SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant o
Filed by a Party other than the Registrant x
Check the appropriate box:
x | Preliminary Proxy Statement |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
o | Definitive Proxy Statement |
o | Definitive Additional Materials |
o | Soliciting Material Under Rule 14a-12 |
ADAPTEC, INC. |
(Name of Registrant as Specified in Its Charter) |
STEEL PARTNERS II, L.P. |
STEEL PARTNERS, L.L.C. |
WARREN G. LICHTENSTEIN |
JACK HOWARD |
JOHN QUICKE |
JOHN MUTCH |
HOWARD LEITNER |
ANTHONY BERGAMO |
(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant) |
Payment of Filing Fee (Check the appropriate box):
x | No fee required. |
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
(4) | Proposed maximum aggregate value of transaction: |
(5) | Total fee paid: |
o | Fee paid previously with preliminary materials: |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
(1) | Amount previously paid: |
(2) | Form, Schedule or Registration Statement No.: |
(3) | Filing Party: |
(4) | Date Filed: |
PRELIMINARY COPY - SUBJECT TO COMPLETION, DATED AUGUST 24, 2007
1. | To elect Steel Partners’ slate of five director nominees to the Company’s Board of Directors in opposition to five of the Company’s incumbent directors. |
2. | To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending March 31, 2008. |
If you have any questions, require assistance in voting your GOLD proxy card, or need additional copies of Steel Partners’ proxy materials, please call MacKenzie Partners, Inc. at the phone numbers listed below. |
![MacKenzie Partners, Inc.](https://capedge.com/proxy/PREC14A/0001193805-07-002221/mackenlogo.jpg)
CALL TOLL FREE (800) 322-2885
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1. | To elect Steel Partners’ director nominees, Jack L. Howard, John J. Quicke, John Mutch, Howard M. Leitner and Anthony Bergamo (the “Nominees”) to serve as directors of Adaptec, in opposition to five of the Company’s incumbent directors whose terms expire at the Annual Meeting. |
2. | To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending March 31, 2008. |
IF YOU HAVE ALREADY SENT A PROXY CARD FURNISHED BY ADAPTEC’S MANAGEMENT TO THE COMPANY, YOU MAY REVOKE THAT PROXY AND VOTE FOR THE ELECTION OF STEEL PARTNERS’ NOMINEES BY SIGNING, DATING AND RETURNING THE ENCLOSED GOLD PROXY CARD. THE LATEST DATED PROXY IS THE ONLY ONE THAT COUNTS. ANY PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE ANNUAL MEETING BY DELIVERING A WRITTEN NOTICE OF REVOCATION OR A LATER DATED PROXY FOR THE ANNUAL MEETING TO STEEL PARTNERS, C/O MACKENZIE PARTNERS, INC. WHICH IS ASSISTING IN THIS SOLICITATION, OR TO THE SECRETARY OF ADAPTEC, OR BY VOTING IN PERSON AT THE ANNUAL MEETING.
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· | If your Shares are registered in your own name, please sign and date the enclosed GOLD proxy card and return it to Steel Partners, c/o MacKenzie Partners, Inc., in the enclosed envelope today. |
· | If your Shares are held in a brokerage account or bank, you are considered the beneficial owner of the Shares, and these proxy materials, together with a GOLD voting form, are being forwarded to you by your broker or bank. As a beneficial owner, you must instruct your broker, trustee or other representative how to vote. Your broker cannot vote your Shares on your behalf without your instructions. |
· | Depending upon your broker or custodian, you may be able to vote either by toll-free telephone or by the Internet. Please refer to the enclosed voting form for instructions on how to vote electronically. You may also vote by signing, dating and returning the enclosed voting form. |
![MacKenzie Partners, Inc.](https://capedge.com/proxy/PREC14A/0001193805-07-002221/mackenlogo.jpg)
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On August 20, 2007, Steel Partners delivered a letter to the Adaptec Board expressing that while the Company’s offer to add one of Steel Partners’ designees to the Board and the Adaptec Board’s willingness to hire a mutually agreed upon profit-improvement consulting firm represent a positive first step, Steel Partners was disappointed overall with the substance of the Adaptec Board’s response to Steel Partners’ proposals, and that Steel Partners does not believe that the Adaptec Board has adequately addressed the significant concerns and issues that Steel Partners has raised. The letter further stated that Steel Partners’ sole interest in seeking minority representation on the Adaptec Board is to provide assistance to the Company in its next steps towards profitability and to ensure that the interests of the Adaptec Board and the Company’s stockholders are aligned and that the Adaptec Board’s offer of one board seat does not provide sufficient representation, in Steel Partners’ opinion, to protect stockholders’ interests. Steel Partners stated its belief that the Adaptec Board be fixed at eight members and reiterated its request that the Adaptec Board include and recommend three of Steel Partners’ Nominees on the Company’s slate for election at the Annual Meeting, consisting of two representatives of Steel Partners - Jack Howard and John Quicke - and one other Nominee selected by the Adaptec Board. In the letter, Steel Partners further requested that either Mr. Howard or Mr. Quicke be appointed to the Transaction Committee and that any significant transaction would require unanimous approval of all members of the Transaction Committee. Regarding Section 203, Steel Partners reiterated its belief in the long-term value of Adaptec and that it had spoken to the Adaptec Board about increasing its ownership position in the Company to up to 25% of the outstanding Shares. Steel Partners stated that if the Adaptec Board is unwilling to waive Section 203 on its own, then the Adaptec Board should put it to a stockholder vote at the Annual Meeting.
On August 23, 2007, Mr. Howard and Mr. Quicke participated in a meeting with the members of the Adaptec Board (the “Board Meeting”). The primary purpose of the Board Meeting was to further discuss Steel Partners’ specific proposals regarding representation on the Adaptec Board and Section 203 and for Messrs. Howard and Quicke to address certain questions from members of the Adaptec Board. During the Board Meeting, the Adaptec Board made it clear that it would not waive Section 203 for Steel Partners and that if Steel Partners wants to increase its ownership above 15% of the outstanding Shares, then it would have to do so without the Adaptec Board granting a waiver.
Steel Partners continues to believe that the Company’s Shares are undervalued and may proceed to acquire additional Shares that would result in Steel Partners increasing its ownership position in the Company above 15% of the outstanding Shares.
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REASONS FOR OUR SOLICITATION
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· | Adaptec’s operational performance has deteriorated under management and the Adaptec Board; |
· | Adaptec’s poor acquisition strategy and recent about-faces in strategic direction have resulted in further erosion to stockholder value; |
· | Adaptec’s stock performance has lagged indices and peers; and |
· | Adaptec has rewarded executive officers with excessive compensation packages and retention bonuses despite the Company’s poor performance. |
For the past ten quarters, the Company has lost money on an operational basis. In fact, during fiscal years 2005 and 2006, the Company suffered total operating losses of approximately $188.4 million. Net revenue has declined from approximately $402.5 million in 2005 to approximately $255.2 million in 2007. Gross margin has declined from 40% in 2005 to 32% in 2007.
We believe the Company’s research and development expenses are unreasonable in light of the Company’s operational failures and its inability to increase revenues. In the past three fiscal years alone, the Company has spent approximately $218 million on research and development. During that same period, the Company’s net revenue declined by almost $150 million.
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· | The Company acquired Snap Appliance, Inc. (“Snap Appliance”) in 2004 for approximately $100 million and acquired Eurologic Systems in 2003 for approximately $30 million. The Company stated that its purpose for these two acquisitions was to build its Systems Business Unit, and the Company publicly stated that the Systems Business Unit would be the growth engine for the Company. Along those same lines, in the Company’s Quarterly Report on Form 10-Q filed on August 9, 2004, the Company stated the following: “Our growth and future revenues remains largely dependent on the success of our external and networked storage solutions and, to a lesser extent, on our products addressing new technologies (i.e., Serial Attached SCSI, Serial ATA and iSCSI).” The Snap Appliance acquisition proved, however, to be an ill-advised one. Revenues from Snap Appliance’s products fell below expectations for the first three quarters after the acquisition. In an about-face of strategic direction less than a year following the acquisition of Snap Appliance, the Company announced that it had hired Credit Suisse to assist in the sale process for the Company’s Systems Business Unit. This is what Mr. Sundaresh had to say about this sale: “It was a hard decision for us, but we feel that selling our systems business is the best move for the company and its shareholders as we take the necessary steps in Adaptec's recovery. This will allow us to focus our internal resources on capturing a leadership position in the emerging Serial ATA and Serial Attached SCSI markets.” |
· | On June 29, 2004, the Company completed the acquisition of IBM’s i/p Series RAID component business line for a total purchase price of $49.3 million. Then, on September 30, 2005, a little over a year later, the Company sold its IBM i/p Series RAID component business to IBM for approximately $22.0 million plus $1.3 million for certain fixed assets. Mr. Sundaresh stated the following about the sale: “In analyzing Adaptec’s various businesses, it became clear to us that delivering add-on products for IBM’s eServer iSeries and pSeries systems would not be a long term profitable business opportunity for Adaptec…Today’s agreement is part of our ongoing effort to improve Adaptec’s focus and execution on profitable business ventures.” As a result of the IBM i/p Series RAID transaction, the Company recorded approximately $26 million in losses on the sale of assets and impairment of related goodwill. |
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· | During the period from March 31, 2002 to March 31, 2007, an investment in Adaptec would have lost approximately 71% of its value compared to a gain of more than 39% had the same investment been made in the NASDAQ Composite Index. |
· | During the period from March 31, 2002 to March 31, 2007, an investment in Adaptec would have lost approximately 71% of its value compared to a gain of approximately 33% had the same investment been made in the NASDAQ Computer and Data Processing Index. |
· | Between March 31, 2002 and March 31, 2007, Adaptec’s stock price has lost approximately 71% of its value. |
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![Comparison of 5-Year Cumulative Total Return*](https://capedge.com/proxy/PREC14A/0001193805-07-002221/linechart.gif)
3/02 | 3/03 | 3/04 | 3/05 | 3/06 | 3/07 | ||
Adaptec, Inc. | 100.00 | 45.10 | 65.52 | 35.83 | 41.36 | 28.95 | |
NASDAQ Composite | 100.00 | 72.11 | 109.76 | 111.26 | 132.74 | 139.65 | |
NASDAQ Computer & Data Processing | 100.00 | 76.72 | 96.82 | 104.03 | 122.64 | 133.49 |
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The Company also maintains lucrative severance and “change of control” arrangements with certain of its executive officers. There are provisions in the executive officers' employment agreements that allow them to receive severance benefits following termination of their employment by the Company for "Good Reason.” Upon such termination, the executive officer would be entitled to (1) his unpaid salary and unused vacation benefits he has accrued prior to the date of his termination; (2) a one-time payment equal to one year of base salary, plus an additional week of base salary for each year of service beyond three years of service; (3) outplacement services in an amount not to exceed $10,000; and (4) coverage for the executive officer and his dependents under Adaptec's health, vision and dental insurance plans pursuant to the terms of the Consolidated Omnibus Budget and Reconciliation Act ("COBRA") for the one-year period following the termination of his employment. Additionally, upon certain “change of control” provisions being triggered, the executive officer would be entitled to (a) a one-time payment equal to one and one-half times his then-current annual base salary, (b) his then-current targeted bonus payout, (c) COBRA benefits for one year, (d) outplacement services not to exceed $10,000 and (e) accelerated vesting of his stock options as provided for under the 2004 Equity Incentive Plan.
In addition we were surprised to see Mr. Sundaresh receive subsequent salary increases on November 14, 2005 and January 26, 2006, respectively, despite the Company's poor operating performance. In fact since September 21, 2005, his salary has increased from $375,000 to $450,000. In the same two-year period, the Company's net revenues have declined by almost $150 million. Based on the Company's proxy statement, Mr. Sundaresh would be entitled to a change in control payment equal to $________, assuming any of the number of “change of control” conditions are triggered.
We believe that executive compensation should be linked to value delivered to stockholders and that a public company's compensation programs should be designed to provide a correlation between the financial success of management and the stockholders. We see no correlation between Adaptec's poor financial performance and Mr. Sundaresh's compensation.
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COMPANY PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
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Class of Security | Quantity Purchased | Price Per Share ($) | Date of Purchase | ||
Steel Partners II, L.P. | |||||
Common Stock | 450,900 | 3.6292 | 02/09/07 | ||
Common Stock | 132,308 | 3.6532 | 02/12/07 | ||
Common Stock | 627,460 | 3.6872 | 02/13/07 | ||
Common Stock | 428,000 | 3.6849 | 02/14/07 | ||
Common Stock | 200,000 | 3.6788 | 02/14/07 | ||
Common Stock | 660,700 | 3.6825 | 02/15/07 | ||
Common Stock | 108,300 | 3.6641 | 02/16/07 | ||
Common Stock | 700,743 | 3.6828 | 02/20/07 | ||
Common Stock | 17,500 | 3.6700 | 02/20/07 | ||
Common Stock | 812,080 | 3.6989 | 02/21/07 | ||
Common Stock | 143,000 | 3.7200 | 02/22/07 | ||
Common Stock | 259,574 | 3.7711 | 02/26/07 | ||
Common Stock | 821,338 | 3.7065 | 02/27/07 | ||
Common Stock | 760,121 | 3.6580 | 02/28/07 | ||
Common Stock | 3,527,762 | 3.6393 | 03/01/07 | ||
Common Stock | 1,600,000 | 3.6281 | 03/02/07 | ||
Common Stock | 122,400 | 3.4700 | 03/05/07 | ||
Common Stock | 47,700 | 3.5472 | 03/06/07 | ||
Common Stock | 385,800 | 3.6316 | 03/07/07 | ||
Common Stock | 554,501 | 3.6918 | 03/08/07 | ||
Common Stock | 357,400 | 3.6977 | 03/09/07 | ||
Common Stock | 574,928 | 3.7110 | 05/22/07 | ||
Common Stock | 317,876 | 3.7912 | 05/23/07 | ||
Common Stock | 55,528 | 3.7500 | 05/24/07 | ||
Common Stock | 974,148 | 3.8198 | 05/25/07 | ||
Common Stock | 366,130 | 3.8776 | 05/29/07 | ||
Common Stock | 374,855 | 4.0306 | 05/30/07 | ||
Common Stock | 462,489 | 4.0588 | 05/31/07 | ||
Common Stock | 164,104 | 4.0700 | 06/01/07 | ||
Common Stock | 372,355 | 4.0730 | 06/04/07 | ||
Common Stock | 15,124 | 3.5113 | 08/01/07 | ||
Common Stock | 141,715 | 3.6401 | 08/02/07 | ||
Common Stock | 198,200 | 3.6197 | 08/03/07 | ||
Common Stock | 60,000 | 3.5571 | 08/06/07 | ||
Common Stock | 153,348 | 3.6418 | 08/07/07 | ||
Common Stock | 454,957 | 3.6197 | 08/08/07 | ||
Common Stock | 10,137 | 3.6000 | 08/09/07 | ||
Common Stock | 412,327 | 3.5429 | 08/10/07 |
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The following table is reprinted from Amendment No. 1 to the Company’s Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on July 27, 2007 |
Name of Beneficial Owner (1) | Number of Shares (1) | Percentage of Shares Outstanding | |
Directors and Executive Officers: | |||
Jon S. Castor | 24,375 | 0.02% | |
Joseph S. Kennedy | 121,250 | 0.10% | |
Robert J. Loarie(2) | 198,854 | 0.17% | |
D. Scott Mercer | 138,750 | 0.12% | |
Judith M. O'Brien | 24,375 | 0.02% | |
Charles J. Robel | 18,750 | 0.02% | |
Douglas E. Van Houweling | 121,250 | 0.10% | |
Subramanian "Sundi" Sundaresh | 428,563 | 0.36% | |
Russell Johnson | 168,500 | 0.14% | |
Manoj Goyal | 72,687 | 0.06% | |
Marcus D. Lowe | 187,430 | 0.16% | |
Christopher G. O'Meara | 180,175 | 0.15% | |
Directors and all Executive Officers as a Group (14 Persons) | 1,684,959 | 1.42% | |
5% Stockholders: | |||
Steel Partners II, L.P. (3) | 16,380,000 | 13.77% | |
Wellington Management Company, LLP (4) | 9,410,200 | 7.91% | |
Dimensional Advisors, L.P. (5) | 8,419,357 | 7.08% | |
(1) | Includes the following shares that may be acquired upon exercise of stock options granted under our stock option plans within 60 days after June 29, 2007 (August 28, 2007): |
Jon S. Castor | 8,125 | |
Joseph S. Kennedy | 115,000 | |
Robert J. Loarie | 145,000 | |
D. Scott Mercer | 132,500 | |
Judith M. O'Brien | 8,125 | |
Charles J. Robel | 12,500 | |
Douglas E. Van Houweling | 115,000 | |
Subramanian "Sundi" Sundaresh | 322,499 | |
Russell Johnson | 148,953 | |
Manoj Goyal | 54,687 | |
Marcus D. Lowe | 149,166 | |
Christopher G. O'Meara | 133,750 | |
Directors and executive officers as group | 1,345,305 |
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(2) | Includes 53,854 shares held in the name of a trust for the benefit of Mr. Loarie and his family. |
(3) | Based solely upon the Amendment No. 2 to the Schedule 13D filed by Steel Partners with the SEC on June 25, 2007 |
(4) | Wellington Management Company, LLP ("Wellington") reported that it has shared voting power over 4,722,600 shares and shared dispositive power with respect to all of the shares. All of the shares are owned of record by clients of Wellington. Wellington's address is 75 State Street, Boston, Massachusetts 02109. All information regarding Wellington is based solely upon the Amendment No. 1 to Schedule 13G filed by it with the SEC on February 14, 2007. |
(5) | Dimensional Fund Advisors, L.P. ("Dimensional") reported that it has sole voting power and dispositive power with respect to all of the shares. All of the shares are owned of record by clients of Dimensional. Dimensional's address is 1299 Ocean Avenue, Santa Monica, California 90401. All information regarding Dimensional is based solely upon the Schedule 13G filed by it with the SEC on February 9, 2007. |
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• | SIGNING the enclosed GOLD proxy card, |
• | DATING the enclosed GOLD proxy card, and |
• | MAILING the enclosed GOLD proxy card TODAY in the envelope provided (no postage is required if mailed in the United States). |
FOR ALL NOMINEES | WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES | FOR ALL EXCEPT NOMINEE(S) WRITTEN BELOW | ||
Nominees: | Jack L. Howard John J. Quicke John Mutch Howard M. Leitner Anthony Bergamo | o | o | o |
FOR | AGAINST | ABSTAIN | |
o | o | o |