through succeeding
generations, SCSI has evolved from its original standard, which supported data
transfer rates of 5 mbps, to the most recent UltraSCSI standard which is capable
of data transfer rates of 40 mbps. Adaptec has been the leading supplier of
SCSI-based solutions for each generation of SCSI technology.
In addition to its SCSI host adapters, the Company offers a broad line
of integrated circuit ("IC") solutions for the mass storage market and a line of
network adapters based on the ATM and Fast Ethernet standards. The Company has
introduced products for emerging high performance I/O technologies such as
Firewire, which is used primarily for consumer products; a RAID solution, which
includes a proprietary ASIC controller and software; and a software-only product
which enables users to master CDs using a CD-R drive. The Company is also
developing an adapter for Fibre Channel, an emerging I/O standard which is
primarily intended for very high performance data-intensive applications.
The Company believes it has successfully positioned itself as a leading
supplier of a full range of I/O solutions providing bandwidth management. The
Company sells its products through a direct sales force to substantially all
major server and PC manufacturers, as well as most of the major distributors
worldwide. Customers include Acer, Compaq, Digital Equipment Corporation, Dell
Computer, Fujitsu, Gateway 2000, Hewlett-Packard, IBM, Intel, IOmega, Maxtor,
NEC, Samsung, Siemons Nixdorf and Toshiba.
The Company was incorporated in California in May 1981. Its principal
executive offices are located at 691 South Milpitas Boulevard, Milpitas,
California 95035, and its telephone number is 408-945-8600.
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<PAGE> 10
Summary Consolidated Financial Information
(in thousands, except ratios and per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, --------------------------
------------------------------------------------ December 29, December 27,
1992 1993 1994 1995 1996 1995 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues ........................ $150,315 $311,339 $372,245 $466,194 $659,347 $463,322 $668,760
Income from operations .............. 16,397 62,743 77,135 117,784 126,135 74,819 98,121
Net income .......................... 14,614 49,390 58,950 93,402 103,375 62,307 60,735
Net income per share ................ $ 0.18 $ 0.48 $ 0.55 $ 0.88 $ 0.95 $ 0.57 $ 0.53
Weighted average shares outstanding . 83,328 103,304 107,204 106,714 109,138 108,794 114,002
Adjusted income from operations(1) .. $ 16,397 $ 62,743 $ 77,135 $117,784 $178,448 $127,132 $178,784
Adjusted net income(1) .............. 14,614 49,390 61,359 93,402 142,826 101,758 139,632
Adjusted net income per share(1) .... $ 0.18 $ 0.48 $ 0.57 $ 0.88 $ 1.31 $ 0.94 $ 1.22
Ratio of earnings to fixed charges(2) 26.4x 46.5x 43.6x 64.4x 67.8x 51.7x 61.7x
</TABLE>
<TABLE>
<CAPTION>
Pro-Forma as of
December 27, 1996 December 27, 1996(3)
----------------- --------------------
<S> <C> <C>
Balance Sheet Data:
Working capital......................... $374,707 $599,140
Total assets............................ 726,487 956,487
Long-term debt, net of current portion . 1,700 231,700
Shareholders' equity ................... 611,999 611,999
</TABLE>
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(1) Adjusted for one-time charges primarily related to the write-off of
acquired in-process technology. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations."
(2) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated pre-tax income plus fixed charges
and (ii) fixed charges consist of interest expense incurred, and
the portion of rental expense under leases deemed by the Company to be
representative of the interest factor.
(3) Adjusted to reflect the issuance and sale of $230 million of 4 3/4%
convertible subordinated notes, net of applicable expenses, discounts and
commissions on February 3, 1997.
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RISK FACTORS
This Prospectus contains forward-looking statements that involve risks
and uncertainties. The statements contained in this Prospectus that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus. In evaluating the
Company's business, prospective investors should consider carefully the
following factors in addition to the other information set forth in this
Prospectus.
Future Operating Results Subject to Fluctuation. The Company's
operating results may fluctuate in the future as a result of a number of
factors, including cancellations or postponements of orders, shifts in the mix
of the Company's products and sales channels, changes in pricing policies by the
Company's suppliers, interruption in the supply of custom integrated circuits,
the market acceptance of new and enhanced versions of the Company's products and
the timing of acquisitions of other business products and technologies and any
associated charges to earnings. The volume and timing of orders received during
a quarter are difficult to forecast. The Company's customers from time to time
encounter uncertain and changing demand for their products. Customers generally
order based on their forecasts. If demand falls below such forecasts or if
customers do not control inventories effectively, they may cancel or reschedule
shipments previously ordered from the Company. Additionally, the Company has
historically operated with a relatively small backlog, especially relating to
orders of its board-based I/O solutions. Further, the Company's expense levels
are based in part on expectations of future revenues, and the Company has been
significantly increasing and intends to continue to increase operating
expenditures and working capital balances as it expands its operations. As a
result of the difficulty of forecasting revenues and the Company's planned
growth in spending, operating expenses could be disproportionately high for a
given quarter, and the Company's operating results for that quarter, and
potentially future quarters, would be adversely affected. Operating results in
any particular quarter which do not meet the expectations of securities analysts
could cause volatility in the price of the Company's Common Stock.
Dependence on the High-Performance Microcomputer Market. The Company's
board-based I/O solutions are used primarily in high performance computer
systems designed to support bandwidth-intensive applications and operating
systems. Historically, the Company's growth has been supported by increasing
demand for systems which support client/server and Internet/intranet
applications, computer-aided engineering, desktop publishing, multimedia, and
video. Should the growth of demand for such systems slow, the Company's business
or operating results could be materially adversely affected by a decline in
demand for the Company's products.
Certain Risks Associated with the Computer Peripherals Market. As a
supplier of controller circuits to manufacturers of computer peripherals such as
disk drives and other storage devices, a portion of the Company's business is
dependent on the overall market for computer peripherals. This market, which
itself is dependent on the market for personal computers, has historically been
characterized by periods of rapid growth followed by periods of oversupply and
contraction. As a result, suppliers to the computer peripherals industry from
time to time experience large and sudden fluctuations in demand for their
products as their customers adjust to changing conditions in their markets. If
these fluctuations are not accurately anticipated, such suppliers, including the
Company, could produce excessive or insufficient inventories of various
components which could
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<PAGE> 12
materially and adversely affect the Company's business and operating results.
The computer peripherals industry is also characterized by intense
price-competition which in turn creates pricing pressures on the suppliers to
that industry. If the Company is unable to correspondingly decrease its
manufacturing or component costs, such pricing pressures could have a material
adverse effect on the Company's business or operating results.
Reliance on Industry Standards; Technological Change; Dependence on New
Products. The computer industry is characterized by various standards and
protocols that evolve with time. The Company's current products are designed to
conform to certain industry standards and protocols such as SCSI, UltraSCSI,
PCI, RAID, ATM and Fast Ethernet. In particular, a majority of the Company's
revenues are currently derived from products based on the SCSI standard. If
consumer acceptance of these standards was to decline or if they were replaced
with new standards, and if the Company did not anticipate these changes and
develop new products, the Company's business or operating results could be
materially adversely affected.
The markets for the Company's products are characterized by rapidly
changing technology, frequent new product introductions and declining average
selling prices over product life cycles. The Company's future success is
therefore highly dependent upon the timely completion and introduction of new
products at competitive price/performance levels. The success of new product
introductions is dependent on several factors, including proper new product
definition, product cost, timely completion and introduction of new product
designs, quality of new products, differentiation of new products from those of
the Company's competitors and market acceptance of the Company's and its
customers' products. As a result, the Company believes that continued
significant expenditures for research and development will be required in the
future. There can be no assurance that the Company will successfully identify
new product opportunities and develop and bring new products to market in a
timely manner, that products or technologies developed by others will not render
the Company's products or technologies obsolete or noncompetitive, or that the
Company's products will be selected for design into the products of its targeted
customers. The failure of any of the Company's new product development efforts
could have a material adverse effect on the Company's business or operating
results. In addition, the Company's revenues and operating results could be
adversely impacted if its customers shifted their demand to a significant extent
away from board-based I/O solutions to application-specific ICs.
Dependence on Wafer Suppliers and Other Subcontractors. All of the
finished silicon wafers used for the Company's products are currently
manufactured to the Company's specifications by independent foundries. The
Company currently purchases a substantial majority of its wafers through a
supply agreement with Taiwan Semiconductor Manufacturing Company, Ltd. ("TSMC").
The Company also purchases wafers from SGS-Thomson Microelectronics and Seiko
Epson. The manufacture of semiconductor devices is sensitive to a wide variety
of factors, including the availability of raw materials, the level of
contaminants in the manufacturing environment, impurities in the materials used,
and the performance of personnel and equipment. While the quality, yield and
timeliness of wafer deliveries to date have been acceptable, there can be no
assurance that manufacturing yield problems will not occur in the future. In
addition, although the Company has various supply agreements with its suppliers,
a shortage of raw materials or production capacity could lead any of the
Company's wafer suppliers to allocate available capacity to customers other than
the Company, or to internal uses. Any prolonged inability to obtain wafers with
competitive performance and cost attributes, adequate yields or timely
deliveries from its foundries would delay production and product shipments and
could have a material adverse effect on the Company's business or operating
results. The Company expects that it will in the future seek to convert its
fabrication process arrangements to smaller geometries and to more advanced
process technologies. Such conversions entail inherent technological risks that
can affect yields and delivery times. If for any reason the Company's current
suppliers were unable or unwilling to satisfy the Company's wafer needs, the
Company would be required to identify and qualify additional foundries. There
can be no assurance that any additional
-9-
<PAGE> 13
wafer foundries would become available, that such foundries would be
successfully qualified, or that such foundries would be able to satisfy the
Company's requirements on a timely basis.
The Company's future growth will depend in large part on increasing its
wafer capacity allocation from current foundries, adding additional foundries
and gaining access to advanced process technologies. There can be no assurance
that the Company will be able to satisfy its future wafer needs from current or
alternative sources. Any increase in general demand for wafers within the
industry, or any reduction of existing wafer supply from any of the Company's
foundry sources, could materially adversely affect the Company's business,
financial condition or operating results.
In order to secure wafer capacity, the Company from time to time has
entered into "take or pay" contracts that committed the Company to purchase
specified wafer quantities over extended periods, and has made prepayments to
foundries. In the future, the Company may enter into similar transactions or
other transactions, including, without limitation, non-refundable deposits with
or loans to foundries, or equity investments in, joint ventures with or other
partnership relationships with foundries. Any such transaction could require the
Company to seek additional equity or debt financing to fund such activities.
There can be no assurance that the Company will be able to obtain any required
financing on terms acceptable to the Company.
Additionally, the Company relies on subcontractors for the assembly and
packaging of the ICs included in its products. The Company has no long-term
agreements with its assembly and packaging subcontractors. There can be no
assurance that such subcontractors will continue to be able and willing to meet
the Company's requirements for such components or services. Any significant
disruption in supplies from, or degradation in the quality of components or
services supplied by, such subcontractors could delay shipments and result in
the loss of customers or revenues or otherwise have a material adverse effect on
the Company's business or operating results.
Certain Risks Associated With Acquisitions. Since the beginning of
fiscal 1996, the Company has acquired eleven complementary companies and
businesses. As part of its overall strategy, the Company plans to continue to
acquire or invest in complementary companies, products or technologies and to
enter into joint ventures and strategic alliances with other companies. Risks
commonly encountered in such transactions include the difficulty of assimilating
the operations and personnel of the combined companies, the potential disruption
of the Company's ongoing business, the inability to retain key technical and
managerial personnel, the inability of management to maximize the financial and
strategic position of the Company through the successful integration of acquired
businesses, additional expenses associated with amortization of acquired
intangible assets, dilution of existing equity holders, the maintenance of
uniform standards, controls, procedures and policies and the impairment of
relationships with employees and customers as a result of any integration of new
personnel. There can be no assurance that the Company would be successful in
overcoming these risks or any other problems encountered in connection with such
business combinations, investments or joint ventures or that such transactions
will not materially adversely affect the Company's business, financial condition
or operating results.
Competition. The markets for the Company's products are intensely
competitive and are characterized by rapid technological advances, frequent new
product introductions, evolving industry standards and price erosion. The
Company's principal competitors in the host adapter market are Symbios Logic
Inc., a subsidiary of Hyundai Electronics America, and other smaller
manufacturers of host adapters. The Company's principal competitors in the mass
storage market are captive suppliers and Cirrus Logic, Inc. As the Company has
continued to broaden its bandwidth management product offerings into the
desktop, server and networking environments, it has experienced, and expects to
experience in the future, significantly increased competition both from existing
competitors and from additional companies that may enter its markets. Some of
these companies
-10-
<PAGE> 14
have greater technical, marketing, manufacturing and financial resources than
the Company. There can be no assurance that the Company will be able to make
timely introduction of new leading-edge solutions in response to competitive
threats, that the Company will be able to compete successfully in the future
against existing or potential competitors or that the Company's business or
operating results will not be materially adversely affected by price
competition.
Certain Issues Related to Distributors. The Company's distributors
generally offer a diverse array of products from several different
manufacturers. Accordingly, there is a risk that these distributors may give
higher priority to selling products from other suppliers, thus reducing their
efforts to sell the Company's products. A reduction in sales efforts by the
Company's current distributors could have a materially adverse effect on its
business or operating results. The Company's distributors may on occasion build
inventories in anticipation of substantial growth in sales, and if such growth
does not occur as rapidly as anticipated, distributors may decrease the amount
of product ordered from the Company in subsequent quarters. Such a slowdown in
orders could reduce the Company's revenues in any given quarter and give rise to
fluctuation in the Company's operating results.
Dependence on Key Personnel. The Company's future success depends in
large part on the continued service of its key technical, marketing and
management personnel and on its ability to continue to attract and retain
qualified employees, particularly those highly skilled design, process and test
engineers involved in the manufacture of existing products and the development
of new products and processes. The competition for such personnel is intense,
and the loss of key employees could have a material adverse effect on the
Company's business or operating results.
Certain Risks Associated with International Operations. The Company's
manufacturing facility and various subcontractors it utilizes from time to time
are located primarily in Asia. Additionally, the Company has various sales
offices and customers throughout Europe, Japan, and other countries. The
Company's international operations and sales are subject to political and
economic risks, including political instability, currency controls, exchange
rate fluctuations, and changes in import/export regulations, tariffs and freight
rates. In addition, because the Company's principal wafer supplier, TSMC, is
located in Taiwan, the Company is subject to the risk of political instability
in Taiwan, including the potential for conflict between Taiwan and the People's
Republic of China.
Intellectual Property Protection and Disputes. The Company has
historically devoted significant resources to research and development and
believes that the intellectual property derived from such research and
development is a valuable asset that has been and will continue to be important
to the success of the Company's business. Although the Company actively
maintains and defends its intellectual property rights, no assurance can be
given that the steps taken by the Company will be adequate to protect its
proprietary rights. In addition, the laws of certain territories in which the
Company's products are or may be developed, manufactured, or sold, including
Asia and Europe, may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States. The Company
has from time to time discovered counterfeit copies of its products being
manufactured or sold by others. Although the Company maintains an active program
to detect and deter the counterfeiting of its products, should counterfeit
products become available in the market to any significant degree it could
materially adversely affect the business or operating results of the Company.
From time to time, third parties may assert exclusive patent, copyright
and other intellectual property rights to technologies that are important to the
Company. There can be no assurance that third parties will not assert
infringement claims against the Company in the future, that assertions by third
parties will not result in costly litigation or that the Company would prevail
in such litigation or be able to license any valid and infringed
-11-
<PAGE> 15
patents from third parties on commercially reasonable terms. Litigation,
regardless of its outcome, could result in substantial cost and diversion of
resources of the Company. Any infringement claim or other litigation against or
by the Company could materially adversely affect the Company's business or
operating results.
Need for Interoperability. The Company's products must be designed to
interoperate effectively with a variety of hardware and software products
supplied by other manufacturers, including microprocessors, peripherals and
operating system software. The Company depends on significant cooperation with
these manufacturers in order to achieve its design objectives and produce
products that interoperate successfully. While the Company believes that it
generally has good relationships with leading system, peripheral and
microprocessor suppliers, there can be no assurance that such suppliers will not
from time to time make it more difficult for the Company to design its products
for successful interoperability or decide to compete with the Company.
Volatility of Stock Price. The market price of the Notes could be
significantly affected by changes in the market price of the Common Stock. The
stock market in general, and the market for shares of technology companies in
particular, have from time to time experienced extreme price fluctuations, which
have often been unrelated to the operating performance of the affected
companies. In addition, factors such as technological innovations or new product
introductions by the Company, its competitors or its customers may have a
significant impact on the market price of the Company's Common Stock.
Furthermore, quarter-to-quarter fluctuations in the Company's results of
operations caused by changes in customer demand, changes in the microcomputer
and peripherals markets, or other factors, may have a significant impact on the
market price of the Company's Common Stock. These conditions, as well as factors
which generally affect the market for stocks of high technology companies, could
cause the price of the Company's Common Stock and, in turn, the price of the
Notes, to fluctuate substantially over short periods.
Subordination. The Notes are unsecured and subordinated in right of
payment in full to all existing and future Senior Indebtedness of the Company.
As a result of such subordination, in the event of bankruptcy, liquidation or
reorganization of the Company, or upon the acceleration of any Senior
Indebtedness, the assets of the Company will be available to pay obligations on
the Notes only after all Senior Indebtedness has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Notes then outstanding. The Company expects from time to time to incur
indebtedness constituting Senior Indebtedness. The Indenture does not prohibit
or limit the incurrence of additional indebtedness by the Company or its
subsidiaries and the incurrence of additional indebtedness by the Company or its
subsidiaries could adversely affect the Company's ability to pay its obligations
on the Notes. As of December 27, 1996, the Company had $5.1 million of
indebtedness outstanding that would have constituted Senior Indebtedness
(excluding accrued interest and Senior Indebtedness constituting liabilities of
a type not required to be reflected as a liability on the balance sheet of the
Company in accordance with generally accepted accounting principles). In
addition, the Notes are structurally subordinated to the liabilities, including
trade payables, of the Company's subsidiaries. As of December 27, 1996,
subsidiaries of the Company had outstanding $22.9 million of aggregate
liabilities (excluding intercompany liabilities and liabilities of a type not
required to be reflected as a liability on the balance sheets of such
subsidiaries in accordance with generally accepted accounting principles). See
"Description of Notes -- Subordination."
Limitations on Repurchase of Notes. Upon a Change of Control (as
defined), each Holder of Notes will have certain rights, at the Holder's option,
to require the Company to repurchase all or a portion of such Holder's Notes. If
a Change of Control were to occur, there can be no assurance that the Company
would have sufficient funds to pay the purchase price for all Notes tendered by
the Holders thereof. In addition, the terms of the Company's existing primary
bank facility prohibit the Company from repurchasing any Notes and also provide
that under certain circumstances a Change of Control would constitute an event
of default thereunder. Any future
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<PAGE> 16
credit agreements or other agreements relating to other indebtedness (including
other Senior Indebtedness) to which the Company becomes a party may contain
similar restrictions and provisions. In the event a Change of Control occurs at
a time when the Company is prohibited from purchasing Notes by the terms of any
indebtedness, the Company could seek the consent of its lenders to the purchase
of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from repurchasing Notes. In such
case, the Company's failure to repurchase tendered Notes would constitute an
Event of Default under the Indenture, which would, in turn, constitute a further
default under the Company's existing bank facility and may constitute a default
under the terms of other indebtedness that the Company may enter into from time
to time. In such circumstances, the subordination provisions in the Indenture
would restrict payments to the Holders of Notes. See "Description of Notes --
Repurchase at Option of Holders."
-13-
<PAGE> 17
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Notes or
the Common Stock issuable upon conversion thereof by the Selling
Securityholders.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "ADPT." The following table shows for the periods indicated the
high and low sale prices for the Common Stock as reported by the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1995
First quarter ................ $ 9 3/4 $ 7
Second quarter ............... 10 5/8 8 1/8
Third quarter ................ 12 3/8 8 5/8
Fourth quarter ............... 18 1/2 10 7/8
FISCAL YEAR ENDED MARCH 31, 1996
First quarter ................ 19 15/16 14 5/8
Second quarter ............... 23 5/8 17 1/4
Third quarter ................ 24 3/16 17 13/16
Fourth quarter ............... 28 3/16 17 9/16
FISCAL YEAR ENDED MARCH 31, 1997
First quarter ................ 30 3/4 22 5/16
Second Quarter ............... 29 13/16 17 1/2
Third Quarter ................ 41 1/8 29 1/6
Fourth Quarter ............... 46 7/8 35 1/8
</TABLE>
On April 2, 1997, the last reported sale price of the Common Stock as
reported by the Nasdaq National Market was $35.75 per share. As of December 27,
1996, there were approximately 768 holders of record of the Company's Common
Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its capital stock to
date. The Company currently anticipates that it will retain all future earnings,
if any, to fund the development and growth of its business and does not
anticipate paying any cash dividends in the foreseeable future.
-14-
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data of
Adaptec, Inc., insofar as it relates to each of the fiscal years ended March 31,
1992 through March 31, 1996, has been derived from the audited consolidated
financial statements of Adaptec, including the consolidated balance sheets at
March 31, 1995 and 1996 and the related consolidated statements of operations
and of cash flows for each of the three fiscal years in the period ended March
31, 1996 and the related notes thereto included herein. The consolidated
financial data as of December 27, 1996 and for the nine months ended December
29, 1995 and December 27, 1996 are derived from unaudited condensed consolidated
financial statements included herein, which include all adjustments, consisting
only of normal recurring adjustments, that the Company considers necessary for a
fair presentation of the consolidated financial position and the consolidated
results of operations for these periods. Operating results for the nine months
ended December 27, 1996 are not necessarily indicative of results that may be
expected for future periods. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, -------------------------
--------------------------------------------------------- December 29, December 27,
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- ------------ ------------
(in thousands, except ratio and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues .......................... $ 150,315 $ 311,339 $ 372,245 $ 466,194 $ 659,347 $ 463,322 $ 668,760
Cost of revenues ...................... 84,549 174,179 189,526 205,596 275,939 193,526 281,735
--------- --------- --------- --------- --------- --------- ---------
Gross profit ........................ 65,766 137,160 182,719 260,598 383,408 269,796 387,025
--------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development ............ 17,514 26,324 39,993 60,848 87,628 60,488 93,339
Sales and marketing ................. 21,338 32,525 46,192 58,737 81,548 58,200 79,914
General and administrative .......... 10,517 15,568 19,399 23,229 35,784 23,976 34,988
Write-off of acquired in-process
technology and other .............. -- -- -- -- 52,313 52,313 80,663
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses .......... 49,369 74,417 105,584 142,814 257,273 194,977 288,904
--------- --------- --------- --------- --------- --------- ---------
Income from operations .............. 16,397 62,743 77,135 117,784 126,135 74,819 98,121
--------- --------- --------- --------- --------- --------- ---------
Shareholder settlement ................ -- -- (2,409) -- -- -- --
Interest income ....................... 3,248 4,078 5,183 7,932 12,694 9,087 7,990
Interest expense ...................... (159) (967) (1,306) (1,179) (840) (674) (597)
--------- --------- --------- --------- --------- --------- ---------
Interest income, net .................. 3,089 3,111 1,468 6,753 11,854 8,413 7,393
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes .......... 19,486 65,854 78,603 124,537 137,989 83,232 105,514
Provision for income taxes ............ 4,872 16,464 19,653 31,135 34,614 20,925 44,779
--------- --------- --------- --------- --------- --------- ---------
Net income ............................ $ 14,614 $ 49,390 $ 58,950 $ 93,402 $ 103,375 $ 62,307 $ 60,735
========= ========= ========= ========= ========= ========= =========
Net income per share .................... $ 0.18 $ 0.48 $ 0.55 $ 0.88 $ 0.95 $ 0.57 $ 0.53
========= ========= ========= ========= ========= ========= =========
Weighted average shares
outstanding ............................ 83,328 103,304 107,204 106,714 109,138 108,794 114,002
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed
charges(1) ............................. 26.4x 46.5x 43.6x 64.4x 67.8x 51.7x 61.7x
</TABLE>
<TABLE>
<CAPTION>
March 31,
------------------------------------------- December 27,
1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ...................... $101,116 $191,693 $243,451 $294,058 $334,989 $374,707
Total assets ......................... 138,615 282,896 358,475 435,708 646,486 726,487
Long-term debt, net of current
portion ............................... 423 14,450 11,050 7,650 4,250 1,700
Shareholders' equity ................. 117,742 225,155 297,616 371,644 511,945 611,999
</TABLE>
- ----------
(1) For the purpose of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated pre-tax income plus fixed charges
and (ii) fixed charges consist of interest expense incurred and the
portion of rental expense under leases deemed by the Company to be
representative of the interest factor.
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<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risks
and uncertainties. The statements contained in this Prospectus that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth below,
under "Risk Factors" and elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage
of net revenues for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, ----------------------------
------------------------------------------------------ December 29, December 27,
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues ................... 100% 100% 100% 100% 100% 100% 100%
Cost of revenues ............... 56 56 51 44 42 42 42
---- ---- ---- ---- ---- ---- ----
Gross profit ................ 44 44 49 56 58 58 58
Operating expenses:
Research and development .... 12 9 11 13 13 13 14
Sales and marketing ......... 14 10 12 13 13 13 12
General and administrative .. 7 5 5 5 5 5 5
Write-off of acquired in-
process technology and
other.................... -- -- -- -- 8 11 12
---- ---- ---- ---- ---- ---- ----
Total operating
expenses ........... 33 24 28 31 39 42 43
---- ---- ---- ---- ---- ---- ----
Income from operations ...... 11 20 21 25 19 16 15
Shareholder settlement ......... -- -- (1) -- -- -- --
Interest income, net of
interest expense ........ 2 1 1 2 2 2 1
---- ---- ---- ---- ---- ---- ----
Income before income taxes .. 13 21 21 27 21 18 16
Provision for income taxes ..... 3 5 5 7 5 5 7
---- ---- ---- ---- ---- ---- ----
Net income ..................... 10% 16% 16% 20% 16% 13% 9%
==== ==== ==== ==== ==== ==== ====
</TABLE>
NINE MONTHS ENDED DECEMBER 27, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 29,
1995
Net revenues increased 44% to $669 million in the first nine months of
fiscal 1997 from $463 million in the corresponding period of fiscal 1996. This
growth was primarily attributable to increased shipments of the Company's host
adapters and proprietary ICs for mass storage devices. These increases were
primarily the result of the continued growth in the markets for high-performance
PCs and servers for networking applications, continued demand for SCSI in the
client/server environment and an increase in the use of diverse peripherals in
microcomputer systems.
Gross margins for the first nine months of fiscal 1997 were unchanged
at 58% compared with the same period in fiscal 1996. For the nine months ended
in fiscal 1997, gross margins were positively affected by decreased
manufacturing costs, which were offset by the mix of products shipped.
-16-
<PAGE> 20
Research and development expenses as a percentage of net revenues were
14% during the first nine months of fiscal 1997 compared to 13% for the same
period in fiscal 1996. Actual spending for research and development increased
from the corresponding period of fiscal 1996 by 54% to $93 million in the first
nine months of fiscal 1997. This increased spending was a result of the
Company's continued development of products for emerging standards such as
Firewire and Fibre Channel, networking products, various peripheral technology
solutions, and its ongoing commitment to enhance its core SCSI business.
Sales and marketing expenses decreased to 12% of revenues for the nine
months of fiscal 1997 compared to 13% for the same period in fiscal 1996. Actual
sales and marketing expenses increased from the corresponding period of fiscal
1996 by 37% to $80 million in the first nine months of fiscal 1997. The increase
in actual spending was primarily a result of advertising and promotional
programs aimed at introducing new technologies and generating demand for the
Company's products and increased staffing levels to support the continued growth
of the Company.
General and administrative expenses as a percentage of net revenues in
the first nine months of fiscal 1997 remained relatively consistent with the
comparable fiscal 1996 period. Actual spending increased from the prior period
primarily due to costs associated with increased staffing levels to support the
Company's growth.
During the first nine months of fiscal 1997, the Company acquired
Western Digital's Connectivity Solutions Group ("CSG"), certain technologies
from Corel, Inc. ("Corel"), Data Kinesis, Inc. ("DKI"), and Sigmax Technology,
Inc. ("Sigmax") for an aggregate purchase price of $106 million in cash and
stock. These acquisitions were accounted for using the purchase method of
accounting. Among the assets acquired was in-process technology, resulting in
an aggregate write-off of $79 million. In fiscal 1997, the Company acquired all
of the outstanding capital stock of Cogent Data Technologies, Inc. ("Cogent")
in a $68 million stock transaction. Cogent provides high-performance Fast
Ethernet products for the networking market. The Company recorded this
acquisition using the pooling method of accounting and recorded acquired assets
and assumed liabilities at their book values as of the acquisition date. The
results of operations for Cogent for the three year period ended March 31, 1996
were immaterial relative to the Company's financial statements. Also in
connection with its acquisition of Cogent Data Technologies, Inc. ("Cogent"),
the Company incurred $1.7 million in professional fees, which have been
recorded in "write-off of acquired in-process technology and other."
Interest income, net of interest expense, decreased 12% to $7.4 million
in the first nine months of fiscal 1997 compared to the same period in fiscal
1996. This was due to lower cash, cash equivalents and marketable securities
balances in fiscal 1997 primarily as a result of the Company's various strategic
acquisitions and payments made to secure additional capacity for wafer
fabrication.
The Company's tax provision for the first nine months of fiscal 1997
was $45 million or 42% of income before income taxes. The higher effective tax
rate for the nine month period ended December 27, 1996 primarily resulted from
the write-off of in-process technology for which the Company will receive no
corresponding tax benefit. Excluding the effect of the write-off of in-process
technology, the Company's effective tax rate was 25% for the nine month period
ended December 27, 1996. The difference between the Company's normal 25% rate
and the U.S. statutory rate is primarily due to income earned in Singapore,
where the Company is subject to a significantly lower effective tax rate.
FISCAL 1996 COMPARED TO FISCAL 1995
Adaptec experienced growth worldwide as net revenues increased 41% to
$659 million in fiscal 1996 from $466 million in fiscal 1995. The Company's
continued increase in net revenues was driven by growth of
-17-
<PAGE> 21
client/ server networking environments, complex microcomputer-based applications
requiring high-performance I/O, and the expanded adoption of various peripheral
devices. This growth combined with the Company's market leadership in SCSI
solutions resulted in increased net revenues from the Company's host adapters.
During the year, the Company also began shipping products incorporating newer
technologies such as RAID, ATM and CD-Recordable (CD-R) software. Fiscal 1996
net revenue from sales of mass storage integrated circuits also increased from
the prior year as the Company benefitted from next-generation design wins for
higher capacity disk drives that are required for advanced applications.
Gross margin of 58% in fiscal 1996 increased from 56% in fiscal 1995.
Gross margin was favorably affected by the increased revenues from the Company's
higher margin products. The Company's focus on design for manufacturability
allowed it to continue to experience efficiencies in the manufacturing process
and accelerate time to customer volume.
Research and development expenditures in fiscal 1996 were $88 million,
an increase of 44% over fiscal 1995. As a percentage of net revenues, research
and development expenses were 13% for both fiscal 1996 and fiscal 1995. The
Company's research and development efforts continue to be focused on solutions
which enhance performance in single-user desktop, enterprise-wide computing, and
networked environments. This commitment included investing in its current core
SCSI business as well as several emerging technologies including RAID, CD-R,
ATM, and I/O standards such as Firewire and Fibre Channel. The Company believes
these expenditures, consisting primarily of increased staffing levels, have
allowed the Company to maintain its position in technology leadership and
product innovation.
Sales and marketing expenses increased to $82 million in fiscal 1996,
an increase of 39% over fiscal 1995. As a percentage of net revenues, sales and
marketing expenses were 13% in both fiscal 1996 and fiscal 1995. The increase in
actual spending was a result of advertising and promotional programs aimed at
generating demand in the consumer and enterprise computer markets and increased
staffing levels to support the continued growth of the Company. The Company's
promotional and advertising programs have allowed it to leverage its brand image
around the globe.
General and administrative expenses as a percentage of net revenues
were consistent at 5% for both fiscal 1996 and fiscal 1995. Actual spending
increased from fiscal 1995, primarily due to increased staffing to support the
continued growth of the Company.
During fiscal 1996, the Company acquired Trillium Research, Inc.,
Future Domain Corporation, Incat Systems Software, USA, Inc., and Power I/O,
Inc. These acquisitions were accounted for using the purchase method of
accounting. Among the assets acquired was in-process technology, resulting in
write-offs totaling $52 million. Excluding these write-offs, the Company's
results of operations for fiscal 1996 were not materially affected by these
acquisitions.
Interest income, net of interest expense, was $12 million in fiscal
1996, an increase of $5 million over fiscal 1995. The increase was primarily due
to the increase in cash and cash equivalents and marketable securities.
The Company's effective tax rate for fiscal 1996 was 25%, the same as
fiscal 1995. During fiscal 1996, the Company concluded negotiations with the
Singapore government extending the tax holiday for the Company's manufacturing
subsidiary. The terms of the tax holiday provide that profits derived from
certain products will be exempt from tax for a period of 10 years, subject to
certain conditions. In addition, profits derived from the
-18-
<PAGE> 22
Company's remaining products will be taxed at a rate of 15%, which is lower than
the Singapore statutory rate of 27%, through fiscal 1998.
Fiscal 1995 Compared to Fiscal 1994
Net revenues increased 25% to $466 million in fiscal 1995 from $372
million in fiscal 1994. The continued adoption of SCSI in PC's resulted in
increased sales of the Company's SCSI host adapter products across all
performance ranges. Additionally, demand for the Company's host adapters was
driven by the growing use of servers where SCSI usage approaches 100%. During
fiscal 1995, the Company introduced several new IOware(R) solutions ranging from
connectivity products for the single-user and small-office markets, to high-
performance products for enterprise-wide computing and networked environments.
The market acceptance of the Company's high-performance host adapters for the
PCI local bus market resulted in the fastest product ramp in the Company's
history. The Company's fiscal 1995 revenue from mass storage ICs was comparable
to the prior year. The Company believes this was due to the timing of design win
cycles at original equipment manufacturers ("OEMs") coupled with significant
fluctuations in demand experienced in the disk drive market. During fiscal 1995
the Company won key designs for next-generation products at major OEMs in the
Pacific Rim.
Gross margin of 56% in fiscal 1995 increased from 49% in fiscal 1994.
Gross margin was favorably affected by the increased revenues from the Company's
higher margin SCSI host adapters. The Company also continued to experience
component cost reductions and manufacturing efficiencies, including the move of
the IC production test facility to Singapore where costs are lower. This also
allowed the Company to shorten the manufacturing cycle time and better serve its
customers.
Research and development expenditures in fiscal 1995 were $61 million,
an increase of 52% over fiscal 1994. As a percentage of net revenues, research
and development expenses increased to 13% in fiscal 1995 compared to 11% in
fiscal 1994. This was primarily due to increased staffing levels. The Company
continued to invest in its SCSI products, where it has captured a leadership
position by improving system performance as the computer industry has become
more I/O intensive with more powerful CPUs, multitasking operating systems, and
a new generation of intelligent peripherals. While SCSI solutions remained the
core of the Company's business, fiscal 1995 saw the Company broaden its
portfolio of solutions to include ATM, RAID, serial I/O and infrared technology.
Sales and marketing expenses increased to $59 million in fiscal 1995,
an increase of 27% over fiscal 1994. As a percentage of net revenues, fiscal
1995 sales and marketing expenses were 13% compared to 12% in fiscal 1994. The
increase in actual spending was a result of increased staffing levels to support
the continued growth of the Company, including expansion of the Company's
international sales and marketing infrastructure. Additionally, increases in
advertising and promotional expenses were aimed at strategies to further
accelerate and expand SCSI acceptance in the marketplace and drive demand for
the Company's products.
General and administrative expenses as a percentage of net revenues in
fiscal 1995 were consistent with fiscal 1994 at 5%. Actual spending increased
from fiscal 1994, primarily due to increased staffing to support the continued
growth of the Company.
Interest income, net of interest expense, was $7 million in fiscal
1995, an increase of $5 million over fiscal 1994. The increase was primarily due
to the increase in cash and cash equivalents and marketable securities coupled
with slightly higher average yields on cash and investment balances.
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<PAGE> 23
The Company's effective tax rate for fiscal 1995 was 25%, the same as
fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Net cash generated by operations for the first nine months of fiscal
1997 was $165 million compared with $98 million for the same period in fiscal
1996. During the first nine months of fiscal 1997, the majority of funds
generated from operations resulted from $61 million of net income adjusted by
non-cash items including a non-recurring write-off of acquired in-process
technology of $77 million (net of taxes), and depreciation and amortization of
$20 million. Also, contributing to favorable operating cash flows was a $26
million increase in accrued liabilities mainly resulting from increased staffing
and the timing of federal income tax payments. Primarily offsetting these items
was an increase in accounts receivable of $17 million resulting from the timing
and increases of shipments during the third fiscal quarter.
Investing Activities
During the first nine months of fiscal 1997, the Company paid cash of
$89 million towards the acquisitions of CSG, DKI, Sigmax, and certain
technologies from Corel. The Company also continued to invest in equipment for
product development, IC testing, board-level production, and made various
building and leasehold improvements to its facilities. The Company may also make
investments for increased capacity for wafer fabrication or acquisitions of
complementary businesses, products, or technologies. During the first nine
months of fiscal 1997, the Company continued to invest proceeds from operating
activities in marketable securities consisting mainly of various U.S. government
and municipal securities and used proceeds from the sale of marketable
securities primarily for acquisitions, equipment purchases, and to obtain
guaranteed future wafer capacity.
Financing Activities
During February 1997, the Company completed an offering of $230 million
of convertible subordinated notes. The Notes bear interest at 4 3/4%, mature in
February 2004 and are convertible into the Company's Common Stock at $51.66 per
share.
In connection with an agreement with TSMC that ensures availability of
a portion of the Company's wafer capacity for both current and future
technologies, the Company paid a short-term note of $46 million due to TSMC. In
return for this pre-payment, the Company will receive guaranteed future wafer
capacity and a discount on purchases that exceed certain prescribed minimum
quantities. Additionally, in connection with this agreement, the Company will
receive access to future process technology.
Subsequent to December 27, 1996, the Company entered into an agreement
with Lucent Technologies Inc. ("Lucent") to sell equipment that it had
previously purchased in connection with a separate agreement that ensured
availability of certain levels of wafer capacity from Lucent. This agreement
cancels the initial capacity agreement and requires Lucent to purchase the
equipment from the Company at agreed upon installments over a twelve month
period.
During the first nine months of fiscal 1997, the Company received
proceeds from common stock issued under its employee stock option and employee
stock purchase plans totaling $21 million.
The Company believes its existing working capital, expected cash flows
from operations and available sources of bank, equity, debt and equipment
financing, will be sufficient to support its operations at least through fiscal
1998.
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<PAGE> 24
BUSINESS
Adaptec is a leading supplier of bandwidth management solutions that
significantly enhance total system performance by increasing the data transfer
rates between PCs, servers, peripherals and networks. The Company's products
include host adapters, which are primarily based on the SCSI standard,
peripheral technology solutions, consisting primarily of ASIC controllers for
hard disk and CD-ROM drives and network products, which include ATM and Fast
Ethernet adapters. Adaptec provides its customers with complete solutions,
consisting of hardware, software, and firmware, which are incorporated into the
products of substantially all of the major Intel-based PC and server
manufacturers worldwide.
INDUSTRY BACKGROUND
A number of trends are driving the need to increase effective I/O
bandwidth between PCs, servers, peripherals and networks: (i) the introduction
of increasingly powerful CPUs, which require more rapidly accessed and
intelligently managed data to function at their optimal performance level, (ii)
new advanced operating systems, such as Windows NT and Windows 95 that allow for
faster I/O and multitasking, (iii) the growth of data-intensive software
applications, such as graphics and video, which require significantly more
bandwidth, (iv) the proliferation of client/server networks, the Internet and
corporate intranets, which is in turn driving growth in the number and
processing power of servers, and (v) growth in high performance peripherals,
such as high capacity hard disk drives, scanners, CD-ROMs, and new CD-R and DVD
drives. These factors have created a rapid increase in the transfer of data
between desktop PC's, servers, peripherals and networks, resulting in
substantial I/O and network bottlenecks.
Industry standards have been developed to enable I/O to keep up with
these trends, of which the most important for high performance applications is
SCSI (Small Computer System Interface). SCSI has become the industry standard
I/O bus specification for high performance systems. SCSI allows the
"intelligent" transfer of data between computers, peripherals and networks by
enabling multitasking and by offloading the system CPU from I/O management.
SCSI solutions include an application specific integrated circuit
("ASIC"), which can be incorporated onto the motherboard or placed on a board
for add-in applications, and firmware and software for operating system drivers,
peripheral drivers and I/O utilities. Nearly all servers utilize SCSI, and as
many as 10% of desktop PCs now incorporate SCSI, with this percentage expected
to increase as microprocessors become more powerful and as more complex,
data-intensive applications are performed on the desktop.
In addition to SCSI, other high-performance, standards-based host
adapter solutions, such as Firewire and Fibre Channel, are emerging in support
of new applications. Firewire is today primarily used with consumer peripherals,
such as digital cameras and professional video editing systems, and should
benefit as the convergence of computers and consumer electronics continues at a
rapid pace. Fibre Channel is a bus technology targeted for applications with
very high-capacity I/O demands, such as data warehousing and video server
applications.
The increase in the usage of data is also creating demand for
increasing amounts of data storage as well as new high-capacity peripheral
devices. Virtually every microcomputer is shipped with mass storage peripherals
such as hard disk drives, CD-ROMs and more recently DVD-ROMs. Each peripheral
requires an ASIC controller to manage the operations of that peripheral and to
interface with the system bus. Recently, new peripherals, such as CD-ROMs and
removable storage devices, have been increasingly used alongside hard disks to
provide additional storage capacity. Such devices frequently have SCSI
interfaces. In addition, the increasing need for mass storage is also driving
the need for controller solutions which can support multi-gigabyte drives.
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<PAGE> 25
Another I/O-related market that is benefiting from the need for
increased bandwidth is the market for network interface cards that reside on
servers and PCs and use such standards as ATM and Fast Ethernet. ATM is a high
speed standard which is designed to be suitable for all types of applications
and mixed data types, from simple text to video. ATM is based on a packet
switching architecture that allows for "bandwidth- on-demand" and faster
performance than Ethernet, but requires substantial network upgrading. Fast
Ethernet provides a low-cost, high-speed bandwidth solution to the already
installed base of Ethernet networks.
PRODUCTS
The Company's products are designed and manufactured using a core set
of technologies and resources. The Company's semiconductor technology design
centers develop products for all markets the Company serves. The Company
continues to utilize a process called concurrent engineering, in which
manufacturing, marketing and engineering work together early in the development
cycle, to meet the demands of emerging technologies as well as decrease the
"time to volume" of product shipments. The Company maintains an Internet Web
site to provide its customers with detailed company and product information.
Board-based I/O Solutions
The Company's board-based I/O solutions, which include SCSI host
adapters, ATM and Fast Ethernet network interface cards, and related firmware
and software, meet the demanding I/O and connectivity requirements of enterprise
servers, high-performance desktop and portable computers, and technical
workstations across all important microprocessor-based platforms.
The Company's board-based I/O products, which incorporate the Company's
proprietary single chip architectures and an extensive array of related software
products, provide customers the most comprehensive board-based I/O solutions
available in the markets it serves. The Company provides bus mastering, SCSI
host adapters that manage all I/O processing activity, thereby freeing the CPU
to perform other operations. The Company offers these host adapters across all
ranges of bus architectures including PCI, ISA, EISA, VL, PCMCIA and Micro
Channel. The Company also provides non-bus mastering host adapters that provide
standardized SCSI connectivity between the CPU and its peripherals. Demand for
the Company's board-based I/O solutions has increased with the continued
adoption of SCSI as the high-performance I/O standard in personal computing.
Additionally, demand is being driven by the increased use of servers where SCSI
usage approaches 100%. To meet this increased demand, the Company continues to
develop and market I/O solutions meeting specific OEM requirements and turnkey
kits for the distributor channels. These kits include a SCSI host adapter and
related software that enable end-users to more readily connect SCSI peripherals
to their microcomputer.
The Company has undertaken numerous initiatives to increase the
accessibility, ease of use and versatility of the SCSI standard. Advanced SCSI
Programming Interface ("ASPI"), an industry standard developed by the Company,
enables users to integrate high-performance SCSI peripherals with microcomputers
using popular operating systems, such as DOS, Windows, Windows 95, Windows NT,
NetWare, OS/2 and UNIX. In addition, the Company is engaged in strategic
relationships with leading operating system vendors, such as IBM, Microsoft and
Novell, resulting in joint development projects to embed the Company's software
within their operating systems. The Company has also developed several software
utilities such as Adaptec EZ-SCSI and SCSIselect products, which simplify
connecting a SCSI host adapter and peripherals to a microcomputer system. The
Company has developed and continues to develop products for emerging standards
such as Firewire and Fibre Channel.
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<PAGE> 26
The proliferation of client server architectures, the Internet and
corporate intranets have caused both the expansion and upgrading of corporate
networks, thereby creating demand for more powerful bandwidth management
solutions for networked environments. In fiscal 1996, the Company began shipping
its family of ATM network interface cards ("NICs"), which provide a very robust
solution for managing mixed data types such as graphics, video and voice. As a
result of the acquisition of Cogent in fiscal 1997, the Company has expanded its
product offerings to include a family of Fast Ethernet NICs which provide a high
performance solution to the installed base of servers used in Ethernet networks.
Integrated Circuits
The Company develops proprietary ICs for use in mass storage devices
and microcomputer systems and for use in its own board-based SCSI host adapters
and NICs. Adaptec's proprietary ICs provide innovative solutions for managing
complex I/O functions in high-performance microcomputer and storage
applications. Working closely with customers, the Company provides complete
solutions that include sophisticated ICs, firmware and software that optimize
overall subsystem design.
The Company's current IC products include SCSI and EIDE programmable
storage controllers, single-chip SCSI host adapters and single-chip
"RAID-on-the-motherboard" solutions. All of the Company's IC products are
developed using advanced design technologies to meet market requirements for
higher levels of physical integration, increased functionality and performance.
The Company's programmable SCSI and EIDE storage controllers are typically
configured to address specific customer requirements in the mass storage market
and are used primarily in high capacity hard disk drives as well as non-hard
disk drives. The Company's SCSI host adapter ICs incorporate similar technology
and are used by system manufacturers to embed SCSI on the system motherboard.
RESEARCH AND DEVELOPMENT
The Company believes research and development is fundamental to its
success, especially in integrated circuit design, software development and I/O
solutions that encompass emerging technologies. The development of proprietary
integrated circuits that support multiple architectures and peripheral devices
requires a combination of engineering disciplines. In addition, extensive
knowledge of computer and subsystem architectures, expertise in the design of
high-speed digital ICs circuits and knowledge of operating system software is
essential. The Company's research and development efforts continue to focus on
the development of complete solutions that include proprietary ASICs, firmware
and software that support multiple architectures and peripheral devices. These
I/O solutions facilitate high-speed data transfer rates, which are essential to
the enhanced performance of client/server networking environments, applications
requiring high-performance I/O, and the adoption of various peripheral devices.
The Company continues to leverage its technical expertise and product
innovation capabilities to address I/O solutions across a broad range of users
and platforms. The Company also continues to invest significant resources to
develop products for its core SCSI business. Additionally, the Company is
investing in newer products and technologies, including ATM, RAID, CD-R,
Firewire and Fibre Channel.
Approximately 25% of the Company's employees are engaged in research
and development, of which approximately 50% are engaged in software development.
In fiscal 1996, 1995 and 1994, the Company spent approximately $88 million (13%
of net revenues), $61 million (13% of net revenues), and $40 million (11% of net
revenues), respectively, for research and development.
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<PAGE> 27
MARKETING AND CUSTOMERS
The Company believes it has successfully positioned itself as a leading
supplier of a full range of I/O solutions providing bandwidth management. The
Company sells its products through a direct sales force to substantially all
major server and PC manufacturers, as well as most of the major electronic
distributors worldwide. The Company works closely with its OEM customers on the
design of current and next generation products to meet the specific requirements
of system integrators and end users. The Company provides its OEM customers with
extensive applications and system design support. The Company also sells
board-based products to end users through major computer product distributors
and provides technical support to its customers worldwide.
The Company's OEM customers include Acer, Compaq, Digital Equipment
Corporation, Dell Computer Corporation, Fujitsu, Gateway 2000, Hewlett-Packard
Company, IBM Corporation, Intel Corporation, Iomega, Maxtor Corporation, NEC
Technologies, Samsung, Siemens Nixdorf and Toshiba America. The Company's major
distributors include Actebis, Computer 2000, Gates/Arrow, Ingram Micro, Merisel,
Nissho, and Tech Data. In fiscal 1996, sales to Nissho represented 10% of net
revenues. In fiscal 1995 and 1994 no customer accounted for more than 10% of the
Company's net revenues.
The Company emphasizes solution-oriented customer support as a key
element of its marketing strategy and maintains technical applications groups in
the field as well as at the Company's headquarters. Support provided by these
groups includes assisting current and prospective customers in the use of the
Company's products, writing application notes and conducting seminars for system
designers. The systems-level expertise and software experience of the Company's
engineering staff are also available to customers with particularly difficult
I/O design problems. A high level of customer support is also maintained through
technical support hotlines, electronic bulletin boards and dial-in-fax
capability.
International net revenues accounted for approximately 56%, 62% and 58%
of net revenues in fiscal 1996, 1995, and 1994, respectively. Sales of the
Company's products internationally are subject to certain risks common to all
export activities, such as governmental regulation and the risk of imposition of
tariffs or other trade barriers. Sales to customers are primarily denominated in
U.S. dollars.
COMPETITION
The Company's principal competitors in the host adapter market are
Symbios Logic, Inc., a subsidiary of Hyundai Electronics America, and other
smaller host adapter manufacturers. The Company's competitive strategy is to
continue to leverage its technical leadership and concentrate on the most
technology-intensive solutions. To address the competitive nature of the
business the Company designs advanced features into its products, with
particular emphasis on data transfer rates, software-defined features and
compatibility with major operating systems and most peripherals. The Company
believes the principal competitive factors in this market are performance, a
comprehensive array of solutions ranging from connectivity products for the
personal computing market to high performance products for the enterprise-wide
computing and networked environments, product features, brand awareness,
financial resources and technical and administrative support. The Company
believes that it presently competes favorably with respect to each of these
factors.
The Company's principal competitors in the mass storage market are
captive suppliers and Cirrus Logic, Inc. The Company believes that its
competitive strengths in the mass storage market include its systems level
expertise, integrated circuit design capability and substantial experience in
I/O applications. The Company believes the principal competitive factors in
achieving design wins are performance, product features, price,
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<PAGE> 28
quality and technical and administrative support. The Company believes that it
presently competes favorably with respect to each of these factors.
The markets for the Company's products are highly competitive and are
characterized by rapid technological advances, frequent new product
introductions and evolving industry standards. The Company's competitors
continue to introduce products with improved performance characteristics and its
customers continue to develop new applications. As the Company has continued to
broaden its bandwidth management product offerings into the desktop, server and
networking environments, it has experienced, and expects to experience in the
future, significantly increased competition both from existing competitors and
from additional companies that may enter its markets. Some of these companies
have greater technical, marketing, manufacturing and financial resources than
the Company. The Company will have to continue to develop and market appropriate
products to remain competitive. The Company believes one of the significant
factors in its competitive success is its continued commitment of significant
resources to research and development.
BACKLOG
The Company's backlog was approximately $138 million at December 27,
1996. This backlog figure includes only orders scheduled for shipment within
six months, of which the majority are scheduled for delivery within 90 days. The
Company's customers may cancel or delay purchase orders for a variety of
reasons, including rescheduling of new product introductions and changes in
inventory policies and forecasted demand. Accordingly, the Company's backlog as
of any particular date may not be indicative of the Company's actual sales for
any succeeding fiscal period.
MANUFACTURING
The Company's Singapore manufacturing facility produces and tests high
volume host adapter products. The Singapore facility has earned ISO 9001
certification, a stringent quality standard that has become a requirement for
doing business globally. By establishing this facility in Singapore in 1988, the
Company has experienced lower costs, shorter manufacturing cycle times, and
improved service to customers. The Company's products make extensive use of
standard logic, printed circuit boards and random access memory supplied by
several outside sources.
All semiconductor wafers used in manufacturing the Company's products
are processed to its specifications by outside suppliers. The Company believes
that its current wafer volume and manufacturing technology requirements are best
met with subcontracting relationships. In fiscal 1996, the Company secured
capacity through an agreement with Taiwan Semiconductor Manufacturing Co., Ltd.
("TSMC") that ensures availability of a portion of the Company's wafer capacity
for both current and future technologies. Under this agreement, which is
effective through 2001, the Company made advance payments totaling $66 million.
This agreement is in addition to an existing deposit and supply agreement with
TSMC which expires in June 1997.
EMPLOYEES
At December 27, 1996, the Company had 2,652 employees, including 697 in
engineering, 1,172 in manufacturing (including 997 at its Singapore facility),
122 in customer technical support, 203 in marketing, 189 in sales, and 269 in
finance and administration. The Company's continued success will depend in large
measure on its ability to attract and retain highly skilled employees who are in
great demand. None of the Company's employees are represented by a labor union.
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<PAGE> 29
PATENTS AND LICENSES
The Company believes that patents are of less significance in its
industry than such factors as innovative skills, technological expertise and
marketing abilities. However, the Company encourages its engineers to document
patentable inventions and has applied for and continues to apply for patents
both in the United States and in foreign countries when it deems it to be
advantageous to do so. There can be no assurance that patents will be issued or
that any patent issued will provide significant protection or could be
successfully defended.
As is the case with many companies in the electronics industry, it may
be desirable in the future for the Company to obtain technology licenses from
other companies. The Company has occasionally received notices of claimed
infringement of intellectual property rights and may receive additional such
claims in the future. The Company evaluates all such claims and, if necessary,
will seek to obtain appropriate licenses. There can be no assurance that any
such licenses, if required, will be available on acceptable terms.
PROPERTIES
The Company owns six buildings (approximately 375,000 square feet) in
Milpitas, California which are primarily used by the Company for corporate
offices, research, manufacturing, marketing and sales. The Company leases
another building which is mainly occupied to support administrative and sales
functions. The Company also leases facilities in Boulder, Colorado (47,000
square feet), Irvine, California (82,000 square feet) and Hudson, Wisconsin
(5,000 square feet) and Nashua, New Hampshire (17,102 square feet) to support
technical design efforts and sales.
Adaptec Manufacturing Singapore is located in two leased facilities
(approximately 150,000 square feet). The two buildings are used by the Company
for research, manufacturing and sales. The Company also leases ten sales offices
in the United States, and one sales office each in Brussels, Belgium; Munich,
Germany; Bretonneux, France; Fleet, England; Singapore; Seoul, Korea; Taiwan;
and Tokyo, Japan. The Tokyo office also provides technical design efforts and
technical support with the Brussels office providing technical support to
Europe. The Company believes its existing facilities and equipment are well
maintained and in good operating condition and believes its manufacturing
facilities, together with the use of independent manufacturers where required or
desirable, will be sufficient to meet its anticipated manufacturing needs
through fiscal 1998.
During fiscal 1996, the Company acquired a parcel of land in Fremont,
California for approximately $12 million cash to support anticipated future
growth. The Company's future facilities requirements will depend upon the
Company's business and, the Company believes additional space, if required, may
be obtained on reasonable terms.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names of the Directors and executive officers of Adaptec, Inc.,
their ages as of March 31, 1997 and certain information about them are set forth
below.
<TABLE>
<CAPTION>
NAME OF DIRECTORS AND EXECUTIVE OFFICERS AGE PRINCIPAL OCCUPATION
- ------------------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
John G. Adler 60 Chairman of the Board of Directors
F. Grant Saviers 52 President and Chief Executive Officer of the Company
Robert N. Stephens 51 Chief Operating Officer
Andrew J. Brown 37 Vice President, Corporate Controller and Principal Accounting Officer
Richard J. Clayton 56 Vice President and General Manager
Michael G. Fisher 38 Vice President and General Manager
Richard S. Gourley 44 Vice President, Worldwide Sales
Paul G. Hansen 49 Vice President of Finance, Chief Financial Officer and Assistant Secretary
Drew Hoffman 40 Vice President and General Manager
E.J. Tim Harris 49 Vice President of Administration
Sam Kazarian 54 Vice President of Operations
Christopher G. O'Meara 39 Vice President and Treasurer
Subramanian Sundaresh 40 Vice President and General Manager
Henry P. Massey, Jr. 57 Secretary
Laurence B. Boucher 54 Director
Carl J. Conti 59 Director
John East 52 Director
Robert J. Loarie 54 Director
B.J. Moore 61 Director
W. Ferrell Sanders 60 Director
Phillip E. White 54 Director
</TABLE>
Except as set forth below, each of the Directors and executive officers
has been engaged in his principal occupation described above during the past
five years. These is no family relationship between any director or executive
officer of Adaptec.
Mr. Adler served as President of Adaptec from May 1985 to August 1992,
as Chief Executive Officer from December 1986 to July 1995, as a director since
February 1986 and as Chairman of the Board of Directors since May 1990.
Mr. Saviers has served as President and Chief Executive Officer of
Adaptec since August 1992 and July 1995 respectively, and was Chief Operating
Officer from August 1992 to July 1995. Prior to joining Adaptec, Mr. Saviers was
employed with Digital Equipment Corporation for more than five years, last
serving as Vice President of its personal computer systems and peripherals
operation.
Mr. Stephens has served as Chief Operating Officer since November 1995.
From 1993 to 1995, he founded, and served as Chairman for Power I/O Corporation.
From 1990 to 1993, Mr. Stephens held the position of President and CEO of Emulex
Corporation.
Mr. Brown has served as Corporate Controller and Principal Accounting
Officer since May 1994. From July of 1988 to April of 1994 he served in various
financial roles with the Company, the most recent as Operations Accounting
Controller.
Mr. Clayton has served as Vice President and General Manager since May
1996. From October 1995 until February 1996 he served as Vice President of AVID
Technology Corp. and from January 1984 until February 1996 he served as Vice
President of Thinking Machines Corp.
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<PAGE> 31
Mr. Fisher has served as Vice President and General Manager since
November 1994. Between May 1994 and October 1994 he held the position of General
Manager, Mass Storage Electronics Product Group. Before then, Mr. Fisher held
the position of Director of Hard Disk Drive Products at Exar Corporation from
November 1990 until 1994.
Mr. Gourley has served as Vice President, Worldwide Sales since April
1996. From September 1994 to April 1996 he was Senior Director at Oracle; from
May 1993 to August 1994 served as Segment Manager, Client/Server at IBM; April
1991 to April 1993 as Branch Manager of Silicon Valley at IBM.
Mr. Hansen, a certified public accountant, has served as Vice President
of Finance and Chief Financial Officer since January 1988, after serving as
Corporate Controller from March 1985 to December 1987 and Director of Accounting
from March 1984 to 1985.
Mr. Harris has served as Vice President of Administration since
December 1996. From January 1984 to November 1996, he served in various
positions at Novell, Inc. most recently as Senior Vice President, Human
Resources.
Mr. Hoffman has served as Vice President and General Manager since
August 1995. Mr. Hoffman served as Vice President, Engineering of Eschelon
Systems Corp. from 1991 to 1995.
Mr. Kazarian has served as Vice President of Operations since May 1990.
Before joining Adaptec, he served as Executive Vice President and Chief
Operating Officer at Rugged Digital Systems from January 1988 to April 1990.
Mr. O'Meara has served as a Vice President since July 1992 and as
Treasurer since April 1989. Between May 1988 and April 1989, Mr. O'Meara served
as the Company's Director of Financial Planning.
Mr. Sundaresh has served as Vice President and General Manager since
February 1994. From March of 1993 until January of 1994 he served as Director of
Marketing. From 1991 to 1993 he served as Director of PC Marketing at Hyundai
Electronics America.
Mr. Massey has served as Secretary since November 1989. For more than
the last five years, Mr. Massey has been a practicing lawyer and a member of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, a law firm and
general outside counsel to the Company.
Mr. Boucher has served as President from December 1987 to June 1995, as
Chief Executive Officer from December 1987 to January 1996, Chairman of the
Board of Directors from February 1994 to June 1996, and a director since 1987 of
Auspex Systems, Inc., a manufacturer of computer systems. He is a founder of
Adaptec and served as Chairman of the Board of Directors from May 1981 to May
1990 and as Chief Executive Officer from May 1981 to December 1986.
Mr. Conti is an independent management consultant. From 1959 to 1991,
he held a variety of technical and managerial positions with International
Business Machines Corporation, a manufacturer of computer hardware and software,
concluding with four years as a Senior Vice President.
Mr. East has, since December 1988, served as a director, President and
Chief Executive Officer of Actel Corporation, a manufacturer of field
programmable gate arrays.
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<PAGE> 32
Mr. Loarie has, since August 1992, served as a principal of Morgan
Stanley & Co. Incorporated, a diversified investment firm, and as a general
partner of certain venture capital investment partnerships affiliated with
Morgan Stanley. Prior to that time and for more than the previous five years,
Mr. Loarie was a general partner of Weiss, Peck & Greer, an investment
management firm, and of several venture capital partnerships affiliated with
Weiss Peck & Greer. Mr. Loarie is also a director of Telcom Semiconductor, Inc.
and Aurum Software, Inc.
Mr. Moore is an independent management consultant. Mr. Moore served as
President of Outlook Technology, Inc., a company engaged in the development,
manufacture and marketing of digital test instrumentation, from February 1986 to
July 1991. Mr. Moore is also a director of Dionex Inc.
Mr. Sanders has served as a general partner of Asset Management Co.
since February 1989 and served as a senior associate of Asset Management Co.
from March 1987 to February 1989. Mr. Sanders is also a director of Solectron
Corporation.
Mr. White has served as President, Chief Executive Officer, director,
and Chairman of the Board of Informix Software, Inc., a software company, since
January 1989. Prior to that time and for more than the last five years, Mr.
White was President of Wyse Technology, Inc., a manufacturer of computers and
computer terminals. Mr. White is also a director of Legato Systems, Inc.
COMPENSATION OF DIRECTORS
Cash Compensation
Non-employee directors receive $3,000 per fiscal quarter and $2,000 for
each meeting of the Board of Directors attended other than telephonic meetings
and are reimbursed for their expenses incurred in attending meetings of the
Board of Directors. Directors do not receive compensation for committee or
telephonic meetings. Employee directors do not receive additional compensation
for attendance at Board Meetings.
1990 Directors' Option Plan
Non-employee directors also receive stock options under the Company's
1990 Directors' Option Plan (the "Directors' Plan"). The Directors' Plan was
adopted and approved by the shareholders of the Company in 1990. A total of
2,200,000 shares of Common Stock have been reserved for issuance under the
Directors' Plan, as it has been subsequently amended. The Directors' Plan
provides for the grant of non-statutory stock options to non-employee directors
of the Company. All eligible directors are granted an option to purchase 40,000
shares of Common Stock on the date on which such person first becomes a
director (the "Initial Option"), whether through election by the shareholders
or appointment by the Board to fill a vacancy. On March 31 of each year, each
non-employee director is granted an additional option to purchase 10,000 shares
of Common Stock ("Annual Options"). Initial Options and Annual Options granted
before March 31, 1997 become exercisable for 25% of the shares subject to the
option on the first anniversary of the date of grant and for 6.25% of the
shares subject to the option for each full calendar quarter thereafter that the
optionee remains a director. Annual Options granted on or after March 31, 1997
become exercisable for 25% of the shares subject to the option for each full
calendar quarter that the optionee remains a director after the date of grant.
The per share exercise price of options is established at the fair market value
of the Company's Common Stock on the date the option is granted. Options
granted prior to March 31, 1997 have a term of five years; all subsequent
options have a term of ten years.
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<PAGE> 33
Directors Conti and East were granted options to purchase 80,000 shares
of Common Stock on November 1, 1995 at $22.25 and on December 7, 1995 at $22.25,
respectively. Pursuant to the Directors' Plan, Directors Boucher, Conti, East,
Loarie, Moore, Sanders and White were granted options to purchase 20,000 shares
of Common Stock each on March 29, 1996 at an exercise price of $24.125 per
share.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of seven meetings
during the fiscal year ended March 31, 1996. The Board of Directors has an Audit
Committee, a Compensation Committee and a Nominating Committee.
The Audit Committee of the Board of Directors consists of Messrs.
Loarie, Sanders and Saviers and held six meetings during the last fiscal year.
Mr. Adler resigned from the committee during the fiscal year. The Audit
Committee recommends engagement of the Company's independent accountants and is
primarily responsible for approving the services performed by the Company's
independent accountants and for reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls.
The Compensation Committee of the Board of Directors consists of
Messrs. East, Moore and White and held three meetings during the last fiscal
year. Mr. Boucher resigned from the Committee during the fiscal year. The
Compensation Committee establishes the Company's executive compensation policy,
determines the salary and bonuses of the Company's executive officers and
recommends to the Board of Directors stock option grants for executive officers.
The Nominating Committee consists of Messrs. Moore and Sanders. The
Nominating Committee is responsible for reviewing qualifications for possible
Board membership and recommending candidates for election to the Board of
Directors. The Nominating Committee held two meetings during fiscal 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Neither B. J. Moore, John East nor Phillip E. White, the members of the
Company's Compensation Committee, is an executive officer of any entity for
which any executive officer of the Company serves as a director or a member of
the Compensation Committee.
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<PAGE> 34
EXECUTIVE COMPENSATION
The table below sets forth information for the three most recently
completed fiscal years concerning the compensation of the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company in the fiscal year ended March 31, 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ------------------------
RESTRICTED SECURITIES
FISCAL SALARY BONUS STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) AWARD ($) OPTIONS(#) COMPENSATION($)(2)
- ------------------------------------- ------ -------- -------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
John G. Adler ....................... 1996 $494,135 $558,000 -- 120,000 $4,080
Chairman and former Chief Executive 1995 450,000 625,000 -- 400,000 3,720
Officer 1994 420,000 315,000 -- 320,000 3,720
F. Grant Saviers .................... 1996 468,462 533,000 -- 279,200 2,520
President, Chief Executive Officer 1995 350,000 475,000 -- 400,000 2,780
and Chief Operating Officer 1994 310,000 235,000 -- 160,000 1,260
John D. Hamm ........................ 1996 229,711 260,750 -- 107,600 54
Vice President and General 1995 215,000 322,500 -- 100,000 48
Manager(4) 1994 180,000 135,000 -- 100,000 36
Paul G. Hansen ...................... 1996 229,615 259,500 -- 107,600 1,380
Vice President, Finance and Chief 1995 222,115 291,058 -- 100,000 1,260
Financial Officer 1994 190,000 145,000 -- 80,000 1,260
Sam Kazarian ........................ 1996 214,712 243,500 -- 105,800 2,520
Vice President, Operations 1995 200,000 270,000 -- 120,000 2,280
1994 174,615 110,000 -- 80,000 2,280
Subramanian Sundaresh ............... 1996 199,327 221,250 $ 19,992(3) 48,000 332
Vice President and General Manager 1995 165,000 140,000 -- 100,000 475
1994 104,115 50,000 -- 168,000 540
</TABLE>
- ----------
(1) In each case, the fiscal year 1995 bonus amounts include an amount equal to
one-half of the individual's base salary for fiscal year 1995 that was
accrued but not paid by the Company in fiscal year 1995. Half of such
amounts were paid to the individuals at the end of fiscal year 1996 and the
remaining half will be paid at the end of fiscal year 1997 if the
individual remains in the employ of the Company at that date.
(2) Life insurance premiums.
(3) Represents the grant of 784 Incentive Stock Units pursuant to the Company's
1990 Stock Plan. On the first and second anniversaries of the date of
grant, if Mr. Sundaresh is still in the employ of the Company, the Company
will redeem one-half of the Incentive Stock Units by giving Mr. Sundaresh
either 392 shares of Common Stock of the Company or the fair market value
of such shares at the Company's discretion. The value of the grant is based
on the fair market value of 784 shares of the Company's Common Stock on the
date of grant. As of the March 31, 1996, Mr. Sundaresh held 784 Incentive
Stock Units with a value of $18,914 (based on the fair market value of the
Company's Common Stock on that date).
(4) Mr. Hamm resigned from the Company on August 30, 1996.
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<PAGE> 35
The table below provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year ended
March 31, 1996 to the persons named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS FOR OPTION TERM(3)(4)
OPTIONS GRANTED TO EXERCISE OR ----------------------------
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- --------------------- ---------- ------------ ----------- ---------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
John G. Adler ....... 120,000(1) 2.6% $ 22.38 8/24/05 $1,688,582 $4,279,199
F. Grant Saviers .... 200,000(1) 4.4 22.38 8/24/05 2,814,303 7,131,998
79,200(2) 1.7 28.00 3/22/00 1,394,637 3,534,283
John D. Hamm ........ 80,000(1) 1.7 22.38 8/24/05 1,125,721 2,852,799
27,600(2) 0.6 28.00 3/22/00 486,010 1,231,644
Paul G. Hansen ...... 80,000(1) 1.7 22.38 8/24/05 1,125,721 2,852,799
27,600(2) 0.6 28.00 3/22/00 486,010 1,231,644
Sam Kazarian ........ 80,000(1) 1.7 22.38 8/24/05 1,125,721 2,852,799
25,800(2) 0.5 28.00 3/22/00 454,313 1,151,320
Subramanian
Sundaresh ....... 40,000(1) 0.8 22.38 8/24/05 562,861 1,426,400
8,000(2) 0.2 28.00 3/22/00 140,872 356,998
</TABLE>
- ----------
(1) These options were granted pursuant to the Company's 1990 Stock Plan. The
option exercise prices were at the fair market value of the Company's
Common Stock on the date of grant. All options expire 10 years from the
date of grant, are not transferable by the optionee (other than by will or
the laws of descent and distribution), and are exercisable during the
optionee's lifetime only by the optionee. The options become exercisable at
the rate of 12.5% of the shares subject to the option six months after the
date of grant and at the rate of 6.25% of the shares subject to the option
at the end of each of the next 14 quarters. To the extent exercisable at
the time of employment termination, options may be exercised for an
additional three months unless termination is the result of total and
permanent disability, in which case the options may be exercised within six
months following termination, or unless termination is the result of death,
in which case unvested options become exercisable to a maximum of 50,000
shares per individual and may be exercised within six months following
death by the individual's estate or other successor.
(2) These options were granted pursuant to the Company's 1990 Stock Plan. The
option exercise prices were at 110% of the fair market value of the
Company's Common Stock on the date of grant. All options expire 4 years
from the date of grant, are not transferable by the optionee (other than by
will or the laws of descent and distribution), and are exercisable during
the optionee's lifetime only by the optionee. 50% of the options subject to
the grant become exercisable one year after the date of the grant with the
remaining 50% becoming exercisable two years after the date of grant. To
the extent exercisable at the time of employment termination, options may
be exercised for an additional three months unless termination is the
result of total and permanent disability, in which case the options may be
exercised within six months following termination, or unless termination is
the result of death, in which case unvested options become exercisable to a
maximum of 50,000 shares per individual and may be exercised within six
months following death by the individual's estate or other successor.
(3) Potential gains are net of exercise price, but before taxes associated with
exercise. The amounts represent certain assumed rates of appreciation only,
based on the Securities and Exchange Commission rules. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Common Stock, overall market conditions and the optionholders'
continued employment through the vesting period. The amounts reflected in
this table may not necessarily be achieved and do not reflect the Company's
estimate of future stock price growth.
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<PAGE> 36
The table below provides the specified information concerning the
exercise of options to purchase the Company's Common Stock in the fiscal year
ended March 31, 1996 and the unexercised options held as of March 31, 1996 by
the persons named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY
ON VALUE OPTIONS AT FY-END (#): OPTIONS AT FY-END ($):
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- ----------------------------- ----------- -------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
John G. Adler .............. 454,898 $7,082,720 15,000/526,250 $ 26,250/$6,654,258
F. Grant Saviers ........... 100,000 2,037,440 523,346/646,768 8,585,137/6,427,230
John D. Hamm(3) ............ 20,000 472,813 218,126/209,474 3,956,639/1,838,361
Paul G. Hansen ............. 50,000 1,060,938 130,000/197,600 2,037,813/1,644,688
Sam Kazarian ............... 2,488 46,483 146,144/211,424 2,326,389/1,874,494
Subramanian Sundaresh ...... 20,000 266,188 115,500/180,500 1,713,406/2,091,531
</TABLE>
- ----------
(1) Market value of underlying securities on date of exercise, minus the
exercise or base price.
(2) Market value of underlying securities at fiscal year end, minus the
exercise or base price.
(3) Mr. Hamm resigned from the Company on August 30, 1996.
CHANGE IN CONTROL ARRANGEMENTS
The Company's 1990 Stock Plan authorizes the acceleration or payment of
awards and related shares in the event of a Change in Control as defined in the
Plan. Such acceleration or payment may cause part or all of the consideration
involved to be treated as a "parachute payment" under the Internal Revenue Code
of 1986 as amended (the "Code"), which may subject the recipient thereof to a
20% excise tax and which may not be deductible by the participant's employer.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1996, the Company purchased approximately $291,532 of
computer equipment in the ordinary course of business from Auspex Systems, Inc.,
a supplier of computer network file servers. Mr. Boucher is the Chairman of the
Board of Directors and a shareholder of Auspex Systems, Inc.
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<PAGE> 37
PRINCIPAL SHAREHOLDERS
The table below sets forth as of May 31, 1996 certain information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than five percent (5%) of
the outstanding shares of Common Stock; (ii) each director of the Company, (iii)
each executive officer named in the Summary Compensation Table, and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OF PERSON OR IDENTITY OF GROUP OWNED(1) OWNED
- ------------------------------------------------------------- ------------ -----------
<S> <C> <C>
FMR Corp.(2) ................................................ 11,958,720 11.2%
82 Devonshire Street
Boston, MA 02109-3614
John G. Adler ............................................... 260,638 *
Laurence B. Boucher ......................................... 16,290 *
Carl J. Conti ............................................... 0 *
John East ................................................... 0 *
John D. Hamm(3) ............................................. 226,014 *
Paul G. Hansen .............................................. 115,162 *
Sam Kazarian ................................................ 173,372 *
Robert J. Loarie ............................................ 132,854 *
B.J. Moore .................................................. 95,820 *
W. Ferrell Sanders .......................................... 109,750 *
F. Grant Saviers ............................................ 603,502 *
Subramanian Sundaresh ....................................... 119,114 *
Phillip E. White ............................................ 22,500 *
All current directors and officers as a group (19 persons) .. 1,975,174 1.8
</TABLE>
- ----------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
of Common Stock beneficially owned. Amounts shown include the following
number of shares, options for which are presently exercisable or will
become exercisable within 60 days of May 31, 1996: Mr. Adler, 112,500; Mr.
Boucher, 16,250; Mr. Conti, 0; Mr. East, 0; Mr. Hamm, 205,626; Mr. Hansen,
113,750; Sam Kazarian, 172,394; Mr. Loarie, 53,750; Mr. Moore, 53,750; Mr.
Sanders, 33,750; Mr. Saviers, 498,952; Mr. Sundaresh, 115,750; Mr. White,
22,500; and all current officers and directors as a group, 1,485,284.
(2) Includes 9,305,540 shares beneficially owned by Fidelity Management &
Research Company as a result of serving as investment advisor to various
registered investment companies and 2,452,780 shares beneficially owned by
Fidelity Management Trust Company as a result of serving as trustee or
managing agent for various private investment accounts. FMR Corp. has sole
voting power with respect to 1,223,980 shares and sole dispositive power
with respect to 11,758,320 shares.
(3) Includes 10,666 shares held in the name of Mr. Hamm's wife. Mr. Hamm
resigned from the Company on August 30, 1996.
-34-
<PAGE> 38
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 400,000,000
shares of Common Stock, $.001 par value, and 1,000,000 shares of Preferred
Stock, $.001 par value, of which 250,000 shares are designated Series A
Participating Preferred Stock, $.001 par value (the "Series A Preferred").
COMMON STOCK
As of December 27, 1996, there were 110,956,012 shares of Common Stock
outstanding held of record by 768 registered shareholders.
Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. The Company has not paid any cash dividends on its Common
Stock. Each holder of Common Stock is entitled to one vote for each share held
of record on all matters submitted to a vote in the election of directors. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities and there are no redemption
provisions with respect to such shares. All of the outstanding shares of Common
Stock are, and the shares of Common Stock issuable upon conversion of the Notes
will be, fully paid and non-assessable.
The transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.
PREFERRED STOCK
As of December 27, 1996, there were no shares of Preferred Stock
outstanding. The Preferred Stock may be issued from time to time in one or more
series. The Company's Board of Directors has authority to fix the designation,
powers, preferences and rights of each such series and the qualifications,
limitations and restrictions thereon and to increase or decrease the number of
shares of such series (but not below the number of shares of such series then
outstanding), without any further vote or action by the shareholders. Except in
accordance with the Rights Plan (described below), the Company has no present
plans to issue any shares of Preferred Stock.
Preferred Share Rights Plan
On April 25, 1989, the Board of Directors of the Company declared a
dividend of one common share purchase right (a "Right" or "Rights" collectively)
for each outstanding share of Common Stock, $.001 par value (the "Common
Shares"), of the Company. The dividend was paid on May 9, 1989 to shareholders
of record at the close of business on that date, and Rights have been issued in
connection with all Common Shares issued since that date. On December 5, 1996,
the Company and ChaseMellon Shareholder Services, LLC (the "Rights Agent")
entered into the Second Amended and Restated Rights Agreement (the "1996 Rights
Agreement") which, under the circumstances described below, entitles the
registered holder of a Right to purchase from the Company one one-thousandth of
a share of Series A Preferred at a price of $180.00 (the "Exercise Price"),
subject to adjustment.
The Rights will not be exercisable until the Distribution Date (defined
below). Certificates for the Rights ("Rights Certificates") will not be sent to
shareholders and the Rights will attach to and trade only together with
-35-
<PAGE> 39
the Common Shares. Accordingly, Common Share certificates outstanding on the
Record Date will evidence the Rights related thereto, and Common Share
certificates issued after the Record Date will contain a notation incorporating
the Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender or transfer of any
certificates for Common Shares, outstanding as of the Record Date, even without
notation or a copy of the Summary of Rights being attached thereto, will also
constitute the transfer of the Rights associated with the Common Shares
represented by such certificate.
The Rights will separate from the Common Shares, Rights Certificates
will be issued and the Rights will become exercisable upon the earlier of: (i)
the tenth day (or such later date as may be determined by a majority of the
Board of Directors, excluding directors affiliated with the Acquiring Person, as
defined below (the "Continuing Directors")) following a public announcement that
a person or group of affiliated or associated persons (an "Acquiring Person")
has acquired, or obtained the right to acquire, beneficial ownership of 20% or
more of the outstanding Common Shares, or (ii) 10 days (or such later date as
may be determined by a majority of the Continuing Directors) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding Common Shares.
The earlier of such dates is referred to as the "Distribution Date."
As soon as practicable following the Distribution Date, separate Rights
Certificates will be mailed to holders of record of the Common Shares as of the
close of business on the Distribution Date and such separate Rights Certificates
alone will evidence the Rights from and after the Distribution Date. All Common
Shares issued prior to the Distribution Date will be issued with Rights. Common
Shares issued after the Distribution Date may be issued with Rights if such
shares are issued (i) upon the conversion of outstanding convertible debentures
or any other convertible securities issued after adoption of the Rights
Agreement or (ii) pursuant to the exercise of stock options or under employee
benefit plans or arrangements, unless any such issuance would result in (or
create a risk that) such options, plans or arrangements would not qualify for
otherwise available special tax treatment. Except as otherwise determined by the
Board of Directors, no other Common Shares issued after the Distribution Date
will be issued with Rights. The Rights will expire on the earliest of (i)
December 5, 2006 (the "Final Expiration Date"), (ii) redemption or exchange of
the Rights as described below, or (iii) consummation of an acquisition of the
Company satisfying certain conditions by a person who acquired shares pursuant
to a Permitted Offer as described below.
Following the Distribution Date, and until one of the further events
described below, holders of the Rights will be entitled to receive, upon
exercise and the payment of $180.00 per Right, one one-thousandth of a share of
the Series A Preferred. In the event that the Company does not have sufficient
Series A Preferred available for all Rights to be exercised, or the Board
decides that such action is necessary and not contrary to the interests of
Rights holders, the Company may instead substitute cash, assets or other
securities for the Series A Preferred for which the Rights would have been
exercisable under this provision or as described below.
Unless the Rights are earlier redeemed, in the event that an Acquiring
Person becomes the beneficial owner of 20% or more of the Company's Common
Shares then outstanding (other than pursuant to a Permitted Offer), then proper
provision will be made so that each holder of a Right which has not theretofore
been exercised (other than Rights beneficially owned by the Acquiring Person,
which will thereafter be void) will thereafter have the right to receive, upon
exercise, Common Shares (or, in certain circumstances as determined by the Board
of Directors, cash, other property or other securities) having a market value
equal to two times the Exercise Price. Rights are not exercisable following the
occurrence of an event as described above until such time as the Rights are no
longer redeemable by the Company as set forth below.
-36-
<PAGE> 40
Similarly, unless the Rights are earlier redeemed, in the event that,
after the Shares Acquisition Date (as defined below), (i) the Company is
acquired in a merger or other business combination transaction, or (ii) 50% or
more of the Company's consolidated assets or earning power are sold (other than
in transactions in the ordinary course of business), proper provision must be
made so that each holder of a Right which has not theretofore been exercised
(other than Rights beneficially owned by the Acquiring Person, which will
thereafter be void) will thereafter have the right to receive, upon exercise,
shares of common stock of the acquiring company having a value equal to two
times the Exercise Price (unless the transaction satisfies certain conditions
and is consummated with a person who acquired shares pursuant to a Permitted
Offer, in which case the Rights will expire).
A Permitted Offer means a tender offer for all outstanding Common
Shares that has been made in the manner prescribed by Section 14(d) of the
Securities and Exchange Act of 1934, as amended, and determined by a majority of
the Continuing Directors to be fair and otherwise in the best interests of the
Company and its stockholders. Where the Board of Directors has determined that a
tender offer constitutes a Permitted Offer, the Rights will not become
exercisable to purchase Common Shares or shares of the acquiring company (as the
case may be) at the discounted price described above.
At any time after the acquisition by an Acquiring Person of 20% or more
of the Company's outstanding Common Shares and prior to the acquisition by such
Acquiring Person of 50% or more of the Company's outstanding Common Shares, the
Board of Directors of the Company may exchange the Rights (other than Rights
owned by the Acquiring Person), in whole or in part, at an exchange ratio of one
Common Share per Right. At any time on or prior to the close of business on the
earlier of (i) the tenth day following the acquisition by an Acquiring Person of
20% or more of the Company's outstanding Common Shares (the "Shares Acquisition
Date") or such later date as may be determined by a majority of the Continuing
Directors and publicly announced by the Company, or (ii) the Final Expiration
Date of the Rights, the Company may redeem the Rights in whole, but not in part,
at a price of $.01 per Right.
The Purchase Price payable, the number of Rights, and the number of
Series A Preferred or Common Shares or other securities or property issuable
upon exercise of the Rights are subject to adjustment from time to time in
connection with the dilutive issuances by the Company as set forth in the Rights
Agreement. No fractional portion less than integral multiples of one Common
Share will be issued upon exercise of a Right and in lieu thereof, an adjustment
in cash will be made based on the market price of the Common Shares on the last
trading date prior to the date of exercise. Until a Right is exercised, the
holder thereof, as such, will have no rights as a stockholder of the Company
(other than any rights resulting from such holder's ownership of Common Shares),
including, without limitation, the right to vote or to receive dividends.
The Series A Preferred purchasable upon exercise of the Rights will not
be redeemable. Each share of Series A Preferred will be entitled to an aggregate
dividend of 1,000 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Series A Preferred will be entitled to a
preferential liquidation payment equal to 1,000 times the per share amount to be
distributed to the holders of the Common Shares. Each share of Series A
Preferred will have 1,000 votes, voting together with the Common Shares. In the
event of any merger, consolidation or other transaction in which the Common
Shares are changed or exchanged, each share of Series A Preferred will be
entitled to receive 1,000 times the amount received per Common Share. These
rights are protected by customary anti-dilution provisions.
The description above is qualified in its entirety by the 1996 Rights
Agreement which is included as an exhibit to the Registration Statement of which
this Prospectus is a part.
-37-
<PAGE> 41
DESCRIPTION OF NOTES
The Notes were issued under an Indenture dated as of February 3, 1997
(the "Indenture") between the Company and State Street Bank and Trust Company,
as trustee (the "Trustee"). The terms of the Indenture are also governed by
certain provisions contained in the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The following summaries of certain provisions of the
Notes and the Indenture do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all the provisions of the Notes
and the Indenture, including the definitions therein of certain terms which are
not otherwise defined in this Prospectus and those terms made a part of the
Indenture by reference to the Trust Indenture Act as in effect on the date of
the Indenture. Wherever particular provisions or defined terms of the Indenture
(or of the forms of Notes which are a part thereof) are referred to, such
provisions or defined terms are incorporated herein by reference in their
entirety. As used in this "Description of Notes," the "Company" refers to
Adaptec, Inc., a California corporation, and does not, unless the context
otherwise indicates, include its subsidiaries.
GENERAL
The Notes represent general unsecured subordinated obligations of the
Company and are convertible into Common Stock as described below under
"--Conversion of Notes." The Notes will mature on February 1, 2004, unless
earlier redeemed at the option of the Company or repurchased at the option of
the holders upon a Change of Control.
The Indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the repurchase of securities of the
Company or the incurrence of debt by the Company or any of its subsidiaries. The
Indenture contains no covenants or other provisions to afford protection to
holders of Notes in the event of a highly leveraged transaction or a change in
control of the Company except to the extent described under "-- Repurchase at
Option of Holders" below.
The Notes bear interest from the date of original issue at the annual
rate set forth on the cover page hereof, payable semi-annually on February 1 and
August 1, commencing on August 1, 1997, to Holders of record at the close of
business on the preceding January 15 and July 15, respectively. Interest will be
computed on the basis of a 360-day year composed of twelve 30-day months.
Unless other arrangements are made, interest will be paid by check
mailed to holders entitled thereto, provided that with respect to any holder of
Notes with an aggregate principal amount equal to or in excess of $5,000,000, at
the request (such request to include appropriate wire instructions) of such
holder in writing to the Trustee on or before the record date preceding any
interest payment date, interest on such holder's Notes shall be paid by wire
transfer in immediately available funds. Principal will be payable, and the
Notes may be presented for conversion, registration of transfer and exchange,
without service charge, at the office of the Trustee or its agent in New York,
New York.
CONVERSION OF NOTES
The holders of Notes are entitled at any time on or after May 5, 1997
through the close of business on February 1, 2004, subject to prior redemption
and repurchase, to convert any Notes or portions thereof (in denominations of
$1,000 in principal amount or multiples thereof) into Common Stock at a
conversion price of $51.66 per share, subject to adjustment as described below;
provided that in the case of Notes called for redemption, conversion rights will
expire immediately prior to the close of business on the last business day
before the date fixed for redemption, unless the Company defaults in payment of
the redemption price. A Note (or portion thereof) in respect of which a holder
is exercising its option to require repurchase upon a Change of
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<PAGE> 42
Control may be converted only if such holder withdraws its election to exercise
such repurchase option in accordance with the terms of the Indenture.
Except as described below, no adjustment will be made on conversion of
any Notes for interest accrued thereon or for dividends paid on any Common Stock
issued. Holders of Notes at the close of business on a record date will be
entitled to receive the interest payable on such Note on the corresponding
interest payment date. However, Notes surrendered for conversion after the close
of business on a record date and before the opening of business on the
corresponding interest payment date must be accompanied by funds equal to the
interest payable on such succeeding interest payment date on the principal
amount so converted (unless such Note is subject to redemption on a redemption
date between such record date and the close of business on the business day
following the corresponding interest payment date). The interest payment with
respect to a Note called for redemption on a date during the period from the
close of business on or after any record date to the close of business on the
business day following the corresponding payment date will be payable on the
corresponding interest payment date to the registered holder at the close of
business on that record date (notwithstanding the conversion of such Note before
the corresponding interest payment date) and a holder of Notes who elects to
convert need not include funds equal to the interest paid. The Company is not
required to issue fractional shares of Common Stock upon conversion of Notes
and, in lieu thereof, will pay a cash adjustment based upon the closing price of
the Common Stock on the last business day prior to the date of conversion.
The conversion price is subject to adjustment by the Company (under
formulae set forth in the Indenture) upon the occurrence of certain events,
including: (i) the issuance of Common Stock as a dividend or distribution on the
outstanding Common Stock, (ii) the issuance to all holders of Common Stock of
certain rights, options or warrants to purchase Common Stock at less than the
current market price, (iii) certain subdivisions, combinations and
reclassifications of Common Stock, (iv) distributions to all holders of Common
Stock of capital stock of the Company (other than Common Stock) or evidences of
indebtedness of the Company or assets (including securities, but excluding those
dividends, rights, options, warrants and distributions referred to above and
dividends and distributions in connection with the liquidation, dissolution or
winding up of the Company and dividends and distributions paid exclusively in
cash), (v) distributions consisting exclusively of cash (excluding any cash
portion of distributions referred to in clause (iv) or in connection with a
consolidation, merger or sale of assets of the Company as referred to in clause
(ii) of the third paragraph below) to all holders of Common Stock in an
aggregate amount that, together with (x) all other such all-cash distributions
made within the preceding 12 months in respect of which no adjustment has been
made and (y) any cash and the fair market value of other consideration payable
in respect of any tender offers by the Company or any of its subsidiaries for
Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 20% of the Company's market capitalization
(being the product of the then current market price of the Common Stock times
the number of shares of Common Stock then outstanding) on the record date for
such distribution and (vi) the purchase of Common Stock pursuant to a tender
offer made by the Company or any of its subsidiaries which involves an aggregate
consideration that, together with (x) any cash and the fair market value of any
other consideration payable in any other tender offer by the Company or any of
its subsidiaries for Common Stock expiring within the 12 months preceding such
tender offer in respect of which no adjustment has been made and (y) the
aggregate amount of any such all-cash distributions referred to in clause (v)
above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 20% of the Company's market capitalization on the expiration of
such tender offer. No adjustment of the conversion price will be made for shares
issued pursuant to a plan for reinvestment of dividends or interest. Except as
stated above, the conversion price will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for Common Stock
or carrying the right to purchase any of the foregoing. No adjustment in the
conversion price will be required unless such adjustment would require a change
of at least 1% in the conversion price then in effect; provided that any
adjustment that would otherwise be required to be made shall be carried forward
and taken into account in any subsequent adjustment.
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<PAGE> 43
No adjustment will be made pursuant to clause (iv) of the preceding
paragraph if the Company makes proper provision for each holder of Notes who
converts a Note to receive, in addition to the Common Stock issuable upon such
conversion, the kind and amount of assets (including securities) that the holder
would have been entitled to receive if such holder had been a holder of the
Common Stock at the time of the distribution of such assets or securities.
Rights, options or warrants distributed by the Company to all holders of the
Common Stock that entitle the holders thereof to purchase shares of the
Company's capital stock and that, until the occurrence of an event (a
"Triggering Event"), (i) are deemed to be transferred with the Common Stock,
(ii) are not exercisable and (iii) are also issued in respect of future
issuances of Common Stock, shall not be deemed to be distributed until the
occurrence of the Triggering Event.
Under the provisions of the Company's 1996 Rights Agreement, upon
conversion of the Notes, the holders will receive, in addition to the Common
Stock issuable upon such conversion, the Rights (whether or not the Rights have
separated from the Common Stock at the time of the conversion). See "Description
of Capital Stock -- Preferred Stock -- Preferred Share Rights Plan." In
addition, the Indenture will provide that, if the Company implements a new
shareholder rights plan, such rights plan must provide that upon conversion of
the Notes the holders will receive, in addition to the Common Stock issuable
upon such conversion, such rights (whether or not such rights have separated
from the Common Stock at the time of such conversion).
In the case of (i) any reclassification or change of the Common Stock
(other than changes in par value or from par value to no par value or resulting
from a subdivision or a combination) or (ii) a consolidation or merger involving
the Company or a sale or conveyance to another corporation of the property and
assets of the Company as an entirety or substantially as an entirety (determined
on a consolidated basis), in each case as a result of which holders of Common
Stock shall be entitled to receive stock, other securities, other property or
assets (including cash) with respect to or in exchange for such Common Stock,
the holders of the Notes then outstanding will be entitled thereafter to convert
such Notes into the kind and amount of shares of stock, other securities or
other property or assets which they would have owned or been entitled to receive
upon such reclassification, change, consolidation, merger, sale or conveyance
had such Notes been converted into Common Stock immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance, after
giving effect to any adjustment event, assuming that a holder of Notes would not
have exercised any rights of election as to the stock, other securities or other
property or assets receivable in connection therewith and received per share the
kind and amount received per share by a plurality of non-electing shareholders.
In the event of a taxable distribution to holders of Common Stock (or
other transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to the United States income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Tax Considerations -- U.S.
Holders -- Adjustments to Conversion Price."
The Company from time to time may to the extent permitted by law reduce
the conversion price by any amount for any period of at least 20 days, in which
case the Company shall give at least 15 days' notice of such decrease, if the
Board of Directors has made a determination that such decrease would be in the
best interests of the Company, which determination shall be conclusive. The
Company may, at its option, make such reductions in the conversion price, in
addition to those set forth above, as the Company deems advisable to avoid or
diminish any income tax to its shareholders resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes. See "Certain Tax Considerations."
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes
is, to the extent set forth in the Indenture, subordinated in right of payment
to the prior payment in full of all Senior Indebtedness. Upon any
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distribution to creditors of the Company in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding related to the Company or its property, in an assignment for the
benefit of creditors or any marshaling of the Company's assets and liabilities,
the holders of all Senior Indebtedness will first be entitled to receive payment
in full of all amounts due or to become due thereon before the holders of the
Notes will be entitled to receive any payment in respect of the principal of,
premium, if any, or interest on the Notes (except that holders of Notes may
receive securities that are subordinated at least to the same extent as the
Notes to Senior Indebtedness and any securities issued in exchange for Senior
Indebtedness).
In the event of any acceleration of the Notes because of an Event of
Default, the holders of any Senior Indebtedness then outstanding would be
entitled to payment in full of all obligations in respect of such Senior
Indebtedness before the holders of the Notes are entitled to receive any payment
or distribution in respect thereof (except that holders of Notes may receive
securities that are subordinated at least to the same extent as the Notes are
subordinated to Senior Indebtedness and any securities issued in exchange for
Senior Indebtedness). The Indenture will further require that the Company
promptly notify holders of Senior Indebtedness if payment of the Notes is
accelerated because of an Event of Default.
The Company also may not make any payment upon or in respect of the
Notes (except that holders of Notes may receive securities that are subordinated
at least to the same extent as the Notes are subordinated to Senior Indebtedness
and any securities issued in exchange for Senior Indebtedness) if (a) a default
in the payment of the principal of, premium, if any, interest, rent under or
other obligations in respect of Senior Indebtedness occurs and is continuing
beyond any applicable period of grace or (b) any other default occurs and is
continuing with respect to Designated Senior Indebtedness that permits holders
of the Designated Senior Indebtedness as to which such default relates to
accelerate its maturity and the Trustee receives a notice of such default (a
"Payment Blockage Notice") from a person entitled to give such notice under the
Indenture. Payments on the Notes may and shall be resumed (i) in the case of a
payment default, upon the date on which such default is cured or waived, and
(ii) in the case of a non-payment default, 179 days after the date on which the
applicable Payment Blockage Notice is received (or sooner, if such default is
cured or waived), unless the maturity of any Senior Indebtedness has been
accelerated. No new period of payment blockage based on a non-payment default
may be commenced within 365 days after the receipt by the Trustee of any prior
Payment Blockage Notice. No nonpayment default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice.
"Senior Indebtedness" means the principal of, premium, if any, and
interest on, rent under, and any other amounts payable on or in or in respect of
the Company's existing credit agreement and any other Indebtedness of the
Company (including, without limitation, any interest accruing after the filing
of a petition by or against the Company under any bankruptcy law, whether or not
allowed as a claim after such filing in any proceeding under such bankruptcy
law), whether outstanding on the date of the Indenture or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Company (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to the foregoing); provided, however, that Senior
Indebtedness does not include (v) Indebtedness evidenced by the Notes, (w) any
liability for federal, state, local or other taxes owed or owing by the Company,
(x) Indebtedness of the Company to any subsidiary of the Company except to the
extent such Indebtedness may have been pledged, assigned or otherwise
transferred to a third party, (y) any indebtedness for the purchase of services,
goods or materials if such indebtedness is a trade payable of the Company
incurred in the ordinary course of business, except to the extent such
indebtedness may have been pledged, assigned or otherwise transferred to a third
party, and (z) any Indebtedness in which the instrument creating or evidencing
the same or the assumption or guarantee thereof (or related agreements or
documents to which the Company is a party) expressly provides that such
Indebtedness shall not be senior in right of payment to, or is pari passu with,
or is subordinated or junior to, the Notes.
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<PAGE> 45
"Indebtedness" means, with respect to any person, all obligations,
whether or not contingent, of such person (i) (a) for borrowed money (including,
but not limited to, any indebtedness secured by a security interest, mortgage or
other lien on the assets of the Company that is (1) given to secure all or part
of the purchase price of property subject thereto, whether given to the vendor
of such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under generally accepted accounting principles or entered into as
part of a sale and buy back transaction, whether or not required to be
capitalized, or under any lease or related document (including a purchase
agreement) that provides that the Company is contractually obligated to purchase
or cause a third party to purchase and thereby guarantee a minimum residual
value of the lease property to the lessor and the obligations of the Company
under such lease or related document to purchase or to cause a third party to
purchase such leased property, (d) in respect of letters of credit, bank
guarantees or bankers' acceptances (including reimbursement obligations with
respect to any of the foregoing), (e) with respect to indebtedness secured by a
mortgage, pledge, lien, encumbrance, charge or adverse claim affecting title or
resulting in an encumbrance to which the property or assets of such person are
subject, whether or not the obligation secured thereby shall have been assumed
by or shall otherwise be such person's legal liability, (f) in respect of the
balance of deferred and unpaid purchase price of any property or assets, (g)
under interest rate or currency swap agreements, cap, floor and collar
agreements, spot and forward contracts and similar agreements and arrangements;
(ii) with respect to any obligation of others of the type described in the
preceding clause (i) or under clause (iii) below assumed by or guaranteed in any
manner by such person or in effect guaranteed by such person through an
agreement to purchase (including, without limitation, "take or pay" and similar
arrangements), contingent or otherwise (and the obligations of such person under
any such assumptions, guarantees or other such arrangements); and (iii) any and
all Indebtedness constituting deferrals, renewals, extensions, refinancings and
refundings of, or amendments, modifications or supplements to, any of the
foregoing.
"Designated Senior Indebtedness" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such Indebtedness shall be
"Designated Senior Indebtedness" for purposes of the Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness).
By reason of the subordination provisions described above, in the event
of the Company's liquidation or insolvency, holders of Senior Indebtedness may
receive more, ratably, and holders of the Notes may receive less, ratably, than
the other creditors of the Company. Such subordination will not prevent the
occurrences of any Event of Default under the Indenture.
In the event that the Trustee (or paying agent if other than the
Trustee) or any holder receives any payment of principal or interest with
respect to the Notes at a time when such payment is prohibited under the
Indenture, such payment shall be held in trust for the benefit of, and shall be
paid over and delivered to, the holders of Senior Indebtedness or their
representative as their respective interests may appear. After all Senior
Indebtedness is paid in full and until the Notes are paid in full, holders shall
be subrogated (equally and ratably with all other Indebtedness pari passu with
the Notes) to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness to the extent that distributions
otherwise payable to the holders have been applied to the payment of Senior
Indebtedness.
The Notes are obligations exclusively of the Company. Since the
operations of the Company are partially conducted through its subsidiaries, the
cash flow and the consequent ability to service debt, including the Notes, of
the Company, is partially dependent upon the earnings of the Company's
subsidiaries and the distribution of those earnings to, or upon loans or other
payments of funds by those subsidiaries to, the Company. The payment
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<PAGE> 46
of dividends and the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or contractual restrictions, are
dependent upon the earnings of those subsidiaries and are subject to various
business considerations.
Any right of the Company to receive assets of any of its subsidiaries
upon their liquidation or reorganization (and the consequent right of the
holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any security interests in the assets of such subsidiary and
any indebtedness of such subsidiary senior to that held by the Company.
As of December 27, 1996, the Company had approximately $5.1 million of
indebtedness outstanding that would have constituted Senior Indebtedness
(excluding accrued interest and Senior Indebtedness constituting liabilities of
a type not required to be reflected as a liability on the balance sheet of the
Company in accordance with generally accepted accounting principles). As of
December 27, 1996, there was also outstanding approximately $22.9 million of
aggregate liabilities of subsidiaries of the Company (excluding intercompany
liabilities and liabilities of a type not required to be reflected as a
liability on the balance sheets of such subsidiaries in accordance with
generally accepted accounting principles) as to which the Notes would have been
structurally subordinated. The Indenture does not limit the amount of additional
indebtedness, including Senior Indebtedness, that the Company can create, incur,
assume or guarantee, nor will the Indenture limit the amount of indebtedness and
other liabilities that any subsidiary can create, incur, assume or guarantee.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable at the option of the Company prior to
February 3, 2000. At any time on or after that date, the Notes may be redeemed
at the Company's option on at least 15 but not more than 60 days' notice, in
whole at any time or in part from time to time, at the following prices
(expressed in percentages of the principal amount), together with accrued
interest to the date fixed for redemption if redeemed during the 12-month period
beginning February 1 (beginning February 3, 2000 and ending January 31, 2001, in
the case of the first such period):
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2000 .............................. 102.71%
2001 .............................. 102.04
2002 .............................. 101.36
2003 .............................. 100.68
and 100% at February 1, 2004.
</TABLE>
If fewer than all the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed in principal amounts of $1,000 or integral multiples
thereof by lot or, in its discretion, on a pro rata basis. If any Note is to be
redeemed in part only, a new Note or Notes in principal amount equal to the
unredeemed principal portion thereof will be issued. If a portion of a holder's
Notes is selected for partial redemption and such holder converts a portion of
such Notes, such converted portion shall be deemed to be taken from the portion
selected for redemption.
No sinking fund is provided for the Notes.
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<PAGE> 47
REPURCHASE AT OPTION OF HOLDERS
Upon the occurrence of a Change of Control, each holder of Notes shall
have the right, at the holder's option, to require that the Company repurchase
such holder's Notes in whole or in part in integral multiples of $1,000, at a
purchase price in cash in an amount equal to 101% of the principal amount
thereof, together with accrued and unpaid interest to the date of repurchase,
pursuant to an offer (the "Change of Control Offer") made in accordance with the
procedures described below and the other provisions of the Indenture.
A "Change of Control" means an event or series of events as a result of
which (i) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) acquires "beneficial ownership" (as determined in
accordance with Rule 13d-3 under the Exchange Act), directly or indirectly, of
more than 50% of the combined voting power of the then outstanding securities
entitled to vote generally in elections of directors of the Company (the "Voting
Stock"), (ii) the Company consolidates with or merges into any other
corporation, or conveys, transfers or leases all or substantially all of its
assets to any person, or any other corporation merges into the Company, and, in
the case of any such transaction, the outstanding Common Stock of the Company is
changed or exchanged as a result, unless the shareholders of the Company
immediately before such transaction own, directly or indirectly, at least 51% of
the combined voting power of the outstanding voting securities of the
corporation resulting from such transaction in substantially the same proportion
as their ownership of the Voting Stock immediately before such transaction, or
(iii) Continuing Directors do not constitute a majority of the Board of
Directors of the Company (or, if applicable, a successor corporation to the
Company); provided that a Change of Control shall not be deemed to have occurred
if either (i) the closing price per share of the Common Stock for any 5 trading
days within the period of 10 consecutive trading days ending immediately after
the announcement of such Change of Control shall equal or exceed 105% of the
conversion price of the Notes in effect on such trading day or (ii) at least 90%
of the consideration in the transaction or transactions constituting the Change
of Control transaction consists of shares of common stock traded on a national
securities exchange or quoted on the Nasdaq National Market (or which will be so
traded or quoted immediately following the Change of Control) and, as a result
of such transaction or transactions, the Notes become convertible solely into
such common stock (and any rights attached thereto).
"Continuing Directors" shall mean, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
Within 30 days following any Change of Control, the Company shall send
by first-class mail, postage prepaid, to the Trustee and to each holder of
Notes, at such holder's address appearing in the security register, a notice
stating, among other things, that a Change of Control has occurred, the purchase
price, the purchase date, which shall be a business day no earlier than 30 days
nor later than 60 days from the date such notice is mailed, and certain other
procedures that a holder of Notes must follow to accept a Change of Control
Offer or to withdraw such acceptance.
No quantitative or other established meaning has been given to the
phrase "all or substantially all" (which appears in the definition of Change of
Control) by courts which have interpreted this phrase in various contexts under
the laws of the State of New York. To the extent the meaning of such phrase is
uncertain, uncertainty will exist as to whether or not a Change of Control may
have occurred (and, accordingly, as to whether or not the holders of Notes will
have the right to require the Company to repurchase their Notes).
Rule 13e-4 under the Exchange Act requires, among other things, the
dissemination of certain information to security holders in the event of an
issuer tender offer and may apply in the event that the repurchase option
becomes available to holders of the Notes. The Company will comply with this
rule to the
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<PAGE> 48
extent applicable at that time. In the event any of the provisions governing a
Change of Control Offer conflict with the federal securities laws of the United
States, such securities laws shall control.
The right to require the Company to repurchase Notes as a result of a
Change of Control could have the effect of delaying, deferring or preventing a
change of control or other attempts to acquire control of the Company unless
arrangements have been made to enable the Company to repurchase all the Notes on
the applicable purchase date. Consequently, this right may render more difficult
or discourage a merger, consolidation or tender offer (even if such transaction
is supported by the Company's Board of Directors or is favorable to the
shareholders), the assumption of control by a holder of a large block of the
Company's shares and the removal of incumbent management.
The foregoing provisions would not necessarily afford holders of the
Notes protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect holders. Moreover, certain
transactions and events that would constitute an actual change of control may
not be a Change of Control for purposes of the Indenture. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar restructuring. Subject to the limitation on mergers and consolidations
described below, the Company, its management or its subsidiaries could in the
future enter into certain transactions, including refinancings, certain
recapitalizations, acquisitions, the sale of all or substantially all of its
assets, the liquidation of the Company or similar transactions, that would not
constitute a Change of Control under the Indenture, but that would increase the
amount of Senior Indebtedness (or any other indebtedness) outstanding at such
time or substantially reduce or eliminate the Company's assets. There are no
restrictions in the Indenture on the creation of Senior Indebtedness (or any
other indebtedness) and, under certain circumstances, the incurrence of
significant amounts of additional indebtedness could have an adverse effect on
the Company's ability to service its indebtedness, including the Notes.
The Company's ability to repurchase Notes upon the occurrence of a
Change of Control is subject to limitations. There can be no assurance that the
Company would have the financial resources, or would be able to arrange
financing, to pay the purchase price for all the Notes that might be delivered
by holders of Notes seeking to exercise the repurchase right. Moreover, the
terms of the Company's existing primary bank facility prohibit the repurchase of
Notes by the Company or its subsidiaries, and the Company's ability to
repurchase Notes may be limited or prohibited by the terms of any future
borrowing arrangements, including Senior Indebtedness existing at the time of a
Change of Control. The Company's ability to repurchase Notes with cash may also
be limited by the terms of its subsidiaries' borrowing arrangements due to
dividend restrictions. Any failure by the Company to repurchase the Notes when
required following a Change of Control would result in an Event of Default under
the Indenture whether or not such repurchase is prohibited by the subordination
provisions of the Indenture. Any such default may, in turn, cause a default
under Senior Indebtedness or other indebtedness of the Company. Moreover, the
occurrence of a Change of Control could result in an event of default under the
Company's existing primary bank facility and may cause an event of default under
terms of other indebtedness (including Senior Indebtedness) of the Company. As a
result, in each case, any repurchase of the Notes would, absent a waiver, be
prohibited under the subordination provisions of the Indenture until the Senior
Indebtedness is paid in full. See "-- Subordination"
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Company shall not consolidate with or merge with or into, or
convey, transfer or lease all or substantially all its assets (determined on a
consolidated basis), whether in a single transaction or a series of related
transactions, to, any person unless: (i) either the Company is the resulting,
surviving or transferee person (the "Successor Company") or the Successor
Company is a corporation organized and existing under the laws of the United
States or any State thereof or the District of Columbia, and the Successor
Company (if not the
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<PAGE> 49
Company) expressly assumes by a supplemental indenture, executed and delivered
to the Trustee, in form satisfactory to the Trustee, all the obligations of the
Company under the Indenture and the Notes, including the conversion rights
described above under "-- Conversion of Notes," (ii) immediately after giving
effect to such transaction no default or Event of Default has occurred and is
continuing and (iii) the Company delivers to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture comply with the Indenture.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being: default in
payment of the principal of or premium, if any, on the Notes when due at
maturity, upon redemption or otherwise, including failure by the Company to
purchase the Notes when required as described under "-Change of Control"
(whether or not such payment shall be prohibited by the subordination provisions
of the Indenture); default for 30 days in payment of any installment of interest
on the Notes (whether or not such payment shall be prohibited by the
subordination provisions of the Indenture); default by the Company for 90 days
after notice in the observance or performance of any other covenants in the
Indenture; or certain events involving bankruptcy, insolvency or reorganization
of the Company. The Indenture provides that the Trustee may withhold notice to
the Holders of Notes of any default (except in payment of principal, premium, if
any, or interest with respect to the Notes) if the Trustee considers it in the
interest of the Holders of Notes to do so.
The Indenture provides that if any Event of Default shall have occurred
and be continuing, the Trustee or the Holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and premium,
if any, on the Notes to be due and payable immediately, but if the Company shall
cure all defaults (except the nonpayment of interest on, premium, if any, and
principal of any Notes which shall have become due by acceleration) and certain
other conditions are met, such declaration may be canceled and past defaults may
be waived by the Holders of a majority in principal amount of Notes then
outstanding.
The Holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture. The Indenture provides that,
subject to the duty of the Trustee following an Event of Default to act with the
required standard of care, the Trustee will not be under an obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any of the Holders, unless the Trustee receives satisfactory
indemnity against any associated loss, liability or expense.
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect as to all outstanding
Notes (except as to (i) rights of registration of transfer and exchange and the
Company's right of optional redemption, (ii) substitution of apparently
mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of Holders of
Notes to receive payments of principal of, premium, if any, and interest on, the
Notes, (iv) rights of Holders of Notes to convert to Common Stock, (v) rights,
obligations and immunities of the Trustee under the Indenture and (vi) rights of
the Holders of Notes as beneficiaries of the Indenture with respect to the
property so deposited with the Trustee payable to all or any of them), if (A)
the Company will have paid or caused to be paid the principal of, premium, if
any, and interest on the Notes as and when the same will have become due and
payable or (B) all outstanding Notes (except lost, stolen or destroyed Notes
which have been replaced or paid) have been delivered to the Trustee for
cancellation or (C) (x) the Notes not previously delivered to the Trustee for
cancellation will have become due and payable or are by their terms to become
due and payable within one year or are to be called for redemption within one
year under arrangements satisfactory to the Trustee upon delivery of notice and
(y) the Company will have irrevocably deposited with the Trustee, as trust
funds, cash, in an amount sufficient to pay principal of and interest on the
outstanding Notes, to maturity or redemption, as the case may be. Such trust may
only be
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<PAGE> 50
established if such deposit will not result in a breach or violation of, or
constitute a default under, any agreement or instrument pursuant to which the
Company is a party or by which it is bound and the Company has delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions related to such defeasance have been complied with.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than a majority in
principal amount of the Notes at the time outstanding, to modify the Indenture
or any supplemental indenture or the rights of the Holders of Notes, except that
no such modification shall (i) extend the fixed maturity of any Note, reduce the
rate or extend the time of payment of interest thereon, reduce the principal
amount thereof or premium, if any, thereon, reduce any amount payable upon
redemption thereof, change the obligation of the Company to repurchase Notes
upon the happening of a Change of Control, impair or affect the right of a
Holder to institute suit for the payment thereof, change the currency in which
the Notes are payable, modify the subordination provisions of the Indenture in a
manner adverse to the Holders of Notes or impair the right to convert the Notes
into Common Stock subject to the terms set forth in the Indenture, without the
consent of the Holder of each Note so affected, or (ii) reduce the aforesaid
percentage of Notes, without the consent of the Holders of all of the Notes then
outstanding.
The Indenture also provides that the Company and the Trustee may amend
the Indenture without the consent of any holder of the Notes under certain
circumstances, (i) to cure any ambiguity, omission, defect or inconsistency,
(ii) to provide for the assumption by a successor corporation of the obligations
of the Company under the Indenture, (iii) to provide for uncertificated Notes in
addition to or in place of certificated Notes or vice versa, (iv) to add to the
covenants of the Company for the benefit of the Holders or to surrender any
right or power herein conferred upon the Company, (v) to comply with any
requirements of the Commission in connection with qualifying the Indenture under
the Trust Indenture Act, or (vi) to make any change that does not adversely
affect the rights of any Holder of the Notes.
GOVERNING LAW
The Indenture will provide that the Notes will be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to applicable principles of conflicts of law.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company, the Trustee under the Indenture,
has been appointed by the Company as the paying agent, conversion agent,
registrar and custodian with regard to the Notes. The Trustee and/or its
affiliates may in the future provide banking and other services to the Company
in the ordinary course of their respective businesses.
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<PAGE> 51
CERTAIN TAX CONSIDERATIONS
GENERAL
THE FOLLOWING IS A DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX AND
ESTATE TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES
AS OF THE DATE HEREOF. FOR PURPOSES OF THIS DISCUSSION, A "U.S. HOLDER" IS A
HOLDER THAT IS AN INDIVIDUAL WHO IS A CITIZEN OR RESIDENT OF THE UNITED STATES,
A CORPORATION OR A PARTNERSHIP THAT IS ORGANIZED UNDER THE LAWS OF THE UNITED
STATES OR ANY STATE THEREOF OR AN ESTATE OR TRUST WHOSE INCOME IS INCLUDIBLE IN
GROSS INCOME REGARDLESS OF ITS SOURCE. A "NON-U.S. HOLDER" IS A HOLDER THAT IS
NOT A U.S. HOLDER. THIS SUMMARY APPLIES ONLY TO NOTES AND COMMON STOCK HELD AS
CAPITAL ASSETS WITHIN THE MEANING OF SECTION 1221 OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED (THE "CODE"). IT DOES NOT DISCUSS ALL OF THE TAX
CONSEQUENCES THAT MAY BE RELEVANT TO A HOLDER IN LIGHT OF ITS PARTICULAR
CIRCUMSTANCES OR TO HOLDERS SUBJECT TO SPECIAL RULES, SUCH AS FORMER CITIZENS OR
LONG-TERM RESIDENTS OF THE UNITED STATES, DEALERS IN SECURITIES OR FOREIGN
CURRENCIES, FINANCIAL INSTITUTIONS, LIFE INSURANCE COMPANIES, OR REGULATED
INVESTMENT COMPANIES, OR TO HOLDERS WHOSE FUNCTIONAL CURRENCY IS NOT THE UNITED
STATES DOLLAR OR WHO HOLD THE NOTES OR THE COMMON STOCK AS PART OF A SYNTHETIC
SECURITY, CONVERSION TRANSACTION, OR CERTAIN "STRADDLE" OR HEDGING TRANSACTIONS.
THE U.S. FEDERAL INCOME TAX AND ESTATE TAX CONSIDERATIONS SET FORTH
BELOW ARE BASED UPON THE CODE AND REGULATIONS AND RULINGS AND JUDICIAL DECISIONS
THEREUNDER AS OF THE DATE HEREOF. SUCH AUTHORITIES MAY BE REPEALED, REVOKED OR
MODIFIED, POSSIBLY WITH RETROACTIVE EFFECT, SO AS TO RESULT IN U.S. FEDERAL
INCOME TAX CONSEQUENCES DIFFERENT FROM THOSE PRESENTED BELOW.
U.S. HOLDERS
Interest. Interest on a Note should be taxable to a U.S. Holder as
ordinary interest income in accordance with the U.S. Holder's method of
accounting for U.S. federal income tax purposes.
Sale, Exchange or Retirement of a Note. A U.S. Holder should recognize
gain or loss, if any, on the sale, retirement or other taxable disposition of a
Note in an amount equal to the difference, if any, between the U.S. Holder's
adjusted tax basis in the Note and the amount received therefor (other than
amounts attributable to accrued and unpaid interest on the Notes, which should
be treated as interest for U.S. federal income tax purposes). Subject to the
market discount rules noted under "U.S. Holders -- Market Discount and Bond
Premium" below, gain or loss, if any, recognized on the sale, retirement or
other taxable disposition of a Note generally should be long-term capital gain
or loss if the Note was held for more than one year as of the date of
disposition.
Market Discount and Bond Premium. If a U.S. Holder acquires a Note
subsequent to its original issuance and the Note's stated redemption price at
maturity exceeds the U.S. Holder's initial tax basis in the Note by more than a
de minimis amount, the U.S. Holder should generally be treated as having
acquired the Note at a "market discount" equal to such excess. In addition, if a
U.S. Holder's initial tax basis in a Note exceeds the stated redemption price at
maturity of the Note, the U.S. Holder should generally be treated as having
acquired the Note with "bond premium" in an amount equal to such excess. U.S.
Holders should consult their tax advisers regarding the existence, if any, and
tax consequences of market discount and bond premium.
Conversion of the Notes. A U.S. Holder should not recognize gain or
loss upon conversion of the Notes into Common Stock. The U.S. Holder's tax basis
in shares of Common Stock received upon conversion should be the same as the
U.S. Holder's adjusted tax basis of the Notes converted (reduced by the portion
of such basis allocable to any fractional Common Stock interest for which the
U.S. Holder receives a cash payment from the Company). The holding period of the
Common Stock received in the conversion should include the holding period
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<PAGE> 52
of the Notes that were converted. A U.S. Holder generally should recognize gain
(or loss) upon a conversion to the extent that any cash paid in lieu of a
fractional share of Common Stock exceeds (or is less than) its tax basis
allocable to such fractional share.
Dividends. Dividends paid on Common Stock received upon conversion will
be taxable to a U.S. Holder as ordinary income, to the extent paid out of the
Company's current or accumulated earnings and profits. Subject to certain
restrictions, dividends received by a corporate U.S. Holder generally should be
eligible for the 70% dividends received deduction.
Sale of Common Stock. A U.S. Holder of Common Stock received on
conversion who sells or otherwise disposes of such stock in a taxable
transaction will recognize capital gain or loss equal to the difference between
the cash and the fair market value of any property received on such sale and the
U.S. Holder's tax basis in such stock. Such gain or loss will be long term gain
or loss if the holding period for such Common Stock was more than one year.
Adjustments to Conversion Price. Pursuant to Treasury Regulations
promulgated under Section 305 of the Code, a U.S. Holder of a Note should be
treated as having received a constructive distribution from the Company upon an
adjustment in the conversion price of the Notes if (i) as a result of such
adjustment, the proportionate interest of such U.S. Holder in the assets or
earnings and profits of the Company is increased and (ii) the adjustment is not
made pursuant to a bona fide, reasonable, anti-dilution formula. An adjustment
in the conversion price would not be considered made pursuant to such a formula
if the adjustment were made to compensate for certain taxable distributions with
respect to the Common Stock into which the Notes are convertible. Thus, under
certain circumstances, a decrease in the conversion price of the Notes may be
taxable to a U.S. Holder of a Note as a dividend to the extent of the current or
accumulated earnings and profits of the Company. In addition, the failure to
adjust fully the conversion price of the Notes to reflect distributions of stock
dividends with respect to the Common Stock may result in a taxable dividend to
the U.S. Holders of the Common Stock.
Backup Withholding and Information Reporting. A U.S. Holder of a Note,
or of Common Stock issued upon conversion of a Note, may be subject to
information reporting and possible backup withholding. If applicable, backup
withholding would apply at a rate of 31% with respect to dividends or interest
on, or the proceeds of a sale, exchange, redemption, retirement, or other
disposition of, such Note or Common Stock, as the case may be, unless (i) such
U.S. Holder is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact, or (ii) provides a taxpayer
identification number, certifies that the U.S. Holder is not subject to backup
withholding, and otherwise complies with applicable backup withholding rules.
NON-U.S. HOLDERS
The Notes. The payment of interest on a Note should generally not be
subject to U.S. federal income tax, if (1) the interest is not effectively
connected with the conduct of a trade or business within the United States, (2)
the Non-U.S. Holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (3) the Non-U.S. Holder is not a controlled foreign corporation that is
related to the Company actually or constructively through stock ownership and
(4) either (i) the beneficial owner of the Note certifies to the Company or its
agent, under penalties of perjury, that it is not a U.S. Holder and provides its
name and address on U.S. Treasury Form W-8 (or on a suitable substitute form) or
(ii) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
(a "financial institution") and holds the Note certifies under penalties of
perjury that such a Form W-8 (or suitable substitute form) has been received
from the beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payer with a copy thereof.
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<PAGE> 53
A Non-U.S. Holder generally should not be subject to U.S. federal
income tax on any gain or income realized in connection with (1) the conversion
of a Note into Common Stock or (2) the sale, exchange, retirement, or other
disposition of a Note unless (i) the Non-U.S. Holder is an individual who is
present in the United States for 183 days or more in the taxable year of the
disposition, and certain other conditions are met, or (ii) the gain from the
disposition is effectively connected to the conduct of a trade or business by
the Non-U.S. Holder in the United States.
A Note held directly by an individual who, at the time of death, is not
a citizen or resident of the United States should not be includible in such
individual's gross estate for U.S. estate tax purposes as a result of such
individual's death if the individual does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote and, at the time of the individual's death, if payments
with respect to such Note would not have been effectively connected with the
conduct by such individual of a trade or business in the United States. Even if
the Note was includible in the gross estate under the foregoing rules, the Note
may be excluded under the provisions of an applicable estate tax treaty.
The Common Stock. In general, dividends (including any amounts that are
treated as dividends as described above) paid to a Non-U.S. Holder of the Common
Stock should be subject to U.S. federal income tax withholding at a 30% rate
unless such rate is reduced by an applicable income tax treaty. Dividends that
are effectively connected with such Non-U.S. Holder's conduct of a trade or
business in the United States or, if a tax treaty applies, attributable to a
permanent establishment, or, in the case of an individual, a "fixed base," in
the United States ("U.S. trade or business income") are generally subject to
U.S. federal income tax at regular rates, but are not generally subject to the
30% withholding tax if the Non-U.S. Holder files the appropriate form with the
payer. Any U.S. trade or business income received by a Non-U.S. Holder that is a
corporation may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be applicable under
an income tax treaty.
Dividends paid to an address in a foreign country are presumed (absent
actual knowledge to the contrary) to be paid to a resident of such country for
purposes of the withholding tax discussed above and, under the current
interpretation of Treasury Regulations, for purposes of determining the
applicability of a tax treaty rate. Under proposed Treasury Regulations not
currently in effect, however, a Non-U.S. Holder of the Common Stock who wishes
to claim the benefit of an applicable tax treaty rate would be required to
satisfy applicable certification requirements. It is not certain whether, or in
what form, the proposed Treasury Regulations will be adopted as final
regulations.
A Non-U.S. Holder of the Common Stock that is eligible for a reduced
rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain
a refund of any excess amounts withheld by filing an appropriate claim for
refund with the IRS.
A Non-U.S. Holder of the Common Stock should generally not be subject
to U.S. income or withholding tax on gain realized on the sale or exchange of
such stock, unless the Non-U.S. Holder is an individual who is present in the
United States for 183 days or more in the taxable year of the disposition, and
certain other conditions are met, or (ii) the gain from the disposition is
effectively connected to the conduct of a trade or business by the Non-U.S.
Holder in the United States.
Common Stock held directly by an individual who at the time of death is
not a citizen or resident of the United States will generally be includible in
the gross estate of such individual for U.S. estate tax purposes, subject to
contrary provisions of an applicable estate tax treaty.
Backup Withholding and Information Reporting. Payments on the Notes
made by the Company or any paying agent of the Company and payments of dividends
on the Common Stock to certain noncorporate Non-U.S.
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<PAGE> 54
Holders generally should be subject to information reporting and possibly
to "backup withholding" at a rate of 31%. Information reporting and backup
withholding do not apply, however, to payments made outside the United States by
the Company or a paying agent on a Note or to payments of dividends on the
Common Stock if the certification described under "Non-U.S. Holders -- The
Notes" above is received, provided in each case that the payer does not have
actual knowledge that the Holder is a U.S. Holder.
Payment of proceeds from a sale of a Note or the Common Stock to or
through the U.S. office of a broker is subject to information reporting and
backup withholding unless the Non-U.S. Holder certifies as to its non U.S.
status or otherwise establishes an exemption from information reporting and
backup withholding. Payment outside the United States of the proceeds of the
sale of a Note or the Common Stock to or through a foreign office of a "broker"
(as defined in applicable U.S. Treasury Regulations) should not be subject to
information reporting or backup withholding, except that if the broker is a U.S.
person, a controlled foreign corporation for U.S. federal income tax purposes or
a foreign person 50% or more of whose gross income is from a U.S. trade or
business, information reporting should apply to such payment unless the broker
has documentary evidence in its records that the beneficial owner is not a U.S.
Holder and certain other conditions are not met or the beneficial owner
otherwise establishes an exemption.
THE U.S. FEDERAL INCOME TAX AND ESTATE TAX DISCUSSION SET FORTH ABOVE
IS INTENDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO A
PARTICULAR HOLDER'S SITUATION. PERSONS CONSIDERING A PURCHASE OF THE NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES
OF PURCHASING, OWNING AND DISPOSING OF THE NOTES AND THE COMMON STOCK, INCLUDING
THE TAX CONSEQUENCES UNDER STATE, LOCAL OR FOREIGN LAWS AND OTHER TAX LAWS AND
THE POSSIBLE EFFECTS OF CHANGES (POSSIBLY INCLUDING RETROACTIVE, CHANGES) IN
U.S. FEDERAL AND OTHER TAX LAWS.
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<PAGE> 55
SELLING SECURITYHOLDERS
The Notes offered hereby were originally issued by the Company and sold
by the Initial Purchasers, in a transaction exempt from the registration
requirements of the Securities Act, to persons reasonably believed by such
initial purchaser to be "qualified institutional buyers" (as defined in Rule
144A under the Securities Act), or other institutional "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act or in
compliance with the provisions of Regulation S under the Securities Act. The
Selling Securityholders (which term includes their transferees, pledgees, donees
or their successors) may from time to time offer and sell pursuant to this
Prospectus any or all of the Notes and Common Stock issued upon conversion of
the Notes.
The following table sets forth information with respect to the Selling
Securityholders and the respective principal amounts of Notes beneficially owned
by each Selling Securityholder that may be offered pursuant to this Prospectus.
Such information has been obtained from the Selling Securityholders. None of the
Selling Securityholders has, or within the past three years has had, any
position, office or other material relationship with the Company or any of its
predecessors or affiliates, except as noted below. Because the Selling
Securityholders may offer all or some portion of the Notes or the Common Stock
issuable upon conversion thereof pursuant to this Prospectus, no estimate can be
given as to the amount of the Notes or the Common Stock issuable upon conversion
thereof that will be held by the Selling Holders upon termination of any such
sales. In addition, the Selling Securityholders identified below may have sold,
transferred or otherwise disposed of all or a portion of their Notes since the
date on which they provided the information regarding their Notes in
transactions exempt from the registration requirements of the Securities Act.
From time to time, Bear, Stearns & Co. has provided, and it continues
to provide, investment banking services to the Company, for which it received or
will receive customer fees. None of the other Selling Securityholders has had
any position, office or other materials relationship with the Company or its
affiliates within the last three years.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK
PRINCIPAL AMOUNT OF ----------------------------------
NOTES BENEFICIALLY OFFERED SELLING
OWNED AND OFFERED BENEFICIALLY SECURITYHOLDER
NAME HEREBY OWNED(1)(2) HEREBY(2)
- --------------------------------------------------------- ------------------- ------------ ---------------
[TO BE ADDED BY AMENDMENT]
<S> <C> <C> <C>
Any other holder of Notes or future transferee from any
such holder (3)(4) ..............................
---------- ---------- ----------
Total ....................................
========== ========== ==========
</TABLE>
(1) Includes shares of Common Stock issuable upon conversion of the Notes.
(2) Assumes a conversion price of $51.66 per share, and a cash payment in lieu
of any fractional share interest; such conversion price is subject to
adjustment as described under "Description of Notes -- Conversion."
Accordingly the number of shares of Common Stock issuable upon conversion of
the Notes may increase or decrease from time to time. Under the terms of
Indenture, fractional shares will not be issued upon conversion of the
Notes; cash will be paid in lieu of fractional shares, if any.
(3) Information concerning other Selling Securityholders will be set forth in
Prospectus Supplements from time to time, if required.
(4) Assumes that any other holders of Notes or any future transferee from any
such holder does not beneficially own any Common Stock other than the Common
Stock issuable upon conversion of the Notes at the initial conversion rate.
The Selling Securityholders identified above may have sold, transferred
or otherwise disposed of, in transactions exempt from the registration
requirements of the Securities Act, all or a portion of their Notes since
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<PAGE> 56
the date on which the information in the preceding table is presented.
Information concerning the Selling Securityholders may change from time to time
and any such changed information will be set forth in supplements to this
Prospectus if and when necessary. Because the Selling Securityholders may offer
all or some of the Notes that they hold and/or Conversion Shares pursuant to the
offering contemplated by this Prospectus, no estimate can be given as to the
amount of the Notes or Conversion Shares that will be held by the Selling
Securityholders upon the termination of this offering. See "Plan of
Distribution."
Information concerning the Selling Securityholders may change from time
to time and any such changed information will be set forth in supplements to
this Prospectus if and when necessary. In addition, the per share conversion
price, and therefore the number of shares issuable upon conversion of the Notes,
is subject to adjustment under certain circumstances. Accordingly, the aggregate
principal amount of Notes and the number of shares of Common Stock issuable upon
conversion thereof offered hereby may increase or decrease.
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<PAGE> 57
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds of the sale of the
Securities offered hereby. The Securities may be sold from time to time to
purchasers directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer the Securities through brokers,
dealers or agents who may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of the Securities for whom they may act as agent. The Selling
Securityholders and any such brokers, dealers or agents who participate in the
distribution of the Securities may be deemed to be "underwriters," and any
profits on the sale of the Securities by them and any discounts, commissions or
concessions received by any such brokers, dealers or agents might be deemed to
be underwriting discounts and commissions under the Securities Act. To the
extent the Selling Securityholders may be deemed to be underwriters, the Selling
Securityholders may be subject to certain statutory liabilities of, including,
but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act.
The Securities offered hereby may be sold from time to time in one or
more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The Securities may be sold by one or more of the following methods, without
limitation: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the Securities as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (d) an exchange
distribution in accordance with the rules of such exchange; (e) face-to-face
transactions between sellers and purchasers without a broker-dealer; (f) through
the writing of options; and (g) other. At any time a particular offer of the
Securities is made, a revised Prospectus or Prospectus Supplement, if required,
will be distributed which will set forth the aggregate amount and type of
Securities being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, any discounts, commissions,
concessions and other items constituting compensation from the Selling
Securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers. Such Prospectus Supplement and, if necessary, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part, will be filed with the Commission to reflect the disclosure of
additional information with respect to the distribution of the Securities. In
addition, the Securities covered by this Prospectus may be sold in private
transactions or under Rule 144 rather than pursuant to this Prospectus.
To the best knowledge of the Company, there are currently no plans,
arrangement or understandings between any Selling Securityholders and any
broker, dealer, agent or underwriter regarding the sale of the Securities by the
Selling Securityholders. There is no assurance that any Selling Securityholder
will sell any or all of the Securities offered by it hereunder or that any such
Selling Securityholder will not transfer, devise or gift such Securities by
other means not described herein.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M which may limit the timing of purchases and sales of any of the Securities by
the Selling Securityholders and any other such person. Furthermore, Regulation M
of the Exchange Act may restrict the ability of any person engaged in the
distribution of the Securities to engage in market-making activities with
respect to the particular Securities being distributed for a period of up to
five business days prior to the commencement of such distribution. All of the
foregoing may affect the marketability of the Securities and the ability of any
person or entity to engage in market-making activities with respect to the
Securities.
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<PAGE> 58
Pursuant to the Registration Rights Agreement entered into in
connection with the offer and sale of the Notes by the Company, each of the
Company and the Selling Securityholders will be indemnified by the other against
certain liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection therewith.
The Company has agreed to pay substantially all of the expenses
incidental to the registration, offering and sale of the Securities to the
public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
LEGAL MATTERS
The validity of the Notes and the Common Stock being offered hereby
will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of Adaptec as of March 31, 1996
and 1995 and for each of the two fiscal years in the period ended March 31, 1996
included in this Registration Statement have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The consolidated financial statements of Adaptec, Inc. for the year
ended March 31, 1994 included in this Registration Statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
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<PAGE> 59
ADAPTEC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Financial Statements:
Report of Independent Accountants .................................................. F-2
Report of Independent Public Accountants ........................................... F-3
Consolidated Balance Sheets as of March 31, 1996 and 1995 .......................... F-4
Consolidated Statements of Operations for the three years ended March 31, 1996 ..... F-5
Consolidated Statements of Changes in Shareholders' Equity for the three years ended
March 31, 1996 .................................................................. F-6
Consolidated Statements of Cash Flows for the three years ended March 31, 1996 ..... F-7
Notes to Consolidated Financial Statements ......................................... F-8
Unaudited Interim Financial Statements:
Condensed Consolidated Balance Sheets as of December 27, 1996 and March 31, 1996 ... F-18
Condensed Consolidated Statements of Operations for the three and nine months ended
December 27, 1996 and December 29, 1995 ......................................... F-19
Condensed Consolidated Statements of Cash Flows for the nine months ended
December 27, 1996 and December 29, 1995 ......................................... F-20
Notes to Condensed Consolidated Financial Statements ............................... F-21
</TABLE>
<PAGE> 60
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Adaptec, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of
shareholders' equity present fairly, in all material respects, the financial
position of Adaptec, Inc. and its subsidiaries at March 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
San Jose, California
April 22, 1996, except for Note 12 which is as of December 5, 1996
F-2
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Adaptec, Inc.:
We have audited the consolidated statements of operations,
shareholders'equity and cash flows of Adaptec, Inc. (a California corporation)
and subsidiaries for the year ended March 31, 1994. These financial statements
are the responsibility of the Company=s management. Our responsibility is to
express an opinion on these financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Adaptec, Inc. and subsidiaries for the year ended March 31, 1994 in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
April 25, 1994
F-3
<PAGE> 62
ADAPTEC, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31
---------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents .................................... $ 91,211 $ 66,835
Marketable securities ........................................ 204,283 179,911
Accounts receivable, net of allowance for doubtful accounts of
$4,220 in 1996 and $4,431 in 1995............................. 89,487 56,495
Inventories .................................................. 55,028 31,712
Prepaid expenses and other ................................... 25,271 15,519
-------- --------
Total current assets ........................... 465,280 350,472
Property and equipment, net .................................... 92,778 67,863
Other assets ................................................... 88,428 17,373
-------- --------
$646,486 $435,708
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt ............................ $ 3,400 $ 3,400
Note payable ................................................. 46,200 --
Accounts payable ............................................. 23,974 22,008
Accrued liabilities .......................................... 56,717 31,006
-------- --------
Total current liabilities ................................ 130,291 56,414
-------- --------
Long-term debt, net of current portion ......................... 4,250 7,650
-------- --------
Commitments (Note 7)
Shareholders' equity:
Preferred stock; $.001 par value
Authorized shares, 1,000
Outstanding shares, none ................................... -- --
Common stock; $.001 par value
Authorized shares, 400,000
Outstanding shares, 106,040 in 1996 and 103,354 in 1995 .... 182,932 140,191
Retained earnings ............................................ 329,013 231,453
-------- --------
Total shareholders' equity ............................... 511,945 371,644
-------- --------
$646,486 $435,708
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 63
ADAPTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net revenues ................................ $ 659,347 $ 466,194 $ 372,245
Cost of revenues ............................ 275,939 205,596 189,526
--------- --------- ---------
Gross profit .......................... 383,408 260,598 182,719
--------- --------- ---------
Operating expenses:
Research and development .................. 87,628 60,848 39,993
Sales and marketing ....................... 81,548 58,737 46,192
General and administrative ................ 35,784 23,229 19,399
Write-off of acquired in-process
technology .............................. 52,313 -- --
--------- --------- ---------
257,273 142,814 105,584
--------- --------- ---------
Income from operations .................... 126,135 117,784 77,135
--------- --------- ---------
Shareholder settlement ...................... -- -- (2,409)
Interest income ............................. 12,694 7,932 5,183
Interest expense ............................ (840) (1,179) (1,306)
--------- --------- ---------
11,854 6,753 1,468
--------- --------- ---------
Income before income taxes ................ 137,989 124,537 78,603
Provision for income taxes .................. 34,614 31,135 19,653
--------- --------- ---------
Net income ................................ $ 103,375 $ 93,402 $ 58,950
========= ========= =========
Net income per share ........................ $ .95 $ .88 $ .55
========= ========= =========
Weighted average number of common and
common equivalent shares outstanding ... 109,138 106,714 107,204
========= ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 64
ADAPTEC, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, March 31, 1993 ............................. 101,428 $ 124,806 $ 100,349 $ 225,155
Sale of common stock under employee purchase and
option plans .................................... 3,154 7,728 -- 7,728
Income tax benefit of employees' stock
transactions..................................... -- 5,783 -- 5,783
Net income ........................................ -- -- 58,950 58,950
-------- --------- --------- ---------
Balance, March 31, 1994 ............................. 104,582 138,317 159,299 297,616
Sale of common stock under employee purchase and
option plans .................................... 2,852 11,245 -- 11,245
Income tax benefit of employees' stock
transactions..................................... -- 5,929 -- 5,929
Repurchases of common stock ....................... (4,080) (15,300) (21,248) (36,548)
Net income ........................................ -- -- 93,402 93,402
-------- --------- --------- ---------
Balance, March 31, 1995 ............................. 103,354 140,191 231,453 371,644
Sale of common stock under employee purchase and
option plans .................................... 2,436 16,512 -- 16,512
Issuance of common stock in connection with
acquisition ..................................... 770 17,232 -- 17,232
Income tax benefit of employees' stock
transactions..................................... -- 10,947 -- 10,947
Repurchases of common stock ....................... (520) (1,950) (5,815) (7,765)
Net income ........................................ -- -- 103,375 103,375
-------- --------- --------- ---------
Balance, March 31, 1996 ............................. 106,040 $ 182,932 $ 329,013 $ 511,945
======== ========= ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 65
ADAPTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income ................................................ $ 103,375 $ 93,402 $ 58,950
Adjustments to reconcile net income to net cash provided
by operating activities:
Write-off of acquired in-process technology,
net of taxes........................................... 39,686 -- --
Depreciation and amortization ........................... 17,593 15,662 11,489
Provision for doubtful accounts ......................... 250 150 2,069
Changes in assets and liabilities net of the effect of
acquisitions:
Accounts receivable ................................... (30,727) (1,311) (13,020)
Inventories ........................................... (20,516) 7,228 (5,563)
Prepaid expenses ...................................... (8,973) 460 (5,470)
Other assets .......................................... (19,111) (4,107) (11,478)
Accounts payable ...................................... (167) 2,354 (2,781)
Accrued liabilities ................................... 21,969 4,251 8,867
--------- --------- --------
Net cash provided by operating activities ................. 103,379 118,089 43,063
--------- --------- --------
Cash Flows from Investing Activities:
Purchase of Trillium, Future Domain and Power I/O,
net of cash acquired .................................... (31,177) -- --
Investments in property and equipment ..................... (39,748) (31,576) (17,314)
Investments in marketable securities, net ................. (24,372) (32,291) (20,250)
--------- --------- --------
Net cash used for investing activities .................... (95,297) (63,867) (37,564)
--------- --------- --------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock .................... 27,459 17,174 13,511
Repurchase of common stock ................................ (7,765) (36,548) --
Principal payments on debt ................................ (3,400) (3,400) (2,968)
--------- --------- --------
Net cash provided by (used for) financing activities: ..... 16,294 (22,774) 10,543
--------- --------- --------
Net increase in cash and cash equivalents ................. 24,376 31,448 16,042
Cash and cash equivalents at beginning of year .......... 66,835 35,387 19,345
--------- --------- --------
Cash and cash equivalents at end of year ................ $ 91,211 $ 66,835 $ 35,387
========= ========= ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 66
ADAPTEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries after elimination
of intercompany transactions and balances. Foreign currency transaction gains
and losses are included in income as they occur. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition. The Company recognizes revenue generally at the
time of shipment or upon satisfaction of contractual obligations. The Company
records provisions for estimated returns at the time of sale.
Fair Value of Financial Instruments. The Company measures its financial
assets and liabilities in accordance with generally accepted accounting
principles. For certain of the Company's financial instruments, including cash
and cash equivalents, marketable securities, accounts receivable, accounts
payable and accrued expenses, the carrying amounts approximate fair value due to
their short maturities. The amounts shown for long-term debt also approximate
fair value because current interest rates offered to the Company for debt of
similar maturities are substantially the same.
Marketable Securities. At March 31, 1996, the Company's marketable
securities are classified as available for sale and are reported at fair market
value which approximates cost. Marketable securities with maturities after one
through three years totaled $153,996,000 with all remaining securities maturing
less than one year. Realized gains and losses are based on the book value of the
specific securities sold and were immaterial during fiscal 1996, 1995 and 1994.
Concentration of Credit Risk. Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash and cash equivalents, marketable securities and trade
accounts receivable. The Company places its marketable securities primarily in
municipal securities. The Company, by policy, limits the amount of credit
exposure through diversification and investment in highly rated securities.
Sales to customers are primarily denominated in U.S. dollars. As a result, the
Company believes its foreign currency risk is minimal.
The Company sells its products to original equipment manufacturers and
distributors throughout the world. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company maintains an allowance for
uncollectible accounts receivable based upon the expected collectibility of all
accounts receivable. There were no significant amounts charged to this allowance
during the current year.
Inventories. Inventories are stated at the lower of cost (first-in,
first-out) or market.
Property and Equipment. Property and equipment are stated at cost and
depreciated or amortized using the straight-line method over the estimated
useful lives of the assets. During 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment
F-8
<PAGE> 67
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121)
which will be effective for the Company in fiscal 1997. The Company does not
expect that adoption of SFAS 121 to have a material impact on its financial
position or results of operations.
Income Taxes. The Company accounts for income taxes under the asset and
liability method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities measured using enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are expected to
be recovered or settled.
Net Income Per Share. Net income per share is computed under the
treasury stock method using the weighted average number of common and common
equivalent shares from dilutive options outstanding during the respective
periods.
Cash and Cash Equivalents. Cash and cash equivalents consist of funds
in checking accounts, money market funds and marketable securities with original
maturities of three months or less.
NOTE TWO: SUPPLEMENTAL FINANCIAL INFORMATION
MARKETABLE SECURITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Municipal securities ...................... $203,305 $169,972
U.S. Government securities and other ...... 978 9,939
-------- --------
$204,283 $179,911
======== ========
</TABLE>
INVENTORIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Raw materials ............................. $ 23,415 $ 12,230
Work-in-process ........................... 12,865 5,839
Finished goods ............................ 18,748 13,643
-------- --------
$ 55,028 $ 31,712
======== ========
</TABLE>
PROPERTY AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIFE 1996 1995
------------- --------- --------
<S> <C> <C> <C>
Land .................................... -- $ 25,154 $ 13,240
Buildings and improvements .............. 5-40 years 20,328 18,088
Machinery and equipment ................. 3-5 years 59,290 42,810
Furniture and fixtures .................. 3-8 years 22,944 17,005
Leasehold improvements .................. Life of lease 5,245 3,968
--------- --------
132,961 95,111
Accumulated depreciation and amortization (40,183) (27,248)
--------- --------
$ 92,778 $ 67,863
========= ========
</TABLE>
F-9
<PAGE> 68
ACCRUED LIABILITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accrued compensation and related taxes ....... $22,440 $15,740
Sales and marketing related .................. 7,443 4,877
Tax related .................................. 16,218 5,746
Other ........................................ 10,616 4,643
------- -------
$56,717 $31,006
======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest paid ............... $ 764 $ 1,125 $ 1,300
Income taxes paid ........... 32,869 29,411 14,927
</TABLE>
NOTE THREE: LINE OF CREDIT
The Company has available an unsecured $17 million revolving line of
credit which expires on December 31, 1997. Of the total line of credit
available, $7 million has been issued as an irrevocable standby letter of credit
to guarantee component purchases from a supplier (see Note 7) at a fee of 3/4%
per annum. As of March 31, 1996, no borrowings were outstanding under this line
of credit. The Company may select its own method of interest payment on
borrowings based upon the bank's CD rate plus one percent, Eurodollar rate plus
one percent or prime lending rate. A commitment fee of 1/4% per annum is payable
on the unused line of credit. In addition, the arrangement requires the Company
to comply with certain financial covenants. The Company was in compliance with
all such covenants as of March 31, 1996.
NOTE FOUR: LONG-TERM DEBT
The Company entered into a $17 million term loan agreement in June 1992
bearing interest at 7.65%, with principal and interest payable in quarterly
installments of $850,000. All outstanding principal and accrued but unpaid
interest is due and payable in June 1998. The arrangement requires the Company
to comply with certain financial covenants. The Company was in compliance with
all such covenants as of March 31, 1996.
NOTE FIVE: ACQUISITIONS
During fiscal 1996, the Company acquired all of the outstanding capital
stock of Future Domain, Power I/O, Trillium, and Incat for $25 million, $7
million, $3 million, and 770,000 shares of the Company's common stock with a
fair market value of $17 million, respectively. Also in connection with the
Incat acquisition, the Company will pay consideration, contingent upon certain
future performance criteria. These companies design and develop high-performance
I/O products, networking technologies and software for recordable CD peripherals
for both the consumer and enterprise computing markets.
The Company accounted for these acquisitions using the purchase method
of accounting, and excluding the aggregate $52 million write-off of purchased
in-process technology from these companies, the aggregate impact on the
Company's results of operations from the acquisition date was not material.
F-10
<PAGE> 69
The allocation of the Company's aggregate purchase price to the
tangible and identifiable intangible assets acquired and liabilities assumed was
based on independent appraisals and is summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Tangible assets ................................ $ 8,108
In-process technology .......................... 52,313
Goodwill ....................................... 8,200
-------
Assets acquired ................................ 68,621
-------
Accounts payable and accrued liabilities ....... 3,125
Deferred tax liability ......................... 12,627
-------
Liabilities assumed ............................ 15,752
-------
Net assets acquired ............................ $52,869
=======
</TABLE>
Subsequent to year end, the Company acquired certain assets and the
ongoing business of Western Digital's Connectivity Solutions Group (CSG), which
primarily designs, manufactures and markets controller ICs for high-capacity
disk drives. In connection with the acquisition, the Company was assigned
capacity for wafer fabrication. The Company paid $33 million cash for CSG and
will pay future consideration based on certain performance criteria. The Company
will account for this acquisition using the purchase method of accounting and
will evaluate the allocation of the purchase price to assets acquired, which
includes in-process technology that will be written off. The results of
operations for CSG were immaterial relative to the Company's financial
statements.
Also subsequent to year end, the Company acquired all of the
outstanding capital stock of Cogent Data Technologies, Inc. (Cogent) in a $68
million stock transaction. Cogent provides high-performance Fast Ethernet
products for the networking market. The Company will record this acquisition
using the pooling method of accounting and will record acquired assets and
assumed liabilities at their book values as of the acquisition date. The results
of operations for Cogent for the three year period ended March 31, 1996 were
immaterial relative to the Company's financial statements.
NOTE SIX: STOCK PLANS
1986 EMPLOYEE STOCK PURCHASE PLAN. The Company has authorized 5,600,000
shares of common stock for issuance under the 1986 Employee Stock Purchase Plan
(1986 Plan). Qualified employees may elect to have a certain percentage (not to
exceed 10%) of their salary withheld pursuant to the 1986 Plan. The salary
withheld is then used to purchase shares of the Company's common stock at a
price equal to 85% of the market value of the stock at the beginning or ending
of a three-month offering period, whichever is lower. Under this Plan, 278,550
shares were issued during fiscal 1996, representing approximately $4,578,000 in
employee contributions.
1990 STOCK PLAN. The Company's 1990 Stock Plan allows the Board of
Directors to grant to employees, officers and consultants options to purchase
common stock or other stock rights at exercise prices not less than 50% of the
fair market value on the date of grant. The expiration of options or other stock
rights is not to exceed ten years after the date of grant. To date, the Company
has issued substantially all incentive and non-statutory stock options under
this Plan at exercise prices of 100% of fair market value on the respective
dates of grant. Generally, options vest and become exercisable over a four year
period.
F-11
<PAGE> 70
Option activity under the 1990 Stock Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
OPTIONS AVAILABLE SHARES PRICE
----------------- ---------- ----------------
<S> <C> <C> <C>
Balance, March 31, 1993............ 4,560,824 7,502,104 $ 1.24 to $ 6.94
Authorized ..................... 4,000,000 -- --
Granted ........................ (3,675,000) 3,675,000 $ 5.66 to $10.69
Exercised ...................... -- (1,719,026) $ 1.24 to $ 7.72
Terminated ..................... 661,324 (661,324) $ 1.43 to $ 8.25
---------- ----------
Balance, March 31, 1994............ 5,547,148 8,796,754 $ 1.24 to $10.69
Authorized ..................... 5,000,000 -- --
Granted ........................ (3,829,000) 3,829,000 $ 7.82 to $17.94
Exercised ...................... -- (1,861,148) $ 1.24 to $10.69
Terminated ...................... 1,198,106 (1,198,106) $ 1.42 to $13.82
---------- ----------
Balance, March 31, 1995............ 7,916,254 9,566,500 $ 1.24 to $17.94
Authorized ..................... 4,387,800 -- --
Granted ........................ (4,589,500) 4,589,500 $11.44 to $28.00
Exercised ...................... -- (2,034,262) $ 1.24 to $22.38
Terminated ..................... 482,076 (482,076) $ 1.53 to $22.88
---------- ----------
Balance, March 31, 1996............ 8,196,630 11,639,662 $ 1.24 to $28.00
========== ==========
</TABLE>
At March 31, 1996, there were 3,913,534 exercisable options under this
Plan at prices ranging from $1.24 to $22.94 per share.
1990 DIRECTORS' OPTION PLAN. The 1990 Directors' Option Plan provides
for the automatic grant to non-employee directors of non-statutory stock options
to purchase common stock at the fair market value on the date of grant, which is
generally the last day of each fiscal year except for the first grant to any
newly elected director. Each current director receives an option at the end of
each fiscal year for 10,000 shares, which vests and becomes exercisable over a
four year period. Each newly elected director receives an initial option on the
date of his or her appointment or election for 40,000 shares, which also vests
and becomes exercisable over a four year period. The options expire five years
after the date of grant.
Option activity under the 1990 Directors' Option Plan is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------
OPTIONS AVAILABLE SHARES PRICE
----------------- ---------- ----------------
<S> <C> <C> <C>
Balance, March 31, 1993............ 80,000 315,000 $ 1.46 to $ 6.94
Authorized ..................... 1,000,000 -- --
Granted ........................ (100,000) 100,000 $ 9.19
Exercised ...................... -- (10,000) $ 1.46
--------- --------
Balance, March 31, 1994............ 980,000 405,000 $ 1.46 to $ 9.19
Granted ........................ (100,000) 100,000 $16.50
Exercised ...................... -- (42,500) $ 1.46 to $ 6.94
--------- --------
Balance, March 31, 1995............ 880,000 462,500 $ 1.46 to $16.50
Granted ........................ (300,000) 300,000 $22.25 to $24.13
Exercised ...................... -- (110,000) $ 1.46 to $ 9.19
--------- --------
Balance, March 31, 1996............ 580,000 652,500 $ 3.85 to $24.13
========= ========
</TABLE>
F-12
<PAGE> 71
At March 31, 1996 there were 187,500 exercisable options under this
Plan at prices ranging from $3.85 to $16.50 per share.
At March 31, 1996, the Company has reserved the following shares of
authorized but unissued common stock:
<TABLE>
<S> <C>
1986 Employee Stock Purchase Plan ...................... 1,738,374
1990 Stock Plan ........................................ 19,836,292
1990 Directors' Option Plan ............................ 1,232,500
----------
22,807,166
==========
</TABLE>
NOTE SEVEN: COMMITMENTS
The Company leases certain office facilities, vehicles and certain
equipment under operating lease agreements that expire at various dates through
fiscal 2001. As of March 31, 1996, the minimum future payments on existing
leases totaled $7,290,000. Rent expense was approximately $3,715,000, $2,377,000
and $1,640,000 during fiscal 1996, 1995 and 1994, respectively.
During fiscal 1996, the Company signed an agreement with TSMC totaling
$66 million that ensures availability of a portion of the Company's wafer
capacity for both current and future technologies. The agreement runs through
2001 providing the Company with a guarantee of increased capacity for wafer
fabrication in return for advance payments. As of March 31, 1996, the Company
made advance payments to TSMC totaling $20 million and has signed a $46 million
promissory note payable which becomes due June 30, 1996. The majority of these
amounts are included in other assets in the fiscal 1996 consolidated balance
sheets.
In addition to this agreement, the Company has an existing deposit and
supply agreement with TSMC to secure supply of silicon wafers. Under the deposit
and supply agreement, the Company has made deposits aggregating $14,650,000
which are classified as other assets in the accompanying consolidated balance
sheets. These advances are repayable at the expiration of the agreement in June
1997. The supplier has provided an irrevocable standby letter of credit to the
Company in an equal amount to guarantee the repayment of deposits made by the
Company. Under the agreement, the Company is committed to minimum purchases of
$19,800,000 and $4,950,000 in fiscal 1997 and 1998, respectively.
During fiscal 1996, the Company signed an agreement with AT&T, acting
through it Microelectronics business division, that will ensure availability of
a portion of the Company's wafer capacity for both current and future
technologies. This contract, which runs through 2001, provides the Company with
a guaranteed supply of wafers at a specified level in return for an investment
in fabrication equipment of up to $25 million for AT&T's fabrication facility
located in Madrid, Spain. As of March 31, 1996 the Company has not made any
payments in connection with this agreement.
F-13
<PAGE> 72
NOTE EIGHT: INCOME TAXES
The components of income before income taxes for the years ended March
31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic ......................... $ 57,882 $ 74,397 $54,972
Foreign .......................... 80,107 50,140 23,631
-------- -------- -------
Income before income taxes ....... $137,989 $124,537 $78,603
======== ======== =======
</TABLE>
The split of domestic and foreign income was impacted mainly by the
acquisition related write-offs of in-process technology, which reduced domestic
income by $52,313,000.
The components of the provision for income taxes for the years ended
March 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current ....................... $ 22,066 $ 26,455 $ 13,899
Deferred ...................... (4,263) (311) 2,658
-------- -------- --------
17,803 26,144 16,557
-------- -------- --------
Foreign
Current ....................... $ 15,074 $ 1,106 $ 317
Deferred ...................... (1,491) -- --
-------- -------- --------
13,583 1,106 317
-------- -------- --------
State
Current ....................... $ 3,611 $ 3,177 $ 3,474
Deferred ...................... (383) 708 (695)
-------- -------- --------
3,228 3,885 2,779
-------- -------- --------
Provision for income taxes ...... $ 34,614 $ 31,135 $ 19,653
======== ======== ========
</TABLE>
Significant components of the Company's deferred tax assets, included
in prepaid expenses in the accompanying consolidated balance sheets as of March
31 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Inventory reserves ....................... $ 3,426 $ 1,048
State taxes .............................. 1,323 990
Bad debt reserve ......................... 1,901 1,829
Compensatory accruals .................... 5,091 4,355
Various expense accruals ................. 5,581 3,725
Other, net ............................... 764 2
------- -------
Net deferred tax assets .................. $18,086 $11,949
======= =======
</TABLE>
F-14
<PAGE> 73
The provision for income taxes differs from the amount computed by
applying the federal statutory tax rate to income before income taxes for the
years ended March 31 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate ................................... 35.0% 35.0% 35.0%
State taxes, net of federal benefit ...................... 2.7 2.2 2.9
Foreign subsidiary income at other than the U.S. tax rate (11.8) (9.9) (10.5)
Tax-exempt interest income, net .......................... (2.1) (1.7) (1.6)
Other .................................................... 1.3 (.6) (.8)
------ ------ ------
Effective income tax rate ................................ 25.1% 25.0% 25.0%
====== ====== ======
</TABLE>
The Company's effective tax rate for fiscal 1996 was 25%, the same as
fiscal 1995 and 1994. During fiscal 1996, the Company concluded negotiations
with the Singapore government extending the tax holiday for the Company's
manufacturing subsidiary. The terms of the tax holiday provide that profits
derived from certain products will be exempt from tax for a period of 10 years,
subject to certain conditions. In addition, profits derived from the Company's
remaining products will be taxed at a rate of 15%, which is lower than the
Singapore statutory rate of 27%, through fiscal 1998. As of March 31, 1996, the
Company had not accrued income taxes on $186,100,000 of accumulated
undistributed earnings of its Singapore subsidiary, as these earnings will be
reinvested indefinitely.
NOTE NINE: SEGMENT INFORMATION
Adaptec operates in the microcomputer input/output industry and is a
leading supplier of high-performance intelligent subsystems and associated
software and very large-scale integrated circuits used to control the flow of
data between a microcomputer's CPU and its peripherals. The Company focuses its
worldwide marketing efforts on major OEM customers through its direct sales
force located in the United States, Europe and Far East and also sells through
distributors and sales representatives in each of these geographic areas.
Income from operations consists of net revenues less cost of revenues
and operating expenses incurred in supporting the revenues of each geographic
area. The Company's write-offs of acquired in-process technology are included in
the corporate income from operations. All of the Company's identifiable assets
are used to support the operations in each geographic area. Corporate assets
include cash and cash equivalents, marketable securities, deferred tax assets
and certain other assets. Intercompany sales are made at arms-length prices, and
revenues for the European subsidiaries consist mainly of commissions earned in
connection with obtaining foreign orders.
F-15
<PAGE> 74
<TABLE>
<CAPTION>
SINGAPORE, ADJUSTMENTS
UNITED FAR EAST, AND CONSOLIDATED
STATES OTHER EUROPE CORPORATE ELIMINATIONS TOTAL
-------- --------- ------ --------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1996
Revenues
Sales to customers ......... $609,060 $ 49,211 $1,076 $ -- $ -- $659,347
Intercompany sales
between geographical areas 7,205 399,036 6,175 -- (412,416) --
-------- -------- ------ ------- --------- --------
Net revenues ......... $616,265 $448,247 $7,251 $ -- $(412,416) $659,347
======== ======== ====== ======= ========= ========
Income from operations ........ 100,838 76,942 668 (52,313) -- 126,135
Identifiable assets ........... 201,128 259,179 2,644 322,910 (139,375) 646,486
FISCAL 1995
Revenues
Sales to customers ......... $464,707 $ 1,487 $ -- $ -- $ -- $466,194
Intercompany sales
between geographical areas 10,401 191,360 3,905 -- (205,666) --
-------- -------- ------ ------- --------- --------
Net revenues ......... $475,108 $192,847 $3,905 $ -- $(205,666) $466,194
======== ======== ====== ======= ========= ========
Income from operations .......... 68,594 48,847 343 -- -- 117,784
Identifiable assets ........... 122,097 123,044 1,070 262,383 (72,886) 435,708
FISCAL 1994
Revenues
Sales to customers ......... $371,863 $ 382 $ -- $ -- $ -- $372,245
Intercompany sales
between geographical areas 10,344 119,305 2,375 -- (132,024) --
-------- -------- ------ ------- --------- --------
Net revenues ......... $382,207 $119,687 $2,375 $ -- $(132,024) $372,245
======== ======== ====== ======= ========= ========
Income from operations ..... 53,945 23,074 116 -- -- 77,135
Identifiable assets ........... 153,340 74,512 347 207,591 (77,315) 358,475
</TABLE>
EXPORT REVENUES. The following table represents export revenues by
geographic region as a percentage of total revenues:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Singapore, Far East, Other ........ 32% 37% 38%
Europe ............................ 24 25 20
--- --- ---
56% 62% 58%
=== === ===
</TABLE>
MAJOR CUSTOMERS. In fiscal 1996, sales to one distributor represented
10% of net revenues. In fiscal 1995 and 1994, no customer accounted for more
than 10% of net revenues.
NOTE TEN: LEGAL MATTERS
A class action lawsuit alleging federal securities law violations and
negligent misrepresentation was filed against the Company, its directors, and
certain of its officers on February 21, 1991. That action was settled by letter
agreement on July 29, 1993. The Company has made all payments required under the
terms of the letter agreement. Final settlement of the class action lawsuit was
made on May 15, 1995 pursuant to the Court's final judgment and order of
dismissal.
F-16
<PAGE> 75
NOTE ELEVEN: COMPARATIVE QUARTERLY FINANCIAL DATA UNAUDITED
Summarized quarterly financial data is as follows:
<TABLE>
<CAPTION>
QUARTERS
--------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FISCAL 1996
Net revenues .......... $138,025 $149,110 $176,187 $196,025 $659,347
Gross profit .......... 81,359 86,451 101,986 113,612 383,408
Net income* ........... 31,163 557 30,587 41,068 103,375
Net income per share* . $ .29 $ .01 $ .28 $ .37 $ .95
Weighted average shares
outstanding .......... 107,884 108,992 109,584 110,122 109,138
</TABLE>
- --------------------
* The second and third quarters of fiscal 1996 include write-offs of
acquired in-process technology, net of taxes, totaling $33 million and
$7 million, respectively.
<TABLE>
<CAPTION>
QUARTERS
--------------------------------------------
FIRST SECOND THIRD FOURTH YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
FISCAL 1995
Net revenues .......... $106,061 $106,574 $123,367 $130,192 $466,194
Gross profit .......... 54,888 57,413 71,563 76,734 260,598
Net income ............ 17,592 18,458 27,403 29,949 93,402
Net income per share .. $ .16 $ .17 $ .26 $ .28 $ .88
Weighted average shares
outstanding .......... 107,888 106,364 105,916 107,604 106,714
</TABLE>
NOTE TWELVE: SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the Company's Board of Directors approved
a two-for-one split of its common stock for shareholders of record as of
November 1, 1996. The effect of the stock split has been reflected in the
Company's consolidated financial statements and accompanying notes for all
periods presented herein.
The Company has reserved 250,000 shares of Series A Preferred Stock for
issuance under the 1996 Rights Agreement which was amended and restated as of
December 5, 1996. Under this plan, shareholders have received one Preferred
Stock Purchase Right ("Right") for each outstanding share of the Company's
common stock. Each Right will entitle shareholders to buy one one-thousandth of
a share of Series A Preferred Stock at an exercise price of $180.00 per Right.
The Rights trade automatically with shares of the Company's common stock. The
Rights are not exercisable until ten days after a person or group announces the
acquisition of 20% or more of the Company's outstanding common stock or the
commencement of a tender offer which would result in ownership by a person or
group of 20% or more of the then outstanding common stock.
F-17
<PAGE> 76
The Company is entitled to redeem the Rights at $.01 per Right anytime
on or before the tenth day following such an acquisition or tender offer. This
redemption period may be extended by the Company in some cases. If, prior to
such redemption, the Company is acquired in a merger or other business
combination, a party acquires 20% or more of the Company's common stock, a 20%
shareholder engages in certain self-dealing transactions, or the Company sells
50% or more of its assets, each right will entitle the holder to purchase from
the surviving corporation, for $180.00 per share, common stock having a then
current market value of $360.00 per share.
F-18
<PAGE> 77
ADAPTEC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 27, MARCH 31,
1996 1996*
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $ 89,436 $ 91,211
Marketable securities ........................ 199,542 204,283
Accounts receivable, net ..................... 108,428 89,487
Inventories .................................. 59,821 55,028
Prepaid expenses and other ................... 30,268 25,271
-------- --------
Total current assets ..................... 487,495 465,280
Property and equipment, net .................... 133,157 92,778
Other assets ................................... 105,835 88,428
-------- --------
$726,487 $646,486
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............ $ 3,400 $ 3,400
Note payable ................................. -- 46,200
Accounts payable ............................. 26,189 23,974
Accrued liabilities .......................... 83,199 56,717
-------- --------
Total current liabilities ................ 112,788 130,291
-------- --------
Long-term debt, net of current portion ......... 1,700 4,250
-------- --------
Shareholders' equity:
Common stock ................................. 222,334 182,932
Retained earnings ............................ 389,665 329,013
-------- --------
Total shareholders' equity ............... 611,999 511,945
-------- --------
$726,487 $646,486
======== ========
</TABLE>
- --------------------
* Amounts are derived from the March 31, 1996 audited financial statements.
See accompanying notes.
F-19
<PAGE> 78
ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
------------------------ ------------------------
DEC. 27, DEC. 29, DEC. 27, DEC. 29,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues ................................. $251,703 $176,187 $668,760 $463,322
Cost of revenues ............................. 103,139 74,201 281,735 193,526
-------- -------- -------- --------
Gross profit ............................. 148,564 101,986 387,025 269,796
-------- -------- -------- --------
Operating expenses:
Research and development .................. 34,859 23,321 93,339 60,488
Sales and marketing ....................... 31,311 22,350 79,914 58,200
General and administrative ................ 13,731 9,241 34,988 23,976
Write-off of acquired in-process technology
and other .............................. 11,758 11,759 80,663 52,313
-------- -------- -------- --------
Total operating expenses ................. 91,659 66,671 288,904 194,977
-------- -------- -------- --------
Income from operations .................... 56,905 35,315 98,121 74,819
Interest income, net of interest expense ..... 2,460 3,116 7,393 8,413
-------- -------- -------- --------
Income before provision for income taxes .. 59,365 38,431 105,514 83,232
Provision for income taxes ................... 17,781 7,844 44,779 20,925
-------- -------- -------- --------
Net income ............................... $ 41,584 $ 30,587 $ 60,735 $ 62,307
======== ======== ======== ========
Net income per share ......................... $ .36 $ .28 $ .53 $ .57
======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding ........... 116,786 109,584 114,002 108,794
======== ======== ======== ========
</TABLE>
See accompanying notes.
F-20
<PAGE> 79
ADAPTEC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
----------------------------
DECEMBER 27, DECEMBER 29,
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income .................................................. $ 60,735 $ 62,307
Adjustments to reconcile net income to net cash provided by
operating activities:
Write-off of acquired in-process technology, net of taxes 77,192 39,686
Depreciation and amortization ........................... 20,179 12,591
Changes in assets and liabilities net of the effect of
acquisitions:
Accounts receivable ................................... (16,545) (25,786)
Inventories ........................................... 5,361 (8,740)
Prepaid expenses ...................................... (3,118) (4,872)
Other assets .......................................... (4,378) (17,255)
Accounts payable ...................................... (243) 817
Accrued liabilities ................................... 25,628 39,306
--------- ---------
Net Cash Provided by Operating Activities ..................... 164,811 98,054
--------- ---------
Cash Flows from Investing Activities:
Purchase of certain net assets in connection with (89,264) (31,177)
acquisitions accounted for under the purchase
method of accounting (see Note 5)............................
Purchase of property and equipment .......................... (54,280) (19,407)
Sales of (investment in) marketable securities, net ......... 4,741 (12,646)
--------- ---------
Net Cash Used for Investing Activities ...................... (138,803) (63,230)
--------- ---------
Cash Flows Form Financing Activities:
Payment of short-term note .................................. (46,200) --
Proceeds from issuance of common stock ...................... 20,967 9,483
Repurchase of common stock .................................. -- (7,765)
Principal payments on long-term debt ........................ (2,550) (2,550)
--------- ---------
Net cash used for financing activities ...................... (27,783) (832)
--------- ---------
Net increase (decrease) in cash and cash equivalents ........ (1,775) 33,992
Cash and cash equivalents at beginning of period .......... 91,211 66,835
--------- ---------
Cash and cash equivalents at end of period ................ $ 89,436 $ 100,827
========= =========
</TABLE>
See accompanying notes.
F-21
<PAGE> 80
ADAPTEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the unaudited condensed consolidated
interim financial statements included herein have been prepared on the same
basis as the March 31, 1996 audited consolidated financial statements and
include all adjustments, consisting of only normal recurring adjustments,
necessary to fairly state the information set forth herein. The statements have
been prepared in accordance with the regulations of the Securities and Exchange
Commission, but omit certain information and footnote disclosures necessary to
present the statements in accordance with generally accepted accounting
principles. The Company's net income per share, weighted average common and
common equivalent shares outstanding, and other share information included in
these financial statements reflect the two-for-one split of the Company's common
stock approved by its Board of Directors in November 1996. These interim
financial statements should be read in conjunction with the financial statements
and footnotes thereto included herein. The results of operations for the three
and nine month periods ended December 27, 1996 are not necessarily indicative of
the results to be expected for the entire year.
2. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Cash paid for interest and income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Nine-months ended
------------------------------
December 27, December 29,
1996 1995
------------ ------------
<S> <C> <C>
Interest ..... $ 461 $ 604
Income taxes.. $49,956 $14,751
</TABLE>
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
December 27, March 31,
1996 1996
------------ ---------
<S> <C> <C>
Raw materials ......... $13,523 $23,415
Work in process ....... 13,292 12,865
Finished goods ........ 33,006 18,748
------- -------
$59,821 $55,028
======= =======
</TABLE>
4. NET INCOME PER SHARE
Net income per share for the three and nine month periods ended
December 27, 1996 and December 29, 1995, is computed under the treasury stock
method using the weighted average number of common and common equivalent shares
from dilutive stock options outstanding during the respective periods.
F-22
<PAGE> 81
5. ACQUISITIONS
On April 9, 1996, the Company acquired certain assets and the ongoing
business of Western Digital's Connectivity Solutions Group (CSG) for $33 million
cash. CSG supplies silicon solutions to meet the demands of the multi-gigabyte
SCSI disk drive market. On June 28, 1996, the Company acquired certain
technologies from Corel, Inc. for $12 million cash. Included in these
technologies was Corel's CD creator product for the CD-recordable software
market. On September 16, 1996, the Company acquired Data Kinesis, Inc. (DKI) for
$32 million and $15 million in cash and stock, respectively. DKI develops
software for improving system performance in file management and RAID
applications. On November 15, 1996, the Company acquired Sigmax Technology, Inc.
(Sigmax) for $14 million cash. Sigmax develops CD-ROM controllers for ATAPI
CD-ROM drives.
The Company accounted for these acquisitions using the purchase method
of accounting, and excluding the $79 million write-off of purchased in-process
technology from these companies, the aggregate impact on the Company's results
of operations from the acquisition date was not material.
The allocation of the Company's aggregate purchase price to the
tangible and identifiable intangible assets acquired was primarily based on
preliminary independent appraisals and is summarized as follows (in thousands):
<TABLE>
<S> <C>
Tangible assets .............. $ 10,979
In-process technology ........ 78,958
Goodwill ..................... 16,404
--------
Assets acquired .............. $106,341
========
</TABLE>
The tangible assets acquired were primarily comprised of inventory and
fixed assets. Acquired in-process technology was written off in the periods in
which the acquisitions were completed, and the goodwill is being amortized over
respective benefit periods ranging from three to five years.
On August 12, 1996, the Company completed its acquisition of Cogent
Data Technologies, Inc. (Cogent). Cogent provides high-performance Fast Ethernet
products for the networking market. The Company acquired all of the outstanding
capital stock of Cogent in exchange for 2.6 million shares of its common stock.
Additionally, the Company incurred $1.7 million in professional fees related to
this acquisition which have been included in "write-off of acquired in-process
technology and other." The Company has recorded this acquisition using the
pooling of interests method of accounting. Cogent's historical operations, net
assets and cash flows have not been material to the Company's consolidated
financial statements and, therefore, have not been reflected in the Company's
consolidated financial results prior to the acquisition. Beginning at the date
of acquisition, the book value of the acquired assets and assumed liabilities as
well as the results of Cogent's operations and cash flows, all of which are not
material to the Company have been combined with those of the Company.
F-23
<PAGE> 82
6. INCOME TAXES
The Company recorded a tax provision of $17.8 million (30% of income
before income taxes) for the three month period ended December 27, 1996. The
higher effective tax rate for the three and nine month periods ended December
27, 1996 primarily resulted from the write-off of in-process technology for
which the Company will receive no corresponding tax benefit. Excluding the
effect of the write-off of in-process technology, the Company's effective tax
rate was 25% for both the three and nine month periods ended December 27, 1996.
The difference between the Company's normal 25% tax rate and the U.S. statutory
rate is primarily due to income earned in Singapore where the Company is subject
to a significantly lower effective tax rate.
7. RECENT PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Financial
Accounting Standards No. 128 (FAS 128) in March 1997. This standard requires the
Company to present basic earnings per share and diluted earnings per share
beginning in the third quarter of fiscal 1998. The impact of adopting this
standard has not yet been determined.
During 1995, the FASB issued FAS 123 "Accounting for Stock-Based
Compensation". The Company will only adopt the disclosure requirements of FAS
123 for the year ended March 31, 1997, and therefore there will be no impact on
the Company's consolidated financial position or results of operations as a
result of implementing FAS 123.
8. SUBSEQUENT EVENTS
In February 1997, the Company issued $230,000,000 of 4 3/4% convertible
subordinated notes due on February 1, 2004. The Company received net proceeds of
$223,905,000. The notes provide for semi-annual interest payments each February
1 and August 1, commencing on August 1, 1997. The holders of the notes will be
entitled at any time on or after May 5, 1997 through February 1, 2004 to convert
the notes into common stock at a conversion price of $51.66 per share. The notes
are redeemable, in whole or in part, at the option of the Company, at any time
on or after February 3, 2000 at declining premiums to par. Debt issuance costs
are being amortized over the term of the notes. The issuance of these notes is
not expected to have a material impact on the Company's results of operation or
cash flows as the amortization and interest expense will be substantially offset
by interest income.
Subsequent to December 27, 1996, the Company entered into an agreement
with Lucent Technologies Inc. ("Lucent") to sell equipment that it had
previously purchased in connection with a separate agreement that ensured
availability of certain levels of wafer capacity from Lucent. This agreement
cancels the initial capacity agreement and requires Lucent to purchase the
equipment from the Company at agreed upon installments over a twelve month
period.
Subsequent to December 27, 1996, the Company completed its acquisition
of Toast technology ("Toast") for $7.5 million in cash. Toast is Macintosh-based
CD-Recordable software. The Company also completed its acquisition of
substantially all of the assets of Skipstone, Inc. ("Skipstone") for $7.5
million in cash. Skipstone is a supplier of IEEE 1394 products including
software, engineering services and developer toolkits. The Company will account
for both of these acquisitions using the purchase method of accounting and will
evaluate the allocation of the purchase price to assets acquired which includes
in-process technology that will be written-off. The results of operations for
Toast and Skipstone were immaterial relative to the Company's financial
statements.
F-24
<PAGE> 83
The 1990 Directors' Option Plan provides for the automatic grant to
non-employee directors of non-statutory stock options to purchase common stock
at the fair market value on the date of grant, which is generally the last day
of each fiscal year except for the first grant to any new elected director.
Each current director receives an option at the end of each fiscal year for
10,000 shares, which vests quarterly and over a one year period. Upon joining
the board, each new non-employee director receives an option for 40,000 shares
which vests over four years. Prior to March 31, 1997, annual grants vested over
a four year period. All options granted prior to March 31, 1997 expire five
years after the date of grant, whereas all subsequent grants expire ten years
after the date of grant.
F-25
<PAGE> 84
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the corporation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of the corporation since the date
hereof. This Prospectus does not constitute an offer or solicitation by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not authorized to do so or
to anyone to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
-----------------
TABLE OF CONTENTS
-----------------
Page
Available Information ...................................... 2
Prospectus Summary ......................................... 3
The Offering ............................................... 4
The Company ................................................ 5
Risk Factors ............................................... 8
Use of Proceeds ............................................ 14
Price Range of Common Stock ................................ 14
Dividend Policy ............................................ 14
Selected Consolidated Financial Data ....................... 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations .............. 16
Business ................................................... 21
Management ................................................. 27
Certain Relationships and Related
Transactions ............................................... 33
Principal Shareholders ..................................... 34
Description of Capital Stock ............................... 35
Description of Notes ....................................... 38
Certain Tax Considerations ................................. 48
Selling Securityholders .................................... 52
Plan of Distribution ....................................... 54
Legal Matters .............................................. 55
Experts .................................................... 55
Index to Consolidated Financial Statements ................. F-1
================================================================================
U.S. $230,000,000
ADAPTEC, INC.
4 3/4% CONVERTIBLE SUBORDINATED NOTES DUE
FEBRUARY 1, 2004
AND
COMMON STOCK ISSUABLE
UPON CONVERSION THEREOF
-------------------
PROSPECTUS
-------------------
APRIL ___, 1997
================================================================================
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the Selling Securityholders. All amounts are estimated except
the Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
SEC registration fee ....................... $ 69,697
Accounting fees and expenses ............... 15,000
Legal fees and expenses .................... 20,000
Printing expenses .......................... 10,000
Trustee's Fees and Expenses ................ 10,000
Miscellaneous fees and expenses ............ 25,303
--------
Total ...................................... $150,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California General Corporation Law authorizes a
court to award, or a corporation's Board of Directors to grant, indemnity to
directors and officers who are parties or are threatened to be made parties to
any proceeding (with certain exceptions) by reason of the fact that the person
is or was an agent of the corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with the proceeding if that person acted in good faith and in a manner the
person reasonably believed to be in the best interests of the corporation. This
limitation on liability has no effect on a director's liability (i) for acts or
omissions that involve intentional misconduct or a knowing and culpable
violation of law, (ii) for acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director, (iii) relating to
any transaction from which a director derived an improper personal benefit, (iv)
for acts or omissions that show a reckless disregard for the director's duty to
the corporation or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the corporation or its
shareholders, (v) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders, (vi) under Section 310 of the California
General Corporation Law (concerning contracts or transactions between the
corporation and a director) or (vii) under Section 316 of the California General
Corporation Law (directors' liability for improper dividends, loans and
guarantees). The provision does not extend to acts or omissions of a director in
his capacity as an officer. Further, the provision has no effect on claims
arising under federal or state securities laws and does not affect the
availability of injunctions and other equitable remedies available to the
Company's shareholders for any violation of a director's fiduciary duty to the
Company or its shareholders. Although the validity and scope of the legislation
underlying the provision have not yet been interpreted to any significant extent
by the California courts, the provision may relieve directors of monetary
liability to the Company for grossly negligent conduct, including conduct in
situations involving attempted takeovers of the Company.
II-1
<PAGE> 86
In accordance with Section 317, the Restated Articles of Incorporation,
as amended (the "Articles"), of the Company limits the liability of a director
to the Company or its shareholders for monetary damages to the fullest extent
permissible under California law, and authorizes the Company to provide
indemnification to its agents (including officers and directors), subject to the
limitations set forth above. The Company's By-Laws further provide for
indemnification of corporate agents to the maximum extent permitted by the
California General Corporation Law.
Pursuant to the authority provided in the Articles, the Company has
entered into indemnification agreements with each of its officers and directors,
indemnifying them against certain potential liabilities that may arise as a
result of their service to the Company, and providing for certain other
protection.
The Company also maintains insurance policies which insure its officers
and directors against certain liabilities.
The foregoing summaries are necessarily subject to the complete text of
the statute, the Articles, the By-Laws and the agreements referred to above and
are qualified in their entirety by reference thereto.
Reference is made to the Underwriting Agreements included herein as
exhibits to the Registration Statement for provisions regarding indemnification
of the Company's officers, directors and controlling persons against
liabilities, including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During February 1997, the Company completed an offering of $230 million
of convertible subordinated notes. The notes bear interest at 4 3/4 percent,
mature in February 2004, and are convertible into shares of the Company's common
stock at $51.66 per share. The notes were sold by the Company to Bear, Stearns &
Co. Inc., Lehman Brothers, Robertson, Stephens & Company, and Unterberg Harris
(the "Initial Purchasers"). The Initial Purchasers resold $221,250,000 of the
Notes, in a transaction exempt from the registration requirements of the
Securities Act, to persons reasonably believed by such initial purchaser to be
"qualified institutional buyers" (as defined in Rule 144A under the Securities
Act), or other institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act. An additional $8,750,000
aggregate principal amount of Notes were issued in the Original Offering by the
Company and sold by the Initial Purchasers in compliance with the provisions of
Regulation S under the Securities Act. Aggregate discounts to the Initial
Purchasers totaled $223,905,000. The net proceeds of the Offering to the
Company, after deducting the discounts and offering expenses, were $223,405,000.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
2.1(a) Stock Purchase Agreement by and among
Adaptec, Inc., Future Domain Corporation,
Jack A. Allweiss, Patricia A. Allweiss and
Certain Shareholders of Future Domain
Corporation dated July 13, 1995 .................... (2)
2.1(b) Stock Purchase Agreement by and between
Adaptec, Inc. and Certain Shareholders of
Future Domain Corporation dated July 13, 1995 ...... (2)
</TABLE>
II-2
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
2.2 Agreement and Plan of Reorganization by and
among Adaptec, Inc., Incat Systems Software
USA, Inc., ISS Acquisition Corporation and
Certain Shareholders of Incat Systems
Software USA, Inc. dated August 23, 1995 ........... (2)
2.3 Agreement for Purchase and Sale of Stock by
and among Western Digital Corporation,
Western Digital CSG Corporation, and Adaptec,
Inc. dated April 9, 1996 ........................... (14)
2.4 Agreement and Plan of Reorganization by and
among Adaptec, Inc., Cogent Data
Technologies, Inc., CDT Acquisition Corp.,
and Certain Shareholders of Cogent Data
Technologies, Inc. dated May 31, 1996. ............. (15)
2.5 Agreement and Plan of Reorganization by and
among Adaptec, Inc., Adaptec Acquisition
Corporation, and Data Kinesis, Inc. dated
August 6, 1996. .................................... (15)
3.1 Eighth Amended and Restate Articles of
Incorporation of Registrant filed with
California Secretary of State on November 1,
1996 ............................................... (16)
3.2 Bylaws of Registrant, as restated on February
9, 1996 ............................................ (13)
3.3 Certificate of determination of rights,
preferences and privileges of Series A
participating preferred stock filed with the
California Secretary of State on December 31,
1996 ............................................... (16)
4.1 First Amended and Restated Common Shares
Rights Agreement dated June 30, 1992, between
Registrant and Chemical Trust Company of
California as Rights Agents ........................ (6)
4.2 Indenture dated as of February 3, 1997
between Registrant and State Street Bank and
Trust Company ......................................
5.1 Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation ...........................
10.1 Registrant's 1986 Employee Stock Purchase
Plan ............................................... (4)
10.2 Technology License Agreement dated January 1,
1985 between the Registrant and International
Business Machines Corporation ...................... (8)
10.3 Registrant's Savings and Retirement Plan ........... (7)
10.4 1990 Stock Plan, as amended ........................ (10)
10.5 Forms of Stock Option Agreement, Tandem Stock
Option/SAR Agreement, Restricted Stock
Purchase Agreement, Stock Appreciating Rights
Agreement, and Incentive Stock Rights
Agreement for use in connection with the 1990
Stock Plan, as amended ............................. (5)
10.6 1990 Directors' Option Plan and forms of
Stock Option Agreement ............................. (4)
10.7 Revolving Loan Agreement dated June 3, 1992
between Registrant and Plaza Bank of Commerce
(incorporated by reference to Exhibit 10.26
filed with Registrant's Annual Report on form
10-K for fiscal year ended March 31, 1992)
and Amendment Number Three to the Revolving
Credit Loan Agreement dated April 29, 1994
between the Registrant and Comerica Bank--
California (formerly Plaza Bank of Commerce)
expiring August 31, 1997 ........................... (4)
10.8 Amendments Four, Five and Six to the
Revolving Credit Loan Agreement dated April
29, 1994 between the Registrant and Comerica
Bank-- California expiring August 31, 1997 ......... (4)
10.9* Option Agreement I Between Adaptec
Manufacturing (S) Pte. Ltd. and Taiwan
Semiconductor Manufacturing Co., Ltd. dated
October 23, 1995 ................................... (3)
10.10* Option Agreement II Between Adaptec
Manufacturing (S) Pte. Ltd. and Taiwan
Semiconductor Manufacturing Co., Ltd. dated
October 23, 1995 ................................... (3)
10.11 Consignment Agreement between Adaptec, Inc.
and AT&T Corp. dated January 10, 1996 .............. (13)
10.12 Form of Indemnification Agreement entered
into with directors and officers of the
Company ............................................ (9)
10.13 Term Loan Agreement dated June 24, 1992
between the Registrant and Plaza Bank of
Commerce expiring June 30, 1988 .................... (9)
10.14* Deposit and Supply Agreement between Taiwan
Semiconductor Manufacturing Co., Ltd. and
Adaptec Manufacturing Pte. Ltd. .................... (4)
</TABLE>
II-3
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
10.15 Industrial Lease Agreement between the
Registrant, as Lessee, and Jurong Town
Corporation, as Lessor ............................. (1)
10.16 Amendments Seven, Eight and Nine to the
Revolving Credit Loan Agreement dated April
29, 1994 between the Registrant and Comerica
Bank -- California expiring August 31, 1997 ........ (16)
10.17 Amendments One, Two, Three and Four to the
Term Loan Agreement dated June 24, 1992
between the Registrant and Comerica Bank--
California (formerly the Plaza Bank of
Commerce) expiring June 30, 1998 ................... (10)
12.1 Computation of Ratio of Earnings to Fixed
Charges
21.1 Subsidiaries of Registrant
23.1 Consent of Independent Accountants, Price
Waterhouse LLP
23.2 Consent of Independent Public Accountants,
Arthur Andersen LLP
23.3 Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation (included in Exhibit
5.1)
24.1 Power of Attorney. (See Page II-7).
25.1 Statement of Eligibility and Qualification Under the Trust
Indenture Act of 1939 of a Corporation designated to act as
Trustee on Form T-1
</TABLE>
- -----------------
(1) Incorporated by reference to exhibits filed with Registrant's Annual
report on Form 10-K for the year ended March 31, 1995.
(2) Incorporated by reference to exhibits filed with Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 29,
1995.
(3) Incorporated by reference to exhibits filed with Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 29, 1995.
(4) Incorporated by reference to exhibits filed with Registrant's Annual
Report on Form 10-K for the year ended March 31, 1994.
(5) Incorporated by reference to exhibits filed with Registrant's Annual
Report on Form 10-K for the year ended March 31, 1993.
(6) Incorporated by reference to Exhibit A filed with the Registrant's
Registration Statement Number 0-15071 on Form 8-A on May 11, 1989 and
to Exhibit 1.1 to Form 8 Amendment No. 1, No. 2 and No. 3 thereto as
filed June 5, 1990, April 8, 1992 and July 20, 1992, respectively.
(7) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1987.
(8) Incorporated by reference to Exhibit 10.15 filed in response to Item
16(a) "Exhibits", of the Registrant's Registration Statement on Form
S-1 and Amendment No. 1 and Amendment No. 2 thereto (filed No.
33-5519), which became effective on June 11, 1986.
(9) Incorporated by reference to exhibits filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1992.
(10) Incorporated by reference to Exhibit 4.2 to Form S-8 as filed February
7, 1996.
(11) Incorporated by reference to Exhibit 16 to Form 8-K/A-2 dated July 11,
1994.
(12) Incorporated by reference from the information under the caption
"Corporate Information" included in the Annual Report to Shareholders
for the fiscal year ended March 31, 1996.
(13) Incorporated by reference to exhibits filed with Registrant's Annual
Report on Form 10-K for the year ended March 31, 1996.
(14) Incorporated by reference to exhibits filed with Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 28, 1996.
(15) Incorporated by reference to exhibits filed with Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 27,
1996.
(16) Incorporated by reference to exhibits filed with Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 27, 1996.
II-4
<PAGE> 89
* Confidential treatment has been granted for portions of this
agreement.
(b) Financial Statement Schedules
All schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to the
Registration Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Act;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
this Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in
the aggregate, represent a fundamental
change in the information set forth in the
Registration Statement. Notwithstanding the
foregoing, any increase or decrease in
volume of securities offered (if the total
dollar value of securities offered would not
exceed that which was registered) and any
deviation from the low or high and of the
estimated maximum offering range may be
reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume
and price represent no more than 20 percent
change in the maximum aggregate offering
price, set forth in the "Calculation of
Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability
under the Act, each such post-effective amendment
that contains a form of prospectus shall be deemed to
be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a
post-offering amendment any of the securities being
registered which remain unsold at the termination of
the offering.
II-5
<PAGE> 90
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that such a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in Act and will be
governed by the final adjudication of such issue.
II-6
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Milpitas, State of California, on the 4th day of
April, 1997.
ADAPTEC, INC.
By: F. GRANT SAVIERS
------------------------------------------------
F. Grant Saviers
President, Chief Executive Officer, and Director
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints F. Grant
Savers and Paul G. Hansen, and each of them severally, acting alone and without
the other, his true and lawful attorney-in-fact with authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments (including without limitation post-effective amendments)
to this Registration Statement, and to sign any Registration Statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b), necessary or advisable to enable the
Registrant to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission in
respect thereof, which amendments may make such changes in the Registration
Statement as the aforesaid attorney-in-fact deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------- ------------------------------------------------ ----------------
<S> <C> <C>
/s/ F. Grant Saviers
- ---------------------------
F. Grant Saviers President, Chief Executive Officer and Director April 4, 1997
/s/ Paul G. Hansen Vice President, Finance, Chief Financial Officer,
- --------------------------- (Principal Financial Officer) April 4, 1997
Paul G. Hansen
/s/ Andrew J. Brown Vice President, Corporate Controller (Principal
- --------------------------- Accounting Officer) April 4, 1997
Andrew J. Brown
Director
- ---------------------------
John G. Adler April , 1997
/s/ Laurence B. Boucher Director
- ---------------------------
Laurence B. Boucher April 4, 1997
Director
- ---------------------------
Carl J. Conti April , 1997
Director
- ---------------------------
John C. East April , 1997
/s/ Robert J. Loarie Director
- ---------------------------
Robert J. Loarie April 4, 1997
/s/ B.J. Moore Director
- ---------------------------
B.J. Moore April 4, 1997
/s/ W. Ferrel Sanders Director
- ---------------------------
W. Ferrel Sanders April 4, 1997
Director
- ---------------------------
Phillip E. White April , 1997
</TABLE>
II-7
<PAGE> 1
EXHIBIT 4.2
================================================================================
ADAPTEC, INC.
Issuer
AND
STATE STREET BANK AND TRUST COMPANY
Trustee
INDENTURE
Dated as of February 3, 1997
4-3/4% Convertible Subordinated Notes Due 2004
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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----
<S> <C>
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Incorporation by Reference of Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 1.3 Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE II - ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.1 Designation, Amount and Issue of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.2 Form of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.3 Date and Denomination of Notes; Payments of Interest . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.4 Execution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.5 Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary . . . . . . 11
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.7 Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.8 Cancellation of Notes Paid, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.9 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE III - REDEMPTION AND REPURCHASE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.1 Redemption Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.2 Notice of Redemption; Selection of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.3 Payment of Notes Called for Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.4 Conversion Arrangement on Call for Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.5 Repurchase of Notes Upon a Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV - PARTICULAR COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.1 Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.2 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.3 Appointments to Fill Vacancies in Trustee's Office . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.4 Provisions as to Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.5 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.6 Rule 144A Information Requirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.7 Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.8 Compliance Statement; Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE V - NOTEHOLDERS' LISTS AND REPORTS BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.1 Noteholders' Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.2 Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VI - DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.2 Payments of Notes on Default; Suit Therefor . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 6.3 Application of Monies Collected by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.4 Proceedings by Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 6.5 Proceedings by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.6 Remedies Cumulative and Continuing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.7 Direction of Proceedings and Waiver of Defaults by Majority of Noteholders . . . . . . . . . . . 39
Section 6.8 Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 6.9 Undertaking to Pay Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII - CONCERNING THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.1 Duties and Responsibilities of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 7.2 Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.3 Reliance on Documents, Opinions, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 7.4 No Responsibility for Recitals, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 7.5 Trustee, Paying Agents, Conversion Agents or Registrar May Own Notes . . . . . . . . . . . . . . 42
Section 7.6 Monies to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.7 Compensation and Expenses of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.8 Officers' Certificate as Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 7.9 Conflicting Interests of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.10 Eligibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.11 Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 7.12 Acceptance by Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.13 Successor, by Merger, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.14 Limitation on Rights of Trustee as Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VIII - CONCERNING THE NOTEHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.1 Action by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
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<TABLE>
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<S> <C>
Section 8.2 Proof of Execution by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.3 Who Are Deemed Absolute Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 8.4 Company-Owned Notes Disregarded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.5 Revocation of Consents, Future Holders Bound . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE IX - NOTEHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.1 Purposes for Which Meetings May be Called . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.2 Manner of Calling Meetings; Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.3 Call of Meeting by Company or Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 9.4 Who May Attend and Vote at Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 9.5 Manner of Voting at Meetings and Record to be Kept . . . . . . . . . . . . . . . . . . . . . . . 50
Section 9.6 Exercise of Rights of Trustee and Noteholders Not To Be Hindered or Delayed . . . . . . . . . . . 50
ARTICLE X - SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 10.1 Supplemental Indentures Without Consent of Noteholders . . . . . . . . . . . . . . . . . . . . . 51
Section 10.2 Supplemental Indentures With Consent of Noteholders . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.3 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.4 Notation on Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 10.5 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee . . . . . . . . . . . . 53
ARTICLE XI - CONSOLIDATION, MERGER, SALE, CONVEYANCE, TRANSFER AND LEASE . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.1 Company May Consolidate, Etc. on Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.2 Successor Company To Be Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 11.3 Opinion of Counsel To Be Given to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE XII - SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 12.1 Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 12.2 Survival of Certain Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 12.3 Acknowledgment of Discharge by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 12.4 Application of Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 12.5 Repayment to the Company; Unclaimed Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
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Section 12.6 Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE XIII - IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS . . . . . . . . . . . . . . . . . . . . . . 56
Section 13.1 Indenture and Notes Solely Corporate Obligations . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE XIV - CONVERSION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 14.1 Right to Convert . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 14.2 Exercise of Conversion Privilege; Issuance of Common Stock on Conversion; No Adjustment for
Interest or Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 14.3 Cash Payments in Lieu of Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 14.4 Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 14.5 Adjustment of Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 14.6 Effect of Reclassification, Consolidation, Merger or Sale . . . . . . . . . . . . . . . . . . . . 68
Section 14.7 Taxes on Shares Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 14.8 Reservation of Shares; Shares to Be Fully Paid; Listing of Common Stock . . . . . . . . . . . . 69
Section 14.9 Responsibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 14.10 Notice to Holders Prior to Certain Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE XV - SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 15.1 Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 15.2 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 15.3 Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 15.4 Default on Senior Indebtedness; Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . 73
Section 15.5 When Distribution Must Be Paid Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 15.6 Notice by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 15.7 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 15.8 Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 15.9 Subordination May Not Be Impaired by Company . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 15.10 Distribution or Notice to Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 15.11 Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 15.12 Authorization to Effect Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 15.13 Conversions Not Deemed Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 15.14 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
</TABLE>
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ARTICLE XVI - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 16.1 Pooling of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 16.2 Provisions Binding on Company's Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 16.3 Official Acts by Successor Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 16.4 Addresses for Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 16.5 Communications by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 16.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 16.7 Evidence of Compliance with Conditions Precedent; Certificates to Trustee . . . . . . . . . . . 79
Section 16.8 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 16.9 No Security Interest Created . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 16.10 Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 16.11 Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 16.12 Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 16.13 Table of Contents, Headings Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 16.14 Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 16.15 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
</TABLE>
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CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5(a); 5.1
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.5
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8(a); 5.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.7
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . 8.4
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.10; 16.11
</TABLE>
N.A. means Not Applicable.
___________
* This Cross-Reference Table is not part of the Indenture.
<PAGE> 9
INDENTURE, dated as of February 3, 1997, by and between Adaptec, Inc.,
a California corporation (the "Company"), and State Street Bank and Trust
Company, a Massachusetts Trust Company (the "Trustee").
W I T N E S S E T H:
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issuance of its 4-3/4% Convertible Subordinated Notes Due 2004
(the "Notes"), in an aggregate principal amount not to exceed $230,000,000,
and, to provide the terms and conditions upon which the Notes are to be
authenticated, issued and delivered, the Company has duly authorized the
execution and delivery of this Indenture; and
WHEREAS, the Notes, the certificate of authentication to be borne by
the Notes, a form of assignment, a form of option to require repurchase by the
Company upon a Change of Control (as hereinafter defined), a form of conversion
notice and a certificate of transfer to be borne by the Notes are to be
substantially in the forms hereinafter provided for; and
WHEREAS, all acts and things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee or a
duly authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute valid
agreements according to their terms, have been done and performed, and the
execution of this Indenture and the issuance hereunder of the Notes have in all
respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the Notes
are, and are to be, authenticated, issued and delivered, and in consideration
of the premises and of the purchase and acceptance of the Notes by the holders
thereof, the Company covenants and agrees with the Trustee for the equal and
proportionate benefit of the respective holders from time to time of the Notes
(except as otherwise provided below) as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Section 1.1
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.1. The
words "herein," "hereof," "hereunder" and words of similar import refer to this
Indenture as a whole and not to any particular Article or Section.
Acquisition Price: The term "Acquisition Price" shall mean the
weighted average price paid by the person or group in acquiring the Voting
Stock.
<PAGE> 10
Affiliate: An "Affiliate" of any specified person shall mean an
"affiliate" as defined in Rule 144(a) as promulgated under the Securities Act.
Board of Directors: The term "Board of Directors" shall mean the
Board of Directors of the Company or a committee of such Board of Directors
duly authorized to act for it hereunder.
Board Resolution: The term "Board Resolution" shall mean a copy of a
resolution certified by the Secretary or an Assistant Secretary of the Company
to have been duly adopted by the Board of Directors and to be in full force and
effect on the date of such certification, and delivered to the Trustee.
Business Day: The term "Business Day" shall mean a day, other than a
Saturday, a Sunday or a day on which the banking institutions in the State and
City of New York are authorized or obligated by law or executive order to close
or a day that is declared a national or New York state holiday.
Capital Stock: The term "Capital Stock" of any person shall mean any
and all shares, interests, participations or other equivalents (however
designated) of such person's corporate stock or any and all equivalent
ownership interests in a person (other than a corporation) whether now
outstanding or issued after the date hereof.
Cedel: The term "Cedel" shall mean Cedel Bank Societe Anonyme.
Closing Date: The term "Closing Date" shall mean February 3, 1997.
Commission: The term "Commission" shall mean the Securities and
Exchange Commission, as from time to time constituted, created under the
Exchange Act or, if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned to it under
the Trust Indenture Act, the body performing such duties at such time.
Common Stock: The term "Common Stock" shall mean any stock of any
class of the Company that does not have a preference in respect of dividends or
of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and that is not subject to redemption
by the Company. Subject to the provisions of Section 14.6, however, shares
issuable on conversion of Notes shall include only shares of the class
designated as common stock of the Company at the date of this Indenture or
shares of any class or classes resulting from any reclassification or
reclassifications thereof and that do not have a preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company and that are not subject
to redemption by the Company; provided that if at any time there shall be more
than one such resulting class, the shares of each such class then so issuable
shall be substantially in the proportion that the total number of shares of
such class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications.
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<PAGE> 11
Company: The term "Company" shall mean Adaptec, Inc., a California
corporation, and subject to the provisions of Article XI, shall include its
successors and assigns.
Conversion Price: The term "Conversion Price" shall have the meaning
specified in Section 14.4.
Corporate Trust Office of the Trustee: The term "Corporate Trust
Office of the Trustee," or other similar term, shall mean the office of the
Trustee at which at any particular time its corporate trust business shall be
principally administered, which office is, at the date as of which this
Indenture is dated, located at Two International Place, 4th Floor, Boston, MA
02110 Attention: Corporate Trust Administration.
Credit Agreement: The term "Credit Agreement" shall mean the
Revolving Credit Loan Agreement dated as of June 3, 1992, as amended by
Amendment Numbers One through Ten, between the Company and Comerica
Bank-California and the Term Loan Agreement dated as of June 24, 1992, as
amended by Amendment Numbers One through Ten, between the Company and Comerica
Bank-California, as each may be amended, supplemented, restated or otherwise
modified from time to time.
Custodian: The term "Custodian" shall mean the Trustee, as custodian
with respect to the Notes in global form, or any successor entity thereto.
default: The term "default" shall mean any event that is, or after
notice or passage of time, or both, would be, an Event of Default.
definitive Notes; in definitive form: The term "definitive Notes"
shall have the meaning specified in Section 2.2. Any reference to Notes "in
definitive form" shall mean definitive Notes, and any reference to securities
"in definitive form" shall mean definitive Notes or Common Stock as the context
requires.
Depositary: The term "Depositary" shall mean, with respect to the
Notes issuable or issued in whole or in part in global form, the person
specified in Section 2.5(c) as the Depositary with respect to the Notes, until
a successor shall have been appointed and become such pursuant to the
applicable provisions of this Indenture, and thereafter, "Depositary" shall
mean or include such successor.
DWAC: The term "DWAC" shall mean Deposit and Withdrawal at Custodian
Service.
Euroclear: The term "Euroclear" shall mean Morgan Guaranty Trust
Company of New York, Brussels office, as operator of the Euroclear System.
Event of Default: The term "Event of Default" shall mean any event
specified in Section 6.1(a) through (e).
-3-
<PAGE> 12
Exchange Act: The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
global Note: The term "global Note" shall mean any and all notes in
global form.
Indenture: The term "Indenture" shall mean this instrument as
originally executed or, if amended or supplemented as herein provided, as so
amended or supplemented.
Institutional Accredited Investor: The term "Institutional Accredited
Investor" shall have the meaning specified in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
Note or Notes: The terms "Note" or "Notes" shall mean any Note or
Notes, as the case may be, authenticated and delivered under this Indenture.
Noteholder; holder: The terms "Noteholder" or "holder" as applied to
any Note, or other similar terms (but excluding the term "beneficial holder"),
shall mean any person in whose name at the time a particular Note is registered
on the Note registrar's books.
Note register: The term "Note register" shall have the meaning
specified in Section 2.5(a).
Officers' Certificate: The term "Officers' Certificate," when used
with respect to the Company, shall mean a certificate signed by the President,
the Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer and any Treasurer or Secretary or any Assistant Secretary of the
Company, that is delivered to the Trustee. Each such certificate shall include
the statements provided for in Section 16.7 if and to the extent required by
the provisions of such Section.
Opinion of Counsel: The term "Opinion of Counsel" shall mean an
opinion in writing signed by legal counsel, who may be an employee of or
counsel to the Company or other counsel acceptable to the Trustee, that is
delivered to the Trustee. Each such opinion shall include the statements
provided for in Section 16.7 if and to the extent required by the provisions of
such Section.
outstanding: The term "outstanding" with reference to Notes as of any
particular time shall mean, subject to the provisions of Section 8.4, all Notes
authenticated and delivered by the Trustee under this Indenture, except
(a) Notes theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Notes, or portions thereof, for which monies in the
necessary amount shall have been deposited in trust with the Trustee
for payment or redemption; provided that if such Notes are to be
redeemed prior to the maturity
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<PAGE> 13
thereof, notice of such redemption shall have been given pursuant to
Article III or provision satisfactory to the Trustee shall have been
made for giving such notice;
(c) Notes paid pursuant to Section 2.6 hereof or Notes in
lieu of or in substitution for which other Notes shall have been
authenticated and delivered pursuant to the terms of Section 2.6
unless proof satisfactory to the Trustee is presented that any such
Notes are held by bona fide holders in due course; and
(d) Notes converted into Common Stock pursuant to Article
XIV and Notes not deemed outstanding pursuant to Section 3.2.
person: The term "person" shall mean a corporation, an association, a
partnership, an individual, a joint venture, a joint stock company, a trust, an
unincorporated organization or a government or an agency or a political
subdivision thereof.
PORTAL Market: The term "PORTAL Market" shall mean the Private
Offerings, Resales and Trading through Automated Linkages Market operated by
the National Association of Securities Dealers, Inc. or any successor thereto.
Predecessor Note: The term "Predecessor Note" of any particular Note
shall mean every previous Note evidencing all or a portion of the same debt as
that evidenced by such particular Note; and, for the purposes of this
definition, any Note authenticated and delivered under Section 2.6 in lieu of a
lost, destroyed or stolen Note shall be deemed to evidence the same debt as the
lost, destroyed or stolen Note.
QIB: The term "QIB" shall mean a "qualified institutional buyer" as
defined in Rule 144A.
Regulation S: The term "Regulation S" shall mean Regulation S under
the Securities Act and any successor regulation thereto.
Regulation S Global Note: The term "Regulation S Global Note" shall
have the meaning specified in Section 2.2.
Responsible Officer: The term "Responsible Officer" with respect to
the Trustee, shall mean an officer of the Trustee assigned and duly authorized
by the Trustee to administer its corporate trust matters.
Restricted Global Note: The term "Restricted Global Note" shall have
the meaning specified in Section 2.2.
Restricted Period: The term "Restricted Period" shall have the
meaning specified in Section 2.2.
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Restricted Securities: The term "Restricted Securities" shall have the
meaning specified in Section 2.5(d).
Rule 144A: The term "Rule 144A" shall mean Rule 144A as promulgated
under the Securities Act.
Securities Act: The term "Securities Act" shall mean the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder.
subsidiary: The term "subsidiary" of any specified person shall mean
(i) a corporation a majority of whose capital stock with voting power under
ordinary circumstances to elect directors is at the time directly or indirectly
owned by such person or (ii) any other person (other than a corporation) in
which such person or such person and a subsidiary or subsidiaries of such
person or a subsidiary or subsidiaries of such person directly or indirectly,
at the date of determination thereof, has at least majority ownership.
Successor Company: The term "Successor Company" shall have the
meaning specified in Section 11.1.
Trust Indenture Act: The term "Trust Indenture Act" shall mean the
Trust Indenture Act of 1939, as amended, as it was in force at the date of
execution of this Indenture, except as provided in Sections 10.3 and 14.6;
provided that in the event said Trust Indenture Act of 1939 is amended after
the date hereof, the term "Trust Indenture Act" shall mean, to the extent
required by such amendment, said Trust Indenture Act of 1939 as so amended.
Trustee: The term "Trustee" shall mean State Street Bank and Trust
Company, its successors and any corporation resulting from or surviving any
consolidation or merger to which it or its successors may be a party and any
successor trustee at the time serving as successor trustee hereunder.
The definitions of certain other terms are as specified in Sections
2.2, 2.3, 2.5, 3.5, 6.1, 12.1, 14.5, 14.6, 15.2 and 15.4.
Section 1.2 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the Trust Indenture Act, the
provision is incorporated by reference in and made a part of this Indenture.
The following Trust Indenture Act terms used in this Indenture have
the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a holder of Notes;
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"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Notes means the Company and any successor
obligor upon the Trust Indenture Act.
All other terms used in this Indenture that are defined by the Trust
Indenture Act, defined by Trust Indenture Act reference to another statute or
defined by Commission rule under the Trust Indenture Act have the meanings so
assigned to them.
Section 1.3 Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted
accounting principles;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular; and
(5) provisions apply to successive events and
transactions.
ARTICLE II
ISSUE, DESCRIPTION, EXECUTION, REGISTRATION
AND EXCHANGE OF NOTES
Section 2.1 Designation, Amount and Issue of Notes. The Notes
shall be designated as "4-3/4% Convertible Subordinated Notes Due 2004." Notes
not to exceed the aggregate principal amount of $230,000,000 upon the execution
of this Indenture, or from time to time thereafter, may be executed by the
Company and delivered to the Trustee for authentication, and the Trustee shall
thereupon authenticate and make available for delivery said Notes upon the
written order of the Company, signed by its (a) Chief Executive Officer,
President, Chief Operating Officer or Chief Financial Officer, and (b) any
Treasurer or Secretary or any Assistant Secretary, without any further action
by the Company hereunder.
Section 2.2 Form of Notes. Notes sold to Institutional
Accredited Investors that are neither QIBs nor Non-U.S. Persons shall be issued
in definitive form in substantially in the form of Exhibit A hereto
("definitive Notes"), with the legends in substantially the form indicated in
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Exhibit A hereto and such other legends as may be applicable thereto, which
definitive Notes shall be registered in the name of the holders thereof, duly
executed by the Company and authenticated by the Trustee or the authenticating
agent as provided herein.
Notes held by QIBs shall be issued initially in the form of one or
more global Notes (the "Restricted Global Note"), substantially in the form of
Exhibit B hereto, with the legends in substantially the form indicated in
Exhibit B hereto and such other legends as may be applicable thereto, which
Restricted Global Note shall be deposited on behalf of the holders of the Notes
represented thereby with the Depositary and registered in the name of Cede &
Co. ("Cede") as nominee of the Depositary, duly executed by the Company and
authenticated by the Trustee or the authenticating agent as provided herein.
Notes offered and sold to persons outside the United States (each, a
"Non-U.S. Person") in reliance on Regulation S shall be issued initially in the
form of a global Note (the "Regulation S Global Note"), substantially in the
form of Exhibit C hereto, with the legends in substantially the form set forth
in Exhibit C hereto and such other legends as may be applicable thereto, which
Regulation S Global Note shall be deposited on behalf of the holders of the
Notes represented thereby with or on behalf of the Depositary, and registered
in the name of Cede & Co. as nominee of the Depositary, duly executed by the
Company and authenticated by the Trustee or an authenticating agent as provided
herein, for credit to the accounts of Euroclear and Cedel (or such other
accounts as they may direct). Prior to and including the 40th day after the
later of the commencement of the offering of the Notes and the Closing Date
(the "Restricted Period"), beneficial interests in the Regulation S Global Note
may only be held through Euroclear or Cedel. During the Restricted Period,
interests in the Regulation S Global Note may be exchanged for interests in the
Restricted Global Note or for definitive Notes only in accordance with the
certification requirements described in this Article II.
QIBs and, after the expiration of the Restricted Period, Non-U.S.
Persons may request that definitive Notes be issued in exchange for Notes
represented by the applicable global Note. In addition, if at any time the
Depositary for the global Notes is unable or unwilling to act as Depositary and
no successor Depositary is appointed pursuant to Section 2.5(c), definitive
Notes may be issued in exchange for Notes represented by the global Notes.
Unless determined otherwise by the Company in accordance with applicable law,
after the expiration of the Restricted Period, definitive Notes issued upon
transfer or exchange of beneficial interests in Notes represented by the
Regulation S Global Note shall not bear the legend set forth in Section 2.5(c).
Any definitive Note issued to a QIB pursuant to this paragraph shall bear the
legend set forth in Section 2.5(c).
Any of the Notes may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the Company
officers executing the same may approve (execution thereof to be conclusive
evidence of such approval) and as are not inconsistent with the provisions of
this Indenture, or as may be required to comply with any law or with any rule
or
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regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Notes may be listed, or to conform to usage.
Any global Note shall represent such of the outstanding Notes as shall
be specified therein and shall provide that it shall represent the aggregate
amount of outstanding Notes from time to time endorsed thereon and that the
aggregate amount of outstanding Notes represented thereby may from time to time
be increased or reduced to reflect transfers or exchanges permitted hereby.
Any endorsement of a global Note to reflect the amount of any increase or
decrease in the amount of outstanding Notes represented thereby shall be made
by the Trustee or the Custodian, at the direction of the Trustee, in such
manner and upon written instructions given by the holder of such Notes in
accordance with the Indenture. Payment of principal of and interest and
premium, if any, on any global Note shall be made in accordance with the
provisions of Section 2.3.
The terms and provisions contained in the forms of Notes attached as
Exhibits A, B and C hereto shall constitute, and are hereby expressly made, a
part of this Indenture and to the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Section 2.3 Date and Denomination of Notes; Payments of Interest.
The Notes shall be issuable in registered form without coupons in denominations
of $1,000 principal amount and integral multiples thereof. Every Note shall be
dated the date of its authentication, shall bear interest from February 3, 1997
and shall be payable semi-annually on each February 1 and August 1, commencing
August 1, 1997, as specified on the face of the form of Notes, attached as
Exhibit A hereto.
Subject to Section 14.2 hereof, the person in whose name any Note (or
its Predecessor Note) is registered at the close of business on any record date
with respect to any interest payment date (including any Note that is converted
after the record date and on or before the interest payment date) shall be
entitled to receive the interest payable on such interest payment date
notwithstanding the cancellation of such Note upon any transfer, exchange or
conversion subsequent to the record date and prior to such interest payment
date. Interest may, at the option of the Company, be paid by check mailed to
the address of such person as it appears on the Note register; provided that,
with respect to any holder of Notes with an aggregate principal amount equal to
or in excess of $5,000,000, at the request (such request to include appropriate
wire instructions) of such holder in writing to the Trustee on or before the
record date preceding any interest payment date, interest on such holder's
Notes shall be paid by wire transfer in immediately available funds. The term
"record date" with respect to any interest payment date shall mean the January
15 or July 15 preceding said February 1 or August 1.
None of the Company, the Trustee or any paying agent shall have any
responsibility or liability for any aspect of the records relating to or
payment made on account of beneficial ownership interests in the global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
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Interest on the Notes shall be computed on the basis of a 360-day year
composed of twelve 30-day months.
Any interest on any Note that is payable, but is not punctually paid
or duly provided for, on any said February 1 or August 1 (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Noteholder on
the relevant record date by virtue of his having been such Noteholder; and such
Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the persons in whose names the Notes (or their
respective Predecessor Notes) are registered at the close of business
on a special record date for the payment of such Defaulted Interest,
which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest to
be paid on each Note and the date of the payment (which shall be not
less than 25 days after the receipt by the Trustee of such notice,
unless the Trustee shall consent to an earlier date), and at the same
time, the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the persons
entitled to such Defaulted Interest as in this clause provided.
Thereupon, the Trustee shall fix a special record date for the payment
of such Defaulted Interest, which shall be not more than 15 days and
not less than 10 days prior to the date of the payment and not less
than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of
such special record date and, in the name and at the expense of the
Company, shall cause notice of the payment of such Defaulted Interest
and the special record date therefor to be mailed, first-class postage
prepaid, to each Noteholder at his address as it appears in the Note
register, not less than 10 days prior to such special record date.
Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been so mailed, subject to Section
14.2 hereof, such Defaulted Interest shall be paid to the persons in
whose names the Notes (or their respective Predecessor Notes) were
registered at the close of business on such special record date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange, if,
after notice given by the Company to the Trustee of the proposed
payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
Section 2.4 Execution of Notes. The Notes shall be signed in the
name and on behalf of the Company by the signature of its Chief Executive
Officer, President, Chief Operating Officer or Chief Financial Officer and
attested by the signature of its Treasurer, Secretary or any of its
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<PAGE> 19
Assistant Secretaries (any of which signatures may be printed, engraved or
otherwise reproduced thereon, by facsimile or otherwise). Only such Notes as
shall bear thereon a certificate of authentication substantially in the form
set forth on forms of Notes attached as Exhibits A, B and C hereto, manually
executed by the Trustee (or an authenticating agent appointed by the Trustee as
provided by Section 16.14), shall be entitled to the benefits of this Indenture
or be valid or obligatory for any purpose. Such certificate by the Trustee (or
such an authenticating agent) upon any Note executed by the Company shall be
conclusive evidence that the Note so authenticated has been duly authenticated
and delivered hereunder and that the holder is entitled to the benefits of this
Indenture.
In case any officer of the Company who shall have signed any of the
Notes shall cease to be such officer before the Notes so signed shall have been
authenticated and delivered by the Trustee, or disposed of by the Company, such
Notes nevertheless may be authenticated and delivered or disposed of as though
the person who signed such Notes had not ceased to be such officer of the
Company; and any Note may be signed on behalf of the Company by such persons
as, at the actual date of the execution of such Note, shall be the proper
officers of the Company, although at the date of the execution of this
Indenture any such person was not such an officer.
Section 2.5 Exchange and Registration of Transfer of Notes;
Restrictions on Transfer; Depositary.
(a) The Company shall cause to be kept at the Corporate
Trust Office of the Trustee a register (the register maintained in such office
and in any other office or agency of the Company designated pursuant to Section
4.2 being herein sometimes collectively referred to as the "Note register") in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Notes and of transfers of Notes. Such
Note register shall be in written form or in any form capable of being
converted into written form within a reasonable period of time. The Trustee is
hereby appointed "Note registrar" for the purpose of registering Notes and
transfers of Notes as herein provided. The Company may appoint one or more
co-registrars.
Upon surrender for registration of transfer of any Note to the Note
registrar or any co-registrar and satisfaction of the requirements for such
transfer set forth in this Section 2.5, the Company shall execute, and the
Trustee shall authenticate and make available for delivery, in the name of the
designated transferee or transferees, one or more new Notes of any authorized
denominations and of a like aggregate principal amount and bearing such
restrictive legends as may be required by Sections 2.5(c) and (d).
Notes may be exchanged for other Notes of any authorized denominations
and of a like aggregate principal amount, upon surrender of the Notes to be
exchanged at any such office or agency. Whenever any Notes are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
make available for delivery, the Notes that the Noteholder
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making the exchange is entitled to receive bearing certificate numbers not
contemporaneously outstanding.
All Notes presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company, the Trustee, the Note registrar
or any co-registrar) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company, executed by the
Noteholder thereof or his attorney duly authorized in writing.
No service charge shall be charged to the Noteholder for any exchange
or registration of transfer of Notes, but the Company may require payment of a
sum sufficient to cover any tax, assessments or other governmental charges that
may be imposed in connection therewith.
None of the Company, the Trustee, the Note registrar or any
co-registrar shall be required to exchange or register a transfer of (a) any
Notes for a period of 15 days next preceding the mailing of a notice of
redemption, (b) any Notes called for redemption or, if a portion of any Note is
selected or called for redemption, such portion thereof selected or called for
redemption, (c) any Notes surrendered for conversion or, if a portion of any
Note is surrendered for conversion, such portion thereof surrendered for
conversion or (d) any Notes surrendered for repurchase pursuant to Section 3.5
or, if a portion of any Note is surrendered for repurchase pursuant to Section
3.5, such portion thereof surrendered for repurchase pursuant to Section 3.5.
All Notes issued upon any transfer or exchange of Notes shall be the
valid obligations of the Company, evidencing the same debt and entitled to the
same benefits under this Indenture as the Notes surrendered upon such
registration of transfer or exchange.
(b) So long as the Notes are eligible for book-entry
settlement with the Depositary, or unless otherwise required by law, all Notes
to be traded on the PORTAL Market shall be represented by the Restricted Global
Note registered in the name of the Depositary or the nominee of the Depositary.
The transfer and exchange of beneficial interests in any global Note that does
not involve the issuance of a definitive Note or the transfer of interests to
another global Note shall be effected through the Depositary (and not the
Trustee or the Custodian) in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor. Neither the Trustee nor the Custodian (in such respective
capacities) shall have any responsibility for the transfer and exchange of
beneficial interests in such global Note that does not involve the issuance of
a definitive Note or the transfer of interests to another global Note.
Any beneficial interest in Notes represented by the Restricted Global
Note that is transferred to an Institutional Accredited Investor that is not a
QIB shall be delivered in the form of a definitive Note in registered form in
accordance with Section 2.2 and shall cease to be an interest in Notes
represented by such Restricted Global Note and accordingly shall thereafter be
subject to all transfer restrictions and other procedures applicable to a
definitive Note held by Institutional Accredited Investors.
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Any transfer of a beneficial interest in a global Note that cannot be
effected through book-entry settlement must be effected by the delivery to the
transferee (or its nominee) of a definitive Note or Notes registered in the
name of the transferee (or its nominee) on the books maintained by the Trustee,
in accordance with the transfer instructions set forth herein. With respect to
any such transfer, the Trustee or the Custodian, at the direction of the
Trustee, shall cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Custodian, the aggregate
principal amount of the global Note to be reduced by the principal amount of
the beneficial interest in the Note being transferred and, following such
reduction, the Company shall execute and the Trustee shall authenticate and
make available for delivery to the transferee (or such transferee's nominee, as
the case may be), a definitive Note or Notes in the appropriate aggregate
principal amount in the name of such transferee (or its nominee) and bearing
such restrictive legends as may be required by this Indenture. As a condition
to such transfer, if such transfer is made to an Institutional Accredited
Investor, the Trustee or the Custodian, at the direction of the transferor,
shall be provided with such representations and agreements relating to the
restrictions on transfer of such Note or Notes from such transferee (or such
transferee's nominee) substantially in the form as set forth in Exhibit D
hereto and as the Trustee (or the Custodian) may otherwise reasonably require.
Any transfer of a definitive Note or Notes must be effected by the
delivery to the transferee (or its nominee) of a definitive Note or Notes
registered in the name of the transferee (or its nominee) in the Note register
maintained by the Trustee. With respect to any such transfer, the Company
shall execute and the Trustee shall authenticate and make available for
delivery to the transferee (or such transferee's nominee, as the case may be),
a definitive Note or Notes in the appropriate aggregate principal amount in the
name of such transferee (or its nominee) and bearing such restrictive legends
as may be required by this Indenture. As a condition to such transfer, if such
transfer is made to an Institutional Accredited Investor, the Trustee or the
Custodian, at the direction of the transferor, shall be provided with such
representations and agreements relating to the restrictions on transfer of such
Note or Notes from such transferee (or such transferee's nominee) substantially
in the form as set forth in Exhibit D hereto.
So long as the Notes are eligible for book-entry settlement, or unless
otherwise required by law, upon any transfer of a definitive Note to a QIB in
accordance with Rule 144A, unless otherwise requested by the transferor, and
upon receipt of the definitive Note or Notes being so transferred, together
with a certificate in the form of Exhibit E hereto from the transferor that the
transferor reasonably believes the transferee is a QIB and is obtaining such
beneficial interest in a transaction meeting the requirements of Rule 144A and
any applicable securities laws of any state of the United States or any other
jurisdiction (or other evidence satisfactory to the Trustee), the Trustee shall
cancel such definitive Note or Notes and cause, or direct the Custodian to
cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Custodian, the aggregate principal amount of
Notes represented by the Restricted Global Note to be increased accordingly.
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So long as the Notes are eligible for book-entry settlement, or unless
otherwise required by law, upon any transfer of a definitive Note in accordance
with Regulation S, if requested by the transferor, and upon receipt of the
definitive Note or Notes being so transferred, together with a certificate in
the form of Exhibit F hereto from the transferor that the transfer was made in
accordance with Rule 903 or 904 of Regulation S under the Securities Act (or
other evidence satisfactory to the Trustee), the Trustee shall cancel such
definitive Note or Notes and cause, or direct the Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Custodian, the aggregate principal amount of Notes
represented by the Regulation S Global Note to be increased accordingly.
If a holder of a beneficial interest in the Restricted Global Note
wishes at any time to exchange its interest in the Restricted Global Note for
an interest in the Regulation S Global Note, or to transfer its interest in the
Restricted Global Note to a person who wishes to take delivery thereof in the
form of an interest in the Regulation S Global Note, whether before or after
the expiration of the Restricted Period, such holder may, subject to the rules
and procedures of the Depositary and to the requirements set forth in the
following sentence, exchange or cause the exchange or transfer or cause the
transfer of such interest for an equivalent beneficial interest in the
Regulation S Global Note. Upon receipt by the Trustee, as transfer agent, of
(1) written instructions given in accordance with the Depositary's procedures
from or on behalf of a holder of a beneficial interest in the Restricted Global
Note, directing the Trustee (via DWAC), as transfer agent, to credit or cause
to be credited a beneficial interest in the Regulation S Global Note in an
amount equal to the beneficial interest in the Restricted Global Note to be
exchanged or transferred, (2) a written order given in accordance with the
Depositary's procedures containing information regarding the Euroclear or Cedel
account to be credited with such increase and the name of such account, and (3)
a certificate in the form of Exhibit G given by the holder of such beneficial
interest stating that the exchange or transfer of such interest has been made
pursuant to and in accordance with Rule 903 or Rule 904 of Regulation S under
the Securities Act and that if such transfer occurs prior to the expiration of
the Restricted Period, the interest transferred shall be held immediately
thereafter, until the expiration of the Restricted Period, through Euroclear or
Cedel (or other evidence satisfactory to the Trustee), the Trustee, as transfer
agent, shall promptly deliver appropriate instructions to the Depositary (via
DWAC), its nominee, or the custodian for the Depositary, as the case may be, to
reduce or reflect on its records a reduction of the Restricted Global Note by
the aggregate principal amount of the beneficial interest in such Restricted
Global Note to be so exchanged or transferred from the relevant participant,
and the Trustee, as transfer agent, shall promptly deliver appropriate
instructions (via DWAC) to the Depositary, its nominee, or the custodian for
the Depositary, as the case may be, concurrently with such reduction, to
increase or reflect on its records an increase of the principal amount of such
Regulation S Global Note by the aggregate principal amount of the beneficial
interest in such Restricted Global Note to be so exchanged or transferred, and
to credit or cause to be credited to the account of the person specified in
such instructions (who shall be Morgan Guaranty Trust Company of New York,
Brussels office, as operator of Euroclear or Cedel or another agent member of
Euroclear or Cedel, or both, as the case may be, acting for and on behalf of
them)
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a beneficial interest in such Regulation S Global Note equal to the reduction
in the principal amount of such Restricted Global Note.
A beneficial interest in the Regulation S Global Note may be
transferred to a person that takes delivery in the form of a beneficial
interest in the Restricted Global Note, subject to the rules and procedures of
Euroclear or Cedel and the Depositary, as the case may be, and to the
requirements set forth in the following sentence. Upon receipt by the Trustee,
as transfer agent, from the transferor of (l) written instructions given in
accordance with the procedures of Euroclear or Cedel and the Depositary, as the
case may be, from or on behalf of a beneficial owner of an interest in the
Regulation S Global Note directing the Trustee, as transfer agent, to credit or
cause to be credited a beneficial interest in the Restricted Global Note in an
amount equal to the beneficial interest in the Regulation S Global Note to be
exchanged or transferred, (2) a written order given in accordance with the
procedures of Euroclear or Cedel and the Depositary, as the case may be,
containing information regarding the account with the Depositary to be credited
with such increase and the name of such account, and (3) prior to the
expiration of the Restricted Period, a certificate in the form of Exhibit H
given by the holder of such beneficial interest and stating that such transfer
is being made to a person that the transferor reasonably believes is purchasing
for its own account or accounts as to which it exercises sole investment
discretion and that such person and each such account is a QIB in each case and
is obtaining such beneficial interest in a transaction meeting the requirements
of Rule 144A and any applicable securities laws of any state of the United
States or any other jurisdiction (or other evidence satisfactory to the
Trustee), the Trustee, as transfer agent, shall promptly deliver (via DWAC)
appropriate instructions to the Depositary, its nominee, or the custodian for
the Depositary, as the case may be, to reduce or reflect on its records a
reduction of the Regulation S Global Note by the aggregate principal amount of
the beneficial interest in such Regulation S Global Note to be exchanged or
transferred, and the Trustee, as transfer agent, shall promptly deliver (via
DWAC) appropriate instructions to the Depositary, its nominee, or the custodian
for the Depositary, as the case may be, concurrently with such reduction, to
increase or reflect on its records an increase of the principal amount of the
Restricted Global Note by the aggregate principal amount of the beneficial
interest in the Regulation S Global Note to be so exchanged or transferred, and
to credit or cause to be credited to the account of the person specified in
such instructions a beneficial interest in the Restricted Global Note equal to
the reduction in the principal amount of the Regulation S Global Note. After
the expiration of the Restricted Period, the certification requirement set
forth in clause (3) of the second sentence of this paragraph shall no longer
apply to such exchanges and transfers.
If a holder of a definitive Note wishes at any time to exchange its
Note for a beneficial interest in any global Note (or vice versa), or to
transfer its definitive Note to a person who wishes to take delivery thereof in
the form of a beneficial interest in a global Note (or vice versa), such Notes
and beneficial interests may be exchanged or transferred for one another only
in accordance with such procedures as are consistent with the provisions of
this Section 2.5(b) (including the certification requirements intended to
ensure that such exchanges or transfers comply with Rule 144, Rule 144A or
Regulation S, as the case may be) and as may be from time
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to time adopted by the Company with notice to and the consent of the Trustee.
Such Notes shall bear the legends required by Sections 2.5(c) and (d) as
applicable.
Any beneficial interest in one of the global Notes that is transferred
to a person who takes delivery in the form of an interest in the other global
Note shall, upon transfer, cease to be an interest in such global Note and
become an interest in the other global Note and, accordingly, shall thereafter
be subject to all transfer restrictions and other procedures applicable to
beneficial interests in such other global Note for as long as it remains such
an interest.
Any global Note may be endorsed with or have incorporated in the text
thereof such legends or recitals or changes not inconsistent with the
provisions of this Indenture as may be required by the Company with notice
thereof to the Custodian, the Depositary or by the National Association of
Securities Dealers, Inc. in order for the Notes to be tradeable on the PORTAL
Market or as may be required for the Notes to be tradeable on any market
developed for trading of securities pursuant to Rule 144A or required to comply
with any applicable law or any regulation thereunder or with Regulation S or
with the rules and regulations of any securities exchange upon which the Notes
may be listed or traded or to conform with any usage with respect thereto, or
to indicate any special limitations or restrictions to which any particular
Notes are subject.
(c) Every Note that bears or is required under this
Section 2.5(c) to bear the legend set forth in this Section 2.5(c) (together
with any Common Stock issued upon conversion of the Notes and required to bear
the legend set forth in Section 2.5(d), collectively, the "Restricted
Securities") shall be subject to the restrictions on transfer set forth in this
Section 2.5(c), unless such restrictions on transfer shall have been waived by
the written consent of the Company or removed in accordance with the provisions
of Section 2.5(e), and the holder of each such Restricted Security, by such
holder's acceptance thereof, agrees to be bound by such restrictions on
transfer. As used in this Section 2.5(c), the term "transfer" encompasses any
sale, pledge, transfer or other disposition of any Restricted Security.
Until three years (or such shorter period as may be applicable) after
the later of the original issuance date of any Note and the last date on which
the Company or an Affiliate of the Company was the owner of such Note, any
certificate evidencing such Note (and all securities issued in exchange
therefor or substitution thereof, other than Common Stock, if any, issued upon
conversion thereof, which shall bear the legend set forth in Section 2.5(d), if
applicable) shall bear a legend in substantially the following form, unless
otherwise agreed by the Company (with notice thereof to the Trustee):
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.
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<PAGE> 25
BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR"
(AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT) ("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE
TRANSACTION; (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS
THREE YEARS (OR SUCH SHORTER PERIOD AS MAY BE APPLICABLE) AFTER THE
LATER OF THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE
LAST DATE ON WHICH ADAPTEC, INC. (THE "COMPANY") OR ANY "AFFILIATE"
(AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS
THE OWNER OF THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR
OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN
INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE
RESTRICTION TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST
COMPANY, AS TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE
(C), (D) OR (E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF
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THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE RESTRICTION
TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.
Any Note (or security issued in exchange or substitution therefor) as
to which such restrictions on transfer shall have expired in accordance with
their terms may, upon satisfaction of the requirements of Section 2.5(e) and
surrender of such Note for exchange to the Note registrar in accordance with
the provisions of this Section 2.5, be exchanged for a new Note or Notes, of
like tenor and aggregate principal amount, which shall not bear the restrictive
legend required by this Section 2.5(c).
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in this Section 2.5(c)), a global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary.
The Depositary shall be a clearing agency registered under the
Exchange Act. The Company initially appoints The Depository Trust Company to
act as Depositary with respect to the global Notes. Initially, the global
Notes shall be issued to the Depositary, registered in the name of Cede, as the
nominee of the Depositary, and deposited with the Trustee as Custodian for
Cede.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under this Indenture) shall have responsibility for the
performance by the Depositary and its nominees, Euroclear or Cedel or their
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations. The Depositary shall take any
action permitted to be taken by a holder of Notes (including, without
limitation, the presentation of Notes for exchange as described below) only at
the direction of one or more participants to whose account with the Depositary
interests in the global Notes are credited, and only in respect of the
principal amount of the Notes represented by the global Notes as to which such
participant or participants has or have given such direction.
If at any time the Depositary for the global Notes notifies the
Company that it is unwilling or unable to continue as Depositary for such
Notes, the Company may appoint a successor Depositary with respect to such
Notes. If a successor Depositary for the Notes is not appointed by the Company
within 90 days after the Company receives such notice, the Company shall
execute, and the Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of Notes, shall authenticate and make available for
delivery, Notes in definitive form, in an aggregate principal amount equal to
the principal amount of the global Notes in exchange for such global Notes.
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Definitive Notes issued in exchange for all or a part of a global Note
pursuant to this Section 2.5(c) shall be registered in such names and in such
authorized denominations as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Trustee. Upon
execution and authentication, the Trustee shall make available for delivery
such definitive Notes to the persons in whose names such definitive Notes are
so registered.
At such time as all interests in global Notes have been redeemed,
converted, repurchased or canceled, such global Notes shall be, upon receipt
thereof, canceled by the Trustee in accordance with standing procedures and
instructions existing between the Depositary and the Custodian. At any time
prior to such cancellation, if any interest in a global Note is exchanged for
definitive Notes, redeemed, repurchased, converted, canceled or transferred to
a transferee who receives definitive Notes therefor or any definitive Note is
exchanged or transferred for part of a global Note, the principal amount of
such global Note shall, in accordance with the standing procedures and
instructions existing between the Depositary and the Custodian, be reduced or
increased, as the case may be, and an endorsement shall be made on such global
Note by the Trustee or the Custodian, at the direction of the Trustee, to
reflect such reduction or increase.
The Company and the Trustee may for all purposes, including the making
of payments due on the Notes, deal with the Depositary as the authorized
representative of the Noteholders for the purposes of exercising the rights of
Noteholders hereunder. The rights of the owner of any beneficial interest in a
global Note shall be limited to those established by law and agreements between
such owners and depository participants or Euroclear and Cedel; provided that
no such agreement shall give any rights to any person against the Company or
the Trustee without the written consent of the parties so affected. Multiple
requests and directions from and votes of, the Depositary as holder of notes in
book entry form with respect to any particular matter shall not be deemed
inconsistent to the extent they do not represent an amount of Notes in excess
of those held in the name of the Depositary or its nominee.
(d) Until three years after the later of the original
issuance date of any Note (other than any Note represented by the Regulation S
Global Note) and the last date on which the Company or an Affiliate of the
Company was the owner of such Note, any stock certificate representing Common
Stock issued upon conversion of such Note shall bear a legend in substantially
the following form, unless otherwise agreed by the Company (with written notice
thereof to the Trustee and any transfer agent for the Common Stock):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF
AGREES THAT PRIOR TO THE DATE THAT IS THREE YEARS (OR SUCH SHORTER
PERIOD AS MAY BE
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<PAGE> 28
APPLICABLE) AFTER THE LATER OF THE ORIGINAL ISSUANCE OF THE NOTE UPON
THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED
AND THE LAST DATE ON WHICH ADAPTEC, INC. (THE "COMPANY") OR ANY
"AFFILIATE" (AS DEFINED IN RULE 144 OF THE SECURITIES ACT) OF THE
COMPANY WAS THE OWNER OF THE NOTE UPON THE CONVERSION OF WHICH THE
COMMON STOCK EVIDENCED HEREBY WAS ISSUED OR THE COMMON STOCK EVIDENCED
HEREBY (THE "RESTRICTION TERMINATION DATE"), (1) IT WILL NOT RESELL OR
OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO THE
COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
COMPLIANCE WITH RULE 144A, (C) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT) THAT PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRANSFER
AGENT FOR THE COMMON STOCK, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM SUCH TRANSFER AGENT), (D) OUTSIDE THE
UNITED STATES IN COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) OR (F) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT; (2) PRIOR TO ANY SUCH
TRANSFER PURSUANT TO CLAUSE (C), (D) OR (E) ABOVE, IT WILL FURNISH TO
THE TRANSFER AGENT FOR THE COMMON STOCK, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH
PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL
BE REMOVED UPON THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE
TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT.
Any such Common Stock as to which such restrictions on transfer shall
have expired in accordance with their terms may, upon satisfaction of the
requirements of Section 2.5(e) and surrender of the certificates representing
such shares of Common Stock for exchange in accordance with the procedures of
the transfer agent for the Common Stock, be exchanged for a
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<PAGE> 29
new certificate or certificates for a like aggregate number of shares of Common
Stock, which shall not bear the restrictive legend required by this Section
2.5(d).
(e) Upon any sale or transfer of any Restricted Security
(including any interest in a global Note) (i) that is effected pursuant to an
effective registration statement under the Securities Act, (ii) that is
effected pursuant to Rule 144 as promulgated under the Securities Act as
determined by counsel to the Company or (iii) in connection with which the
Trustee (or transfer agent for the Common Stock, in the case of shares of
Common Stock) receives certificates and other information (including an opinion
of counsel, if requested) reasonably acceptable to the Company to the effect
that such security shall no longer be subject to the resale restrictions under
federal and state securities laws, then (A) in the case of a Restricted
Security in definitive form, the Note registrar or co-registrar (or transfer
agent, in the case of Common Stock) shall permit the holder thereof to exchange
such Restricted Security for a security that does not bear the legends set
forth in Sections 2.5(c) or 2.5(d), as applicable, and shall rescind any such
restrictions on transfer and (B) in the case of Restricted Securities
represented by a global Note, such Note shall no longer be subject to the
restrictions contained in the legend set forth in Section 2.5(c) (but still
subject to the other provisions hereof). In addition, any Note (or security
issued in exchange or substitution therefor) or shares of Common Stock issued
upon conversion of any Note, in either case, as to which the restrictions on
transfer described in the legends set forth in Sections 2.5(c) and 2.5(d),
respectively, have expired by their terms, may, upon surrender thereof (in
accordance with the terms of this Indenture in the case of Notes) together with
such certifications and other information (including an opinion of counsel
having substantial experience in practice under the Securities Act and
otherwise reasonably acceptable to the Company, addressed to the Company and
the Trustee and in a form acceptable to the Company, to the effect that the
transfer of such Restricted Security has been made in compliance with Rule 144
or such successor provision) acceptable to the Company and the Trustee (or
transfer agent, as the case may be) as either of them may reasonably require,
be exchanged for a new Note or Notes of like tenor and aggregate principal
amount (in the case of Notes), or a new certificate or certificates for a like
aggregate number of shares of Common Stock (in the case of Common Stock), or a
new certificate or other instrument of like tenor and amount (in the case of
securities issued in exchange or substitution for Notes), which shall not bear
the restrictive legends set forth in Sections 2.5(c) and 2.5(d).
(f) Each holder or former holder of a Note agrees to
indemnify the Company and the Trustee against any liability that may result
from the transfer, exchange or assignment of such holder's or former holder's
Note in violation of any provision of this Indenture and/or applicable U.S.
federal or state securities law.
(g) The provisions of this Section 2 may be amended to
conform transfer provisions and restrictions to any requirements imposed under
the securities laws of the United States as a result of any changes to, or
interpretation of, Regulation S or Rule 144A.
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Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In case
any Note shall become mutilated or be destroyed, lost or stolen, the Company in
its discretion may execute, and upon its request, the Trustee or an
authenticating agent appointed by the Trustee shall authenticate and make
available for delivery a new Note bearing a number not contemporaneously
outstanding in exchange and substitution for the mutilated Note or in lieu of
and in substitution for the Note so destroyed, lost or stolen. The Company may
charge such applicant for the expenses of the Company in replacing a Note. In
every case the applicant for a substituted Note shall furnish to the Company,
to the Trustee and, if applicable, to such authenticating agent such security
or indemnity as may be required by them to save each of them harmless from any
loss, liability, cost or expense caused by or connected with such substitution,
and in every case of destruction, loss or theft, the applicant shall also
furnish to the Company, to the Trustee and, if applicable, to such
authenticating agent evidence to their satisfaction of the destruction, loss or
theft of such Note and of the ownership thereof.
The Trustee or such authenticating agent may authenticate any such
substituted Note and deliver the same upon the receipt of such security or
indemnity as the Trustee, the Company and, if applicable, such authenticating
agent may require. Upon the issuance of any substituted Note, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. In case any Note that has matured or is about to mature or has been
called for redemption or is about to be repurchased or converted into Common
Stock shall become mutilated or be destroyed, lost or stolen, the Company may,
instead of issuing a substitute Note, pay or authorize the payment of or
convert or authorize the conversion of the same (without surrender thereof,
except in the case of a mutilated Note), as the case may be, if the applicant
for such payment or conversion shall furnish to the Company, to the Trustee
and, if applicable, to such authenticating agent such security or indemnity as
may be required by them to save each of them harmless from any loss, liability,
cost or expense caused by or connected with such substitution, and in case of
destruction, loss or theft, evidence satisfactory to the Company, the Trustee
and, if applicable, any paying agent or conversion agent of the destruction,
loss or theft of such Note and of the ownership thereof.
Every substitute Note issued pursuant to the provisions of this
Section 2.6 in lieu of any Note that is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Note shall be enforceable by anyone, and shall be
entitled to all the benefits of (but shall be subject to all the limitations
set forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder. To the extent permitted by law, all Notes shall
be held and owned upon the express condition that the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of
mutilated, destroyed, lost or stolen Notes and shall preclude any and all other
rights or remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement or payment or
conversion of negotiable instruments or other securities without their
surrender.
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Section 2.7 Temporary Notes. Pending the preparation of
definitive Notes, the Company may execute and the Trustee or an authenticating
agent appointed by the Trustee shall, upon written request of the Company,
authenticate and make available for delivery temporary Notes (printed or
lithographed). Temporary Notes shall be issuable in any authorized
denomination and shall be substantially in the form of the definitive Notes but
with such omissions, insertions and variations as may be appropriate for
temporary Notes, all as may be determined by the Company. Every such temporary
Note shall be executed by the Company and authenticated by the Trustee or such
authenticating agent upon the same conditions and in substantially the same
manner, and with the same effect, as the definitive Notes. Without
unreasonable delay the Company shall execute and deliver to the Trustee or such
authenticating agent definitive Notes (other than in the case of Notes in
global form) and thereupon any or all temporary Notes (other than any such
global Note) may be surrendered in exchange therefor, at each office or agency
maintained by the Company pursuant to Section 4.2 and the Trustee or such
authenticating agent shall authenticate and make available for delivery in
exchange for such temporary Notes an equal aggregate principal amount of
definitive Notes. Such exchange shall be made by the Company at its own
expense and without any charge therefor. Until so exchanged, the temporary
Notes shall in all respects be entitled to the same benefits and subject to the
same limitations under this Indenture as definitive Notes authenticated and
delivered hereunder.
Section 2.8 Cancellation of Notes Paid, Etc. All Notes
surrendered for the purpose of payment, redemption, repurchase, conversion,
exchange or registration of transfer shall, if surrendered to the Company or
any paying agent or any Note registrar or any conversion agent, be surrendered
to the Trustee and promptly canceled by it or, if surrendered to the Trustee,
shall be promptly canceled by it and no Notes shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. If
required by the Company, the Trustee shall return canceled Notes to the
Company. If the Company shall acquire any of the Notes, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness represented by
such Notes unless and until the same are delivered to the Trustee for
cancellation.
Section 2.9 CUSIP Numbers. The Company in issuing the Notes may
use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall
use CUSIP numbers in notices of redemption as a convenience to holders;
provided that any such notice may state that no representation is made as to
the correctness of such numbers either as printed on the Notes or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Notes, and any such redemption shall not
be affected by any defect in or omission of such numbers. The Company shall
promptly notify the Trustee of any change in the CUSIP numbers.
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<PAGE> 32
ARTICLE III
REDEMPTION AND REPURCHASE OF NOTES
Section 3.1 Redemption Prices. The Notes are not redeemable at
the option of the Company prior to February 3, 2000. At any time on or after
that date, the Notes may be redeemed at the Company's option, upon notice as
set forth in Section 3.2, in whole at any time or in part from time to time, at
the optional redemption prices set forth in the forms of Notes attached as
Exhibits A, B and C hereto, together with accrued interest to the date fixed
for redemption.
Section 3.2 Notice of Redemption; Selection of Notes. In case
the Company shall desire to exercise the right to redeem all or, as the case
may be, any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption and, in the case of any redemption pursuant to Section 3.1, it or,
at its request accompanied by the proposed form of notice of redemption (which
must be received by the Trustee at least ten days prior to the date the Trustee
is requested to give notice as described below, unless a shorter period is
agreed to by the Trustee), the Trustee in the name of and at the expense of the
Company, shall publish a notice in the Wall Street Journal and mail or cause to
be mailed a notice of such redemption at least 15 and not more than 60 days
prior to the date fixed for redemption to the holders of Notes so to be
redeemed as a whole or in part at their last addresses as the same appear on
the Note register, provided that if the Company shall give such notice, it
shall also give such notice, and notice of the Notes to be redeemed, to the
Trustee. Such mailing shall be by first class mail. The notice, if mailed in
the manner herein provided, shall be conclusively presumed to have been duly
given, whether or not the holder receives such notice. In any case, failure to
give such notice by mail or any defect in the notice to the holder of any Note
designated for redemption as a whole or in part shall not affect the validity
of the proceedings for the redemption of any other Note.
Each such notice of redemption shall identify the Notes to be redeemed
(including CUSIP numbers), specify the aggregate principal amount of Notes to
be redeemed, the date fixed for redemption, the redemption price at which Notes
are to be redeemed, the place or places of payment, that payment shall be made
upon presentation and surrender of such Notes, that interest accrued to the
date fixed for redemption shall be paid as specified in said notice and that on
and after said date, interest thereon or on the portion thereof to be redeemed
shall cease to accrue. Such notice shall also state the current Conversion
Price and the date on which the right to convert such Notes or portions thereof
into Common Stock shall expire. If fewer than all the Notes are to be
redeemed, the notice of redemption shall identify the Notes to be redeemed. In
case any Note is to be redeemed in part only, the notice of redemption shall
state the portion of the principal amount thereof to be redeemed and shall
state that on and after the date fixed for redemption, upon surrender of such
Note, a new Note or Notes in principal amount equal to the unredeemed portion
thereof shall be issued.
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On or prior to the Business Day prior to the redemption date specified
in the notice of redemption given as provided in this Section 3.2, the Company
shall deposit with the Trustee or with one or more paying agents (or, if the
Company is acting as its own paying agent, set aside, segregate and hold in
trust as provided in Section 4.4) an amount of money sufficient to redeem on
the redemption date all the Notes so called for redemption (other than those
theretofore surrendered for conversion into Common Stock) at the appropriate
redemption price, together with accrued interest to the date fixed for
redemption. If any Note called for redemption is converted pursuant hereto,
any money deposited with the Trustee or any paying agent or so segregated and
held in trust for the redemption of such Note shall be paid to the Company upon
its request or, if then held by the Company, shall be discharged from such
trust. If fewer than all the Notes are to be redeemed, the Company shall give
the Trustee written notice in the form of an Officers' Certificate not fewer
than 45 days (or such shorter period of time as may be acceptable to the
Trustee) prior to the redemption date as to the aggregate principal amount of
Notes to be redeemed.
If fewer than all the Notes are to be redeemed, the Trustee shall
select the Notes or portions thereof to be redeemed (in principal amounts of
$1,000 or integral multiples thereof) by lot or, in its discretion, on a pro
rata basis. If any Note selected for partial redemption is converted in part
after such selection, the converted portion of such Note shall be deemed (so
far as may be) to be the portion selected for redemption. The Notes (or
portions thereof) so selected shall be deemed duly selected for redemption for
all purposes hereof, notwithstanding that any such Note is converted as a whole
or in part before the mailing of the notice of redemption.
Upon any redemption of less than all Notes, the Company and the
Trustee may treat as outstanding any Notes surrendered for conversion during
the period of 15 days next preceding the mailing of a notice of redemption and
need not treat as outstanding any Note authenticated and delivered during such
period in exchange for the unconverted portion of any Note converted in part
during such period.
Section 3.3 Payment of Notes Called for Redemption. If notice of
redemption has been given as above provided, the Notes or portion of Notes with
respect to which such notice has been given shall, unless converted into Common
Stock pursuant to the terms hereof, become due and payable on the date and at
the place or places stated in such notice at the applicable redemption price,
together with interest thereon accrued to the date fixed for redemption, and on
and after said date (unless the Company shall default in the payment of such
Notes at the redemption price, together with interest thereon accrued to said
date), interest on the Notes or portion of Notes so called for redemption shall
cease to accrue, and such Notes shall cease after the close of business on the
Business Day next preceding the date fixed for redemption to be convertible
into Common Stock and, except as provided in Sections 7.6 and 12.4, to be
entitled to any benefit or security under this Indenture, and the holders
thereof shall have no right in respect of such Notes except the right to
receive the redemption price thereof and unpaid interest thereon to the date
fixed for redemption. On presentation and surrender of such Notes at a place
of payment in said notice specified, the said Notes or the specified portions
thereof shall be paid and
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<PAGE> 34
redeemed by the Company at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption; provided that any
semi-annual payment of interest becoming due on the date fixed for redemption
shall be payable to the holders of such Notes registered as such on the
relevant record date subject to the terms and provisions of Section 2.3 hereof.
Upon presentation of any Note redeemed in part only, the Company shall
execute and the Trustee shall authenticate and make available for delivery to
the holder thereof, at the expense of the Company, a new Note or Notes, of
authorized denominations, in principal amount equal to the unredeemed portion
of the Notes so presented.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and premium, if any, shall, until paid or
duly provided for, bear interest from the date fixed for redemption at the rate
borne by the Note and such Note shall remain convertible into Common Stock
until the principal and premium, if any, shall have been paid or duly provided
for.
Section 3.4 Conversion Arrangement on Call for Redemption. In
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes by an agreement with one or more
investment bankers or other purchasers to purchase such Notes by paying to the
Trustee in trust for the Noteholders, on or prior to the Business Day prior to
the date fixed for redemption, an amount not less than the applicable
redemption price, together with interest accrued to the date fixed for
redemption, of such Notes. Notwithstanding anything to the contrary contained
in this Article III, the obligation of the Company to pay the redemption price
of such Notes, together with interest accrued to the date fixed for redemption,
shall be deemed to be satisfied and discharged to the extent such amount is so
paid by such purchasers. If such an agreement is entered into, a copy of which
shall be filed with the Trustee prior to the date fixed for redemption, any
Notes not duly surrendered for conversion by the holders thereof may, at the
option of the Company, be deemed, to the fullest extent permitted by law,
acquired by such purchasers from such holders and (notwithstanding anything to
the contrary contained in Article XIV) surrendered by such purchasers for
conversion, all as of the time immediately prior to the close of business on
the date fixed for redemption (and the right to convert any such Notes shall be
deemed to have been extended through such time), subject to payment of the
above amount as aforesaid. At the direction of the Company, the Trustee shall
hold and dispose of any such amount paid to it in the same manner as it would
monies deposited with it by the Company for the redemption of Notes. Without
the Trustee's prior written consent, no arrangement between the Company and
such purchasers for the purchase and conversion of any Notes shall increase or
otherwise affect any of the powers, duties, responsibilities or obligations of
the Trustee as set forth in this Indenture, and the Company agrees to indemnify
the Trustee from, and hold it harmless against, any loss, liability or expense
arising out of or in connection with any such arrangement for the purchase and
conversion of any Notes between the Company and such purchasers including the
costs and expenses incurred by the Trustee in the defense of any claim or
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liability arising out of or in connection with the exercise or performance of
any of its powers, duties, responsibilities or obligations under this
Indenture.
Section 3.5 Repurchase of Notes Upon a Change of Control.
(a) If a Change of Control shall occur at any time, then
each holder of Notes shall have the right to require that the Company
repurchase such holder's Notes in whole or in part in integral
multiples of $1,000 at a purchase price (the "Change of Control
Purchase Price") in cash in an amount equal to 101% of the principal
amount of such Notes, plus accrued and unpaid interest thereon, if
any, to the purchase date (the "Change of Control Purchase Date")
pursuant to the offer described below (the "Change of Control Offer")
and in accordance with the other procedures set forth in this
Indenture.
(b) Within 30 days following any Change of Control, the
Company shall publish a notice in the Wall Street Journal and shall
give written notice of such Change of Control, by first-class mail,
postage prepaid, to the Trustee and to each holder of Notes, at the
Noteholder's address appearing in the Note register, stating (i) that
a Change of Control has occurred, (ii) the Change of Control Purchase
Price, (iii) the Change of Control Purchase Date (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act), (iv) that any Note
not tendered shall continue to accrue interest and to have all of the
benefits of this Indenture, (v) that, unless the Company defaults in
the payment of the Change of Control Purchase Price, any Notes
accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Purchase Date,
(vi) that Noteholders electing to have any Notes purchased pursuant to
a Change of Control Offer shall be required to surrender the Notes,
with the form entitled "Option of Noteholder to Elect Repayment Upon a
Change of Control" on the reverse of the Notes completed, to the
Company at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control
Purchase Date, (vii) that Noteholders shall be entitled to withdraw
their election if the Company receives, not later than the close of
business on the second Business Day preceding the Change of Control
Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Noteholder, the principal amount of
Notes delivered for purchase, and a statement that such Noteholder is
withdrawing his election to have such Notes purchased, and (viii) that
Noteholders whose Notes are being purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, which unpurchased portion must be equal to
$1,000 in principal amount or an integral multiple thereof. The
Company shall comply with the requirements of Rule 13e-4 and 14e-1
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Notes in connection with a
Change of Control.
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(c) On the Change of Control Purchase Date, the Company
shall, to the extent lawful, (i) accept for payment Notes or portions
thereof tendered pursuant to the Change of Control Offer, (ii) deposit
with the Trustee an amount equal to the Change of Control Purchase
Price in respect of all Notes or portions thereof so tendered and
(iii) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the Notes or
portions thereof tendered to the Company. The Trustee shall promptly
mail to each holder of Notes so accepted payment in an amount equal to
the Change of Control Purchase Price with respect to such Notes, and
the Trustee shall promptly authenticate and mail to each Noteholder a
new Note equal in principal amount to any unpurchased portion of the
Notes surrendered; provided that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof. The
Company shall publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment
Date.
(d) The term "Change of Control" shall mean an event or
series of events as a result of which (i) any "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act)
acquires "beneficial ownership" (as determined in accordance with Rule
13d-3 under the Exchange Act), directly or indirectly, of shares
representing more than 50% of the combined voting power of the then
outstanding securities entitled to vote generally in elections of
directors of the Company (the "Voting Stock"), (ii) the Company
consolidates with or merges into any other corporation, or conveys,
transfers or leases all or substantially all of its assets to any
person, or any other corporation merges into the Company, and, in the
case of any such transaction, the outstanding Common Stock of the
Company is changed or exchanged as a result, unless the shareholders
of the Company immediately before such transaction own, directly or
indirectly, at least fifty-one percent (51%) of the combined voting
power of the outstanding voting securities of the corporation
resulting from such transaction in substantially the same proportion
as their ownership of the Voting Stock immediately before such
transaction, or (iii) Continuing Directors do not constitute a
majority of the Board of Directors of the Company (or, if applicable,
a successor corporation to the Company); provided that a Change of
Control shall not be deemed to have occurred if either (x) the closing
price per share of the Common Stock for any five trading days within
the period of ten consecutive trading days ending immediately after
the announcement of such Change of Control shall equal or exceed 105%
of the Conversion Price of the Notes in effect on such trading day, or
(y) at least 90% of the consideration (determined on the date on which
the Change of Control is triggered and excluding cash payments for
fractional shares) in the transaction or transactions constituting the
Change of Control consists of shares of common stock traded on a
national securities exchange or quoted on the Nasdaq National Market
(or which will be so traded or quoted immediately following the Change
of Control) and, as a result of such transaction or transactions, the
Notes become convertible solely into such common stock (and any rights
attached thereto). "Continuing Directors" shall mean, as of any date
of determination, any member of the Board of Directors of the Company
who (i) was a member of such Board of Directors on the date of the
Indenture or (ii) was nominated for
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election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of such Board at
the time of such nomination or election.
ARTICLE IV
PARTICULAR COVENANTS OF THE COMPANY
Section 4.1 Payment of Principal, Premium and Interest. The
Company covenants and agrees that it shall duly and punctually pay or cause to
be paid the principal of and premium, if any, and interest on each of the Notes
at the places, at the respective times and in the manner provided herein and in
the Notes. Each installment of interest on the Notes due on any semi-annual
interest payment date may, at the option of the Company, be paid by mailing
checks for the interest payable to or upon the written order of the holders of
Notes entitled thereto as they shall appear on the Note register; provided
that, with respect to any holder of Notes with an aggregate principal amount
equal to or in excess of $5,000,000, at the request (such request to include
appropriate wire instructions) of such holder in writing to the Trustee on or
before the record date preceding any interest payment date, interest on such
holder's Notes shall be paid by wire transfer in immediately available funds.
An installment of principal or interest shall be considered paid on the date
due if the Trustee or paying agent (other than the Company, a subsidiary of the
Company or any Affiliate of any of them) holds on that date money designated
for and sufficient to pay the installment of principal or interest and is not
prohibited from paying such money to the holders of the Notes pursuant to the
terms of this Indenture.
Section 4.2 Maintenance of Office or Agency. The Company shall
maintain in the Borough of Manhattan, The City of New York, an office or agency
where the Notes may be surrendered for registration of transfer or exchange or
for presentation for payment or for conversion or redemption and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York, for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change
in the location of any such other office or agency.
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The Company hereby initially designates the Trustee as paying agent,
Note registrar and conversion agent and the corporate trust office of State
Street Bank and Trust Company, N.A., an affiliate of the Trustee located at 61
Broadway, Concourse Level, Corporate Trust Window, New York, New York 10006,
as one such office or agency of the Company for the purposes set forth in the
first paragraph of this Section 4.2.
Section 4.3 Appointments to Fill Vacancies in Trustee's Office.
The Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, shall appoint, in the manner provided in Section 7.11, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 4.4 Provisions as to Paying Agent.
(a) If the Company shall appoint a paying agent other
than the Trustee, or if the Trustee shall appoint such a paying agent,
the Company or the Trustee, as the case may be, shall cause such
paying agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the
provisions of this Section 4.4:
(1) that it shall hold all sums held by it as
such agent for the payment of the principal of, premium, if any, or
interest on the Notes (whether such sums have been paid to it by the
Company or by any other obligor on the Notes) in trust for the benefit
of the holders of the Notes;
(2) that it shall give the Trustee notice of any
failure by the Company (or by any other obligor on the Notes) to make
any payment of the principal of, premium, if any, or interest on the
Notes when the same shall be due and payable; and
(3) that at any time during the continuance of an
Event of Default, upon request of the Trustee, it shall forthwith pay
to the Trustee all sums so held in trust.
The Company shall, before each due date of the principal of, premium,
if any, or interest on the Notes, deposit with the paying agent a sum
sufficient to pay such principal, premium, if any, or interest, and (unless
such paying agent is the Trustee) the Company shall promptly notify the Trustee
of any failure to take such action.
(b) If the Company shall act as its own paying agent, it
shall, on or before each due date of the principal of, premium, if
any, or interest on the Notes, set aside, segregate and hold in trust
for the benefit of the holders of the Notes a sum sufficient to pay
such principal, premium, if any, or interest so becoming due and shall
notify the Trustee of any failure to take such action and of any
failure by the Company (or any other obligor under the Notes) to make
any payment of the principal of, premium, if any, or interest on the
Notes when the same shall become due and payable.
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(c) Anything in this Section 4.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of
obtaining a satisfaction and discharge of this Indenture, or for any
other reason, pay or cause to be paid to the Trustee all sums held in
trust by the Company or any paying agent hereunder as required by this
Section 4.4, such sums to be held by the Trustee upon the trusts
herein contained and upon such payment by the Company or any paying
agent to the Trustee, the Company or such paying agent shall be
released from all further liability with respect to such sums.
(d) Anything in this Section 4.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in
this Section 4.4 is subject to Sections 12.3 and 12.4.
Section 4.5 Corporate Existence. Subject to Article XI, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence.
Section 4.6 Rule 144A Information Requirement. During the
three-year period following the original issuance date of any Note and during
the three-year period (or such shorter period as may be applicable) following
the last date on which the Company or an Affiliate of the Company was the owner
of any Note (or shares of Common Stock issued upon conversion of any Note), if
the Company is subject neither to Section 13 nor Section 15(d) of the Exchange
Act, the Company shall at the written request of any holder or beneficial
holder of such Note (or shares of Common Stock issued upon conversion of Notes)
provide to such holder or beneficial holder of such Note (or shares of Common
Stock issued upon conversion of Notes) and any prospective transferee
designated by such holder or beneficial holder of such Note (or shares of
Common Stock issued upon conversion of Notes) such information, if any,
required by Rule 144A(d)(4) under the Securities Act (so long as such
information is required to permit such transfer under Rule 144A).
Section 4.7 Stay, Extension and Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law or other law that would
prohibit or forgive the Company from paying all or any portion of the principal
of or interest on the Notes as contemplated herein, wherever enacted, now or at
any time hereafter in force, or that may affect the covenants or the
performance of this Indenture; and the Company (to the extent it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been
enacted.
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Section 4.8 Compliance Statement; Notice of Defaults.
(a) The Company shall deliver to the Trustee within 120
days after the end of each fiscal year of the Company an Officer's
Certificate stating whether or not to the best knowledge of the
signers thereof the Company is in compliance (without regard to
periods of grace or notice requirements) with all conditions and
covenants under this Indenture, and if the Company shall not be in
compliance, specifying such non-compliance and the nature and status
thereof of which such signer may have knowledge.
(b) The Company shall file with the Trustee written
notice of the occurrence of any default or Event of Default within ten
days of its becoming aware of any such default or Event of Default.
Section 4.9 Taxes. The Company shall pay or discharge or cause
to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges (including withholding taxes and
any penalties, interest and additions to taxes) levied or imposed upon the
Company or its subsidiaries or upon the income, profits or property of the
Company or any such subsidiary and (ii) all lawful claims for labor, materials
and supplies that, if unpaid, might by law become a lien upon the property of
the Company or any such subsidiary; provided that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which disputed
amounts adequate reserves have been made.
ARTICLE V
NOTEHOLDERS' LISTS AND REPORTS BY
THE COMPANY
Section 5.1 Noteholders' Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to
it of the names and addresses of holders of Notes and shall otherwise comply
with Trust Indenture Act Section 312(a). If the Trustee is not the Notes
registrar, the Company shall furnish to the Trustee on or before at least seven
Business Days preceding each interest payment date and at such other times as
the Trustee may request in writing a list in such form and as of such date as
the Trustee reasonably may require of the names and addresses of holders of
Notes, and the Company shall otherwise comply with Trust Indenture Act Section
312(a).
Section 5.2 Reports by Company. The Company shall deliver to the
Trustee within 15 days after it files the same with the Commission, copies of
all reports and information (or copies of such portions of any of the foregoing
as the Commission may by its rules and regulations prescribe), if any, which
the Company is required to file with the Commission pursuant to
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Section 13 or 15(d) of the Exchange Act or pursuant to the immediately
following sentence. So long as at least $5,000,000 aggregate principal amount
of Notes remain outstanding, the Company shall file with the Commission such
reports as may be required pursuant to Section 13 of the Exchange Act in
respect of a security registered pursuant to Section 12 of the Exchange Act,
regardless of whether the Company is otherwise required to file such reports.
If the Company is not subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act (or otherwise required to file reports pursuant to
the immediately preceding sentence), the Company shall deliver to the Trustee,
within 15 days after it would have been required to file such information with
the Commission were it required to do so, annual and quarterly financial
statements, including any notes thereto (and, in the case of a fiscal year end,
an auditors' report by an independent certified public accounting firm of
established national reputation), and a "Management's Discussion and Analysis
of Financial Condition and Results of Operations," in each case substantially
equivalent to that which it would have been required to include in such
quarterly or annual reports, information, documents or other reports if it had
been subject to the requirements of Section 13 or 15(d) of the Exchange Act.
The Company shall provide copies of the foregoing materials to the Noteholders
to the extent required by the Trust Indenture Act once this Indenture has been
qualified. The Company shall also comply with the other provisions of the
Trust Indenture Act Section 314(a).
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.1 Events of Default. In case one or more of the
following Events of Default (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body) shall have occurred and
be continuing:
(a) default in the payment of the principal of or
premium, if any, on the Notes when due at maturity, upon redemption or
otherwise, including failure by the Company to purchase the Notes when
required under Section 3.5 (whether or not such payment shall be
prohibited by Article XV of this Indenture); or
(b) default in the payment of any installment of interest
on the Notes as and when the same shall become due and payable
(whether or not such payment shall be
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prohibited by Article XV of this Indenture), and continuance of such
default for a period of 30 days; or
(c) a failure on the part of the Company duly to observe
or perform any other covenants or agreements on the part of the
Company in this Indenture (other than a default in the performance or
breach of a covenant or agreement that is specifically dealt with
elsewhere in this Section 6.1) that continues for a period of 90 days
after the date on which written notice of such failure, requiring the
Company to remedy the same, shall have been given to the Company by
the Trustee, or to the Company and a Responsible Officer of the
Trustee, by the holders of at least 25% in aggregate principal amount
of the Notes at the time outstanding determined in accordance with
Section 8.4; or
(d) the Company shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect, or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it or shall make a general assignment for
the benefit of creditors or shall fail generally to pay its debts as
they become due; or
(e) an involuntary case or other proceeding shall be
commenced against the Company seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 consecutive days;
then, and in each and every such case (other than an Event of Default specified
in Section 6.1(d) or (e)), unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding hereunder
determined in accordance with Section 8.4, by notice in writing to the Company
(and to the Trustee if given by Noteholders), may declare the principal of,
premium, if any, on the Notes and the interest accrued thereon to be due and
payable immediately, and upon any such declaration the same shall become and
shall be immediately due and payable, anything in this Indenture or in the
Notes contained to the contrary notwithstanding. If an Event of Default
specified in Section 6.1(d) or (e) occurs and is continuing, the principal of
all the Notes and the interest accrued thereon shall be immediately due and
payable. The foregoing provision is subject to the conditions that if, at any
time after the principal of the Notes shall have been so declared due and
payable, and before any judgment or decree for the payment of the monies due
shall have been obtained or entered as hereinafter provided, the Company shall
pay or shall deposit with the Trustee a sum sufficient to pay all matured
installments of interest upon all Notes and the principal of and premium, if
any, on any and all Notes that shall have become due otherwise than by
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acceleration (with interest on overdue installments of interest (to the extent
that payment of such interest is enforceable under applicable law) and on such
principal and premium, if any, at the rate borne by the Notes, to the date of
such payment or deposit) and amounts due to the Trustee pursuant to Section
7.7, and if any and all defaults under this Indenture, other than the
nonpayment of principal of, premium, if any, and accrued interest on Notes that
shall have become due by acceleration, shall have been cured or waived pursuant
to Section 6.7, then and in every such case the holders of a majority in
aggregate principal amount of the Notes then outstanding, by written notice to
the Company and to the Trustee, may waive all defaults or Events of Default and
rescind and annul such declaration and its consequences; but no such waiver or
rescission and annulment shall extend to or shall affect any subsequent default
or Event of Default, or shall impair any right consequent thereto. The Company
shall notify a Responsible Officer of the Trustee, promptly upon becoming aware
thereof, of any Event of Default.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such waiver or rescission and annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such
case the Company, the holders of Notes and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Notes and the Trustee shall
continue as though no such proceeding had been taken.
Section 6.2 Payments of Notes on Default; Suit Therefor. The
Company covenants that (a) in case default shall be made in the payment of any
installment of interest upon any of the Notes as and when the same shall become
due and payable, and such default shall have continued for a period of 30 days,
or (b) in case default shall be made in the payment of the principal of or
premium, if any, on any of the Notes as and when the same shall have become due
and payable, whether at maturity of the Notes or in connection with any
redemption, by declaration or otherwise, then, upon demand of the Trustee, the
Company shall pay to the Trustee, for the benefit of the holders of the Notes,
the whole amount that then shall have become due and payable on all such Notes
for principal premium, if any, or interest, or both, as the case may be, with
interest upon the overdue principal, premium, if any, and (to the extent that
payment of such interest is enforceable under applicable law) upon the overdue
installments of interest at the rate borne by the Notes; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including reasonable compensation to the Trustee, its
agents, attorneys and counsel, and any expenses or liabilities incurred by the
Trustee hereunder other than through its negligence or bad faith. Until such
demand by the Trustee, the Company may pay the principal of and premium, if
any, and interest on the Notes to the registered holders, whether or not the
Notes are overdue.
In case the Company shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name and as trustee of an express trust, shall
be entitled and empowered to institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid and may prosecute any
such action or proceeding to judgment or final decree, and may
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enforce any such judgment or final decree against the Company or any other
obligor on the Notes and collect in the manner provided by law out of the
property of the Company or any other obligor on the Notes wherever situated the
monies adjudged or decreed to be payable.
In the case there shall be pending proceedings for the bankruptcy or
for the reorganization of the Company or any other obligor on the Notes under
Title 11 of the United States Code or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative
to the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand pursuant to the provisions of this Section
6.2, shall be entitled and empowered, by intervention in such proceedings or
otherwise, to file and prove a claim or claims for the whole amount of
principal, premium, if any, and interest owing and unpaid in respect of the
Notes and, in case of any judicial proceedings, to file such proofs of claim
and other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee and of the Noteholders allowed in such judicial
proceedings relative to the Company or any other obligor on the Notes, its or
their creditors, or its or their property and to collect and receive any monies
or other property payable or deliverable on any such claims and to distribute
the same after the deduction of any amounts due the Trustee under Section 7.7;
and any receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, custodian or similar official is hereby authorized by each of the
Noteholders to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due it for reasonable
compensation, expenses, advances and disbursements, including counsel fees
incurred by it up to the date of such distribution. To the extent that such
payment of reasonable compensation, expenses, advances and disbursements out of
the estate in any such proceedings shall be denied for any reason, payment of
the same shall be secured by a lien on, and shall be paid out of, any and all
distributions, dividends, monies, securities and other property that the
holders of the Notes may be entitled to receive in such proceedings, whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or adopt on behalf of any Noteholder any plan of
reorganization or arrangement affecting the Notes or the rights of any
Noteholder, or to authorize the Trustee to vote in respect of the claim of any
Noteholder in any such proceeding.
All rights of action and of asserting claims under this Indenture, or
under any of the Notes, may be enforced by the Trustee without the possession
of any of the Notes or the production thereof on any trial or other proceeding
relative thereto, and any such suit or proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses,
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disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the holders of the Notes.
In any proceedings brought by the Trustee (and in any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
holders of the Notes, and it shall not be necessary to make any holders of the
Notes parties to any such proceedings.
Section 6.3 Application of Monies Collected by Trustee. Any
monies collected by the Trustee pursuant to this Article VI shall be applied in
the order following, at the date or dates fixed by the Trustee for the
distribution of such monies, upon presentation of the several Notes and
stamping thereon the payment, if only partially paid, and upon surrender
thereof, if fully paid:
First: To the payment of all amounts due the Trustee under
Section 7.7;
Second: Subject to the provisions of Article XV, in case the
principal of the outstanding Notes shall not have become due and be
unpaid, to the payment of interest on the Notes in default in the
order of the maturity of the installments of such interest, with
interest (to the extent that such interest has been collected by the
Trustee) upon the overdue installments of interest at the rate borne
by the Notes, such payments to be made ratably to the persons entitled
thereto; and
Third: Subject to the provisions of Article XV, in case the
principal of the outstanding Notes shall have become due, by
declaration or otherwise, and be unpaid, to the payment of the whole
amount then holding and unpaid upon the Notes for principal, premium,
if any, and interest, with interest on the overdue principal and
premium, if any, and (to the extent that such interest has been
collected by the Trustee) upon overdue installments of interest at the
rate borne by the Notes; and in case such monies shall be insufficient
to pay in full the whole amounts so due and unpaid upon the Notes,
then to the payment of such principal, premium, if any, and interest
without preference or priority of principal and premium, if any, over
interest, or of interest over principal and premium, if any, or of any
installment of interest over any other installment of interest, or of
any Note over any other Note, ratably to the aggregate of such
principal and premium, if any, and accrued and unpaid interest.
Section 6.4 Proceedings by Noteholder. No holder of any Note
shall have any right by virtue of or by availing of any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture, or for the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or for any
other remedy hereunder, unless such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof,
as hereinbefore provided, and unless also the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding shall have made
written request upon the Trustee to institute such action, suit or proceeding
in its own
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name as Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee for 60 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding, and no direction inconsistent
with such written request shall have been given to the Trustee pursuant to
Section 6.7; it being understood and intended, and being expressly covenanted
by the taker and holder of every Note with every other taker and holder and the
Trustee, that no one or more holders of Notes shall have any right in any
manner whatever by virtue of or by availing of any provision of this Indenture
to affect, disturb or prejudice the rights of any other holder of Notes, to
obtain or seek to obtain priority over or preference to any other such holder
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal, ratable and common benefit of all holders of Notes
(except as otherwise provided herein). For the protection and enforcement of
this Section 6.4, each and every Noteholder and the Trustee shall be entitled
to such relief as can be given either at law or in equity.
Notwithstanding any other provision of this Indenture and any
provision of any Note, the right of any holder of any Note to receive payment
of the principal of, premium, if any, and interest on such Note, on or after
the respective due dates expressed in such Note, or to institute suit for the
enforcement of any such payment on or after such respective dates against the
Company shall not be impaired or affected without the consent of such holder
except as otherwise set forth herein.
Anything in this Indenture or the Notes to the contrary
notwithstanding, the holder of any Note, without the consent of either the
Trustee or the holder of any other Note, in his own behalf and for his own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, his rights of conversion as provided herein.
Section 6.5 Proceedings by Trustee. In case of an Event of
Default, the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.
Section 6.6 Remedies Cumulative and Continuing. Except as
provided in Section 2.6, all powers and remedies given by this Article VI to
the Trustee or to the Noteholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of such powers and remedies or of any other
powers and remedies available to the Trustee or the holders of the Notes, by
judicial proceedings or otherwise, to enforce the performance or observance of
the covenants and agreements contained in this Indenture, and no delay or
omission of the Trustee or of any holder of any of the Notes to exercise any
right or power accruing upon any default or Event of Default occurring and
continuing as aforesaid shall impair any such right or power or shall be
construed to
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be a waiver of any such default or any acquiescence therein; and, subject to
the provisions of Section 6.4, every power and remedy given by this Article VI
or by law to the Trustee or to the Noteholders may be exercised from time to
time, and as often as shall be deemed expedient, by the Trustee or by the
Noteholders.
Section 6.7 Direction of Proceedings and Waiver of Defaults by
Majority of Noteholders. The holders of a majority in aggregate principal
amount of the Notes at the time outstanding (determined in accordance with
Section 8.4) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee; provided that (a) such direction
shall not be in conflict with any rule of law or with this Indenture and (b)
the Trustee may take any other action deemed proper by the Trustee that is not
inconsistent with such direction. The holders of a majority in aggregate
principal amount of the Notes at the time outstanding (determined in accordance
with Section 8.4) may on behalf of the holders of all of the Notes waive any
past default or Event of Default hereunder and its consequences except (i) a
default in the payment of interest or premium, if any, on, or the principal of,
the Notes, (ii) a failure by the Company to convert any Notes into Common Stock
or (iii) a default in respect of a covenant or provisions hereof that under
Article X cannot be modified or amended without the consent of the holders of
all Notes then outstanding. Whenever any default or Event of Default hereunder
shall have been waived as permitted by this Section 6.7, said default or Event
of Default shall for all purposes of the Notes and this Indenture be deemed to
have been cured and to be not continuing and the Company, the Trustee and the
holders of the Notes shall be restored to their former positions and rights
hereunder; but no such waiver shall extend to any subsequent or other default
or Event of Default or impair any right consequent thereon.
Section 6.8 Notice of Defaults. The Trustee shall, within 90
days after the occurrence of a default, mail to all Noteholders, as the names
and addresses of such holders appear upon the Note register, notice of all
defaults known to a Responsible Officer, unless such defaults shall have been
cured or waived before the giving of such notice; provided that, except in the
case of default in the payment of the principal of, premium, if any, or
interest on any of the Notes, the Trustee shall be protected in withholding
such notice if and so long as a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interests of the Noteholders.
Section 6.9 Undertaking to Pay Costs. All parties to this
Indenture agree, and each holder of any Note by his acceptance thereof shall be
deemed to have agreed, that any court may, in its discretion, require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant
in such suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; provided that the provisions of this
Section 6.9 shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Noteholder or
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group of Noteholders holding in the aggregate more than 10% in principal amount
of the Notes at the time outstanding determined in accordance with Section 8.4
or to any suit instituted by any Noteholder for the enforcement of the payment
of the principal of, premium, if any, or interest on any Note on or after the
due date expressed in such Note or to any suit for the enforcement of the right
to convert any Note in accordance with the provisions of Article XIV.
ARTICLE VII
CONCERNING THE TRUSTEE
Section 7.1 Duties and Responsibilities of Trustee.
(a) If an Event of Default has occurred and is
continuing, the Trustee shall exercise the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties
that are specifically set forth in this Indenture and no
others; and
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture;
provided that in the case of any such certificates or opinions
that by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to
the requirements of this Indenture (but need not confirm or
investigate the accuracy of mathematical calculations or other
facts stated therein).
(c) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its own
willful misconduct, except that:
(1) this paragraph (c) does not limit the effect
of paragraph (b) of this Section 7.1;
(2) the Trustee shall not be liable for any error
of judgment made in good faith by an officer of the Trustee
unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
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(3) the Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section
6.7.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b), (c) and (e)
of this Section 7.1.
(e) The Trustee may refuse to perform any duty or
exercise any right or power or extend or risk its own funds or
otherwise incur any financial liability unless it receives indemnity
satisfactory to it against any loss, liability or expense.
Section 7.2 Reports by Trustee to Holders. Within 60 days after
each May 15 commencing with the May 15 following the date of this Indenture,
the Trustee shall, if required by the Trust Indenture Act, mail to each
Noteholder a brief report dated as of such May 15 that complies with Trust
Indenture Act Section 313(a). The Trustee also shall comply with Trust
Indenture Act Sections 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the Notes
become listed or delisted on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Noteholders shall
be mailed to the Company and, to the extent required by Section 5.2 hereof and
of the Trust Indenture Act Section 313(d), filed with the Commission and each
stock exchange, if any, on which the Notes are listed.
Section 7.3 Reliance on Documents, Opinions, Etc. Except as
otherwise provided in Section 7.1:
(a) The Trustee may rely and shall be protected in acting
upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, bond, debenture, coupon or
other paper or document believed by it in good faith to be genuine and
to have been signed or presented by the proper party or parties;
(b) Any request, direction, order or demand of the
Company mentioned herein shall be sufficiently evidenced by an
Officers' Certificate (unless other evidence in respect thereof be
herein specifically prescribed or required by the Trust Indenture
Act); and any resolution of the Board of Directors may be evidenced to
the Trustee by a copy thereof certified by the Secretary or an
Assistant Secretary of the Company;
(c) The Trustee may consult with counsel of its selection
and any advice or opinion of counsel shall be full and complete
authorization and protection in respect of any action taken or omitted
by it hereunder in good faith and in accordance with such advice or
opinion of counsel;
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(d) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys, and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed by it with due care hereunder; no Depositary, Custodian or
paying agent who is not the Trustee shall be deemed an agent of the
Trustee, and the Trustee (in its capacity as Trustee) shall not be
responsible for any act or omission by any such Depositary, Custodian
or paying agent;
(e) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by the Indenture at the
request or direction of any of the holders pursuant to this Indenture
unless such holders have offered the Trustee reasonable security or
indemnity against the costs, expenses and liabilities that would be
incurred by it in compliance with such request or direction.
(f) Subject to the provisions of Section 7.1(c), the
Trustee shall not be liable for any action it takes or omits to take
in good faith that it believes to be authorized or within its rights
or powers;
(g) In connection with any request to transfer or
exchange any Note, the Trustee may request a direction (in the form of
an Officers' Certificate) from the Company and an Opinion of Counsel
with respect to compliance with any restrictions on transfer or
exchange imposed by this Indenture, the Securities Act, other
applicable law or the rules and regulations of any exchange on which
the Notes or the Capital Stock may be traded, and the Trustee may rely
and shall be protected in acting upon such direction and in accordance
with such Officers' Certificate and Opinion of Counsel;
(h) The Trustee may rely and shall be fully protected in
acting upon the determination and notice by the Company of the
Conversion Price; and
(i) The Trustee shall not be deemed to have knowledge of
any Event of Default or other fact or event upon the occurrence of
which it may be required to take action hereunder unless one of its
Responsible Officers has actual knowledge thereof.
Section 7.4 No Responsibility for Recitals, Etc. The recitals
contained herein and in the Notes (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the
Trustee assumes no responsibility for the correctness of the same. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes. The Trustee shall not be accountable for the use or application
by the Company of any Notes or the proceeds of any Notes authenticated and
delivered by the Trustee in conformity with the provisions of this Indenture.
Section 7.5 Trustee, Paying Agents, Conversion Agents or
Registrar May Own Notes. The Trustee, any paying agent, any conversion agent
or any Note registrar, in its individual or any
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other capacity, may become the owner or pledgee of Notes with the same rights
it would have if it were not Trustee, paying agent, conversion agent or Note
registrar.
Section 7.6 Monies to Be Held in Trust. Subject to the
provisions of Section 12.3, all monies received by the Trustee shall, until
used or applied as herein provided, be held in trust for the purposes for which
they were received. Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as may be agreed to in writing from time to time by the Company and the
Trustee.
Section 7.7 Compensation and Expenses of Trustee. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, such compensation as the Company and the Trustee shall
from time to time agree in writing, for all services rendered by it hereunder
in any capacity (which shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust), and the Company shall
pay or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Indenture (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense, disbursement or advance as
may arise from its negligence or bad faith. The Company also covenants to
indemnify each of the Trustee or any predecessor Trustee in any capacity under
this Indenture and its agents and any authenticating agent for, and to hold
them harmless against, any and all loss, liability, damage, claim or expense,
including taxes (other than taxes based on the income of the Trustee) incurred
without negligence or bad faith on the part of the Trustee or such agent or
authenticating agent, as the case may be, and arising out of or in connection
with the acceptance or administration of this trust or in any other capacity
hereunder, including the costs and expenses of defending themselves against any
claim of liability in the premises. The obligations of the Company under this
Section 7.7 to compensate or indemnify the Trustee and to pay or reimburse the
Trustee for expenses, disbursements and advances shall be secured by a lien
prior to that of the Notes upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the holders of
particular Notes. The obligation of the Company under this Section shall
survive the satisfaction and discharge of this Indenture.
Section 7.8 Officers' Certificate as Evidence. Except as
otherwise provided in Section 7.1, whenever in the administration of the
provisions of this Indenture the Trustee shall deem it necessary or desirable
that a matter be proved or established prior to taking or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officers' Certificate delivered to the Trustee, and such Officers' Certificate,
in the absence of negligence or bad faith on the part of the Trustee, shall be
full warrant to the Trustee for any action taken or omitted by it under the
provisions of this Indenture upon the faith thereof.
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Section 7.9 Conflicting Interests of Trustee. In the event that
the Trust Indenture Act is applicable hereto, and if the Trustee has or shall
acquire a conflicting interest within the meaning of Trust Indenture Act
Section 310(b), and there exists an Event of Default hereunder (exclusive of
any period of grace or requirement of notice), the Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided by,
and subject to the provisions of, the Trust Indenture Act and this Indenture.
Section 7.10 Eligibility of Trustee. There shall at all times be
a Trustee hereunder that shall be a person that satisfied the requirements of
Trust Indenture Act Section 310(a)(1) and Section 310(a)(5) and that has a
combined capital and surplus of at least $50,000,000. If such person publishes
reports of condition at least annually, pursuant to law or to the requirements
of any supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article VII.
Section 7.11 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign by giving written
notice of such resignation to the Company; and the Company shall mail,
or cause to be mailed, notice thereof to the holders of Notes at their
addresses as they shall appear on the Note register. Upon receiving
such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument, in duplicate, executed by
order of the Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor
trustee.
(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with Section
7.9 after written request therefor by the Company or by any
Noteholder who has been a bona fide holder of a Note or Notes
for at least six months; or
(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 7.10 and shall fail
to resign after written request therefor by the Company or by
any such Noteholder; or
(3) the Trustee shall become incapable of acting,
or shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
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then, in any such case, the Company may remove the Trustee and
appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors, one
copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee or any
Noteholder who has been a bona fide holder of a Note or Notes
for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may thereupon,
after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal
amount of the Notes at the time outstanding may at any time remove the
Trustee and nominate a successor trustee, which shall be deemed
appointed as successor trustee unless within ten days after notice to
the Company of such nomination the Company objects thereto, in which
case the Trustee so removed or any Noteholder, upon the terms and
conditions and otherwise as provided in the next paragraph, may
petition any court of competent jurisdiction for an appointment of a
successor trustee.
(d) If no successor trustee shall have been appointed and
have accepted appointment within 60 days after removal pursuant to
subparagraph (c) above or the mailing of such notice of resignation to
the Noteholders pursuant to subparagraph (a) above, the Trustee
resigning or being removed may petition any court of competent
jurisdiction for the appointment of a successor trustee, or, in the
case of either resignation or removal, any Noteholder who has been a
bona fide holder of a Note or Notes for at least six months may, on
behalf of himself and all others similarly situated, petition any such
court for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee. Any resignation or removal of
the Trustee and appointment of a successor trustee pursuant to any of
the provisions of this Section 7.11 shall become effective upon
acceptance of appointment by the successor trustee as provided in
Section 7.12.
Section 7.12 Acceptance by Successor Trustee. Any successor
trustee appointed as provided in Section 7.11 shall execute, acknowledge and
deliver to the Company and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon, the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect
as if originally named as trustee herein; but on the written request of the
Company or of the successor trustee, the Trustee ceasing to act shall, upon
payment of any amounts then due it pursuant to the provisions of Section 7.7,
execute and deliver an instrument transferring to such successor trustee all
the rights and powers of the Trustee so ceasing to act. Upon request of any
such successor trustee, the Company shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such
successor trustee all such rights and powers. Any Trustee ceasing to act
shall, nevertheless, retain a lien upon all property and funds held or
collected by such trustee
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as such, except for funds held in trust for the benefit of holders of
particular Notes, to secure any amounts then due it pursuant to the provisions
of Section 7.7.
No successor trustee shall accept appointment as provided in this
Section 7.12 unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 7.9 and eligible under the
provisions of Section 7.10.
Upon acceptance of appointment by a successor trustee as provided in
this Section 7.12, the Company shall mail or cause to be mailed notice of the
succession of such Trustee hereunder to the holders of Notes at their addresses
as they shall appear on the Note register. If the Company fails to mail such
notice within ten days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of the Company.
Section 7.13 Successor, by Merger, Etc. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor to the Trustee hereunder, provided such
corporation shall be qualified under the provisions of Section 7.9 and eligible
under the provisions of Section 7.10 without the execution or filing of any
paper or any further act on the part of any of the parties hereto.
Section 7.14 Limitation on Rights of Trustee as Creditor. If and
when the Trustee shall be or become a creditor of the Company (or any other
obligor upon the Notes) and the Trust Indenture Act is applicable hereto, the
Trustee shall be subject to the provisions of Trust Indenture Act Section
311(a) or, if applicable, Trust Indenture Act Section 311(b) regarding the
collection of the claims against the Company (or any such other obligor).
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ARTICLE VIII
CONCERNING THE NOTEHOLDERS
Section 8.1 Action by Noteholders. Whenever in this Indenture it
is provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by
Noteholders in person or by agent or proxy appointed in writing, (b) by the
record of the holders of Notes voting in favor thereof at any meeting of
Noteholders duly called and held in accordance with the provisions of Article
IX or (c) by a combination of such instrument or instruments and any such
record of such a meeting of Noteholders. Whenever the Company or the Trustee
solicits the taking of any action by the holders of the Notes, the Company or
the Trustee may fix in advance of such solicitation, a date as the record date
for determining holders entitled to take such action. The record date shall be
not more than 15 days prior to the date of commencement of solicitation of such
action.
Section 8.2 Proof of Execution by Noteholders. Subject to the
provisions of Sections 7.1, 7.2 and 9.5, proof of the execution of any
instrument by a Noteholder or by agent or proxy shall be sufficient if made in
accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee. The
holding of Notes shall be proved by the Note register or by a certificate of
the Note registrar.
The record of any Noteholders' meeting shall be proved in the manner
provided in Section 9.5.
Section 8.3 Who Are Deemed Absolute Owners. The Company, the
Trustee, any paying agent, any conversion agent and any Note registrar may deem
the person in whose name such Note shall be registered upon the books of the
Company to be, and may treat such person as, the absolute owner of such Note
(whether or not such Note shall be overdue and notwithstanding any notation of
ownership or other writing thereon) for the purpose of receiving payment of or
on account of the principal of, premium, if any, and interest on such Note, for
conversion of such Note and for all other purposes; and neither the Company nor
the Trustee nor any paying agent nor any conversion agent nor any Note
registrar shall be affected by any notice to the contrary. All such payments
so made to any holder for the time being, or upon order of such holder, shall
be valid and, to the extent of the sum or sums so paid, effectual to satisfy
and discharge the liability for monies payable upon any such Note.
The Depositary shall be deemed to be the owner of any global Note for
all purposes, including receipt of notices to Noteholders and payment of
principal of, premium, if any, and interest on the Notes. None of the Company,
the Trustee (in its capacity as Trustee), any paying agent or the Note
registrar (or co-registrar) shall have any responsibility for any aspect of the
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records relating to or payments made on account of beneficial interests of a
global Note or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests; provided that the foregoing shall not
apply to the Trustee or any other person acting in its capacity as Custodian.
Section 8.4 Company-Owned Notes Disregarded. In determining
whether the holders of the requisite aggregate principal amount of Notes have
concurred in any direction, consent, waiver or other action under this
Indenture, Notes that are owned by the Company or any other obligor on the
Notes or by any person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company or any other obligor
on the Notes shall be disregarded and deemed not to be outstanding for the
purpose of any such determination; provided that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, consent, waiver or other action, only Notes that a Responsible
Officer actually knows are so owned shall be so disregarded. Notes so owned
that have been pledged in good faith may be regarded as outstanding for the
purposes of this Section 8.4 if the pledgee shall establish to the satisfaction
of the Trustee the pledgor's right to vote such Notes and that the pledgee is
not the Company, any other obligor on the Notes or a person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any such other obligor. In the case of a dispute
as to such right, any decision by the Trustee taken upon the advice of counsel
shall be full protection to the Trustee. Upon request of the Trustee, the
Company shall furnish to the Trustee promptly an Officers' Certificate listing
and identifying all Notes, if any, known by the Company to be owned or held by
or for the account of any of the above described persons; and subject to
Section 7.1, the Trustee shall be entitled to accept such Officers' Certificate
as conclusive evidence of the facts therein set forth and of the fact that all
Notes not listed therein are outstanding for the purpose of any such
determination.
Section 8.5 Revocation of Consents, Future Holders Bound. At any
time prior to (but not after) the evidencing to the Trustee, as provided in
Section 8.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Notes specified in this Indenture in
connection with such action, any holder of a Note that is shown by the evidence
to be included in the Notes the holders of which have consented to such action
may, by filing written notice with the Trustee at its Corporate Trust Office
and upon proof of holding as provided in Section 8.2, revoke such action so far
as concerns such Note. Except as aforesaid, any such action taken by the
holder of any Note shall be conclusive and binding upon such holder and upon
all future holders and owners of such Note and of any Notes issued in exchange
or substitution therefor, irrespective of whether any notation in regard
thereto is made upon such Note or any Note issued in exchange or substitution
therefor.
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ARTICLE IX
NOTEHOLDERS' MEETINGS
Section 9.1 Purposes for Which Meetings May be Called. A meeting
of Noteholders may be called at any time and from time to time pursuant to the
provisions of this Article IX for any of the following purposes:
(i) to give any notice to the Company or to the Trustee,
or to give any directions to the Trustee, or to consent to the waiving
of any default hereunder and its consequences, or to take any other
action authorized to be taken by Noteholders pursuant to any of the
provisions of Article VI;
(ii) to remove the Trustee and appoint a successor trustee
pursuant to the provisions of Article VII;
(iii) to consent to the execution of an indenture or
indentures supplemental hereto pursuant to the provisions of Section
10.2; or
(iv) to take any other action authorized to be taken by or
on behalf of the holders of any specified aggregate principal amount
of the Notes under any other provisions of this Indenture or under
applicable law.
Section 9.2 Manner of Calling Meetings; Record Date. The Trustee
may at any time call a meeting of Noteholders to take any action specified in
Section 9.1, to be held at such time and at such place in the City of New York,
State of New York, or at such location in the United States that is reasonably
convenient to holders of Notes, as the Trustee shall determine. Notice of
every meeting of the Noteholders, setting forth the time and the place of such
meeting and in general terms the action proposed to be taken at such meeting,
shall be mailed not less than 30 nor more than 60 days prior to the date fixed
for the meeting to such Noteholders at their addresses as such addresses appear
in the Note register. For the purpose of determining Noteholders entitled to
notice of any meeting of Noteholders, the Trustee shall fix in advance a date
as the record date for such determination, such date to be a business day not
more than ten days prior to the date of the mailing of such notice as
hereinabove provided. Only persons in whose name any Note shall be registered
in the Note register at the close of business on a record date fixed by the
Trustee as aforesaid, or by the Company or the Noteholders as provided in
Section 9.3, shall be entitled to notice of the meeting of Noteholders with
respect to which such record date was so fixed.
Section 9.3 Call of Meeting by Company or Noteholders. In case
at any time the Company, pursuant to a Board Resolution or the holders of at
least 10% in aggregate principal amount of the Notes then outstanding shall
have requested the Trustee to call a meeting of Noteholders to take any action
authorized in Section 9.1 by written request setting forth in
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reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed notice of such meeting within 20 days after
receipt of such request, then the Company or the holders of Notes in the amount
above specified, as the case may be, may fix the record date with respect to,
and determine the time and the place for, such meeting and may call such
meeting to take any action authorized in Section 9.1, by mailing notice thereof
as provided in Section 9.2. The record date fixed as provided in the preceding
sentence shall be set forth in a written notice to the Trustee and shall be a
Business Day not less than 15 nor more than 20 days after the date on which the
original request is sent to the Trustee.
Section 9.4 Who May Attend and Vote at Meetings. Only persons
entitled to receive notice of a meeting of Noteholders and their respective
proxies duly appointed by an instrument in writing shall be entitled to vote at
such meeting. The only persons who shall be entitled to be present or to speak
at any meeting of Noteholders shall be the persons entitled to vote at such
meeting and their counsel and any representatives of the Trustee and its
counsel and any representatives of the Company and its counsel. When a
determination of Noteholders entitled to vote at any meeting of Noteholders has
been made as provided in this Section, such determination shall apply to any
adjournments thereof.
Section 9.5 Manner of Voting at Meetings and Record to be Kept.
The vote upon any resolution submitted to any meeting of Noteholders shall be
by written ballots on each of which shall be subscribed the signature of the
Noteholder or proxy casting such ballot and the identifying number or numbers
of the Notes held or represented in respect of which such ballot is cast. The
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports in
duplicate of all votes cast at the meeting. A record in duplicate of the
proceedings of each meeting of Noteholders shall be prepared by the secretary
of the meeting and there shall be attached to said record the original reports
of the inspectors of votes on any vote by ballot taken thereat and affidavits
by one or more persons having knowledge of the facts setting forth a copy of
the notice of the meeting and showing that said notice was mailed as provided
in Section 9.2. The record shall show the identifying numbers of the Notes
voting in favor of or against any resolution. Each counterpart of such record
shall be signed and verified by the affidavits of the chairman and secretary of
the meeting and one of the counterparts shall be delivered to the Company and
the other to the Trustee to be preserved by the Trustee.
Any counterpart record so signed and verified shall be conclusive
evidence of the matters therein stated and shall be the record referred to in
clause (b) of Section 8.1.
Section 9.6 Exercise of Rights of Trustee and Noteholders Not To
Be Hindered or Delayed. Nothing in this Article IX contained shall be deemed
or construed to authorize or permit, by reason of any call of a meeting of
Noteholders or any rights expressly or impliedly conferred hereunder to make
such call, any hindrance or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or to the Noteholders under any of
the provisions of this Indenture or of the Notes.
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ARTICLE X
SUPPLEMENTAL INDENTURES
Section 10.1 Supplemental Indentures Without Consent of
Noteholders. The Company, when authorized by a Board Resolution, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for one or more of the following purposes:
(a) to make provision with respect to the conversion
rights of the holders of Notes pursuant to the requirements of Section
14.6;
(b) subject to Article XV, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Notes, any
property or assets;
(c) to evidence the succession of another person to the
Company, or successive successions, and the assumption by the
Successor Company of the covenants, agreements and obligations of the
Company pursuant to Article XI;
(d) to add to the covenants of the Company such further
covenants, restrictions or conditions as the Board of Directors and
the Trustee shall consider to be for the benefit of the holders of
Notes and to make the occurrence, or the occurrence and continuance,
of a default in any such additional covenants, restrictions or
conditions a default or an Event of Default permitting the enforcement
of all or any of the several remedies provided in this Indenture as
herein set forth; provided that in respect of any such additional
covenant, restriction or condition, such supplemental indenture may
provide for a particular period of grace after default (which period
may be shorter or longer than that allowed in the case of other
defaults) or may provide for immediate enforcement upon such default
or may limit the remedies available to the Trustee upon such default;
(e) to provide for the issuance under this Indenture of
Notes in coupon form (including Notes registrable as to principal
only) and to provide for exchangeability of such Notes with the Notes
issued hereunder in fully registered form and to make all appropriate
changes for such purpose;
(f) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture that may
be defective or inconsistent with any other provision contained herein
or in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture that shall
not adversely affect the interests of the holders of the Notes;
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(g) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the
Notes; or
(h) to modify, eliminate or add to the provisions of this
Indenture to such extent necessary to effect the qualification of this
Indenture under the Trust Indenture Act (if applicable), or under any
similar federal statute hereafter enacted (if applicable); or
(i) to amend the transfer procedures or restrictions
pursuant to Section 2.5.
The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations that may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the Trustee
shall not be obligated to, but may in its discretion, enter into any
supplemental indenture that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this
Section 10.1 may be executed by the Company and the Trustee without the consent
of the holders of any of the Notes at the time outstanding, notwithstanding any
of the provisions of Section 10.2.
Section 10.2 Supplemental Indentures With Consent of Noteholders.
With the consent (evidenced as provided in Article VIII) of the holders of not
less than a majority in aggregate principal amount of the Notes at the time
outstanding, the Company, when authorized by a Board Resolution, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture
or any supplemental indenture or of modifying in any manner the rights of the
holders of the Notes; provided that no such supplemental indenture shall (i)
extend the fixed maturity of any Note, or reduce the rate or extend the time of
payment of interest thereon, or reduce the principal amount thereof or premium,
if any, thereon, or reduce any amount payable on redemption thereof, or change
the obligation of the Company to repurchase the Notes at the option of the
holder upon the happening of a Change of Control, or impair or affect the right
of any Noteholder to institute suit for the payment thereof, or make the
principal thereof or interest or premium, if any, thereon payable in any coin
or currency other than that provided in the Notes, or modify the subordination
provisions hereof in a manner adverse to the holders of the Notes, or impair
the right to convert the Notes into Common Stock subject to the terms set forth
herein without the consent of the holder of each Note so affected or (ii)
reduce the aforesaid percentage of Notes, the holders of which are required to
consent to any such supplemental indenture, in each such case, without the
consent of the holders of all Notes then outstanding.
Upon the request of the Company, accompanied by a copy of a Board
Resolution authorizing the execution of any such supplemental indenture, and
upon the filing with the Trustee of evidence of the consent of Noteholders as
aforesaid, the Trustee shall join with the Company in
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the execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Noteholders under
this Section 10.2 to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Section 10.3 Effect of Supplemental Indentures. Any supplemental
indenture executed pursuant to the provisions of this Article X shall comply
with the Trust Indenture Act, as then in effect, if such supplemental indenture
is then required to so comply. Upon the execution of any supplemental
indenture pursuant to the provisions of this Article X, this Indenture shall be
and be deemed to be modified and amended in accordance therewith and the
respective rights, limitation of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Company and the holders of Notes shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 10.4 Notation on Notes. Notes authenticated and delivered
after the execution of any supplemental indenture pursuant to the provisions of
this Article X may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture, but they need not do so.
If the Company or the Trustee shall determine to add such a notation, new Notes
so modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any modification of this Indenture contained in any such
supplemental indenture may, at the Company's expense, be prepared and executed
by the Company, authenticated by the Trustee (or an authenticating agent duly
appointed by the Trustee pursuant to Section 16.14] and delivered in exchange
for the Notes then outstanding, upon surrender of such Notes then outstanding.
Section 10.5 Evidence of Compliance of Supplemental Indenture to
Be Furnished Trustee. The Trustee shall be furnished with and, subject to the
provisions of Sections 7.1 and 7.2, may rely upon an Officers' Certificate and
an Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant hereto complies with the requirements of this Article X.
ARTICLE XI
CONSOLIDATION, MERGER, SALE, CONVEYANCE,
TRANSFER AND LEASE
Section 11.1 Company May Consolidate, Etc. on Certain Terms. The
Company shall not consolidate with or merge with or into, or convey, transfer
or lease all or substantially all of
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its assets (determined on a consolidated basis), whether in a single
transaction or a series of related transactions, to, any person unless: (i)
either the Company is the resulting, surviving or transferee person (the
"Successor Company") or the Successor Company is a person organized and
existing under the laws of the United States or any State thereof or the
District of Columbia, and the Successor Company (if not the Company) expressly
assumes by a supplemental indenture, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under this
Indenture and the Notes, including the rights pursuant to Article XIV hereof,
(ii) immediately after giving effect to such transaction, no default or Event
of Default has happened and is continuing and (iii) the Company delivers to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Section 11.2 Successor Company To Be Substituted. In case of any
such consolidation, merger, sale, conveyance, transfer or lease and upon the
assumption by the Successor Company, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the due
and punctual payment of the principal of, premium, if any, and interest on all
of the Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by the Company, such Successor
Company shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party hereto. When a Successor
Company duly assumes all the obligations of the Company pursuant to this
Indenture and the Notes, the predecessor shall be released from all such
obligations.
Section 11.3 Opinion of Counsel To Be Given to Trustee. The
Trustee subject to Sections 7.1 and 7.2, shall receive an Officers' Certificate
and an Opinion of Counsel as conclusive evidence that any such consolidation,
merger, sale, conveyance, transfer or lease and any such assumption complies
with the provisions of this Article XI.
ARTICLE XII
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
Section 12.1 Discharge of Indenture. The Company may terminate
all of its obligations under this Indenture (subject to Section 12.2) when:
(a) (i) all Notes theretofore authenticated and
delivered (other than Notes that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section 2.6) have
been delivered to the Trustee for cancellation; and
(ii) the Company has paid or caused to be paid all
other sums payable hereunder and under the Notes by the
Company; or
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(b) (i) the Notes not previously delivered to the Trustee
for cancellation shall have become due and payable or are by their
terms to become due and payable within one year or are to be called
for redemption within one year under arrangements satisfactory to the
Trustee upon delivery of notice, (ii) the Company shall have
irrevocably deposited with the Trustee, as trust funds, cash, in an
amount sufficient to pay principal of and interest on the outstanding
Notes, to maturity or redemption, as the case may be, (iii) such
deposit shall not result in a breach or violation of, or constitute a
default under, any agreement or instrument pursuant to which the
Company is a party or by which it or its property is bound and (iv)
the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions related to
such defeasance have been complied with.
Section 12.2 Survival of Certain Obligations. Notwithstanding the
satisfaction and discharge of this Indenture and of the Notes referred to in
Section 12.1, the respective obligations of the Company and the Trustee under
Sections 2.3, 2.4, 2.5, 2.6, 3.1, 4.2, 5.1, 6.4, 6.9, 7.6, 7.7 7.11, 12.4,
12.5, 12.6, Articles XIV and XV shall survive until the Notes are no longer
outstanding, and thereafter, the obligations of the Company and the Trustee
under Sections 6.9, 7.6, 7.7, 12.4, 12.5 and 12.6 shall survive. Nothing
contained in this Article XII shall abrogate any of the rights, obligations or
duties of the Trustee under this Indenture.
Section 12.3 Acknowledgment of Discharge by Trustee. Subject to
Section 12.6, after (i) the conditions of Section 12.1 have been satisfied,
(ii) the Company has paid or caused to be paid all other sums payable hereunder
by the Company and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent referred to in clause (i) above relating to the satisfaction and
discharge of this Indenture have been complied with, the Trustee upon written
request shall acknowledge in writing the discharge of the Company's obligations
under this Indenture except for those surviving obligations specified in
Section 12.2.
Section 12.4 Application of Trust Assets. The Trustee shall hold
any cash deposited with it in the irrevocable trust established pursuant to
Section 12.1. The Trustee shall apply the deposited cash, together with
earnings thereon in accordance with this Indenture and the terms of the
irrevocable trust agreement established pursuant to Section 12.1 to the payment
of principal of, premium, if any, and interest on the Notes. The cash so held
in trust and deposited with the Trustee in compliance with Section 12.1 shall
not be part of the trust estate under this Indenture, but shall constitute a
separate trust fund for the benefit of all holders entitled thereto. Except as
specifically provided herein, the Trustee shall not be requested to invest any
amounts held by it for the benefit of the holders or pay interest on uninvested
amounts to any holder.
Section 12.5 Repayment to the Company; Unclaimed Money. Subject
to applicable laws governing escheat of such property, and upon termination of
the trust established pursuant to Section 12.1 hereof, the Trustee shall
promptly pay to the Company upon written request any excess cash held by it.
Additionally, if amounts for the payment of principal, premium, if any, or
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interest remains unclaimed for two years, the Trustee shall, upon written
request, pay such amounts back to the Company forthwith. Thereafter, all
liability of the Trustee with respect to such amounts shall cease. After
payment to the Company, holders entitled to such payment must look to the
Company for such payment as general creditors unless an applicable abandoned
property law designates another person.
Section 12.6 Reinstatement. If the Trustee is unable to apply any
cash in accordance with Section 12.1 by reason of any legal proceeding or by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Notes shall be revived and reinstated
as though no deposit had occurred pursuant to Section 12.1 until such time as
the Trustee is permitted to apply all such cash in accordance with Section
12.1; provided that if the Company makes any payment of principal of, premium,
if any, or interest on any Notes following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the holders of
such Notes to receive such payment from the amounts held by the Trustee.
ARTICLE XIII
IMMUNITY OF INCORPORATORS, SHAREHOLDERS,
OFFICERS AND DIRECTORS
Section 13.1 Indenture and Notes Solely Corporate Obligations. No
recourse for the payment of the principal of, or premium, if any, or interest
on any Note, or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in this Indenture or in any supplemental indenture or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer or director, as such, past,
present or future, of the Company or of any successor entity, either directly
or through the Company or any successor entity, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise; it being expressly understood that all such liability
is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issuance of the
Notes.
ARTICLE XIV
CONVERSION OF NOTES
Section 14.1 Right to Convert. Subject to and upon compliance
with the provisions of this Indenture, the holder of any Note shall have the
right, at the option of such holder, at any time after 90 days following the
date of original issuance of the Note and prior to the close of business on
February 1, 2004 (except that, with respect to any Note or portion of a Note
that
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shall be called for redemption or delivered for repurchase, such right shall
terminate immediately prior to the close of business on the last Business Day
before the date fixed for redemption of such Note or portion of a Note, unless
the Company shall default in payment due upon redemption thereof) to convert
the principal amount of any such Note, or any portion of such principal amount
that is $1,000 or an integral multiple thereof, into that number of fully paid
and nonassessable shares of Common Stock (as such shares shall then be
constituted) obtained by dividing the aggregate principal amount of the Notes
or portion thereof surrendered for conversion by the Conversion Price in effect
at such time rounded to the nearest 1/100,000th of a share (with .0000005 being
rolled upward), by surrender of the Note so to be converted in whole or in part
in the manner provided in Section 14.2. A holder of Notes is not entitled to
any rights of a holder of Common Stock until such holder has converted such
holder's Notes to Common Stock and only to the extent such Notes are deemed to
have been converted to Common Stock under this Article XIV.
Section 14.2 Exercise of Conversion Privilege; Issuance of Common
Stock on Conversion; No Adjustment for Interest or Dividends. In order to
exercise the conversion privilege with respect to any Note in definitive form,
the holder of any such Note to be converted in whole or in part shall surrender
such Note, duly endorsed, at an office or agency maintained by the Company
pursuant to Section 4.2, accompanied by the funds, if any, required by the
penultimate paragraph of this Section 14.2, and shall give written notice of
conversion in the form provided on the form of Note (or such other notice that
is acceptable to the Company) to the office or agency that the holder elects to
convert such Note or the portion thereof specified in said notice. Such notice
shall also state the name or names (with address) in which the certificate or
certificates for shares of Common Stock that shall be issuable on such
conversion shall be issued and shall be accompanied by transfer taxes, if
required pursuant to Section 14.7. Each such Note surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the name of
the holder of such Note as it appears on the Note register, be duly endorsed
by, or be accompanied by instruments of transfer in form satisfactory to the
Company duly executed by, the holder or his duly authorized attorney.
In order to exercise the conversion privilege with respect to any
interest in a global Note, the beneficial holder must complete the appropriate
instruction form for conversion pursuant to the Depositary's book-entry
conversion program and follow the other procedures set forth in such program.
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any restrictions on
transfer if shares issuable on conversion are to be issued in a name other than
that of the Noteholder (as if such transfer were a transfer of the Note or
Notes (or portion thereof) so converted), the Company shall issue and shall
deliver to such holder at the office or agency maintained by the Company for
such purpose pursuant to Section 4.2, a certificate or certificates for the
number of full shares issuable upon the conversion of such Note or portion
thereof in accordance with the provisions of this Article XIV and a check or
cash in respect of any fractional interest in respect of a share of Common
Stock arising upon
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such conversion, as provided in Section 14.3. In case any Note of a
denomination greater than $1,000 shall be surrendered for partial conversion,
and subject to Section 2.3, the Company shall execute and the Trustee shall
authenticate and make available for delivery to the holder of the Note so
surrendered, without charge to him, a new Note or Notes in authorized
denominations in an aggregate principal amount equal to the unconverted portion
of the surrendered Note.
Each conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements set forth above
in this Section 14.2 have been satisfied as to such Note (or portion thereof),
and the person in whose name any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become on said date the holder of record of the shares represented thereby;
provided that any such surrender on any date when the stock transfer books of
the Company shall be closed shall constitute the person in whose name the
certificates are to be issued as the record holder thereof for all purposes on
the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
such Note shall have been surrendered.
Any Note or portion thereof surrendered for conversion during the
period from after the close of business on a record date and before the opening
of business on the corresponding interest payment date shall (unless such Note
or portion thereof being converted shall have been called for redemption on a
date during the period from the close of business on or after any record date
to the close of business on the Business Day following corresponding interest
payment date) be accompanied by payment, in funds acceptable to the Company, of
an amount equal to the interest payable on such interest payment date on the
principal amount being converted; provided that no such payment need be made if
there shall exist at the time of conversion a default in the payment of
interest on the Notes. An amount equal to such payment shall be paid by the
Company on such interest payment date to the holder of such Note at the close
of business on such record date; provided that if the Company shall default in
the payment of interest on such interest payment date, such amount shall be
paid to the person who made such required payment. The interest payment with
respect to a Note called for redemption on a date during the period from the
close of business on or after any record date to the close of business on the
Business Day following the corresponding interest payment date shall be payable
on the corresponding interest payment date to the registered holder of Notes at
the close of business on that record date (notwithstanding the conversion of
such Note before the corresponding interest payment date) and a holder of Notes
who elects to convert need not include funds equal to the interest paid.
Except as provided above in this Section 14.2, no adjustment shall be made for
interest accrued on any Note converted or for dividends on any shares issued
upon the conversion of such Note as provided in this Article XIV.
Upon the conversion of an interest in a global Note, the Trustee, or
the Custodian at the direction of the Trustee, shall make a notation on such
global Note as to the reduction in the principal amount represented thereby.
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Section 14.3 Cash Payments in Lieu of Fractional Shares. No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon conversion of Notes. If more than one Note shall be surrendered
for conversion at one time by the same holder, the number of fully paid and
non-assessable shares of Common Stock issuable upon conversion of a Note shall
be determined by dividing the aggregate principal amount of Notes or portions
thereof surrendered for conversion by the Conversion Price in effect at such
time. The aggregate number of shares of Common Stock issuable upon conversion
shall be rounded to the nearest 1/100,000th of a share (with .0000005 being
rolled upward). If any fractional share of stock would be issuable upon the
conversion of any Note or Notes, the Company shall make an adjustment therefor
in cash at the current market value thereof. The current market value of a
share of Common Stock shall be determined by multiplying the fractional share
by the Closing Price (as defined in Section 14.5) on the Trading Day (as
defined in Section 14.5) immediately preceding the date on which the Notes (or
specified portions thereof) are deemed to have been converted.
Section 14.4 Conversion Price. The Conversion Price shall be as
specified in the forms of Notes (herein called the "Conversion Price") attached
as Exhibits A, B and C hereto, subject to adjustment as provided in this
Article XIV.
Section 14.5 Adjustment of Conversion Price. The Conversion Price
shall be adjusted from time to time by the Company as follows:
(a) In case the Company shall (i) pay a dividend or make
a distribution on its Common Stock in shares of its Common Stock, (ii)
subdivide or split its outstanding Common Stock into a greater number
of shares, (iii) combine its outstanding Common Stock into a smaller
number of shares or (iv) issue any shares of capital stock by
reclassification of its Common Stock, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the holder of any
Notes thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock of the Company which such
Holder would have owned or have been entitled to receive after the
occurrence of any of the events described above had such Notes been
surrendered for conversion immediately prior to the occurrence of such
event or the record date therefor, whichever is earlier. An
adjustment made pursuant to this subsection (a) shall become effective
immediately after the close of business on the record date for
determination of shareholders entitled to receive such dividend or
distribution in the case of a dividend or distribution (except as
provided in Section 14.5(d)) and shall become effective immediately
after the close of business on the effective date in the case of a
subdivision, split, combination or reclassification. Any shares of
Common Stock issuable in payment of a dividend shall be deemed to have
been issued immediately prior to the close of business on the record
date for such dividend for purposes of calculating the number of
outstanding shares of Common Stock under Sections 14.5(b) and (c).
(b) In case the Company shall issue rights, options or
warrants to all holders of its outstanding shares of Common Stock
entitling them (for a period expiring within 45
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days after the date fixed for determination of shareholders entitled
to receive such rights, options or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than the
Current Market Price (as defined in Section 14.5(g)) on the Record
Date (as defined in Section 14.5(g)) fixed for determination of
shareholders entitled to receive such rights, options or warrants, the
Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect at the
opening of business on the date after the Record Date by a fraction
the numerator of which shall be the number of shares of Common Stock
outstanding at the close of business on the Record Date plus the
number of shares that the aggregate offering price of the total number
of shares so offered would purchase at such Current Market Price, and
the denominator of which shall be the number of shares of Common Stock
outstanding on the close of business on the Record Date plus the total
number of additional shares of Common Stock so offered for
subscription or purchase. Such adjustment shall become effective
immediately after the opening of business on the day following the
Record Date fixed for determination of shareholders entitled to
receive such rights, options or warrants. To the extent that shares
of Common Stock are not delivered after the expiration or termination
of such rights, options or warrants, the Conversion Price shall be
readjusted to the Conversion Price that would then be in effect had
the adjustments made upon the issuance of such rights, options or
warrants been made on the basis of delivery of only the number of
shares of Common Stock actually delivered. In the event that such
rights, options or warrants are not so issued, the Conversion Price
shall again be adjusted to be the Conversion Price that would then be
in effect if such date fixed for the determination of shareholders
entitled to receive such rights, options or warrants had not been
fixed. In determining whether any rights, options or warrants entitle
the holders to subscribe for or purchase shares of Common Stock at
less than such Current Market Price, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken
into account any consideration received for such rights, options or
warrants, the value of such consideration, if other than cash, to be
determined by the Board of Directors.
(c) In case outstanding shares of Common Stock shall be
subdivided or split into a greater number of shares of Common Stock,
the Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision or split becomes
effective shall be proportionately reduced, and conversely, in case
outstanding shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Conversion Price in effect at
the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day
upon which such subdivision or combination becomes effective.
(d) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of
capital stock of the Company (other
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than any dividends or distributions to which Section 14.5(a) applies)
or evidences of its indebtedness or assets (including securities, but
excluding any rights, options or warrants referred to in Section
14.5(b), and excluding any dividend or distribution (x) in connection
with the liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, (y) exclusively in cash or (z)
referred to in Section 14.5(a) (any of the foregoing hereinafter in
this Section 14.5(d) called the "Securities")), then, in each such
case, the Conversion Price shall be reduced so that the same shall be
equal to the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on the Record Date
(as defined in Section 14.5(g)) with respect to such distribution by a
fraction of which the numerator shall be the Current Market Price
(determined as provided in Section 14.5(g)) on such date less the fair
market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution)
on such date of the portion of the Securities so distributed
applicable to one share of Common Stock and the denominator shall be
such Current Market Price, such reduction to become effective
immediately prior to the opening of business on the Business Day
following the Record Date; provided that in the event the then fair
market value (as so determined) of the portion of the Securities so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price on the Record Date, in lieu of
the foregoing adjustment, adequate provision shall be made so that
each Noteholder shall have the right to receive upon conversion the
amount of Securities such holder would have received had such holder
converted each Note on such date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again
be adjusted to be the Conversion Price that would then be in effect if
such dividend or distribution had not been declared. If the Board of
Directors determines the fair market value of any distribution for
purposes of this Section 14.5(d) by reference to the actual or when
issued trading market for any securities comprising all or part of
such distribution, it must in doing so consider the prices in such
market over the same period used in computing the Current Market Price
pursuant to Section 14.5(g) to the extent possible.
Notwithstanding the foregoing provisions of this Section
14.5(d), no adjustment shall be made hereunder for any distribution of
Securities if the Company makes proper provision so that each
Noteholder who converts a Note (or any portion thereof) after the date
fixed for determination of shareholders entitled to receive such
distribution shall be entitled to receive upon such conversion, in
addition to the shares of Common Stock issuable upon such conversion,
the amount and kind of Securities that such holder would have been
entitled to receive if such holder had, immediately prior to such
determination date, converted such Note into Common Stock; provided
that, with respect to any Securities that are convertible,
exchangeable or exercisable, the foregoing provision shall only apply
to the extent (and so long as) the Securities receivable upon
conversion of such Note would be convertible, exchangeable or
exercisable, as applicable, without any loss of rights or privileges
for a period of at least 60 days following conversion of such Note.
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Rights, options or warrants distributed by the Company to all
holders of Common Stock entitling the holders thereof to subscribe for
or purchase shares of the Company's capital stock (either initially or
under certain circumstances), which rights, options or warrants, until
the occurrence of a specified event or events (the "Trigger Event")
(i) are deemed to be transferred with such shares of Common Stock,
(ii) are not exercisable and (iii) are also issued in respect of
future issuances of Common Stock, shall not be deemed distributed for
purposes of this Section 14.5(d) (and no adjustment to the Conversion
Price under this Section 14.5(d) shall be required) until the
occurrence of the earliest Trigger Event. In addition, in the event
of any distribution of rights, options or warrants, or any Trigger
Event with respect thereto, that shall have resulted in an adjustment
to the Conversion Price under this Section 14.5(d), (1) in the case of
any such rights, options or warrants that shall all have been redeemed
or repurchased without exercise by any holders thereof, the Conversion
Price shall be readjusted upon such final redemption or repurchase to
give effect to such distribution or Trigger Event, as the case may be,
as though it were a cash distribution, equal to the per share
redemption or repurchase price received by a holder of Common Stock
with respect to such rights, options or warrants (assuming such holder
had retained such rights, options or warrants), made to all holders of
Common Stock as of the date of such redemption or repurchase, and (2)
in the case of such rights, options or warrants all of which shall
have expired or been terminated without exercise by any holder
thereof, the Conversion Price shall be readjusted as if such issuance
had not occurred.
In case the Company shall implement a shareholder rights plan
not covered by the preceding paragraph, the holders of Notes shall be
entitled to receive, upon conversion of any such Note, in addition to
Common Stock issuable upon such conversion, all such rights as would
have been applicable to such shares of Common Stock had it been
outstanding when such plan was implemented.
For purposes of this Section 14.5(d) and Sections 14.5(a) and
(b), any dividend or distribution to which this Section 14.5(d) is
applicable that also includes shares of Common Stock, or rights,
options or warrants to subscribe for or purchase shares of Common
Stock (or both), shall instead be treated as (1) a dividend or
distribution of the evidences of indebtedness, assets or shares of
capital stock other than such shares of Common Stock or rights,
options or warrants (and any Conversion Price reduction required by
this Section 14.5(d) with respect to such dividend or distribution
shall then be made) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights, options or
warrants (and any further Conversion Price reduction required by
Sections 14.5(a) and (b) with respect to such dividend or distribution
shall then be made) except (A) the Record Date of such dividend or
distribution shall be substituted as "the date fixed for the
determination of shareholders entitled to receive such dividend or
other distribution" and "the date fixed for such determination" within
the meaning of Sections 14.5(a) and (b) and (B) any shares of Common
Stock included in
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such dividend or distribution shall not be deemed "outstanding at the
close of business on the date fixed for such determination" within the
meaning of Section 14.5(a).
(e) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding any cash
that is distributed upon a merger or consolidation to which Section
14.6 applies or as part of a distribution referred to in Section
14.5(d) for which an adjustment to the Conversion Price is provided
therein) in an aggregate amount that, combined together with (1) the
aggregate amount of any other such distributions to all holders of its
Common Stock made exclusively in cash within the 12 months preceding
the date of payment of such distribution, and in respect of which no
adjustment pursuant to this Section 14.5(e) has been made, and (2) the
aggregate of any cash plus the fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and
described in a Board Resolution) of consideration payable in respect
of any tender offers, by the Company or any of its subsidiaries for
all or any portion of the Common Stock concluded within the 12 months
preceding the date of payment of such distribution, and in respect of
which no adjustment pursuant to Section 14.5(f) has been made, exceeds
20.0% of the product of the Current Market Price (determined as
provided in Section 14.5(g)) on the Record Date with respect to such
distribution times the number of shares of Common Stock outstanding on
such date, then, and in each such case, immediately after the close of
business on such date, unless the Company elects to reserve such cash
for distribution to the holders of the Notes upon the conversion of
the Notes so that any such holder converting Notes shall receive upon
such conversion, in addition to the shares of Common Stock to which
such holder is entitled, the amount of cash which such holder would
have received if such holder had, immediately prior to the Record Date
for such distribution of cash, converted its Notes into Common Stock,
the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on such date by a fraction
(i) the numerator of which shall be equal to the Current Market Price
on the Record Date less an amount equal to the quotient of (x) the
excess of such combined amount over such 20.0% and (y) the number of
shares of Common Stock outstanding on the Record Date and (ii) the
denominator of which shall be equal to the Current Market Price on
such date; provided that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the
Record Date, in lieu of the foregoing adjustment, adequate provision
shall be made so that each Noteholder shall have the right to receive
upon conversion the amount of cash such holder would have received had
such holder converted each Note on the Record Date. In the event that
such dividend or distribution is not so paid or made, the Conversion
Price shall again be adjusted to be the Conversion Price that would
then be in effect if such dividend or distribution had not been
declared.
(f) In case a tender offer made by the Company or any of
its subsidiaries for all or any portion of the Common Stock shall
expire and such tender offer (as amended upon
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the expiration thereof) shall require the payment to shareholders
(based on the acceptance (up to any maximum specified in the terms of
the tender offer) of Purchased Shares (as defined below)) of an
aggregate consideration having a fair market value (as determined by
the Board of Directors, whose determination shall be conclusive and
described in a Board Resolution) that combined together with (1) the
aggregate of the cash plus the fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and
described in a Board Resolution), as of the expiration of such tender
offer, of consideration payable in respect of any other tender offer,
by the Company or any of its subsidiaries for all or any portion of
the Common Stock expiring within the 12 months preceding the
expiration of such tender offer, and in respect of which no adjustment
pursuant to Section 14.5(f) has been made, and (2) the aggregate
amount of any distributions to all holders of the Company's Common
Stock made exclusively in cash within 12 months preceding the
expiration of such tender offer, and in respect of which no adjustment
pursuant to Section 14.5(e) has been made, exceeds 20.0% of the
product of the Current Market Price (determined as provided in Section
14.5(g)) as of the last time (the "Expiration Time") tenders could
have been made pursuant to such tender offer (as it may be amended)
times the number of shares of Common Stock outstanding (including any
tendered shares) on the Expiration Time, then, and in each such case,
immediately prior to the opening of business on the Business Day after
the date of the Expiration Time, the Conversion Price shall be
adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to close
of business on the date of the Expiration Time by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding (including any tendered shares) on the Expiration Time
multiplied by the Current Market Price of the Common Stock on the
Trading Day next succeeding the Expiration Time and the denominator
shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to shareholders
based on the acceptance (up to any maximum specified in the terms of
the tender offer) of all shares validly tendered and not withdrawn as
of the Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and (y) the
product of the number of shares of Common Stock outstanding (less any
Purchased Shares) on the Expiration Time and the Current Market Price
of the Common Stock on the Trading Day next succeeding the Expiration
Time, such reduction to become effective immediately prior to the
opening of business on the Business Day following the Expiration Time.
In the event that the Company is obligated to purchase shares pursuant
to any such tender offer, but the Company is permanently prevented by
applicable law from effecting any such purchases or all such purchases
are rescinded, the Conversion Price shall again be adjusted to be the
Conversion Price that would then be in effect if such tender offer had
not been made.
(g) For purposes of this Section 14.5, the following
terms shall have the meaning indicated:
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(1) "Closing Price" with respect to any
securities on any day shall mean the closing sale price
regular way on such day or, in case no such sale takes place
on such day, the average of the reported closing bid and asked
prices, regular way, in each case on the New York Stock
Exchange, or, if such security is not listed or admitted to
trading on such Exchange, on the principal national security
exchange or quotation system on which such security is quoted
or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked
prices of such security on the over-the-counter market on the
day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished
by any New York Stock Exchange member firm selected from time
to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a Board
Resolution.
(2) "Current Market Price" shall mean the average
of the daily Closing Prices per share of Common Stock for the
ten consecutive Trading Days immediately prior to the date in
question; provided that (1) if the "ex" date (as hereinafter
defined) for any event (other than the issuance or
distribution or Change of Control requiring such computation)
that requires an adjustment to the Conversion Price pursuant
to Section 14.5(a), (b), (c), (d), (e) or (f) occurs during
such ten consecutive Trading Days, the Closing Price for each
Trading Day prior to the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the same
fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (2) if the "ex" date
for any event (other than the issuance, distribution or Change
of Control requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section
14.5(a), (b), (c), (d), (e) or (f) occurs on or after the "ex"
date for the issuance or distribution requiring such
computation and prior to the day in question, the Closing
Price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing
Price by the reciprocal of the fraction by which the
Conversion Price is so required to be adjusted as a result of
such other event and (3) if the "ex" date for the issuance,
distribution or Change of Control requiring such computation
is prior to the day in question, after taking into account any
adjustment required pursuant to clause (1) or (2) of this
proviso, the Closing Price for each Trading Day on or after
such "ex" date shall be adjusted by adding thereto the amount
of any cash and the fair market value (as determined by the
Board of Directors in a manner consistent with any
determination of such value for purposes of Section 14.5(d) or
(f), whose determination shall be conclusive and described in
a Board Resolution) of the evidences of indebtedness, shares
of capital stock or assets being distributed applicable to one
share of Common Stock as of the close of business on the day
before such "ex" date. For purposes of any
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computation under Section 14.5(f), the Current Market Price of
the Common Stock on any date shall be deemed to be the average
of the daily Closing Prices per share of Common Stock for such
day and the next two succeeding Trading Days; provided that if
the "ex" date for any event (other than the tender or exchange
offer requiring such computation) that requires an adjustment
to the Conversion Price pursuant to Section 14.5(a), (b), (c),
(d), (e) or (f) occurs on or after the Expiration Time for the
tender or exchange offer requiring such computation and prior
to the day in question, the Closing Price for each Trading Day
on and after the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the reciprocal
of the fraction by which the Conversion Price is so required
to be adjusted as a result of such other event. For purposes
of this paragraph, the term "ex" date, (1) when used with
respect to any issuance or distribution, means the first date
on which the Common Stock trades regular way on the relevant
exchange or in the relevant market from which the Closing
Price was obtained without the right to receive such issuance
or distribution, (2) when used with respect to any subdivision
or combination of shares of Common Stock, means the first date
on which the Common Stock trades regular way on such exchange
or in such market after the time at which such subdivision or
combination becomes effective and (3) when used with respect
to any tender or exchange offer means the first date on which
the Common Stock trades regular way on such exchange or in
such market after the expiration of such offer.
Notwithstanding the foregoing, whenever successive adjustments
to the Conversion Price are called for pursuant to this
Section 14.5, such adjustments shall be made to the Current
Market Price as may be necessary or appropriate to effectuate
the intent of this Section 14.5 and to avoid unjust or
inequitable results as determined in good faith by the Board
of Directors.
(3) "fair market value" shall mean the amount
that a willing buyer would pay a willing seller in an
arm's-length transaction.
(4) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which
the holders of Common Stock have the right to receive any
cash, securities or other property or in which the Common
Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other
property, the date fixed for determination of shareholders
entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the
applicable security is listed or admitted for trading on the
New York Stock Exchange or another national security exchange,
a day on which the New York Stock Exchange or such other
national security exchange is open for business or (y) if the
applicable security is
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quoted on the Nasdaq National Market, a day on which trades
may be made thereon or (z) if the applicable security is not
so listed, admitted for trading or quoted, any day other than
a Saturday or Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law or
executive order to close.
(h) The Company may make such reductions in the
Conversion Price, in addition to those required by Sections 14.5(a),
(b), (c), (d), (e) and (f), as the Board of Directors considers to be
advisable to avoid or diminish any income tax to holders of Common
Stock or rights to purchase Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. To the extent
permitted by applicable law, the Company from time to time may reduce
the Conversion Price by any amount for any period of time if the
period is at least 20 days, the reduction is irrevocable during the
period and the Board of Directors shall have made a determination that
such reduction would be in the best interests of the Company, which
determination shall be conclusive and described in a Board Resolution.
Whenever the Conversion Price is reduced pursuant to the preceding
sentence, the Company shall mail to all holders of record of the Notes
a notice of the reduction at least 15 days prior to the date the
reduced Conversion Price takes effect, and such notice shall state the
reduced Conversion Price and the period it shall be in effect.
(i) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease
of at least 1% in such price; provided that any adjustments that by
reason of this Section 14.5(i) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Article XIV shall be made by the Company
and shall be made to the nearest 1/100,000 (with 0.0000005 being
rolled upward).
No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value, or
to or from no par value, of the Common Stock.
To the extent the Notes become convertible into cash, assets,
property or securities (other than Common Stock of the Company), no
adjustment need be made thereafter as to the cash, assets, property or
such securities (except as such securities may otherwise by their
terms provide), and interest shall not accrue on such cash.
(j) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and any
conversion agent other than the Trustee an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
Promptly after
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delivery of such certificate, the Company shall prepare a notice of
such adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each Note at his last address
appearing on the Note register provided for in Section 2.5, within 20
days after execution thereof. Failure to deliver such notice shall
not effect the legality or validity of any such adjustment.
(k) In any case in which this Section 14.5 provides that
an adjustment shall become effective immediately after a Record Date
for an event, the Company may defer until the occurrence of such event
(i) issuing to the holder of any Note converted after such Record Date
and before the occurrence of such event the additional shares of
Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (ii)
paying to such holder any amount in cash in lieu of any fraction
pursuant to Section 14.3.
Section 14.6 Effect of Reclassification, Consolidation, Merger or
Sale. If any of the following events occur, namely (i) any reclassification or
change of outstanding shares of Common Stock (other than a change in par value,
or to or from no par value, as a result of a subdivision or combination), (ii)
any consolidation, merger or combination of the Company with another
corporation as a result of which holders of Common Stock shall be entitled to
receive stock, securities or other property or assets (including cash) with
respect to or in exchange for such Common Stock or (iii) any sale or conveyance
of the properties and assets of the Company as, or substantially as, an
entirety (determined on a consolidated basis) to any other corporation as a
result of which holders of Common Stock shall be entitled to receive stock,
securities or other property or assets (including cash) with respect to or in
exchange for such Common Stock, then the Company or the successor or purchasing
corporation, as the case may be, shall execute with the Trustee a supplemental
indenture (which shall comply with the Trust Indenture Act as in force at the
date of execution of such supplemental indenture if such supplemental indenture
is then required to so comply) providing that the Notes shall be convertible
into the kind and amount of shares of stock and other securities or property or
assets (including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance by a holder of a number
of shares of Common Stock issuable upon conversion of such Notes (assuming, for
such purposes, a sufficient number of authorized shares of Common Stock
available to convert all such Notes) immediately prior to such
reclassification, change, consolidation, merger, combination, sale or
conveyance, assuming such holder of Common Stock did not exercise his rights of
election, if any, as to the kind or amount of securities, cash or other
property receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance (provided that, if the kind or amount of
securities, cash or other property receivable upon such reclassification,
change, consolidation, merger, combination, sale or conveyance is not the same
for each share of Common Stock in respect of which such rights of election
shall not have been exercised ("non- electing share"), then for the purposes of
this Section 14.6 the kind and amount of securities, cash or other property
receivable upon such reclassification, change, consolidation,
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merger, combination, sale or conveyance for each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). Such supplemental indenture shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article XIV.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at his address appearing on the
Note register provided for in Section 2.5, within 20 days after execution
thereof. Failure to deliver such notice shall not affect the legality or
validity of such supplemental indenture.
The above provisions of this Section 14.6 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
Section 14.7 Taxes on Shares Issued. The issuance of stock
certificates on conversions of Notes shall be made without charge to the
converting Noteholder for any transfer or similar tax in respect of the issue
thereof. The Company shall not, however, be required to pay any tax that may
be payable in respect of any transfer involved in the issue and delivery of
stock in any name other than that of the holder of any Note converted, and the
Company shall not be required to issue or deliver any such stock certificate
unless and until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
Section 14.8 Reservation of Shares; Shares to Be Fully Paid;
Listing of Common Stock. The Company shall provide, free from preemptive
rights, out of its authorized but unissued shares or shares held in treasury,
sufficient shares to provide for the conversion of the Notes from time to time
as such Notes are presented for conversion.
Before taking any action that would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of Common
Stock issuable upon conversion of the Notes, the Company shall take all
corporate action that may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue shares of such Common Stock at
such adjusted Conversion Price.
The Company covenants that all shares of Common Stock that may be
issued upon conversion of Notes shall, upon issuance, be fully paid and
nonassessable by the Company and free from all taxes, liens and charges with
respect to the issuance thereof.
The Company further covenants that it shall, if permitted by the rules
of the Nasdaq National Market, list and keep listed, so long as the Common
Stock shall be so listed on the Nasdaq National Market, all Common Stock
issuable upon conversion of the Notes.
Section 14.9 Responsibility of Trustee. The Trustee and any other
conversion agent shall not at any time be under any duty or responsibility to
any holder of Notes to determine
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whether any facts exist that may require any adjustment of the Conversion
Price, or with respect to the nature or extent or calculation of any such
adjustment when made, or with respect to the method employed, or herein or in
any supplemental indenture provided to be employed, in making the same. The
Trustee and any other conversion agent shall not be accountable with respect to
the validity or value (or the kind or amount) of any shares of Common Stock, or
of any securities or property, that may at any time be issued or delivered upon
the conversion of any Note; and the Trustee and any other conversion agent make
no representations with respect thereto. Subject to the provisions of Section
7.1, neither the Trustee nor any conversion agent shall be responsible for any
failure of the Company to issue, transfer or deliver any shares of Common Stock
or stock certificates or other securities or property or cash upon the
surrender of any Note for the purpose of conversion or to comply with any of
the duties, responsibilities or covenants of the Company contained in this
Article XIV. Without limiting the generality of the foregoing, neither the
Trustee nor any conversion agent shall be under any responsibility to determine
whether a supplemental indenture under Section 14.6 hereof need to be entered
into or the correctness of any provisions contained in any supplemental
indenture entered into pursuant to Section 14.6 relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Noteholders upon the conversion of their Notes after any event referred to
in such Section 14.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Section 7.1, may accept as conclusive evidence of
the correctness of any such provisions, and shall be protected in relying upon,
the Officers' Certificate (which the Company shall be obligated to file with
the Trustee prior to the execution of any such supplemental indenture) with
respect thereto.
Section 14.10 Notice to Holders Prior to Certain Actions. In case:
(a) the Company makes any distribution or dividend that
would require an adjustment in the Conversion Price pursuant to
Section 14.5; or
(b) the Company takes any action that would require a
supplemental indenture pursuant to Section 14.6; or
(c) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Note register, as promptly as
possible but in any event at least 15 days prior to the applicable date
hereinafter specified, a notice stating (x) the date on which a record date is
to be taken for the purpose of such dividend, distribution, rights, options or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution,
rights, options or warrants are to be determined or (y) the date on which such
reclassification, change, consolidation, merger, sale, conveyance, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur
and the date as of which it is expected that holders of record of Common Stock
shall be
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entitled to exchange their Common Stock for securities or other property
deliverable upon such reclassification, change, consolidation, merger, sale,
conveyance, transfer, dissolution, liquidation or winding-up. Neither the
failure to give such notice nor any defect therein shall affect the legality or
validity of the proceedings referenced in clauses (a) through (c) of this
Section 14.10.
ARTICLE XV
SUBORDINATION
Section 15.1 Agreement to Subordinate. The Company agrees, and
each Noteholder by accepting a Note agrees, that the indebtedness evidenced by
the Notes is subordinated in right of payment, to the extent and in the manner
provided in this Article XV, to the prior payment in full of all Senior
Indebtedness and that such subordination is for the benefit of the holders of
Senior Indebtedness.
Section 15.2 Certain Definitions. For purposes of this Article
XV, the following terms shall have the meaning indicated:
(a) "Designated Senior Indebtedness" means any particular
Senior Indebtedness in which the instrument creating or evidencing the
same or the assumption or guarantee thereof (or related agreements or
documents to which the Company is a party) expressly provides that
such Indebtedness shall be "Designated Senior Indebtedness" for
purposes of this Indenture (provided that such instrument, agreement
or other document may place limitations and conditions on the right of
such Senior Indebtedness to exercise the rights of Designated Senior
Indebtedness provided herein).
(b) "Indebtedness" means, with respect to any person, all
obligations, whether or not contingent, of such person (i) (A) for
borrowed money (including, but not limited to, any indebtedness
secured by a security interest, mortgage or other lien on the assets
of the Company that is (1) given to secure all or part of the purchase
price of property subject thereto, whether given to the vendor of such
property or to another, or (2) existing on property at the time of
acquisition thereof), (B) evidenced by a note, debenture, bond or
other written instrument, (C) under a lease required to be capitalized
on the balance sheet of the lessee under generally accepted accounting
principles or entered into as part of a sale and buyback transaction,
whether or not required to be capitalized, or under any lease or
related document (including a purchase agreement) that provides that
the Company is contractually obligated to purchase or cause a third
party to purchase and thereby guarantee a minimum residual value of
the lease property to the lessor and the obligations of the Company
under such lease or related document to purchase or to cause a third
party to purchase such leased property, (D) in respect of letters of
credit, bank guarantees or bankers' acceptances (including
reimbursement obligations with respect to any of the foregoing), (E)
with respect to indebtedness secured by a mortgage, pledge,
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lien, encumbrance, charge or adverse claim affecting title or
resulting in an encumbrance to which the property or assets of such
person are subject, whether or not the obligation secured thereby
shall have been assumed by or shall otherwise be such person's legal
liability, (F) in respect of the balance of deferred and unpaid
purchase price of any property or assets, (G) under interest rate or
currency swap agreements, cap, floor and collar agreements, spot and
forward contracts and similar agreements and arrangements; (ii) with
respect to any obligation of others of the type described in the
preceding clause (i) or under clause (iii) below assumed by or
guaranteed in any manner by such person or in effect guaranteed by
such person through an agreement to purchase (including, without
limitation, "take or pay" and similar arrangements), contingent or
otherwise (and the obligations of such person under any such
assumptions, guarantees or other such arrangements); and (iii) any and
all Indebtedness constituting deferrals, renewals, extensions,
refinancings and refundings of, or amendments, modifications or
supplements to, any of the foregoing.
(c) "Representative" shall mean (A) the Indenture trustee
or other trustee, agent or representative for any Senior Indebtedness
or (B) with respect to any Senior Indebtedness that does not have any
such trustee, agent or other representative, (i) in the case of such
Senior Indebtedness issued pursuant to an agreement providing for
voting arrangements as among the holders or owners of such Senior
Indebtedness, any holder or owner of such Senior Indebtedness acting
with the consent of the required persons necessary to bind such
holders or owners of such Senior Indebtedness and (ii) in the case of
all other such Senior Indebtedness, the holder or owner of such Senior
Indebtedness.
(d) "Senior Indebtedness" means principal of, premium, if
any, and interest on, rent under, and any other amounts payable on or
in or in respect of the Credit Agreement and any other Indebtedness of
the Company (including, without limitation, any interest accruing
after the filing of a petition by or against the Company under any
bankruptcy law, whether or not allowed as a claim after such filing in
any proceeding under such bankruptcy law), whether outstanding on the
date of this Indenture or thereafter created, incurred, assumed,
guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to the foregoing); provided, however,
that Senior Indebtedness shall not include (i) Indebtedness evidenced
by the Notes, (ii) any liability for federal, state, local or other
taxes owed or owing by the Company, (iii) Indebtedness of the Company
to any subsidiary of the Company except to the extent such
Indebtedness may have been pledged, assigned or otherwise transferred
to a third party, (iv) any indebtedness for the purchase of services,
goods or materials if such indebtedness is a trade payable of the
Company incurred in the ordinary course of business, except to the
extent such indebtedness may have been pledged, assigned or otherwise
transferred to a third party, and (v) any Indebtedness in which the
instrument creating or evidencing the same or the assumption or
guarantee thereof (or related agreements or documents to which the
Company is a party)
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expressly provides that such Indebtedness shall not be senior in right
of payment to, or is pari passu with, or is subordinated or junior to,
the Notes.
For the purposes of this Indenture, Senior Indebtedness shall not be
deemed to have been paid in full until the holders of the Senior Indebtedness
shall have indefeasibly received payment in full in cash of all Senior
Indebtedness; provided that if any holder of Senior Indebtedness agrees to
accept payment in full of such Senior Indebtedness for consideration other than
cash, such holder shall be deemed to have indefeasibly received payment in full
of such Senior Indebtedness. The provisions of this Article XV shall continue
to be effective or be reinstated, as the case may be, if at any time any
payment of any of the Senior Indebtedness is rescinded or must otherwise be
returned by any holder of Senior Indebtedness upon the insolvency, bankruptcy
or organization of the Company or otherwise, all as though such payment had not
been made.
Section 15.3 Liquidation; Dissolution; Bankruptcy. Upon any
distribution to creditors of the Company in a liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, in an assignment for the
benefit of creditors or any marshaling of the Company's assets and liabilities,
(a) holders of Senior Indebtedness shall be entitled to receive payment in full
of all amounts due or to become due thereon before Noteholders shall be
entitled to receive any payment with respect to the principal of, premium, if
any, or interest on the Notes (except that Noteholders may receive securities
that are subordinated to at least the same extent as the Notes to (x) Senior
Indebtedness and (y) any securities issued in exchange for Senior Indebtedness)
and (b) until all Senior Indebtedness (as provided in clause (a) above) is paid
in full, any distribution to which Noteholders would be entitled but for this
Article shall be made to holders of Senior Indebtedness (except that
Noteholders may receive securities that are subordinated to at least the same
extent as the Notes to (x) Senior Indebtedness and (y) any securities issued in
exchange for Senior Indebtedness), as their interests may appear. A
distribution may consist of cash, securities or other property, by set-off or
otherwise.
Section 15.4 Default on Senior Indebtedness; Acceleration of
Notes.
(a) The Company may not make any payment upon or in
respect of the Notes (except in such subordinated securities) and may
not acquire from the Trustee or any Noteholder any Note for cash or
property (other than securities that are subordinated to at least the
same extent as the Note to (i) Senior Indebtedness and (ii) any
securities issued in exchange for Senior Indebtedness) until all
Senior Indebtedness has been paid in full if:
(i) a default in the payment of the principal of,
premium, if any, interest, rent under or other obligations in
respect of Senior Indebtedness occurs and is continuing beyond
any applicable period of grace (a "Payment Default"); or
(ii) a default, other than a Payment Default on
Designated Senior Indebtedness, occurs and is continuing with
respect to Designated Senior
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Indebtedness that permits holders of the Designated Senior
Indebtedness as to which such default relates to accelerate
its maturity (a "Nonpayment Default") and the Trustee receives
a notice of such default (a "Payment Blockage Notice") from a
Representative. No Nonpayment Default that existed or was
continuing on the date of delivery of any such Payment
Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice. No new period of
payment blockage based on a Nonpayment Default may be
commenced within 365 days after the receipt by the Trustee of
any prior Payment Blockage Notice.
The Company may and shall resume payments on and distributions
in respect of the Notes and may acquire them upon the earlier of:
(i) in the case of a Payment Default, upon the
date on which the default is cured or waived, or
(ii) in the case of a Nonpayment Default, 179 days
after the date on which the applicable Payment Blockage Notice
is received, unless the maturity of such Senior Indebtedness
has been accelerated,
if this Article XV otherwise permits the payment, distribution or
acquisition at the time of such payment or acquisition.
(b) In the event of the acceleration of the Notes because
of an Event of Default, no payment or distribution shall be made to
the Trustee or any holder of Notes in respect of the principal of,
premium, if any, or interest on the Notes (including, but not limited
to, the redemption price with respect to the Notes called for
redemption in accordance with Section 3.3 or submitted for redemption
in accordance with Section 3.5, as the case may be), until all Senior
Indebtedness has been paid in full in cash or other payment
satisfactory to the holders of Senior Indebtedness or such
acceleration is rescinded in accordance with the terms of this
Indenture. If payment of the Notes is accelerated because of an Event
of Default, the Company shall promptly notify holders of Senior
Indebtedness of the acceleration.
Section 15.5 When Distribution Must Be Paid Over. In the event
that the Trustee (or paying agent if other than the Trustee) or any Noteholder
receives any payment of principal or interest with respect to the Notes at a
time when such payment is prohibited by Section 15.3 or 15.4 hereof, such
payment shall be held by the Trustee (or paying agent if other than the
Trustee) or such Noteholder, in trust for the benefit of, and immediately shall
be paid over and delivered, upon written request, to, the holders of Senior
Indebtedness or their Representative under the indenture or other agreement (if
any) pursuant to which Senior Indebtedness may have been issued, as their
respective interests may appear, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in
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accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article XV, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of Senior Indebtedness and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Noteholders or the Company or any other person money or assets to
which any holders of Senior Indebtedness shall be entitled by virtue of this
Article XV, except if such payment is made as a result of the willful
misconduct or gross negligence of the Trustee.
Section 15.6 Notice by Company. The Company shall promptly notify
the Trustee and the paying agent of any facts known to the Company that would
cause a payment of any principal or interest with respect to the Notes to
violate this Article XV, but failure to give such notice shall not affect the
subordination of the Notes to the Senior Indebtedness as provided in this
Article XV.
Section 15.7 Subrogation. After all Senior Indebtedness is paid
in full and until the Notes are paid in full, Noteholders shall be subrogated
(equally and ratably with all other Indebtedness pari passu with the Notes) to
the rights of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent that distributions otherwise
payable to the Noteholders have been applied to the payment of Senior
Indebtedness. A distribution made under this Article XV to holders of Senior
Indebtedness that otherwise would have been made to Noteholders is not, as
between the Company and Noteholders, a payment by the Company on the Notes.
Section 15.8 Relative Rights. This Article XV defines the
relative rights of Noteholders and holders of Senior Indebtedness. Nothing in
this Indenture shall:
(a) impair, as between the Company and the Noteholders,
the obligation of the Company, which is absolute and unconditional, to
pay principal of, premium, if any, and interest on the Notes in
accordance with their terms;
(b) affect the relative rights of Noteholders and
creditors of the Company other than their rights in relation to
holders of Senior Indebtedness; or
(c) prevent the Trustee or any Noteholder from exercising
its available remedies upon a default or Event of Default, subject to
the rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Noteholders.
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If the Company fails because of this Article XV to pay principal of,
premium, if any, or interest on a Note on the due date, the failure is still a
default or Event of Default.
Section 15.9 Subordination May Not Be Impaired by Company. No
right of any holder of Senior Indebtedness to enforce the subordination of the
indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by the Company or any holder of Notes or by the failure of the Company or
any holder of Notes to comply with this Indenture.
Section 15.10 Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article XV, the Trustee and the Noteholders shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction or upon
any certificate of such Representative or of the liquidating trustee or agent
or other person making any distribution to the Trustee or to the Noteholders
for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
XV.
Section 15.11 Rights of Trustee and Paying Agent. Notwithstanding
the provisions of this Article XV or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts that
would prohibit the making of any payment or distribution by the Trustee, and
the Trustee and the paying agent may continue to make payments on the Notes,
unless the Trustee shall have received at its Corporate Trust Office at least
three Business Days prior to the date of such payment written notice of facts
that would cause the payment of any principal, premium, if any, and interest
with respect to the Notes to violate this Article XV. Only the Company or a
Representative may give the notice. Nothing in this Article XV shall impair
the claims of, or payments to, the Trustee under or pursuant to Section 7.7
hereof.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a person representing such person to be a holder of Senior
Indebtedness (or a trustee or agent on behalf of such holder) to establish that
such notice has been given by a holder of Senior Indebtedness (or a trustee or
agent on behalf of any such holder). In the event that the Trustee determines
in good faith that further evidence is required with respect to the right of
any person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article XV, the Trustee may request such person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such person, the extent to which such
person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such person under this Article XV, and if such
evidence is not furnished, the Trustee may defer any payment which it may be
required to make for the benefit of such person pursuant to the terms of
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this Indenture pending judicial determination as to the rights of such person
to receive such payment.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
paying agent, any authenticating agent, any conversion agent, any Note
registrar and their successors may do the same with like rights.
Section 15.12 Authorization to Effect Subordination. Each holder
of a Note by the holder's acceptance thereof authorizes and directs the Trustee
on the holder's behalf to take such action as may be necessary or appropriate
to effectuate the subordination as provided in this Article XV and appoints the
Trustee to act as the holder's attorney-in-fact for any and all such purposes.
Without limiting the foregoing, each Representative is hereby irrevocably
authorized and empowered (in its own name or in the name of the Noteholders or
the Trustee or otherwise), but shall have no obligation, to demand, sue for,
collect and receive every payment or distribution referred to in Section 15.3
above and give acquittance therefor and to file claims and proofs of claim and
take such other action as it may deem necessary or advisable for the exercise
or enforcement of any of the rights or interests of the holders or owners of
the Senior Indebtedness hereunder; provided that for purposes of this Section
15.12 holders or owners of Senior Indebtedness may act only through such
Representative.
Section 15.13 Conversions Not Deemed Payment. For the purposes of
this Article XV only, the issuance and delivery of Common Stock upon conversion
of the Notes in accordance with Article XIV shall not be deemed to constitute a
payment or distribution on account of the principal of or interest on the Notes
or on account of the purchase or other acquisition of Notes. Nothing contained
in this Article or elsewhere in this Indenture or in the Notes is intended to
or shall impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the holders, the right, which is absolute and
unconditional, of the holder of any Note to convert such Note in accordance
with Article XIV.
Section 15.14 Amendments. The provisions of this Article XV shall
not be amended or modified without the written consent of the holders of Senior
Indebtedness.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
Section 16.1 Pooling of Interests. The Company desires to
preserve its ability to account for acquisition and other business combination
transactions using the pooling-of-interests method where appropriate, and the
provisions of this Indenture shall be interpreted accordingly.
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Section 16.2 Provisions Binding on Company's Successors. All the
covenants, stipulations, promises and agreements in this Indenture made by the
Company shall bind its successors and assigns whether so expressed or not.
Section 16.3 Official Acts by Successor Company. Any act or
proceeding by any provision of this Indenture authorized or required to be done
or performed by any board (including the Board of Directors), committee or
officer of the Company shall and may be done and performed with like force and
effect by the like board, committee or officer of any corporation that shall at
the time be the lawful sole successor of the Company.
Section 16.4 Addresses for Notices, Etc. Any notice or demand
that by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Notes on the Company shall be deemed
to have been sufficiently given or made, for all purposes if given or served by
being sent by prepaid overnight delivery or being deposited postage prepaid by
registered or certified mail in a post office letter box addressed (until
another address is filed by the Company with the Trustee) to Adaptec, Inc., 691
S. Milpitas Blvd., Milpitas, California 95035, Attention: Chief Financial
Officer with a copy to John A. Fore, Esq., Wilson Sonsini Goodrich & Rosati,
650 Page Mill Road, Palo Alto, California 94304. Any notice, direction,
request or demand hereunder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or served by being sent
by prepaid overnight delivery or being deposited postage prepaid by registered
or certified mail in a post office letter box addressed to the Corporate Trust
Office of the Trustee, which office is, at the date as of which this Indenture
is dated, located at Two International Place, 4th Floor, Boston, MA 02110
Attention: Corporate Trust Administration.
The Trustee, by notice to the Company, may designate additional or
different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be mailed to
him by first class mail, postage prepaid, at the address of such Noteholder as
it appears on the Note register and shall be sufficiently given to such
Noteholder if so mailed within the time prescribed.
Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other
Noteholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Section 16.5 Communications by Holders with Other Holders.
Noteholders may communicate pursuant to Trust Indenture Act Section 312(b) with
other Noteholders with respect to their rights under this Indenture or the
Notes. The Company, the Trustee, the Note registrar and any other person shall
have the protection of Trust Indenture Act Section 312(c).
Section 16.6 Governing Law. THIS INDENTURE AND THE NOTES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
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STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE
OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Section 16.7 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture,
including those actions set forth in Trust Indenture Act Section 314(c), the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating
that, in the Opinion of such Counsel, all such conditions precedent have been
complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or
covenant provided for in this Indenture shall include: (1) a statement that
the person making such certificate or opinion has read such covenant or
condition, (2) a brief statement as to the nature and scope of the examination
or investigation upon which the statement or opinion contained in such
certificate or opinion is based, (3) a statement that, in the opinion of such
person, he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant or
condition has been complied with and (4) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
Section 16.8 Legal Holidays. In any case where any interest
payment date, date fixed for redemption, stated maturity or Change of Control
Purchase Date of any Note or the last date on which a Holder has the right to
convert his Notes shall not be a Business Day, then (notwithstanding any other
provision of this Indenture or of the Notes) payment of interest or principal
(and premium, if any) or conversion of the Notes need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the Interest Payment Date, date fixed for redemption,
Change of Control Purchase Date, or at the stated maturity, or on such last day
for conversion, provided that no interest shall accrue for the period from and
after such interest payment date, date fixed for redemption, Change of Control
Purchase Date or stated maturity, as the case may be.
Section 16.9 No Security Interest Created. Nothing in this
Indenture or in the Notes, expressed or implied, shall be construed to
constitute a security interest under the Uniform Commercial Code or similar
legislation, as now or hereafter enacted and in effect, in any jurisdiction
where property of the Company or its subsidiaries is located.
Section 16.10 Trust Indenture Act. This Indenture is hereby made
subject to, and shall be governed by, the provisions of the Trust Indenture Act
required to be part of and to govern indentures qualified under the Trust
Indenture Act.
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Section 16.11 Trust Indenture Act Controls. If any provision of
this Indenture limits, qualifies, or conflicts with the duties imposed by
operation of the Trust Indenture Act, the imposed duties, upon qualification of
this Indenture under the Trust Indenture Act, shall control.
Section 16.12 Benefits of Indenture. Nothing in this Indenture or
in the Notes, expressed or implied, shall give to any person, other than the
parties hereto, any paying agent, any authenticating agent, any conversion
agent, any Note registrar and their successors hereunder and the holders of
Notes, any benefit or any legal or equitable right, remedy or claim under this
Indenture.
Section 16.13 Table of Contents, Headings Etc. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 16.14 Authenticating Agent. The Trustee may appoint an
authenticating agent that shall be authorized to act on its behalf and subject
to its direction in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7 and 3.3, as fully to all intents
and purposes as though the authenticating agent had been expressly authorized
by this Indenture and those Sections to authenticate and deliver Notes. For
all purposes of this Indenture, the authentication and delivery of Notes by the
authenticating agent shall be deemed to be authentication and delivery of such
Notes "by the Trustee" and a certificate of authentication executed on behalf
of the Trustee by an authenticating agent shall be deemed to satisfy any
requirement hereunder or in the Notes for the Trustee's certificate of
authentication. Such authenticating agent shall at all times be a person
eligible to serve as Trustee hereunder pursuant to Section 7.10.
Any corporation into which any authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any authenticating agent
shall be a party, or any corporation succeeding to the corporate trust business
of any authenticating agent, shall be the successor of the authenticating agent
hereunder, if such successor company is otherwise eligible under this Section,
without the execution or filing of any paper or any further act on the part of
the parties hereto or the authenticating agent or such successor company.
Any authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at
any time terminate the agency of any authenticating agent by giving written
notice of termination to such authenticating agent and to the Company. Upon
receiving such a notice of resignation or upon such a termination, or in case
at any time any authenticating agent shall cease to be eligible under this
Section, the Trustee shall promptly appoint a successor authenticating agent
(which may be the Trustee), shall give written
-80-
<PAGE> 89
notice of such appointment to the Company and shall mail notice of such
appointment to all holders of Notes as the names and addresses of such holders
appear on the Note register.
The Company agrees to pay to the authenticating agent from time to
time reasonable compensation for its services.
The provisions of Sections 7.3, 7.4, 7.5, 8.3 and this Section 16.14
shall be applicable to any authenticating agent.
Section 16.15 Execution in Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
State Street Bank and Trust Company hereby accepts the trusts in this
Indenture declared and provided, upon the terms and conditions hereinabove set
forth.
-81-
<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly signed and attested, all as of the date first written above.
ADAPTEC, INC.
By: ___________________________________
Name:
Title:
Attest:
_________________________________
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: ___________________________________
Name:
Title:
Attest:
_________________________________
-82-
<PAGE> 91
EXHIBIT A - FORM OF DEFINITIVE NOTE
[FORM OF FACE OF NOTE]
No. A-1
$____________
CUSIP________
ADAPTEC, INC.
__% Convertible Subordinated Notes Due 2004
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1),
(2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE NOTE
EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL
NOT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE LAST DATE ON
WHICH ADAPTEC, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED IN
RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF THE
NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE TRANSFER
THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION
OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B)
TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER
THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK AND TRUST
COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER
A-1
<PAGE> 92
THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION
TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY, AS
TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR
(E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE
STREET BANK AND TRUST COMPANY, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON
THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Adaptec, Inc., a corporation duly organized and validly existing under
the laws of the State of California (the "Company"), which term includes any
Successor Company under the Indenture referred to on the reverse hereof, for
value received hereby promises to pay to ________________, or registered
assigns, the principal sum of ___________________________ Dollars on February
1, 2004, at the office or agency of the Company maintained for that purpose in
the Borough of Manhattan, The City of New York, or, at the option of the holder
of this Note, at the Corporate Trust Office of the Trustee, in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest,
semi-annually on February 1 and August 1 of each year, commencing August 1,
1997, on said principal sum at said office or agency, in like coin or currency,
at the rate per annum specified in the title of this Note, from the February 1
or August 1, as the case may be, next preceding the date of this Note to which
interest has been paid or
A-2
<PAGE> 93
duly provided for, unless the date hereof is a date to which interest has been
paid or duly provided for, in which case from the date of this Note, or unless
no interest has been paid or duly provided for on the Notes, in which case from
February __, 1997, until payment of said principal sum has been made or duly
provided for; provided that if the Company shall default in the payment of
interest due on such February 1 or August 1, then this Note shall bear interest
from the next preceding February 1 or August 1 to which interest has been paid
or duly provided for or, if no interest has been paid or duly provided for on
such Note, from February __, 1997. The interest so payable on any February 1
or August 1 will be paid to the person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the record date,
which shall be the January 15 or July 15 (whether or not a Business Day) next
preceding such February 1 or August 1, respectively; provided that any such
interest not punctually paid or duly provided for shall be payable as provided
in the Indenture. Interest shall be paid by check mailed to the registered
holder at the registered address of such person unless other arrangements are
made in accordance with the provisions of the Indenture.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, including, without limitation, provisions subordinating the
payment of principal of and premium, if any, and interest on the Notes to the
prior payment in full of all Senior Indebtedness as defined in the Indenture
and provisions giving the holder of this Note the right to convert this Note
into Common Stock of the Company on the terms and subject to the limitations
referred to on the reverse hereof and as more fully specified in the Indenture.
Such further provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Note shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be construed in accordance with
and governed by the laws of said State, without regard to conflicts of laws
principles thereof.
This Note shall not be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been manually signed
by the Trustee, or a duly authorized authenticating agent under the Indenture.
A-3
<PAGE> 94
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed under its corporate seal.
ADAPTEC, INC.
By: ___________________________________
Name:
Title:
Dated:
Attest:
__________________________________
Secretary
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-named indenture.
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ___________________________________
Authorized Signatory
A-4
<PAGE> 95
[FORM OF REVERSE OF NOTE]
ADAPTEC, INC.
__% Convertible Subordinated Notes Due 2004
This Note is one of a duly authorized issue of Notes of the Company,
designated as its __% Convertible Subordinated Notes Due 2004 (herein called
the "Notes"), limited to the aggregate principal amount of $230,000,000 all
issued or to be issued under and pursuant to an Indenture dated as of February
__, 1997 (the "Indenture"), between the Company and State Street Bank and Trust
Company, as trustee (the "Trustee"), to which Indenture and all indentures
supplemental thereto reference is hereby made for a complete description of the
rights, limitations of rights, obligations, duties and immunities thereunder of
the Trustee, the Company and the holders of the Notes. Each Note is subject
to, and qualified by, all such terms as set forth in the Indenture certain of
which are summarized hereon and each holder of a Note is referred to the
corresponding provisions of the Indenture for a complete statement of such
terms. To the extent that there is any inconsistency between the summary
provisions set forth in the Notes and the Indenture, the provisions of the
Indenture shall govern. Capitalized terms used but not defined in this Note
shall have the meanings ascribed to them in the Indenture.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of, premium, if any, and accrued
interest on all Notes may be declared, and upon said declaration shall become,
due and payable, in the manner, with the effect and subject to the conditions
provided in the Indenture.
The payment of principal of, premium, if any, and interest on the
Notes will, to the extent set forth in the Indenture, be subordinated in right
of payment to the prior payment in full of all Senior Indebtedness (as defined
in the Indenture).
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding, evidenced as
in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Notes; provided that no such supplemental
indenture shall (i) extend the fixed maturity of any Note, reduce the rate or
extend the time of payment of interest thereon, reduce the principal amount
thereof or premium, if any, thereon, reduce any amount payable on redemption
thereof, change the obligation of the Company to repurchase the Notes at the
option of the holders upon the happening of a Change of Control, impair or
affect the right of any Noteholder to institute suit for the payment thereof,
make the principal thereof or interest or premium, if any, thereon payable in
any coin or currency other than that provided in the Notes, modify the
subordination provisions of the Indenture in a manner adverse to the holders of
the Notes, or impair the right to convert the
A-5
<PAGE> 96
Notes into Common Stock subject to the terms set forth in the Indenture,
without the consent of the holder of each Note so affected or (ii) reduce the
aforesaid percentage of Notes, the holders of which are required to consent to
any such supplemental indenture, without the consent of the holders of all
Notes then outstanding. It is also provided in the Indenture that, prior to
any declaration accelerating the maturity of the Notes, the holders of a
majority in aggregate principal amount of the Notes at the time outstanding may
on behalf of the holders of all of the Notes waive any past default or Event of
Default under the Indenture and its consequences except a default in the
payment of interest or any premium on or the principal of any of the Notes, a
failure by the Company to convert any Notes into Common Stock of the Company or
a default in respect of a covenant or provision of the Indenture that under
Article X thereof cannot be modified or amended without the consent of the
holders of all Notes then outstanding. Any such consent or waiver by the
holder of this Note (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such holder and upon all future holders and owners
of this Note and any Notes that may be issued in exchange or substitution
hereof, irrespective of whether or not any notation thereof is made upon this
Note or such other Notes.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and
interest on this Note at the place, at the respective times, at the rate and in
the coin or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a 360-day year
composed of twelve 30-day months.
The Notes are issuable in registered form without coupons in
denominations of $1,000 principal amount and integral multiples thereof.
The Notes are not redeemable at the option of the Company prior to
February 3, 2000. At any time on or after that date, the Notes may be redeemed
at the Company's option, upon notice as set forth in the Indenture, in whole at
any time or in part from time to time, at the optional redemption prices set
forth below (expressed in percentages of the principal amount), together with
accrued interest to the date fixed for redemption.
If redeemed during the 12-month period beginning February 1 (beginning
February 3, 2000 and ending January 31, 2001, in the case of the first such
period):
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2000 ___._%
2001 ___._%
2002 ___._%
2003 ___._%
</TABLE>
A-6
<PAGE> 97
and 100% at February 1, 2004; provided that if the date fixed for redemption is
February 1 or August 1, then the interest payable on such date shall be paid to
the holder of record on the next preceding January 15 or July 15, respectively.
If a Change of Control (as defined in the Indenture) shall occur at
any time, then each holder of Notes shall have the right, at the holder's
option, to require that the Company repurchase such holder's Notes in whole or
in part in integral multiples of $1,000, at a purchase price in cash in an
amount equal to 101% of the principal amount of such Notes, plus accrued and
unpaid interest, if any, to the repurchase date pursuant to an offer to be made
by the Company and in accordance with the procedures set forth in the
Indenture.
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after 90 days following the date of original
issuance of this Note and through the close of business on February 1, 2004,
or, as to all or any portion hereof called for redemption, immediately prior to
the close of business on the last business day before the date fixed for
redemption (unless the Company shall default in payment due upon redemption
thereof), to convert the principal hereof or any portion of such principal that
is $1,000 or an integral multiple thereof, into that number of fully paid and
non-assessable shares of Company's Common Stock, as said shares shall be
constituted at the date of conversion, obtained by dividing the principal
amount of this Note or portion thereof to be converted by the conversion price
of $_______ or such conversion price as adjusted from time to time as provided
in the Indenture, upon surrender of this Note, together with a conversion
notice as provided in the Indenture, to the Company at the office or agency of
the Company maintained for that purpose in the Borough of Manhattan, The City
of New York, or, at the option of such holder, the Corporate Trust Office of
the Trustee, and, unless the shares issuable on conversion are to be issued in
the same name as this Note, duly endorsed by, or accompanied by instruments of
transfer in form satisfactory to the Company duly executed by, the holder or by
his duly authorized attorney. No adjustment in respect of interest or
dividends will be made upon any conversion; provided that if this Note shall be
surrendered for conversion after the close of business on a record date for the
payment of interest and before the opening of business on the next succeeding
interest payment date, this Note (unless it or the portion being converted
shall have been called for redemption on a date after the close of business on
a record date and before the close of business on the business day following
the corresponding interest payment date) must be accompanied by an amount, in
funds acceptable to the Company, equal to the interest payable on such interest
payment date on the principal amount being converted. The interest payment
with respect to a Note called for redemption on a date during the period from
the close of business on or after any record date to the close of business on
the business day following the corresponding interest payment date will be
payable on the corresponding interest payment date to the registered Holder at
the close of business on that record date (notwithstanding the conversion of
such Note before the corresponding interest payment date) and a Holder who
elects to convert need not include funds equal to the interest paid. No
fractional shares will be issued upon any conversion, but an adjustment in cash
will be made, as provided in the Indenture, in respect of any fraction of a
share that would otherwise be issuable upon the surrender of any Note or Notes
for conversion.
A-7
<PAGE> 98
Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, or at the option of the holder of this Note, at the Corporate Trust
Office of the Trustee, a new Note or Notes of authorized denominations for an
equal aggregate principal amount will be issued to the transferee in exchange
thereof, subject to the conditions and limitations provided in the Indenture,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Note registrar may deem and treat the registered
holder hereof as the absolute owner of this Note (whether or not this Note
shall be overdue and notwithstanding any notation of ownership or other writing
hereon made by anyone other than the Company or any Note registrar), for the
purpose of receiving payment hereof, or on account hereof, for the conversion
hereof and for all other purposes, and neither the Company nor the Trustee nor
any other authenticating agent nor any paying agent nor any other conversion
agent nor any Note registrar shall be affected by any notice to the contrary.
All payments made to or upon the order of such registered holder shall, to the
extent of the sum or sums paid, satisfy and discharge liability for monies
payable on this Note.
No recourse for the payment of the principal of or any premium or
interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any indenture supplemental thereto or in any
Note, or because of the creation of any indebtedness represented thereby, shall
be had against any incorporator, shareholder, officer or director, as such,
past, present or future, of the Company or of any Successor Company, either
directly or through the Company or any Successor Company, whether by virtue of
any constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released.
Terms used in this Note and defined in the Indenture are used herein as
therein defined.
A-8
<PAGE> 99
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Note, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties __________________________ Custodian
(Cust)
JT TEN - as joint tenants with right of
survivorship and not as tenants in __________________________ under
common (Minor)
Uniform Gifts to
Minors Act___________________________
(State)
</TABLE>
Additional abbreviations may also be used
though not in the above list.
A-9
<PAGE> 100
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE
To: Adaptec, Inc.
The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is
$1,000 principal amount or an integral multiple thereof) below designated, into
shares of Common Stock, par value $.001 per share, of the Company in accordance
with the terms of the Indenture referred to in this Note, and directs that the
shares issuable and deliverable upon such conversion, together with any check
in payment for fractional shares and any Notes representing any unconverted
principal amount hereof, be issued and delivered to the registered holder
hereof unless a different name has been indicated below. If shares or any
portion of this Note not converted are to be issued in the name of a person
other than the undersigned, the undersigned will check the appropriate box
below and pay all transfer taxes payable with respect thereto. Any amount
required to be paid to the undersigned on account of interest accompanies this
Note.
Dated:____________________________
____________________________________
____________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or
Notes are to be delivered, other than to and in the name of the registered
holder.
__________________________________
Signature Guarantee
A-10
<PAGE> 101
Fill in for registration of shares of Common Stock if to be issued, and Notes
if to be delivered, other than to and in the name of the registered holder:
__________________________________
(Name)
__________________________________
(Street Address)
__________________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be converted
(if less than all) $________________
____________________________________
Social Security or other Taxpayer
Identification Number
A-11
<PAGE> 102
[FORM OF OPTION TO ELECT REPAYMENT
UPON A CHANGE OF CONTROL]
To: Adaptec, Inc.
The undersigned registered owner of this Note hereby irrevocably
acknowledges receipt of a notice from Adaptec, Inc. (the "Company") as to the
occurrence of a Change of Control with respect to the Company and requests and
instructs the Company to repay the entire principal amount of this Note, or the
portion thereof (which is $1,000 principal amount or an integral multiple
thereof) below designated, in accordance with the terms of the Indenture
referred to in this Note, together with accrued interest to such date, to the
registered holder hereof.
Dated:____________________________
____________________________________
____________________________________
Signature(s)
Principal amount to be repaid
(if less than all): $_______________
____________________________________
Social Security or Other Taxpayer
Identification Number
A-12
<PAGE> 103
[FORM OF ASSIGNMENT]
For value received _____________________________ hereby sell(s),
assign(s) and transfer(s) unto _________________________ (Please insert social
security or other identifying number of assignee) the within Note, and hereby
irrevocably constitutes and appoints ________________________________ attorney
to transfer the said Note on the books of the Company, with full power of
substitution in the premises.
In connection with any transfer of the within Note (or any issuance of
shares of Common Stock upon conversion of the within Note) occurring prior to
the third anniversary of the date of original issuance of such Note, the
undersigned confirms that such Note (or shares of Common Stock, as the case may
be) are being transferred:
[ ] To Adaptec, Inc. or a subsidiary thereof; or
[ ] Pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
[ ] To an Institutional Accredited Investor pursuant to and in compliance
with the Securities Act of 1933, as amended; or
[ ] Pursuant to and in compliance with Regulation S under the Securities
Act of 1933, as amended; or
[ ] Pursuant to and in compliance with Rule 144 under the Securities Act
of 1933, as amended.
Unless one of the boxes above is checked, the Trustee will refuse to
register any of the within Notes (or such shares of Common Stock, as the case
may be) in the name of any person other than the registered holder thereof (or
hereof); provided, however, that the Trustee may, in its sole discretion,
register the transfer of such Notes (or such shares of Common Stock, as the
case may be) if it has received such certifications, legal opinions and/or
other information as the Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, as
amended.
A-13
<PAGE> 104
In addition, if the transferee is an Institutional Accredited Investor
or a purchaser who is not a U.S. person, the holder must furnish to the Trustee
(i) in the case of an institutional accredited investor, a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of the security evidenced hereby in substantially the form of
Exhibit D to the Indenture and (ii) such other certifications, legal opinions
or other information as it may reasonably require to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act of 1933, as amended.
Dated:_____________________________________
___________________________________________
___________________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15.
___________________________________________
Signature Guarantee
NOTICE: The signature on the conversion notice, the option to elect payment
upon a Change of Control or the assignment must correspond with the name as
written upon the face of the Note in every particular without alteration or
enlargement or any change whatever.
A-14
<PAGE> 105
EXHIBIT B - FORM OF RESTRICTED GLOBAL NOTE
[FORM OF FACE OF NOTE]
No. B-1 $________________
CUSIP ________________
ADAPTEC, INC.
___% Convertible Subordinated Notes Due 2004
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS RESTRICTED GLOBAL NOTE MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR
BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF
THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR
DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE "DEPOSITARY"),
TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL
B-1
<PAGE> 106
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT
IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF
THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE LAST DATE
ON WHICH ADAPTEC, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED
IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF
THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE
TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON
CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK
AND TRUST COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION
TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY, AS
TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR
(E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE
STREET BANK AND TRUST COMPANY, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON
THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES"
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<PAGE> 107
AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT.
Adaptec, Inc., a corporation duly organized and validly existing under
the laws of the State of California (the "Company"), which term includes any
Successor Company under the Indenture referred to on the reverse hereof, for
value received hereby promises to pay to ______________________, or registered
assigns, the principal sum of ________________________ Dollars (subject to
adjustment as set forth in the next paragraph hereof) on February 1, 2004, at
the office or agency of the Company maintained for that purpose in the Borough
of Manhattan, The City of New York, or, at the option of the holder of this
Restricted Global Note, at the Corporate Trust Office of the Trustee, in such
coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts, and to pay
interest, semi-annually on February 1 and August 1 of each year, commencing
August 1, 1997, on said principal sum at said office or agency, in like coin or
currency, at the rate per annum specified in the title of this Restricted
Global Note, from the February 1 or August 1, as the case may be, next
preceding the date of this Restricted Global Note to which interest has been
paid or duly provided for, unless the date hereof is a date to which interest
has been paid or duly provided for, in which case from the date of this
Restricted Global Note, or unless no interest has been paid or duly provided
for on the Notes, in which case from February __, 1997, until payment of said
principal sum has been made or duly provided for; provided that if the Company
shall default in the payment of interest due on such February 1 or August 1,
then this Restricted Global Note shall bear interest from the next preceding
February 1 or August 1 to which interest has been paid or duly provided for or,
if no interest has been paid or duly provided for on such Note, from February
__, 1997. The interest so payable on any February 1 or August 1 will be paid
to the person in whose name this Restricted Global Note (or one or more
Predecessor Notes) is registered at the close of business on the record date,
which shall be the January 15 or July 15 (whether or not a Business Day) next
preceding such February 1 or August 1, respectively; provided that any such
interest not punctually paid or duly provided for shall be payable as provided
in the Indenture. Interest shall be paid by check mailed to the registered
holder at the registered address of such person unless other arrangements are
made in accordance with the provisions of the Indenture.
The aggregate principal amount of this Restricted Global Note
represented hereby may from time to time be reduced or increased to reflect
exchanges of a part of this Restricted Global Note for interests in the
Regulation S Global Note or definitive Notes or exchanges of interests in the
Regulation S Global Note or definitive Notes for a part of this Restricted
Global Note or conversions, redemptions or repurchases of a part of this
Restricted Global Note or cancellations of a part of this Restricted Global
Note or transfers of interests in the Regulation S Global Note or definitive
Notes in return for a part of this Restricted Global Note or transfers of a
part of this Restricted Global Note effected by delivery of interests in the
Regulation S Global Note or definitive Notes, in each case, and in any such
case, by means of notations on the Schedule of Exchanges, Conversions,
Redemptions, Repurchases, Cancellations and Transfers on the last page hereof.
Notwithstanding any provision of this Restricted Global Note to the contrary,
(i)
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<PAGE> 108
exchanges of a part of this Restricted Global Note for interests in the
Regulation S Global Note or definitive Notes, (ii) exchanges of interests in
the Regulation S Global Note or definitive Notes for a part of this Restricted
Global Note, (iii) conversions, redemptions or repurchases of a part of this
Restricted Global Note, (iv) cancellations of a part of this Restricted Global
Note, (v) transfers of interests in the Regulation S Global Note or definitive
Notes in return for a part of this Restricted Global Note and (vi) transfers of
a part of this Restricted Global Note effected by delivery of interests in the
Regulation S Global Note or definitive Notes may be effected without the
surrendering of this Restricted Global Note, provided that appropriate
notations on the Schedule of Exchanges, Conversions, Redemptions, Repurchases,
Cancellations and Transfers are made by the Trustee, or the Custodian at the
direction of the Trustee, to reflect the appropriate reduction or increase, as
the case may be, in the aggregate principal amount of this Restricted Global
Note resulting therefrom or as a consequence thereof.
Reference is made to the further provisions of this Restricted Global
Note set forth on the reverse hereof, including, without limitation, provisions
subordinating the payment of principal of and premium, if any, and interest on
this Restricted Global Note to the prior payment in full of all Senior
Indebtedness as defined in the Indenture and provisions giving the holder of
this Restricted Global Note the right to convert this Restricted Global Note
into Common Stock of the Company on the terms and subject to the limitations
referred to on the reverse hereof and as more fully specified in the Indenture.
Such further provisions shall for all purposes have the same effect as though
fully set forth at this place.
This Restricted Global Note shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be
construed in accordance with and governed by the laws of said State, without
regard to conflicts of laws principles thereof.
This Restricted Global Note shall not be valid or become obligatory
for any purpose until the certificate of authentication hereon shall have been
manually signed by the Trustee or a duly authorized authenticating agent under
the Indenture.
B-4
<PAGE> 109
IN WITNESS WHEREOF, the Company has caused this Restricted Global Note
to be duly executed under its corporate seal.
ADAPTEC, INC.
By: ___________________________________
Name:
Title:
Dated:
Attest:
___________________________
Secretary
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-named indenture.
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: ___________________________________
Authorized Signatory
B-5
<PAGE> 110
[FORM OF REVERSE OF RESTRICTED GLOBAL NOTE]
ADAPTEC, INC.
__% Convertible Subordinated Notes Due 2004
This Restricted Global Note is one of a duly authorized issue of Notes
of the Company, designated as its __% Convertible Subordinated Notes Due 2004
(herein called the "Notes"), limited to the aggregate principal amount of
$230,000,000 all issued or to be issued under and pursuant to an Indenture
dated as of February __, 1997 (the "Indenture"), between the Company and State
Street Bank and Trust Company, as trustee (the "Trustee"), to which Indenture
and all indentures supplemental thereto reference is hereby made for a complete
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the Notes.
Each Note is subject to, and qualified by, all such terms as set forth in the
Indenture certain of which are summarized hereon and each holder of a Note is
referred to the corresponding provisions of the Indenture for a complete
statement of such terms. To the extent that there is any inconsistency between
the summary provisions set forth in the Notes and the Indenture, the provisions
of the Indenture shall govern. Capitalized terms used but not defined in this
Note shall have the meanings ascribed to them in the Indenture.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of, premium, if any, and accrued
interest on all Notes may be declared, and upon said declaration shall become,
due and payable, in the manner, with the effect and subject to the conditions
provided in the Indenture.
The payment of principal of, premium, if any, and interest on the
Notes will, to the extent set forth in the Indenture, be subordinated in right
of payment to the prior payment in full of all Senior Indebtedness (as defined
in the Indenture).
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding, evidenced as
in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Notes; provided that no such supplemental
indenture shall (i) extend the fixed maturity of any Note, reduce the rate or
extend the time of payment of interest thereon, reduce the principal amount
thereof or premium, if any, thereon, reduce any amount payable on redemption
thereof, change the obligation of the Company to repurchase the Notes at the
option of the holders upon the happening of a Change of Control, impair or
affect the right of any Noteholder to institute suit for the payment thereof,
make the principal thereof or interest or premium, if any, thereon payable in
any coin or currency other than that provided in the Notes, modify the
subordination provisions of the Indenture in a manner adverse to the holders of
the Notes, or impair the right to convert the
B-6
<PAGE> 111
Notes into Common Stock subject to the terms set forth in the Indenture,
without the consent of the holder of each Note so affected or (ii) reduce the
aforesaid percentage of Notes, the holders of which are required to consent to
any such supplemental indenture, without the consent of the holders of all
Notes then outstanding. It is also provided in the Indenture that, prior to
any declaration accelerating the maturity of the Notes, the holders of a
majority in aggregate principal amount of the Notes at the time outstanding may
on behalf of the holders of all of the Notes waive any past default or Event of
Default under the Indenture and its consequences except a default in the
payment of interest or any premium on or the principal of any of the Notes, a
failure by the Company to convert any Notes into Common Stock of the Company or
a default in respect of a covenant or provision of the Indenture that under
Article X thereof cannot be modified or amended without the consent of the
holders of all Notes then outstanding. Any such consent or waiver by the
holder of this Restricted Global Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Restricted Global Note and any Notes that may be
issued in exchange or substitution hereof, irrespective of whether or not any
notation thereof is made upon this Restricted Global Note or such other Notes.
No reference herein to the Indenture and no provision of this
Restricted Global Note or of the Indenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the principal of
and any premium and interest on this Restricted Global Note at the place, at
the respective times, at the rate and in the coin or currency herein
prescribed.
Interest on the Notes shall be computed on the basis of a 360-day year
composed of twelve 30-day months.
The Notes are issuable in registered form without coupons in
denominations of $1,000 principal amount and integral multiples thereof.
The Notes are not redeemable at the option of the Company prior to
February 3, 2000. At any time on or after that date, the Notes may be redeemed
at the Company's option, upon notice as set forth in the Indenture, in whole at
any time or in part from time to time, at the optional redemption prices set
forth below (expressed in percentages of the principal amount), together with
accrued interest to the date fixed for redemption.
If redeemed during the 12-month period beginning February 1 (beginning
February 3, 2000 and ending January 31, 2001, in the case of the first such
period):
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2000 ___._%
2001 ___._%
2002 ___._%
2003 ___._%
</TABLE>
B-7
<PAGE> 112
and 100% at February 1, 2004; provided that if the date fixed for redemption is
February 1 or August 1, then the interest payable on such date shall be paid to
the holder of record on the next preceding January 15 or July 15, respectively.
If a Change of Control (as defined in the Indenture) shall occur at
any time, then each holder of Notes shall have the right, at the holder's
option, to require that the Company repurchase such holder's Notes in whole or
in part in integral multiples of $1,000, at a purchase price in cash in an
amount equal to 101% of the principal amount of such Notes, plus accrued and
unpaid interest, if any, to the repurchase date pursuant to an offer to be made
by the Company and in accordance with the procedures set forth in the
Indenture.
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after 90 days following the date of original
issuance of this Note and through the close of business on February 1, 2004,
or, as to all or any portion hereof called for redemption, immediately prior to
the close of business on the last business day before the date fixed for
redemption (unless the Company shall default in payment due upon redemption
thereof), to convert the principal hereof or any portion of such principal that
is $1,000 or an integral multiple thereof, into that number of fully paid and
non-assessable shares of Company's Common Stock, as said shares shall be
constituted at the date of conversion, obtained by dividing the principal
amount of this Restricted Global Note or portion thereof to be converted by the
conversion price of $_______ or such conversion price as adjusted from time to
time as provided in the Indenture, upon surrender of this Restricted Global
Note, together with a conversion notice as provided in the Indenture, to the
Company at the office or agency of the Company maintained for that purpose in
the Borough of Manhattan, The City of New York, or, at the option of such
holder, the Corporate Trust Office of the Trustee, and, unless the shares
issuable on conversion are to be issued in the same name as this Restricted
Global Note, duly endorsed by, or accompanied by instruments of transfer in
form satisfactory to the Company duly executed by, the holder or by his duly
authorized attorney. No adjustment in respect of interest or dividends will be
made upon any conversion; provided that if this Restricted Global Note shall be
surrendered for conversion after the close of business on a record date for the
payment of interest and before the opening of business on the next succeeding
interest payment date, this Restricted Global Note (unless it or the portion
being converted shall have been called for redemption on a date after the close
of business on a record date and before the close of business on the business
day following the corresponding interest payment date) must be accompanied by
an amount, in funds acceptable to the Company, equal to the interest payable on
such interest payment date on the principal amount being converted. The
interest payment with respect to a Note called for redemption on a date during
the period from the close of business on or after any record date to the close
of business on the business day following the corresponding interest payment
date will be payable on the corresponding interest payment date to the
registered Holder at the close of business on that record date (notwithstanding
the conversion of such Note before the corresponding interest payment date) and
a Holder who elects to convert need not include funds equal to the interest
paid. No fractional shares will be issued upon any conversion, but an
adjustment in cash will be
B-8
<PAGE> 113
made, as provided in the Indenture, in respect of any fraction of a share that
would otherwise be issuable upon the surrender of any Note or Notes for
conversion.
Upon due presentment for registration of transfer of this Restricted
Global Note at the office or agency of the Company in the Borough of Manhattan,
The City of New York, or at the option of the holder of this Restricted Global
Note, at the Corporate Trust Office of the Trustee, a new Note or Notes of
authorized denominations for an equal aggregate principal amount will be issued
to the transferee in exchange thereof, subject to the conditions and
limitations provided in the Indenture, without charge except for any tax or
other governmental charge imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Note registrar may deem and treat the registered
holder hereof as the absolute owner of this Restricted Global Note (whether or
not this Restricted Global Note shall be overdue and notwithstanding any
notation of ownership or other writing hereon made by anyone other than the
Company or any Note registrar), for the purpose of receiving payment hereof, or
on account hereof, for the conversion hereof and for all other purposes, and
neither the Company nor the Trustee nor any other authenticating agent nor any
paying agent nor any other conversion agent nor any Note registrar shall be
affected by any notice to the contrary. All payments made to or upon the order
of such registered holder shall, to the extent of the sum or sums paid, satisfy
and discharge liability for monies payable on this Restricted Global Note.
No recourse for the payment of the principal of or any premium or
interest on this Restricted Global Note, or for any claim based hereon or
otherwise in respect hereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in the Indenture or any indenture
supplemental thereto or in any Note, or because of the creation of any
indebtedness represented thereby, shall be had against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Company or of any Successor Company, either directly or through the Company or
any Successor Company, whether by virtue of any constitution, statute or rule
of law or by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the acceptance hereof and as part of the consideration
for the issue hereof, expressly waived and released.
B-9
<PAGE> 114
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Restricted Global Note, shall be construed as though they were written
out in full according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties ________________ Custodian
JT TEN - as joint tenants with right of (Cust)
survivorship and not as tenants in ________________ under
common (Minor)
Uniform Gifts to
Minors Act ___________________
(State)
</TABLE>
Additional abbreviations may also be used
though not in the above list.
B-10
<PAGE> 115
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE
To: Adaptec, Inc.
The undersigned registered owner of this Restricted Global Note hereby
irrevocably exercises the option to convert this Restricted Global Note, or the
portion hereof (which is $1,000 principal amount or an integral multiple
thereof) below designated, into shares of Common Stock, par value $.001 per
share, of the Company in accordance with the terms of the Indenture referred to
in this Restricted Global Note, and directs that the shares issuable and
deliverable upon such conversion, together with any check in payment for
fractional shares and any Notes representing any unconverted principal amount
hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If shares or any portion of this
Restricted Global Note not converted are to be issued in the name of a person
other than the undersigned, the undersigned will check the appropriate box
below and pay all transfer taxes payable with respect thereto. Any amount
required to be paid to the undersigned on account of interest accompanies this
Restricted Global Note.
Dated:____________________________
____________________________________
____________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or
Notes are to be delivered, other than to and in the name of the registered
holder.
__________________________________
Signature Guarantee
B-11
<PAGE> 116
Fill in for registration of shares of Common Stock if to be issued, and Notes
if to be delivered, other than to and in the name of the registered holder:
_______________________________________
(Name)
_______________________________________
(Street Address)
_______________________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be converted
(if less than all) $_______________
___________________________________
Social Security or Other Taxpayer
Identification Number
B-12
<PAGE> 117
[FORM OF OPTION TO ELECT REPAYMENT
UPON A CHANGE OF CONTROL]
To: Adaptec, Inc.
The undersigned registered owner of this Restricted Global Note hereby
irrevocably acknowledges receipt of a notice from Adaptec, Inc. (the
"Company") as to the occurrence of a Change of Control with respect to the
Company and requests and instructs the Company to repay the entire principal
amount of this Restricted Global Note, or the portion thereof (which is $1,000
principal amount or an integral multiple thereof) below designated, in
accordance with the terms of the Indenture referred to in this Restricted
Global Note, together with accrued interest to such date, to the registered
holder hereof.
Dated:____________________________
____________________________________
____________________________________
Signature(s)
Principal amount to be repaid
(if less than all): $_______________
____________________________________
Social Security or Other Taxpayer
Identification Number
B-13
<PAGE> 118
[FORM OF ASSIGNMENT]
For value received _____________________________ hereby sell(s),
assign(s) and transfer(s) unto _____________ (please insert social security or
other identifying number of assignee) the within Note, and hereby irrevocably
constitutes and appoints ____________________________ attorney to transfer the
said Note on the books of the Company, with full power of substitution in the
premises.
In connection with any transfer of the within Note (or any issuance of
shares of Common Stock upon conversion of the within Note) occurring prior to
the third anniversary of the date of original issuance of such Note, the
undersigned confirms that such Note (or shares of Common Stock, as the case may
be) are being transferred:
[ ] To Adaptec, Inc. or a subsidiary thereof; or
[ ] Pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
[ ] To an Institutional Accredited Investor pursuant to and in
compliance with the Securities Act of 1933, as amended; or
[ ] Pursuant to and in compliance with Regulation S under the
Securities Act of 1933, as amended; or
[ ] Pursuant to and in compliance with Rule 144 under the
Securities Act of 1933, as amended.
Unless one of the boxes above is checked, the Trustee will refuse to
register any of the within Notes (or such shares of Common Stock, as the case
may be) in the name of any person other than the registered holder thereof (or
hereof); provided, however, that the Trustee may, in its sole discretion,
register the transfer of such Notes (or such shares of Common Stock, as the
case may be) if it has received such certifications, legal opinions and/or
other information as the Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, as
amended.
In addition, if the transferee is an Institutional Accredited Investor
or a purchaser who is not a U.S. person, the holder must furnish to the Trustee
(i) in the case of an institutional accredited investor, a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of the security evidenced hereby in substantially the form of
Exhibit D to the Indenture, and (ii) such other certifications, legal opinions
or other information as it may reasonably require to confirm that such transfer
is being made pursuant to an exemption from, or
B-14
<PAGE> 119
in a transaction not subject to, the registration requirements of the
Securities Act of 1933, as amended.
Dated:_________________________________
_______________________________________
_______________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15.
___________________________________________________
Signature Guarantee
NOTICE: The signature on the Conversion Notice, the Option to Elect
Repayment Upon a Change of Control or the Assignment must correspond
with the name as written upon the face of the Note in every particular
without alteration or enlargement or any change whatever.
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<PAGE> 120
SCHEDULE OF EXCHANGES, CONVERSIONS, REDEMPTIONS, REPURCHASES
CANCELLATIONS AND TRANSFERS
The initial principal amount of this Restricted Global Note is U.S.
$_____________. The following additions to principal, redemptions,
repurchases, exchanges of a part of this Restricted Global Note for an interest
in the Regulation S Global Note or definitive Notes and conversions into Common
Stock have been made:
<TABLE>
<S> <C> <C> <C> <C>
===================================================================================================
Principal Amount
Redeemed, Repurchased,
Principal Amount Added Exchanged for Interest
on in the Regulation S
Date of Addition to Exchange of Interest Global Note or Remaining Principal
Principal, Redemption, in the Regulation S Definitive Notes or Amount Outstanding Notation Made by or
Repurchase, Exchange Global Note or Converted into Common Following such on behalf of the
or Conversion Definitive Notes Stock Transaction Trustee
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
===================================================================================================
</TABLE>
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<PAGE> 121
EXHIBIT C - FORM OF REGULATION S GLOBAL NOTE
[FORM OF FACE OF NOTE]
No. C-1 $_____________
CUSIP ________
ADAPTEC, INC.
__% Convertible Subordinated Notes Due 2004
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN
DEFINITIVE FORM, THIS REGULATION S GLOBAL NOTE MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR
BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF
THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR
DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
REGULATION S GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (THE
"DEPOSITARY"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)
C-1
<PAGE> 122
(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) ("INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT
IT WILL NOT PRIOR TO THE DATE THAT IS THREE YEARS AFTER THE LATER OF
THE ORIGINAL ISSUANCE OF THE NOTE EVIDENCED HEREBY AND THE LAST DATE
ON WHICH ADAPTEC, INC. (THE "COMPANY") OR ANY "AFFILIATE" (AS DEFINED
IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY WAS THE OWNER OF
THE NOTE (THE "RESTRICTION TERMINATION DATE") RESELL OR OTHERWISE
TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON
CONVERSION OF SUCH NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO STATE STREET BANK
AND TRUST COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM SUCH TRUSTEE), (D) OUTSIDE THE UNITED STATES IN
COMPLIANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT; AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THE NOTE EVIDENCED HEREBY BEFORE THE RESTRICTION
TERMINATION DATE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH
ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO STATE STREET BANK AND TRUST COMPANY, AS
TRUSTEE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C), (D) OR
(E) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO STATE
STREET BANK AND TRUST COMPANY, AS TRUSTEE, SUCH CERTIFICATIONS, LEGAL
OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO
CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON
THE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES"
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AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S
UNDER THE SECURITIES ACT.
Adaptec, Inc., a corporation duly organized and validly existing under
the laws of the State of California (the "Company"), which term includes any
Successor Company under the Indenture referred to on the reverse hereof, for
value received hereby promises to pay to _________________, or registered
assigns, the principal sum of _________________ ___________ Dollars (subject to
adjustment as set forth in the next paragraph hereof) on February 1, 2004, at
the office or agency of the Company maintained for that purpose in the Borough
of Manhattan, The City of New York, or, at the option of the holder of this
Regulation S Global Note, at the Corporate Trust Office of the Trustee, in such
coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts, and to pay
interest, semi-annually on February 1 and August 1 of each year, commencing
August 1, 1997, on said principal sum at said office or agency, in like coin or
currency, at the rate per annum specified in the title of this Regulation S
Global Note, from the February 1 or August 1, as the case may be, next
preceding the date of this Regulation S Global Note to which interest has been
paid or duly provided for, unless the date hereof is a date to which interest
has been paid or duly provided for, in which case from the date of this
Regulation S Global Note, or unless no interest has been paid or duly provided
for on the Notes, in which case from February __, 1997, until payment of said
principal sum has been made or duly provided for; provided that if the Company
shall default in the payment of interest due on such February 1 or August 1,
then this Regulation S Global Note shall bear interest from the next preceding
February 1 or August 1 to which interest has been paid or duly provided for or,
if no interest has been paid or duly provided for on such Note, from February
__, 1997. The interest so payable on any February 1 or August 1 will be paid
to the person in whose name this Regulation S Global Note (or one or more
Predecessor Notes) is registered at the close of business on the record date,
which shall be the January 15 or July 15 (whether or not a Business Day) next
preceding such February 1 or August 1, respectively; provided that any such
interest not punctually paid or duly provided for shall be payable as provided
in the Indenture. Interest shall be paid by check mailed to the registered
holder at the registered address of such person unless other arrangements are
made in accordance with the provisions of the Indenture.
The aggregate principal amount of this Regulation S Global Note
represented hereby may from time to time be reduced or increased to reflect
exchanges of a part of this Regulation S Global Note for interests in the
Restricted Global Note or definitive Notes or exchanges of interests in the
Restricted Global Note or definitive Notes for a part of this Regulation S
Global Note or conversions, redemptions or repurchases of a part of this
Regulation S Global Note or cancellations of a part of this Regulation S Global
Note or transfers of interests in the Restricted Global Note or definitive
Notes in return for a part of this Regulation S Global Note or transfers of a
part of this Regulation S Global Note effected by delivery of interests in the
Restricted Global Note or definitive Notes, in each case, and in any such case,
by means of notations on the Schedule of Exchanges, Conversions, Redemptions,
Repurchases, Cancellations and Transfers on the last page hereof.
Notwithstanding any provision of this Regulation S Global Note to the
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contrary, (i) exchanges of a part of this Regulation S Global Note for
interests in the Restricted Global Note or definitive Notes, (ii) exchanges of
interests in the Restricted Global Note or definitive Notes for a part of this
Regulation S Global Note, (iii) conversions, redemptions or repurchases of a
part of this Regulation S Global Note, (iv) cancellations of a part of this
Regulation S Global Note, (v) transfers of interests in the Restricted Global
Note or definitive Notes in return for a part of this Regulation S Global Note
and (vi) transfers of a part of this Regulation S Global Note effected by
delivery of interests in the Restricted Global Note or definitive Notes may be
effected without the surrendering of this Regulation S Global Note, provided
that appropriate notations on the Schedule of Exchanges, Conversions,
Redemptions, Repurchases, Cancellations and Transfers are made by the Trustee,
or the Custodian at the direction of the Trustee, to reflect the appropriate
reduction or increase, as the case may be, in the aggregate principal amount of
this Regulation S Global Note resulting therefrom or as a consequence thereof.
Reference is made to the further provisions of this Regulation S
Global Note set forth on the reverse hereof, including, without limitation,
provisions subordinating the payment of principal of and premium, if any, and
interest on this Regulation S Global Note to the prior payment in full of all
Senior Indebtedness as defined in the Indenture and provisions giving the
holder of this Regulation S Global Note the right to convert this Regulation S
Global Note into Common Stock of the Company on the terms and subject to the
limitations referred to on the reverse hereof and as more fully specified in
the Indenture. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
This Regulation S Global Note shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes shall be
construed in accordance with and governed by the laws of said State, without
regard to conflicts of laws principles thereof.
This Regulation S Global Note shall not be valid or become obligatory
for any purpose until the certificate of authentication hereon shall have been
manually signed by the Trustee or a duly authorized authenticating agent under
the Indenture.
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IN WITNESS WHEREOF, the Company has caused this Regulation S Global
Note to be duly executed under its corporate seal.
ADAPTEC, INC.
By: ___________________________________
Name:
Title:
Dated:
Attest:
__________________________________
Secretary
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-named
indenture.
STATE STREET BANK AND TRUST COMPANY, as Trustee
By: ___________________________________
Authorized Signatory
As Authenticating Agent
(if different from Trustee)
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[FORM OF REVERSE OF REGULATION S GLOBAL NOTE]
ADAPTEC, INC.
__% Convertible Subordinated Notes Due 2004
This Regulation S Global Note is one of a duly authorized issue of
Notes of the Company, designated as its __% Convertible Subordinated Notes Due
2004 (herein called the "Notes"), limited to the aggregate principal amount of
$230,000,000 all issued or to be issued under and pursuant to an Indenture
dated as of February __, 1997 (the "Indenture"), between the Company and State
Street Bank and Trust Company, the trustee (the "Trustee"), to which Indenture
and all indentures supplemental thereto reference is hereby made for a complete
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the Notes.
Each Note is subject to, and qualified by, all such terms as set forth in the
Indenture certain of which are summarized hereon and each holder of a Note is
referred to the corresponding provisions of the Indenture for a complete
statement of such terms. To the extent that there is any inconsistency between
the summary provisions set forth in the Notes and the Indenture, the provisions
of the Indenture shall govern. Capitalized terms used but not defined in this
Note shall have the meanings ascribed to them in the Indenture.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of, premium, if any, and accrued
interest on all Notes may be declared, and upon said declaration shall become,
due and payable, in the manner, with the effect and subject to the conditions
provided in the Indenture.
The payment of principal of, premium, if any, and interest on the
Notes will, to the extent set forth in the Indenture, be subordinated in right
of payment to the prior payment in full of all Senior Indebtedness (as defined
in the Indenture).
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding, evidenced as
in the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or modifying in any manner the
rights of the holders of the Notes; provided that no such supplemental
indenture shall (i) extend the fixed maturity of any Note, reduce the rate or
extend the time of payment of interest thereon, reduce the principal amount
thereof or premium, if any, thereon, reduce any amount payable on redemption
thereof, change the obligation of the Company to repurchase the Notes at the
option of the holders upon the happening of a Change of Control, impair or
affect the right of any Noteholder to institute suit for the payment thereof,
make the principal thereof or interest or premium, if any, thereon payable in
any coin or currency other than that provided in the Notes, modify the
subordination provisions of the Indenture in a manner adverse to the holders of
the Notes, or impair the right to convert the
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<PAGE> 127
Notes into Common Stock subject to the terms set forth in the Indenture,
without the consent of the holder of each Note so affected or (ii) reduce the
aforesaid percentage of Notes, the holders of which are required to consent to
any such supplemental indenture, without the consent of the holders of all
Notes then outstanding. It is also provided in the Indenture that, prior to
any declaration accelerating the maturity of the Notes, the holders of a
majority in aggregate principal amount of the Notes at the time outstanding may
on behalf of the holders of all of the Notes waive any past default or Event of
Default under the Indenture and its consequences except a default in the
payment of interest or any premium on or the principal of any of the Notes, a
failure by the Company to convert any Notes into Common Stock of the Company or
a default in respect of a covenant or provision of the Indenture that under
Article X thereof cannot be modified or amended without the consent of the
holders of all Notes then outstanding. Any such consent or waiver by the
holder of this Regulation S Global Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Regulation S Global Note and any Notes that may be
issued in exchange or substitution hereof, irrespective of whether or not any
notation thereof is made upon this Regulation S Global Note or such other
Notes.
No reference herein to the Indenture and no provision of this
Regulation S Global Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of and any premium and interest on this Note at the place, at the
respective times, at the rate and in the coin or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a 360-day year
composed of twelve 30-day months.
The Notes are issuable in registered form without coupons in
denominations of $1,000 principal amount and integral multiples thereof.
The Notes are not redeemable at the option of the Company prior to
February 3, 2000. At any time on or after that date, the Notes may be redeemed
at the Company's option, upon notice as set forth in the Indenture, in whole at
any time or in part from time to time, at the optional redemption prices set
forth below (expressed in percentages of the principal amount), together with
accrued interest to the date fixed for redemption.
If redeemed during the 12-month period beginning February 1 (beginning
February 3, 2000 and ending January 31, 2001, in the case of the first such
period):
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2000 ___._%
2001 ___._%
2002 ___._%
2003 ___._%
</TABLE>
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<PAGE> 128
and 100% at February 1, 2004; provided that if the date fixed for redemption is
February 1 or August 1, then the interest payable on such date shall be paid to
the holder of record on the next preceding January 15 or July 15, respectively.
If a Change of Control (as defined in the Indenture) shall occur at
any time, then each holder of Notes shall have the right, at the holder's
option, to require that the Company repurchase such holder's Notes in whole or
in part in integral multiples of $1,000, at a purchase price in cash in an
amount equal to 101% of the principal amount of such Notes, plus accrued and
unpaid interest, if any, to the repurchase date pursuant to an offer to be made
by the Company and in accordance with the procedures set forth in the
Indenture.
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after 90 days following the date of original
issuance of this Note and through the close of business on February 1, 2004,
or, as to all or any portion hereof called for redemption, immediately prior to
the close of business on the last business day before the date fixed for
redemption (unless the Company shall default in payment due upon redemption
thereof), to convert the principal hereof or any portion of such principal that
is $1,000 or an integral multiple thereof, into that number of fully paid and
non-assessable shares of Company's Common Stock, as said shares shall be
constituted at the date of conversion, obtained by dividing the principal
amount of this Regulation S Global Note or portion thereof to be converted by
the conversion price of $_______ or such conversion price as adjusted from time
to time as provided in the Indenture, upon surrender of this Regulation S
Global Note, together with a conversion notice as provided in the Indenture, to
the Company at the office or agency of the Company maintained for that purpose
in the Borough of Manhattan, The City of New York, or, at the option of such
holder, the Corporate Trust Office of the Trustee, and, unless the shares
issuable on conversion are to be issued in the same name as this Regulation S
Global Note, duly endorsed by, or accompanied by instruments of transfer in
form satisfactory to the Company duly executed by, the holder or by his duly
authorized attorney. No adjustment in respect of interest or dividends will be
made upon any conversion; provided that if this Regulation S Global Note shall
be surrendered for conversion after the close of business on a record date for
the payment of interest and before the opening of business on the next
succeeding interest payment date, this Regulation S Note (unless it or the
portion being converted shall have been called for redemption on a date after
the close of business on a record date and before the close of business on the
business day following the corresponding interest payment date) must be
accompanied by an amount, in funds acceptable to the Company, equal to the
interest payable on such interest payment date on the principal amount being
converted. The interest payment with respect to a Note called for redemption
on a date during the period from the close of business on or after any record
date to the close of business on the business day following the corresponding
interest payment date will be payable on the corresponding interest payment
date to the registered Holder at the close of business on that record date
(notwithstanding the conversion of such Note before the corresponding interest
payment date) and a Holder who elects to convert need not include funds equal
to the interest paid. No fractional shares will be issued upon any conversion,
but an adjustment in cash will be
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<PAGE> 129
made, as provided in the Indenture, in respect of any fraction of a share that
would otherwise be issuable upon the surrender of any Note or Notes for
conversion.
Upon due presentment for registration of transfer of this Regulation S
Global Note at the office or agency of the Company in the Borough of Manhattan,
The City of New York, or at the option of the holder of this Regulation S
Global Note, at the Corporate Trust Office of the Trustee, a new Note or Notes
of authorized denominations for an equal aggregate principal amount will be
issued to the transferee in exchange thereof, subject to the conditions and
limitations provided in the Indenture, without charge except for any tax or
other governmental charge imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent,
any conversion agent and any Note registrar may deem and treat the registered
holder hereof as the absolute owner of this Regulation S Global Note (whether
or not this Regulation S Global Note shall be overdue and notwithstanding any
notation of ownership or other writing hereon made by anyone other than the
Company or any Note registrar), for the purpose of receiving payment hereof, or
on account hereof, for the conversion hereof and for all other purposes, and
neither the Company nor the Trustee nor any other authenticating agent nor any
paying agent nor any other conversion agent nor any Note registrar shall be
affected by any notice to the contrary. All payments made to or upon the order
of such registered holder shall, to the extent of the sum or sums paid, satisfy
and discharge liability for monies payable on this Regulation S Global Note.
No recourse for the payment of the principal of or any premium or
interest on this Regulation S Global Note, or for any claim based hereon or
otherwise in respect hereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in the Indenture or any indenture
supplemental thereto or in any Note, or because of the creation of any
indebtedness represented thereby, shall be had against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Company or of any Successor Company, either directly or through the Company or
any Successor Company, whether by virtue of any constitution, statute or rule
of law or by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the acceptance hereof and as part of the consideration
for the issue hereof, expressly waived and released.
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<PAGE> 130
ABBREVIATIONS
The following abbreviations, when used in the inscription of
the face of this Regulation S Global Note, shall be construed as though they
were written out in full according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties __________________ Custodian
JT TEN - as joint tenants with right of (Cust)
survivorship and not as tenants in __________________ under
common (Minor)
Uniform Gifts to
Minors Act ___________________
(State)
</TABLE>
Additional abbreviations may also be used
though not in the above list.
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<PAGE> 131
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE
To: Adaptec, Inc.
The undersigned registered owner of this Regulation S Global Note
hereby irrevocably exercises the option to convert this Regulation S Global
Note, or the portion hereof (which is $1,000 principal amount or an integral
multiple thereof) below designated, into shares of Common Stock, par value
$.001 per share, of the Company in accordance with the terms of the Indenture
referred to in this Regulation S Global Note, and directs that the shares
issuable and deliverable upon such conversion, together with any check in
payment for fractional shares and any Notes representing any unconverted
principal amount hereof, be issued and delivered to the registered holder
hereof unless a different name has been indicated below. If shares or any
portion of this Regulation S Global Note not converted are to be issued in the
name of a person other than the undersigned, the undersigned will check the
appropriate box below and pay all transfer taxes payable with respect thereto.
Any amount required to be paid to the undersigned on account of interest
accompanies this Regulation S Global Note.
Dated: __________________________
____________________________________
____________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or
Notes are to be delivered, other than to and in the name of the registered
holder.
__________________________________
Signature Guarantee
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<PAGE> 132
Fill in for registration of shares of Common Stock if to be issued, and Notes
if to be delivered, other than to and in the name of the registered holder:
_______________________________________
(Name)
_______________________________________
(Street Address)
_______________________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be converted
(if less than all) $____________
__________________________________
Social Security or Other Taxpayer
Identification Number
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<PAGE> 133
[FORM OF OPTION TO ELECT REPAYMENT
UPON A CHANGE OF CONTROL]
To: Adaptec, Inc.
The undersigned registered owner of this Regulation S Global Note
hereby irrevocably acknowledges receipt of a notice from Adaptec, Inc. (the
"Company") as to the occurrence of a Change of Control with respect to the
Company and requests and instructs the Company to repay the entire principal
amount of this Regulation S Global Note, or the portion thereof (which is
$1,000 principal amount or an integral multiple thereof) below designated, in
accordance with the terms of the Indenture referred to in this Regulation S
Global Note, together with accrued interest to such date, to the registered
holder hereof.
Dated:_______________
_______________________________________
_______________________________________
Signature(s)
Principal amount to be repaid (if
less than all): $__________________
_______________________________________
Social Security or Other Taxpayer
Identification Number
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<PAGE> 134
[FORM OF ASSIGNMENT]
For value received _____________________________ hereby sell(s),
assign(s) and transfer(s) unto ___________________ (please insert social
security or other identifying number of assignee) the within Note, and hereby
irrevocably constitutes and appoints ______________________ _______ attorney to
transfer the said Note on the books of the Company, with full power of
substitution in the premises.
In connection with any transfer of the within Note (or any issuance of
shares of Common Stock upon conversion of the within Note) occurring prior to
the third anniversary of the date of original issuance of such Note, the
undersigned confirms that such Note (or shares of Common Stock, as the case may
be) are being transferred:
[ ] To Adaptec, Inc. or a subsidiary thereof; or
[ ] Pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
[ ] To an Institutional Accredited Investor pursuant to and in
compliance with the Securities Act of 1933, as amended; or
[ ] Pursuant to and in compliance with Regulation S under the
Securities Act of 1933, as amended; or
[ ] Pursuant to and in compliance with Rule 144 under the
Securities Act of 1933, as amended.
Unless one of the boxes above is checked, the Trustee will refuse to
register any of the within Notes (or such shares of Common Stock, as the case
may be) in the name of any person other than the registered holder thereof (or
hereof); provided, however, that the Trustee may, in its sole discretion,
register the transfer of such Notes (or such shares of Common Stock, as the
case may be) if it has received such certifications, legal opinions and/or
other information as the Company has reasonably requested to confirm that such
transfer is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933, as
amended.
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<PAGE> 135
In addition, if the transferee is an Institutional Accredited Investor
or a purchaser who is not a U.S. person, the holder must furnish to the Trustee
(i) in the case of an institutional accredited investor, a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of the security evidenced hereby in substantially the form of
Exhibit D to the Indenture, and (ii) such other certifications, legal opinions
or other information as it may reasonably require to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not subject
to, the registration requirements of the Securities Act of 1933, as amended.
Dated: ___________________________
__________________________________
__________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,
stock brokers, savings and loan associations and credit unions) with membership
in an approved signature guarantee medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15.
__________________________________
Signature Guarantee
NOTICE: The signature on the Conversion Notice, the Option to Elect
Payment Upon a Change of Control or the Assignment must correspond
with the name as written upon the face of the Note in every particular
without alteration or enlargement or any change whatever.
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<PAGE> 136
SCHEDULE OF EXCHANGES, CONVERSIONS, REDEMPTIONS, REPURCHASES,
CANCELLATIONS AND TRANSFERS
The initial principal amount of this Regulation S Global Note is U.S.
$_____________. The following additions to principal, redemptions, repurchases,
exchanges of a part of this Regulation S Global Note for an interest in the
Restricted Global Note, definitive Notes and conversions into Common Stock have
been made:
<TABLE>
<S> <C> <C> <C> <C>
===================================================================================================
Principal Amount
Redeemed, Repurchased,
Principal Amount Added Exchanged for Interest
on in the Restricted
Date of Addition to Exchange of Interest Global Note or Remaining Principal
Principal, Redemption, in the Restricted Definitive Notes or Amount Outstanding Notation Made by or
Repurchase, Exchange Global Note or Converted into Common Following such on behalf of the
or Conversion Definitive Notes Stock Transaction Trustee
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
===================================================================================================
</TABLE>
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EXHIBIT D - FORM OF TRANSFEREE CERTIFICATE FOR NOTES
TO BE ISSUED TO INSTITUTIONAL ACCREDITED INVESTORS
State Street Bank and Trust Company,
as Trustee
[Address]
Attention: Corporate Trust Administration
Re: Adaptec, Inc.
__% Convertible Subordinated
Notes Due 2004 (the "Notes")
Reference is hereby made to the Indenture dated as of February __,
1997 (as supplemented from time to time, the "Indenture") between Adaptec, Inc.
and State Street Bank and Trust Company, as Trustee. Capitalized terms used
but not defined herein shall have the meanings given to them in the Indenture.
The undersigned is delivering this letter in connection with the
transfer of Notes to the undersigned, which Notes are to be held by the
undersigned in definitive registered form.
The undersigned hereby confirms that:
(i) the undersigned is an "accredited investor" within
the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933, as amended (the "Securities Act"), or an entity in which all of the
equity owners are accredited investors within the meaning of Rule 501(a)(1),
(2), (3) or (7) under the Securities Act (an "Institutional Accredited
Investor");
(ii) (A) any purchase of Notes by the undersigned will be
for the undersigned's own account or for the account of one or more other
Institutional Accredited Investors or as fiduciary for the account of one or
more trusts, each of which is an "accredited investor" within the meaning of
Rule 501(a)(7) under the Securities Act and for each of which we exercise sole
investment discretion or (B) we are a "bank," within the meaning of Section
3(a)(2) of the Securities Act, or a "savings and loan association" or other
institution described in Section 3(a)(5)(A) of the Securities Act that is
acquiring Notes as fiduciary for the account of one or more institutions for
which we exercise sole investment discretion;
(iii) the undersigned is acquiring Notes having a minimum
principal amount off not less than $250,000 for the undersigned's own account
or for any separate account for which the undersigned is acting;
(iv) the undersigned has such knowledge and experience in
financial and business matters that the undersigned is capable of evaluating
the merits and risks of purchasing Notes;
D-1
<PAGE> 138
(v) the undersigned is not acquiring Notes with a view to
distribution thereof or with any present intention of offering or selling Notes
or the Common Stock issuable upon conversion thereof, except as permitted
below; provided that the disposition of the undersigned's property and property
of any accounts for which the undersigned is acting as fiduciary shall remain
at all times within the undersigned's control; and
(vi) the undersigned acknowledges that it has had access
to such financial and other information as the undersigned deems necessary in
connection with the undersigned's decision to purchase Notes.
The undersigned understands that the Notes have been issued in a
transaction not involving any public offering within the United States within
the meaning of the Securities Act and that the Notes and the shares of Common
Stock issuable upon conversion thereof (collectively, the "Securities") have
not been registered under the Securities Act or any applicable state securities
laws, and the undersigned agrees, on the undersigned's own behalf and on behalf
of each account for which the undersigned acquires any Securities, that if in
the future the undersigned decides to resell or otherwise transfer such
Securities, such Securities may be resold or otherwise transferred only (a) to
the Company or any subsidiary thereof, (b) to a person who is a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, (c) to an Institutional
Accredited Investor that, prior to such transfer, furnishes to the trustee (or
transfer agent, as the case may be) for such Securities a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of such Securities (the form of which letter can be obtained from
such trustee, or transfer agent, as the case may be), (d) outside the United
States in a transaction meeting the requirements of Regulation S under the
Securities Act, (e) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if applicable) or (f) pursuant to a
registration statement which has been declared effective under the Securities
Act. The undersigned agrees that any such transfer of Securities referred to
in this paragraph shall be in accordance with applicable securities laws of any
State of the United States or any other applicable jurisdiction and in
accordance with the legends set forth on the Securities. The undersigned
further agrees to provide any person purchasing any of the Securities from the
undersigned a notice advising such purchaser that resales of such Securities
are restricted as stated herein. The undersigned understands that the
registrar and transfer agent for the Securities will not be required to accept
for registration or transfer any Securities, except upon presentation of
evidence satisfactory to the Company that the foregoing restrictions on
transfer have been complied with. The undersigned further understands that any
Securities will be in the form of definitive physical certificates and that
such certificates will bear a legend (unless the sale of the Securities has
been registered under the Securities Act) reflecting the substance of this
paragraph.
D-2
<PAGE> 139
The undersigned acknowledges that the Transferor, others and you will
rely upon the undersigned's confirmation, acknowledgments and agreements set
forth herein, and the undersigned agrees to notify you promptly in writing if
any of the undersigned's representations or warranties herein ceases to be
accurate and complete.
Dated: __________, ____
_____________________________________
(Signature of Transferor)
By:__________________________________
Title:
Address:
D-3
<PAGE> 140
EXHIBIT E - FORM OF TRANSFER CERTIFICATE
FOR TRANSFER FROM DEFINITIVE REGISTERED
FORM TO RESTRICTED GLOBAL NOTE
State Street Bank and Trust Company
as Trustee
[Address]
Attention: Corporate Trust Administration
Re: Adaptec, Inc.
__% Convertible Subordinated
Notes Due 2004 (the "Notes")
Reference is hereby made to the Indenture dated as of February __,
1997 (as supplemented from time to time, the "Indenture") between Adaptec, Inc.
and State Street Bank and Trust Company, as Trustee. Capitalized terms used
but not defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S.$__________ (being U.S.$1,000 and any
integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes
held of record in definitive registered form through Note No. _______ (the
"Definitive Note") in the name of _______________ (the "Transferor"). The
Transferor hereby requests that on [INSERT DATE] such beneficial interest
represented by the Definitive Note be transferred or exchanged for an interest
in the Restricted Global Note (CUSIP No. _________) in the same principal
denomination and transferred to ______________ (Depositary account no.
________). If this is a partial transfer, a minimum of U.S.$1,000 and any
integral multiple of U.S.$1,000 in excess thereof of the Definitive Note will
remain outstanding.
In connection with such request, and in respect of such Notes, the
Transferor does hereby certify that such Notes are being transferred in
accordance with Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"), to a transferee that the Transferor reasonably believes is
purchasing the Notes for its own account or an account with respect to which
the transferee exercises sole investment discretion and the transferee and any
such account is a "qualified institutional buyer" within the meaning of Rule
144A, in each case in a transaction meeting the requirements of Rule 144A and
in accordance with any applicable securities laws of any State of the United
States or any other jurisdiction. The Transferor does hereby certify that it
has notified the transferee that it has relied on Rule 144A under the
Securities Act on a basis for the exemption from the registration requirements
of the Securities Act used in connection with such transfer.
E-1
<PAGE> 141
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
Dated: _________________, ______
[Name of Transferor]
By: ___________________________________
Title:
Telephone No.:
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the transfer agent, which requirements include membership
or participation in STAMP or such other "signature guarantee program" as may be
determined by the transfer agent in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
_________________________________
Signature Guarantee
Please print name and address (including zip code number)
_________________________________
_________________________________
_________________________________
cc: Adaptec, Inc.
E-2
<PAGE> 142
EXHIBIT F - FORM OF TRANSFER CERTIFICATE
FOR TRANSFER FROM DEFINITIVE REGISTERED
FORM TO REGULATION S GLOBAL NOTE
State Street Bank and Trust Company,
as Trustee
[Address]
Attention: Corporate Trust Administration
Re: Adaptec, Inc.
__% Convertible Subordinated
Notes Due 2004 (the "Notes")
Reference is hereby made to the Indenture dated as of February __,
1997 (as supplemented from time to time, the "Indenture") between Adaptec, Inc.
and State Street Bank and Trust Company, as Trustee. Capitalized terms used
but not defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S.$_________ (being U.S.$1,000 and any
integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes
held of record in definitive registered form through Note No. _________ (the
"Definitive Note") in the name of ________(the "Transferor"). The Transferor
hereby requests that on [INSERT DATE] such beneficial interest represented by
the Definitive Note be transferred or exchanged for an interest in the
Regulation S Global Note (CINS) No. _________) in the same principal
denomination and transferred to __________ (account no. ________). If this is
a partial transfer, a minimum amount of U.S.$1,000 and any integral multiple
of U.S.$1,000 in excess thereof of the Definitive Note will remain outstanding.
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such transfer has been effected in
accordance with the transfer restrictions set forth in the Indenture and the
Notes and pursuant to and in accordance with Rule 903 or 904 of Regulation S
under the Securities Act of 1933, as amended (the "Securities Act"), and
accordingly, the Transferor further certifies that:
(A) (1) the offer of the Notes was not made to a
person in the United States;
(2) either (a) at the time the buy order was
originated, the transferee was outside the United States or we and any
person acting on our behalf reasonably believed that the transferee
was outside the United States or (b) the transaction was executed in,
on or through the facilities of a designated offshore securities
market and neither the Transferor nor any person acting on our behalf
knows that the transaction was prearranged with a buyer in the United
States;
F-1
<PAGE> 143
(3) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or
scheme to evade the registration requirements of the Securities Act.
OR
(B) Such transfer is being made in accordance with Rule
144A under the Securities Act to a transferee that the Transferor
reasonably believes is purchasing the Notes for its own account or an
account with respect to which the transferee exercises sole investment
discretion and the transferee and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in
a transaction meeting the requirements of Rule 144A and in accordance
with any applicable securities laws of any state of the United States
or any other jurisdiction. The Transferor does hereby certify that it
has notified the transferee that it has relied on Rule 144A under the
Securities Act as a basis for the exemption from the registration
requirements of the Securities Act used in connection with such
transfer.
F-2
<PAGE> 144
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company. Terms used in this certificate and not
otherwise defined in the Indenture have the meaning set forth in Regulation S
under the Securities Act.
Dated: _________________, ______
[Name of Transferor]
By: ___________________________________
Title:
Telephone No.:
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the transfer agent, which requirements include membership
or participation in STAMP or such other "signature guarantee program" as may be
determined by the transfer agent in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
_________________________________
Signature Guarantee
Please print name and address (including zip code number)
_________________________________
_________________________________
_________________________________
cc: Adaptec, Inc.
F-3
<PAGE> 145
EXHIBIT G - FORM OF TRANSFER CERTIFICATE
FOR TRANSFER FROM RESTRICTED GLOBAL
NOTE TO REGULATION S GLOBAL NOTE
(TRANSFERS PURSUANT TO Section 2.5(c)
OF THE INDENTURE)
State Street Bank and Trust Company,
as Trustee
[Address]
Attention: Corporate Trust Administration
Re: Adaptec, Inc.
__% Convertible Subordinated
Notes Due 2004 (the "Notes")
Reference is hereby made to the Indenture dated as of February __,
1997 (as supplemented from time to time, the "Indenture") between Adaptec, Inc.
and State Street Bank and Trust Company, as Trustee. Capitalized terms used
but not defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S.$_________ (being U.S.$1,000 and any
integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes
beneficially held through interests in the Restricted Global Note (CUSIP No.
_________) in the name of ________ (the "Transferor") (Depositary account no.
_________). The Transferor hereby requests that on [INSERT DATE] such
beneficial interest in the Restricted Global Note be transferred or exchanged
for an interest in the Regulation S Global Note (CINS No. _________) in the
same principal denomination and transferred to ___________ (account no.
________). If this is a partial transfer, a minimum amount of U.S.$1,000 and
any integral multiple of U.S.$1,000 in excess thereof of the Restricted Global
Note will remain outstanding.
In connection with such request and in respect of such Notes, the
Transferor does hereby certify that such transfer has been effected in
accordance with the transfer restrictions set forth in the Indenture and the
Notes and pursuant to and in accordance with Rule 903 or 904 of Regulation S
under the Securities Act of 1933, as amended (the "Securities Act"), and
accordingly, the Transferor further certifies that:
(A) (1) the offer of the Notes was not made to a
person in the United States;
(2) either (a) at the time the buy order was
originated, the transferee was outside the United States or we and any
person acting on our behalf reasonably believed that the transferee
was outside the United States or (b) the transaction was executed in,
on or through the facilities of a designated offshore securities
market and
G-1
<PAGE> 146
neither the Transferor nor any person acting on our behalf knows that
the transaction was prearranged with a buyer in the United States;
(3) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or
scheme to evade the registration requirements of the Securities Act.
OR
(B) Such transfer is being made in accordance with Rule
144A under the Securities Act to a transferee that the Transferor
reasonably believes is purchasing the Notes for its own account or an
account with respect to which the transferee exercises sole investment
discretion and the transferee and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in
a transaction meeting the requirements of Rule 144A and in accordance
with any applicable securities laws of any state of the United States
or any other jurisdiction. The Transferor does hereby certify that it
has notified the transferee that it has relied on Rule 144A under the
Securities Act as a basis for the exemption from the registration
requirements of the Securities Act used in connection with such
transfer.
G-ii
<PAGE> 147
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company. Terms used in this certificate and not
otherwise defined in the Indenture have the meaning set forth in Regulation S
under the Securities Act.
Dated: _________________, ______
[Name of Transferor]
By: ___________________________________
Title:
Telephone No.:
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the transfer agent, which requirements include membership
or participation in STAMP or such other "signature guarantee program" as may be
determined by the transfer agent in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
_________________________________
Signature Guarantee
Please print name and address (including zip code number)
_________________________________
_________________________________
_________________________________
cc: Adaptec, Inc.
G-3
<PAGE> 148
EXHIBIT H - FORM OF TRANSFER CERTIFICATE
FOR TRANSFER FROM REGULATION S GLOBAL
NOTE TO RESTRICTED GLOBAL NOTE
PRIOR TO EXPIRATION OF RESTRICTED PERIOD
(TRANSFERS PURSUANT TO Section 2.5(c)
OF THE INDENTURE)
State Street Bank and Trust Company,
as Trustee
[Address]
Attention: Corporate Trust Administration
Re: Adaptec, Inc.
__% Convertible Subordinated
Notes Due 2004 (the "Notes")
Reference is hereby made to the Indenture dated as of February __,
1997 (as supplemented from time to time, the "Indenture") between Adaptec, Inc.
and State Street Bank and Trust Company, as Trustee. Capitalized terms used
but not defined herein shall have the meanings given them in the Indenture.
This letter relates to U.S.$_________ (being U.S.$1,000 and any
integral multiple of U.S.$1,000 in excess thereof) principal amount of Notes
beneficially held through interests in the Regulation S Global Note (CINS No.
_________) in the name of ________ (the "Transferor") account no. _________.
The Transferor hereby requests that on [INSERT DATE] such beneficial interest
in the Regulation S Global Note be transferred or exchanged for an interest in
the Restricted Global Note (CUSIP No. _________) in the same principal
denomination and transferred to ____________ (account no. ________). If this
is a partial transfer, a minimum amount of U.S.$1,000 and any integral multiple
of U.S.$1,000 in excess thereof of the Regulation S Global Note will remain
outstanding.
In connection with such request, and in respect of such Notes, the
Transferor does hereby certify that such Notes are being transferred in
accordance with Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"), to a transferee that the Transferor reasonably believes is
purchasing the Notes for its own account or an amount with respect to which the
transferee exercises sole investment discretion and the transferee and any such
account is a "qualified institutional buyer" within the meaning of Rule 144A,
in each case in a transaction meeting the requirements of Rule 144A and in
accordance with any applicable securities laws of any state of the United
States or any other jurisdiction. The Transferor does hereby certify that it
has notified the transferee that it has relied on Rule 144A under the
Securities Act as a basis for the exemption from the registration requirements
of the Securities Act used in connection with such transfer.
H-1
<PAGE> 149
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company. Terms used in this certificate and not
otherwise defined in the Indenture have the meaning set forth in Regulation S
under the Securities Act.
Dated: _________________, ______
[Name of Transferor]
By: ___________________________________
Title:
Telephone No.:
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the transfer agent, which requirements include membership
or participation in STAMP or such other "signature guarantee program" as may be
determined by the transfer agent in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
_________________________________
Signature Guarantee
Please print name and address (including zip code number)
_________________________________
_________________________________
_________________________________
cc: Adaptec, Inc.
H-2
<PAGE> 1
EXHIBIT 5.1
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
April 4, 1997
Adaptec, Inc.
691 S. Milpitas Blvd.
Milpitas, CA 95035
Re: Adaptec, Inc. Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 to be filed by
Adaptec, Inc. (the "Company") with the Securities and Exchange Commission on
April 4, 1997 (the "Registration Statement") in connection with the registration
under the Securities Act of 1933, as amended, of 4,452,188 shares of Common
Stock of the Company upon conversion of $230,000,000 aggregate principal amount
of 4-3/4% Convertible Subordinate Notes (the "Registrable Notes") of the Company
due February 1, 2004 (equal to conversion rate of 19.3573 shares per $1,000
principal amount of Registrable Notes).
It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken prior to the issuance of
Shares, and upon the completion of the proceedings being taken in order to
permit such transactions to be carried out in accordance with securities laws of
various states, where required, the Shares, when issued and sold in the manner
referred to in the Registration Statement, will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
EXHIBIT 12.1
ADAPTEC, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FOR THE YEAR ENDED MARCH 31, --------------------------
----------------------------------------------- DECEMBER 29, DECEMBER 27,
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income from continuing operations $19,486 $65,854 $78,603 $124,537 $137,989 $83,232 $105,514
------- ------- ------- -------- -------- ------- --------
Fixed charges:
Interest expense 159 967 1,306 1,179 840 674 597
Rentals - 33% 608 480 541 784 1,226 968 1,141
------- ------- ------- -------- -------- ------- --------
Total fixed charges 767 1,447 1,847 1,963 2,066 1,642 1,738
------- ------- ------- -------- -------- ------- --------
Earnings before income taxes and fixed charges $20,253 $67,301 $80,450 $126,500 $140,055 $84,874 $107,252
======= ======= ======= ======== ======== ======= ========
Ratio of earnings to fixed charges 26.4 46.5 43.6 64.4 67.8 51.7 61.7
======= ======= ======= ======== ======== ======= ========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Adaptec Mfg (S) Pte. Ltd., a Singapore corporation
Adaptec GmbH, a German corporation
Adaptec Europe SA, a Belgium corporation
Adaptec Japan Ltd., a Japanese corporation
Adaptec Networking, Inc., a Washington corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 22, 1996, except as
to Note 12 which is as of December 5, 1996, relating to the consolidated
financial statements of Adaptec, Inc. as of March 31, 1995 and 1996 and for the
years then ended, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts."
/s/ PRICE WATERHOUSE LLP
San Jose, California
April 3, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN
San Jose, California
April 3, 1997
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation (I.R.S. Employe
or organization if not a U.S. Identification No.)
national bank)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq.
Senior Vice President and Corporate Secretary
225 Franklin Street
Boston, Massachusetts 02110
Tel: (617) 654-3253
(Name, address and telephone number of agent for service)
___________________
ADAPTEC, INC.
(Exact name of obligor as specified in its charter)
CALIFORNIA 94-274530
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
691 S. Milpitas Boulevard
Milpitas, California 95035
(408) 945-8600
(Address of principal executive offices) (Zip Code)
___________________
4-3/4% Convertible Subordinated Notes due 2004
(Title of Indenture Securities)
-1-
<PAGE> 2
General
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee
as now in effect.
A copy of the Articles of Association of the
trustee, as now in effect, is on file with the
Securities and Exchange Commission as Exhibit 1 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference
thereto.
2. A copy of the certificate of authority of the trustee
to commence business, if not contained in the
articles of association.
A copy of a Statement from the Commissioner
of Banks of Massachusetts that no certificate of
authority for the trustee to commence business was
necessary or issued is on file with the Securities
and Exchange Commission as Exhibit 2 to Amendment No.
1 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the
-2-
<PAGE> 3
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference
thereto.
3. A copy of the authorization of the trustee to
exercise corporate trust powers, if such
authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to
exercise corporate trust powers is on file with the
Securities and Exchange Commission as Exhibit 3 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference
thereto.
4. A copy of the existing by-laws of the trustee, or
instruments corresponding thereto.
A copy of the by-laws of the trustee, as now
in effect, is on file with the Securities and
Exchange Commission as Exhibit 4 to the Statement of
Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
5. A copy of each indenture referred to in Item 4. if
the obligor is in default.
Not applicable.
6. The consents of United States institutional
trustees required by Section 321(b) of the Act.
The consent of the trustee required by
Section 321(b) of the Act is annexed hereto as
Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the
trustee published pursuant to law or the requirements
of its supervising or examining authority.
A copy of the latest report of condition of
the trustee published pursuant to law or the
requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter
for the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
-3-
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on this the third day of April 997.
STATE STREET BANK AND TRUST COMPANY
By: ___________________________________
Eric J. Donaghey
Assistant Vice President
-4-
<PAGE> 5
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed registration by
Adaptec, Inc. of its 4 3/4% Convertible Subordinated Notes due 2004, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: ___________________________________
Eric J. Donaghey
Assistant Vice President
Dated: April 3, 1997
-5-
<PAGE> 6
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust
Company of Boston, Massachusetts and foreign and domestic subsidiaries, a state
banking institution organized and operating under the banking laws of this
commonwealth and a member of the Federal Reserve System, at the close of
business September 30, 1996, published in accordance with a call made by the
Federal Reserve Bank of this District pursuant to the provisions of the Federal
Reserve Act and in accordance with a call made by the Commissioner of Banks
under General Laws, Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
Dollars
----------
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . . . . . . . . . 1,561,409
Interest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,562,240
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,388,513
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,622,962
Loans and lease financing receivables:
Loans and leases, net of unearned income . . . . . . . . . . . . . 4,858,187
Allowance for loan and lease losses . . . . . . . . . . . . . . . 72,614
Loans and leases, net of unearned income and allowances. . . . . . . . . . . . . . . . . . . . . . . . . . 4,785,573
Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 874,700
Premises and fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383,955
Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 870
Investments in unconsolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,621
Customers' liability to this bank on acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . 35,022
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148,190
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 932,673
----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,389,728
==========
LIABILITIES
Deposits:
In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,508,096
Noninterest-bearing . . . . . . . . . . . . . . . . . . . 6,435,131
Interest-bearing . . . . . . . . . . . . . . . . . . . . . 11,368,216
In foreign offices and Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,395,724
Noninterest-bearing . . . . . . . . . . . . . . . . . . . 27,508
Interest-bearing . . . . . . . . . . . . . . . . . . . . . 11,368,216
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,518,222
Demand notes issued to the U.S. Treasury and Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . 733,935
Other borrowed money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,578
Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 35,022
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 770,029
----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,611,606
----------
EQUITY CAPITAL
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,931
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,146
Undivided profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,389,720
Cumulative foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
----------
Total equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,778,122
----------
Total liabilities and equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,389,728
==========
</TABLE>
-6-
<PAGE> 7
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
-7-
<PAGE> 8
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter of
the obligor, the trustee has relied upon the information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer to Item 2. of this statement will be amended, if necessary,
to reflect any facts which differ from those stated and which would have been
required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended,
the trustee, State Street Bank and Trust Company, a corporation duly organized
and existing under the laws of The Commonwealth of Massachusetts, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 3rd day of April, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Eric J. Donaghey
------------------------------------
Eric J. Donaghey
Assistant Vice President
-8-
<PAGE> 9
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed registration by
Adaptec, Inc. of its 4-3/4% Convertible Subordinated Notes due 2004, we hereby
consent that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Eric J. Donaghey
------------------------------------
Eric J. Donaghey
Assistant Vice President
Dated: April 3, 1997
-9-
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-27-1996
<EXCHANGE-RATE> 1
<CASH> 89,436
<SECURITIES> 199,542
<RECEIVABLES> 112,658
<ALLOWANCES> 4,230
<INVENTORY> 59,821
<CURRENT-ASSETS> 487,495
<PP&E> 186,981
<DEPRECIATION> 53,824
<TOTAL-ASSETS> 726,487
<CURRENT-LIABILITIES> 112,788
<BONDS> 1,700
0
0
<COMMON> 222,334
<OTHER-SE> 389,665
<TOTAL-LIABILITY-AND-EQUITY> 726,487
<SALES> 668,760
<TOTAL-REVENUES> 668,760
<CGS> 281,735
<TOTAL-COSTS> 281,735
<OTHER-EXPENSES> 288,904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 597
<INCOME-PRETAX> 105,514
<INCOME-TAX> 44,779
<INCOME-CONTINUING> 60,735
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,735
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
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