1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended March 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to . Commission File Number 000-15071 ADAPTEC, INC. (exact name of Registrant as specified in its charter) DELAWARE 94-2748530 (State of incorporation) (I.R.S. Employer Identification No.) 691 S. Milpitas Blvd. Milpitas, California 95035 (Address of principal executive offices) Registrant's telephone number, including area code: (408) 945-8600 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value Preferred Share Purchase Rights (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes [X] No [ ] Based on the closing sale price of the Common Stock on the Nasdaq National Market System on June 1, 1998, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $1,650,641,230. Shares of Common Stock held by each officer and director and by each person known by the Company to own 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares outstanding of Registrant's Common Stock, $0.001 par value, was 114,319,660 at June 1, 1998. DOCUMENTS INCORPORATED BY REFERENCE Parts I, II and IV incorporate information by reference from the Annual Report to Stockholders for the fiscal year ended March 31, 1998. Part III incorporates information by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held on August 20, 1998. 2 INTRODUCTORY STATEMENT References made in this Annual Report on Form 10-K to "Adaptec," the "Company," or the "Registrant" refer to Adaptec, Inc. and its wholly owned subsidiaries. Adaptec, the Adaptec logo, EZ-SCSI, and SCSIselect are trademarks of Adaptec, Inc., which may be registered in some jurisdictions. All other trademarks used are owned by their respective owners. 1 3 PART I ITEM 1. BUSINESS GENERAL Adaptec is a leading supplier of bandwidth management solutions that significantly enhance total system performance by increasing the data transfer rates between personal computers ("PCs"), servers, peripherals, and networks. The Company's products include host adapters, which are primarily based on the small computer system interface ("SCSI") standard, network products, CD recordable software solutions, peripheral technology solutions, consisting primarily of application specific integrated circuit ("ASIC") controllers for hard disk and CD-ROM drives, and storage system solutions that incorporate RAID and Fibre Channel technologies. 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. Many of these solutions are based on the SCSI standard which has become an important 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. The increase in the usage of data has created the need for solutions involving 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 and CD-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. In addition, the increasing need for mass storage is also driving the need for controller solutions that can support multi-gigabyte drives in both desktop and server systems. Adaptec also supports emerging high-performance solutions, such as Fibre Channel and microprocessor based RAID. Fibre Channel is a bus technology targeted for applications with very high-capacity I/O demands over long distances, which offers unique capabilities in the clustering and very high end multi-processor server environments. Fibre Channel has fostered the idea of a "storage area network" where a Fibre Channel network exists independently of a local area network (LAN). The storage area network moves data between storage devices and servers while the LAN moves data between clients and servers. RAID is an acronym for Redundant Array of Inexpensive (or Independent) Disks. A microprocessor RAID array is a collection of drives which collectively act as a single storage system, which can tolerate the failure of a drive without losing data and which can operate independently of each other. RAID offloads overhead from the main CPU allowing for enhanced system performance. 2 4 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. Host Interface Solutions The Company's host interface solutions, which include SCSI host adapters 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 host interface products, which incorporate the Company's proprietary single chip architectures and related software products including CD recordable solutions, provide customers comprehensive I/O solutions in the markets it serves. Ultra2SCSI products include PCI Ultra2 solutions for workstation applications such as CAD/CAM, financial analysis and desktop publishing. Internal RAID solutions include RAID option cards for motherboards equipped with a RAIDport II slot and PCI-to-Ultra SCSI Array Adapters. 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, Fibre Channel, ISA, EISA, and PCMCIA as well as for previous generations of the SCSI standard. The Company also provides non-bus mastering host adapters that provide standardized SCSI connectivity between the CPU and its peripherals. To expand further the market for its products, the Company continues to develop and market I/O solutions meeting specific original equipment manufacturer ("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 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 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 also provides networking products such as Fast Ethernet adapters and Duralink software. 3 5 Semiconductor Solutions The Company develops proprietary integrated circuits ("ICs") for use in microcomputer systems, mass storage devices, various other peripherals, 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 semiconductor solutions include SCSI and enhanced integrated device electronic ("EIDE") programmable storage controllers and single-chip SCSI host adapters. All of the Company's IC products are developed using advanced design technologies to meet market requirements for higher levels of physical integration, increased functionality, and performance. The Company's programmable SCSI and 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. The Company's SCSI host adapter ICs incorporate similar technology and are used by system manufacturers to embed SCSI on the system motherboard. Storage System Solutions The Company's storage system solutions include RAID for external storage, primarily in the NT server market, and Fibre Channel solutions. RAID for external storage includes external RAID controller boards and external RAID "canisters". External RAID controller boards are sold to OEMs for integration into their external storage subsystems. Canisters are sold primarily to VARs and resellers through the distribution channel for integration into RAID storage subsystems. The Company's Fibre Channel products include PCI-to-Fibre Channel host adapters which bring Fibre Channel peripheral attachment and clustering interconnection to 32-bit/64-bit PCI workstations and servers. These PCI-to-Fibre Channel host adapters are compatible with a wide range of hardware platforms, operating systems and peripherals and are sold directly to OEMs and through distribution with kitted solutions. 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. 4 6 The Company intends to continue to leverage its technical expertise and product innovation capabilities to address I/O solutions across a broad range of users and platforms. The Company has invested significant resources to develop its core products as well as newer hardware and software solutions including CD-R, Fibre Channel, File Array, RAID and external storage. The Company is currently evaluating the stage of development and market potential of various of these technologies and, as a result of its recent financial performance, may decide to curtail or terminate its development efforts in certain areas. Approximately 28% of the Company's employees are engaged in research and development, of whom approximately 50% are engaged in software development. In fiscal 1998, 1997, and 1996, the Company spent approximately $173 million (17% of net revenues), $129 million (14% of net revenues) and $88 million (13% of net revenues), respectively, for research and development. 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 Computer, DEC, Dell Computer Corporation, Fujitsu, Gateway 2000, Hewlett-Packard Company, IBM Corporation, Intel Corporation, Samsung, Siemens Nixdorf, Silicon Graphics, Toshiba America, and Western Digital. The Company's major distributors include Actebis, CHS Electronics, Computer 2000, Gates/Arrow, Globelle, Ingram Micro, Metrologie, Merisel, Nissho, and Tech Data. In fiscal 1998 and 1997, no customer accounted for more than 10% of the Company's net revenues. In fiscal 1996, sales to one distributor represented 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 60%, 61%, and 56% of net revenues in fiscal 1998, 1997, and 1996, 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 denominated in U.S. dollars. 5 7 COMPETITION In the host adapter market, the Company competes with a number of 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. As the Company enters the market for storage systems solutions, it expects to experience significant competition from both existing competitors and additional companies that may enter this market. Some of these companies have greater technical, marketing, manufacturing, and financial resources than the Company. The Company's principal competitors for semiconductor solutions in the mass storage market are captive suppliers, Texas Instruments 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, 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, evolving industry standards, and competitive price pressures. 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 and server 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 factors in its competitive success is its continued commitment of resources to research and development. BACKLOG At March 31, 1998, the Company's backlog was approximately $61 million compared with $154 million at March 31, 1997. The Company believes that the trend to lower priced PCs for mainstream corporate desktop applications, the turbulent disk drive market and the recent instability in the Asian markets are, among other things, factors which may have contributed to the decrease in the backlog. However, backlog levels may also vary with product availability, delivery lead times and customer order delays, changes or cancellations. Accordingly, the Company's backlog as of any particular date may not necessarily be a reliable indicator of future operating results. 6 8 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. Since 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 from several outside suppliers in addition to the Company's custom designed integrated circuits. Additionally, during fiscal 1998, to ensure availability of low cost manufacturing capacity for certain product lines, the Company's Singapore plant continued to develop relationships with major local subcontracting manufacturers by consigning certain production equipment to the subcontractors. All semiconductor wafers used in manufacturing the Company's products are processed to its specifications by outside suppliers and internally tested by the Company. The Company has secured capacity through agreements with Taiwan Semiconductor Manufacturing Co., Ltd. ("TSMC") that ensure availability of a portion of the Company's wafer capacity for both current and future technologies for which the Company has made advance payments. The Company also purchases wafers from SGS-Thompson Microelectronics and Seiko Epson. PATENTS AND LICENSES The Company believes that patents are of less significance in its industry than such factors as innovative skills, technological expertise, and marketing abilities. However, the Company encourages its engineers to document patentable inventions and has applied for and continues to apply for patents both in the United States and in foreign countries when it deems it to be advantageous to do so. There can be no assurance that patents will be issued or that any patent issued will provide significant protection or could be successfully defended. As is the case with many companies in the electronics industry, it may be desirable in the future for the Company to obtain technology licenses from other companies. The Company has occasionally received notices of claimed infringement of intellectual property rights and may receive additional such claims in the future. The Company evaluates all such claims and, if necessary, will seek to obtain appropriate licenses. There can be no assurance that any such licenses, if required, will be available on acceptable terms. EMPLOYEES At March 31, 1998, the Company had 3,276 employees. 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. EXECUTIVE OFFICERS The following sets forth certain information with regard to executive officers of Adaptec as of June 23, 1998 except that ages are as of March 31, 1998: F. Grant Saviers (age 53) has served as Chairman and Chief Executive Officer of Adaptec since May 1998. Mr. Saviers served as Chairman, Chief Executive Officer and President between August 1997 and May 1998 and as President and Chief Executive Officer between July 1995 and August 1997. Mr. Saviers joined Adaptec as Chief Operating Officer in August 1992. Prior to joining Adaptec, Mr. Saviers was 7 9 employed with Digital Equipment Corporation, last serving as Vice President of its personal computer systems and peripherals operation. Robert N. Graham (age 58) has served as President, Storage Systems since May 1998. From 1997 to 1998, Mr. Graham was Chairman, Chief Executive Officer and President of Ridge Technologies, Inc. From 1994 to 1997, he was a director and Chief Operating Officer of Manufacturers' Services, Inc. From 1991 to 1994, he was the General Manager of the Sun Microelectronics Division of Sun Microsystems. Robert N. Stephens (age 52) has served as President, Host Interface Solutions since May 1998. Mr. Stephens joined Adaptec as Chief Operating Officer in 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. Andrew J. Brown (age 38) has served as Vice President since November 1996, and as Corporate Controller and Principal Accounting Officer since May 1994. From July 1988 to April 1994 he served in various financial roles with the Company. Richard J. Clayton (age 57) 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. Michael G. Fisher (age 39) 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 April 1994. Paul G. Hansen (age 50), a certified public accountant, has served as Vice President of Finance and Chief Financial Officer since January 1988. From March 1984 to December 1987 he served in various financial roles with the Company. E. J. Tim Harris (age 50) 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. Sam Kazarian (age 55) has served as Vice President of Operations since May 1990. James M. McCluney (age 46) has served as Vice President since May 1998. From October 1997 to May 1998 he was Senior Vice President, Wordwide Operations, at Apple Computer. From 1980 to October 1997, he served in various positions at Digital Equipment Corporation, most recently as Vice President of Worldwide Logistics. Michael A. Ofstedahl (age 38) has served as Vice President, Worldwide Sales, since February 1998. From January 1996 to February 1998, Mr. Ofstedahl was Vice President of Sales for Chromatic Research, Inc. and from April, 1993 to January, 1996, he was Vice President, Strategic Accounts, at Adaptec. Prior to that, he served as Senior Vice-President, Sales and Marketing, for Vitarel Microelectronics, Inc. Christopher G. O'Meara (age 40) has served as Vice President since July 1992 and as Treasurer since April 1989. 8 10 Henry P. Massey (age 58) 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. TERMINATION OF SYMBIOS ACQUISITION In February 1998, the Company entered into an agreement to purchase all of the outstanding stock of Symbios, Inc. ("Symbios"), a wholly owned subsidiary of Hyundai Electronics America ("Hyundai") for approximately $768 million. Symbios is a supplier of SCSI devices, OEM storage systems and ASIC solutions. On June 25, 1998, Adaptec and Hyundai announced that they had mutually agreed to terminate the transaction. Adaptec expects to take a charge of approximately $20 million in the first quarter of fiscal 1999 in connection with the transaction. FOREIGN AND DOMESTIC OPERATIONS Incorporated by reference from information under the caption " Note 10. Segment Information" in the Notes to Consolidated Financial Statements on pages B21 and B22 of the Annual Report to Stockholders for the fiscal year ended March 31, 1998. CERTAIN FACTORS BEARING ON FUTURE RESULTS This report contains forward-looking statements that involve risks and uncertainties. For example, Management's Discussion and Analysis of Results of Operations and Financial Condition which is incorporated by reference from the Company's Annual Report includes statements relating to expected sales growth, anticipated operating expenditures and anticipated capital expenditures. The statements contained in this document that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements regarding 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 document. In evaluating the Company's business, prospective investors should consider carefully the following factors in addition to the other information set forth in this document. Future Operating Results Subject to Fluctuation. In the second half of fiscal 1998, the Company's operating results were adversely affected by shifts in corporate and retail buying patterns, increased competition, economic instability in Asia and turbulence in the computer disk drive industry. In the future, the Company's operating results may fluctuate as a result of these factors and as a result of a wide variety of other factors, including, but not limited to, 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, product obsolescence and general worldwide economic and computer industry fluctuations. In addition, fluctuations may be caused by future accounting pronouncements, changes in accounting policies, 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 9 11 or if customers do not control inventories effectively, they may cancel or reschedule shipments previously ordered from the Company. The Company has historically operated with a relatively small backlog, especially relating to orders of its host interface solutions and has set its operating budget based in part on expectations of future revenues. Because much of the Company's operating budget is relatively fixed in the short term, if revenues do not meet the Company's expectations, as happened in the fourth quarter of fiscal 1998, then the Company's operating income and net income may be disproportionately affected. Operating results in any particular quarter which do not meet the expectations of securities analysts are likely to cause volatility in the price of the Company's Common Stock. Certain Risks Associated with the High-Performance Microcomputer Market. The Company's host interface 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 that support client/server and Internet/intranet applications, computer-aided engineering, desktop publishing, multimedia, and video. During the second half of fiscal 1998, the demand for such systems slowed as more businesses chose to use relatively inexpensive PC's for desktop applications and information technology managers shifted resources toward resolving Year 2000 problems and investing in network infrastructure. Should demand for such systems continue to slow, the Company's business or operating results could be materially adversely affected by a resulting 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, as happened in the second half of fiscal 1998, such suppliers, including the Company, could produce excessive or insufficient inventories of various components which could 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, Ultra2 SCSI, PCI, RAID, Fibre Channel, 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. For example, the Company believes that changes in consumers' perceptions of the relative merits of SCSI based products and products incorporating a competing standard, Ultra-DMA, have recently started to adversely affect the sales of the Company's products and may adversely affect the Company's future sales. 10 12 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 costs, 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 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 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 11 13 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. In addition, the Company is increasingly using board subcontractors to better balance production runs and capacity. 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 completed the acquisition of 13 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 will 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. Certain Risks Associated with Implementation and Utilization of New Information Systems. The Company has recently implemented new information systems in its operations in the United States, Singapore and Europe and will implement new information systems in its operations in Japan. There can be no assurance that the Company will successfully implement and utilize these new systems efficiently and in a timely manner. Problems with installation or utilization of the new systems could cause substantial difficulties in operations, financial reporting and management and thus could have a material adverse effect on the Company's business or operating results. Year 2000 Issues. The "Year 2000 issue" arises because most computer systems and programs were designed to handle only a two-digit year not a four-digit year. When the Year 2000 begins, these computers may interpret "00" as the year 1900 and could either stop processing date-related computations or could 12 14 process them incorrectly. The Company has recently implemented new information systems and accordingly does not anticipate any internal Year 2000 issues from its own information systems, databases or programs. However, the Company could be adversely impacted by Year 2000 issues faced by major distributors, suppliers, customers, vendors and financial service organizations with which the Company interacts. The Company has sent surveys to certain third parties to determine whether they are Year 2000 compliant and is in the process of evaluating and following up on responses to determine the impact that third parties who are not Year 2000 compliant may have on the operations of the Company. The Company believes it is currently being impacted by the redirection of corporate management information system budgets towards resolving the Year 2000 issue. Continuation of this trend could lower the demand for the Company's products if corporate buyers defer purchases of high-end business PCs. 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. In the host adapter market, the Company competes with a number of host adapter manufacturers. The Company's principal competitors for semiconductor solutions 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 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. In addition, there has recently been an industry trend towards the elimination of price protection and distributor incentive programs. This trend could result in a change in distributor business habits, with distributors possibly deciding to decrease the amount of product held so as to reduce inventory levels and this in turn 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 design enhancements and manufacture of existing products and the development of new products and processes. The competition for such personnel is intense, and the loss of key employees could have a material adverse effect on the Company's business or operating results. The Company believes the recent weakness in its financial performance and the resulting decline in its stock price has adversely impacted its ability to attract and retain qualified employees. 13 15 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. The Company may use forward exchange contracts to manage any exposure associated with certain foreign currency denominated commitments. 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 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. Natural Disasters. The Company's corporate headquarters are located near major earthquake faults. Any damage to the Company's information systems caused as a result of an earthquake, fire, La Nina related floods or any other natural disasters could have a material adverse effect on the Company's business, results of operations and financial condition. Volatility of Stock Price. 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 14 16 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, as occurred in the fourth quarter of fiscal 1998, 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. In addition, the Company's stock price may be affected by general market conditions and international macroeconomic factors unrelated to the Company's performance such as those recently evidenced by the financial turmoil in Asia. These conditions, as well as factors that generally affect the market for stocks of high technology companies, could cause the price of the Company's Common Stock to fluctuate substantially over short periods. ITEM 2. PROPERTIES The Company owns seven buildings (approximately 439,000 square feet) in Milpitas, California, which are primarily used by the Company for corporate offices, research, manufacturing, marketing, and sales, and one building (approximately 200,000 square feet) in Longmont, Colorado, for research, technical support, marketing, sales, and administrative support. The Company leases three buildings (approximately 81,000 square feet) in Milpitas, California, which are mainly occupied to support administrative and sales functions, and other facilities in Irvine, California (82,000 square feet); Bellevue, Washington (9,000 square feet); Hudson, Wisconsin (6,000 square feet); and Nashua, New Hampshire (23,000 square feet) to support technical design efforts and sales. Adaptec Manufacturing Singapore is located in two leased facilities (approximately 126,000 square feet). The two buildings are used by the Company for research, manufacturing, and sales. The Company also leases six sales offices in the United States, and one sales office each in Waterloo, Belgium; Munich, Germany; Bretonneux, France; Camberley, England; Singapore; Seoul, Korea; Taipei, 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 1999. During fiscal 1998 and fiscal 1996, the Company acquired parcels of land in Fremont and Irvine, California, for approximately $12 million and $11 million respectively. The Company's future facilities requirements will depend upon the Company's business, and the Company believes additional space, if required, may be obtained on reasonable terms. ITEM 3. LEGAL PROCEEDINGS Incorporated by reference from the information under the caption: Item 5 "Other Events" in the Company's Form 8-K dated February 19, 1998 and from the information under the caption "Note 11 Commitments and Contingencies" in the Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders for the year ended March 31, 1998. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 15 17 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Incorporated by reference from the information under the caption: "Common Stock Prices and Dividends" on page B27 of the Company's Annual Report to Stockholders for the fiscal year ended March 31, 1998. ITEM 6. SELECTED FINANCIAL DATA Incorporated by reference from the information under the caption: "Selected Financial Data" on page B27 of the Company's Annual Report to Stockholders for the fiscal year ended March 31, 1998. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated by reference from the information under the caption: "Management's Discussion and Analysis of Financial Condition and Results of Operations" from pages B3 through B6 of the Company's Annual Report to Stockholders for the fiscal year ended March 31, 1998. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Incorporated by reference from the information appearing under the caption: "Market Risk Disclosure" under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page B6. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated financial statements of Adaptec, Inc. at March 31, 1998 and 1997 and for each of the three years in the period ended March 31, 1998 and the independent accountants' report thereon are incorporated by reference from pages B7 through B26 of the Annual Report to Stockholders for the year ended March 31, 1998. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to directors of Adaptec is incorporated by reference from the information under the captions: "Election of Directors--Nominees" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's definitive Proxy Statement for the annual meeting of shareholders to be held, August 21, 1998 (the "Proxy Statement"). Information with respect to the executive officers of Adaptec is included in Part I of this Form 10-K under the heading "Executive Officers". 16 18 ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference from the information under the caption: "Executive Compensation and Other Matters" and "Election of Directors, Certain Relationships and Related Transactions" in the Company's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference from the information under the caption: "Election of Directors -- Security Ownership of Management" in the Company's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference from the information under the caption: "Election of Directors, Certain Relationships and Related Transactions" in the Company's Proxy Statement. 17 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following Consolidated Financial Statements of Adaptec, Inc. and the Report of Independent Public Accountants, as listed under (a)(1) below, are incorporated by reference to the Registrant's Annual Report to Stockholders for the year ended March 31, 1998. (1) FINANCIAL STATEMENTS: Page in Annual Report --------------------- Consolidated Statements of Operations - Fiscal Years ended March 31, 1998, 1997, and 1996 B7 Consolidated Balance Sheets at March 31, 1998 and 1997 B8 Consolidated Statements of Cash Flows - Fiscal Years ended March 31, 1998, 1997, and 1996 B9 Consolidated Statements of Stockholders' Equity - Fiscal Years ended March 31, 1998, 1997, and 1996. B10 Notes to Consolidated Financial Statements B11 Report of Management B25 Report of Independent Accountants B26 (2) All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (b) EXHIBITS: (1) Exhibits included herein (numbered in accordance with Item 601 of Regulation S-K): 18 20 EXHIBIT NUMBER DESCRIPTION NOTES - ------ ----------- ----- 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. (6) 2.1(b) Stock Purchase Agreement by and between Adaptec, Inc. and Certain Shareholders of Future Domain Corporation dated July 13, 1995 (6) 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. (3) 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. (4) 2.5 Agreement and Plan of Reorganization by and among Adaptec, Inc., Adaptec Acquisition Corporation, and Data Kinesis, Inc. dated August 6, 1996. (4) 2.6 Asset Acquisition Agreement by and among Adaptec, Inc. and Analog Devices, Inc. dated March 24, 1998 2.7 Agreement and Plan of Reorganization by and among Adaptec, Inc., Ridge Technologies and RDS Acquisition dated as of May 21, 1998. 2.8 Agreement and Plan of Merger dated February 23, 1998 between Registrant and Adaptec, Inc., a California corporation. 3.1 Certificate of Incorporation of Registrant filed with Delaware Secretary of State on November 19, 1997. 3.2 Bylaws of Registrant, as adopted on November 19, 1997. 19 21 4.1 Second Amended and Restated Rights Agreement dated December 5, 1996 between Registrant and Chase Mellon Shareholder Services, Inc. as Rights Agents. (9) 4.2 First Amendment dated March 12, 1998 to Second Amended and Restated Rights Agreement. 4.3 Indenture dated as of February 3, 1997 between Registrant and State Street Bank and Trust Company. (1) 4.4 First Supplemental indenture dated as of March 12, 1998 between Registrant and State Street Bank and Trust Company. 10.1 + Registrant's 1986 Employee Stock Purchase Plan. (7) 10.2 Technology License Agreement dated January 1, 1985 between the Registrant and International Business Machines Corporation. (11) 10.3 + Registrant's Savings and Retirement Plan. (10) 10.4 + 1990 Stock Plan, as amended. (13) 10.5 + Forms of Stock Option Agreement, Tandem Stock Option/SAR Agreement, Restricted Stock Purchase Agreement, Stock Appreciation Rights Agreement, and Incentive Stock Rights Agreement for use in connection with the 1990 Stock Plan, as amended. (8) 10.6 + 1990 Directors' Option Plan and forms of Stock Option Agreement. (7) 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. (7) 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. (7) 10.9* Option Agreement I Between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd. dated October 23, 1995. (2) 20 22 10.10* Option Agreement II Between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd. dated October 23, 1995. (2) 10.11 Consignment Agreement between Adaptec, Inc. and AT&T Corp. dated January 10, 1996. (2) 10.12 Letter Agreement between Adaptec, Inc. and Lucent Technologies, Inc. dated January 1, 1997. (14) 10.13 Form of Indemnification Agreement entered into with directors and officers of Adaptec, Inc., a California corporation, prior to Registrant's reincorporation into Delaware. (12) 10.14 Form of Indemnification Agreement entered into between Registrant and its officers and directors. 10.14 Term Loan Agreement dated June 24, 1992 between the Registrant and Plaza Bank of Commerce expiring June 30, 1988. (12) 10.15* Deposit and Supply Agreement between Taiwan Semiconductor Manufacturing Co., Ltd. and Adaptec Manufacturing Pte. Ltd. (7) 10.16 Industrial Lease Agreement between the Registrant, as Lessee, and Jurong Town Corporation, as Lessor. (6) 10.17 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. (5) 10.18 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. (13) 13.1 Those portions of Registrant's Annual Report to Stockholders incorporated by reference herein. 21.1 Subsidiaries of Registrant. 23.1 Consent of Independent Accountants, Price Waterhouse LLP. 24.1 Power of Attorney. (See Pages 25). 21 23 27.1 Financial Data Schedule for the year ended March 31, 1998. 27.2 Financial Data Schedule for the year ended March 31, 1997. 27.3 Financial Data Schedule for the year ended March 31, 1996. - -------------------------------------------------------------------------------- (1) Incorporated by reference to exhibits filed with Registrant's Registration Statement Number 333-24557 on Form S-1 on April 4, 1997. (2) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1996. (3) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 1996. (4) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended September 27, 1996. (5) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended December 27, 1996. (6) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1995. (7) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1994. (8) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1993. (9) Incorporated by reference to Exhibit 1 filed with Amendment No. 4 to Registrant's Registration Statement Number 0-15071 on Form 8-A as filed on January 4, 1997. (10) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1987. (11) Incorporated by reference to Exhibit 10.15 filed in response to Item 16(a) "Exhibits," of Registrant's Registration Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto (file No. 33-5519), which became effective on June 11, 1986. (12) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1992. (13) Incorporated by reference to Exhibit 4.2 to Form 10-Q as filed February 7, 1996. 22 24 (14) Incorporated by reference to Exhibits filed with Registrants Annual Report on Form 10-K for the fiscal year ended March 31, 1997. + Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of said form. * Confidential treatment has been granted for portions of this agreement. (c) REPORTS ON FORM 8-K A current Report on Form 8-K dated February 19, 1998 was filed by the Registrant with the Securities and Exchange Commission to report under Item 5 thereof the press release issued to the public on February 19, 1998 regarding the agreement to acquire Symbios, Inc. The Form 8-K dated February 19, 1998 also reported under Item 5 details regarding several putative securities class action lawsuits filed against the Registrant. A current Report on Form 8-K dated March 12, 1998 was filed by the Registrant with the Securities and Exchange Commission to report under Item 5 thereof the reincorporation of the Registrant as a Delaware corporation. 23 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. ADAPTEC, INC. Date: June 18, 1998 \s\ F. Grant Saviers --------------------------------------------- F. Grant Saviers Chairman and Chief Executive Officer 24 26 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints F. Grant Saviers and Paul G. Hansen, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE \s\ F. Grant Saviers Chairman and Chief Executive Officer June 18, 1998 - --------------------------------------------------------- (F. Grant Saviers) \s\ Robert N. Stephens Chief Operating Officer June 18, 1998 - --------------------------------------------------------- (Robert N. Stephens) \s\ Paul G. Hansen Vice President of Finance, June 18, 1998 - --------------------------------------------------------- Chief Financial Officer and (Paul G. Hansen) Assistant Secretary \s\ Andrew J. Brown Vice President, Corporate Controller and June 18, 1998 - --------------------------------------------------------- Principal Accounting Officer (Andrew J. Brown) \s\ Laurence B. Boucher Director June 18, 1998 - --------------------------------------------------------- (Laurence B. Boucher) \s\ Carl J. Conti Director June 18, 1998 - --------------------------------------------------------- (Carl J. Conti) \s\ John C. East Director June 18, 1998 - --------------------------------------------------------- (John C. East) \s\ Ilene H. Lang Director June 18, 1998 - --------------------------------------------------------- (Ilene H. Lang) \s\ Robert J. Loarie Director June 18, 1998 - --------------------------------------------------------- (Robert J. Loarie) \s\ B. J. Moore Director June 18, 1998 - --------------------------------------------------------- (B. J. Moore) \s\ W. Ferrell Sanders Director June 18, 1998 - --------------------------------------------------------- (W. Ferrell Sanders) \s\ Phillip E. White Director June 18, 1998 - --------------------------------------------------------- (Phillip E. White) 25 27 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION NOTES - ------ ----------- ----- 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. (6) 2.1(b) Stock Purchase Agreement by and between Adaptec, Inc. and Certain Shareholders of Future Domain Corporation dated July 13, 1995 (6) 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. (3) 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. (4) 2.5 Agreement and Plan of Reorganization by and among Adaptec, Inc., Adaptec Acquisition Corporation, and Data Kinesis, Inc. dated August 6, 1996. (4) 2.6 Asset Acquisition Agreement by and among Adaptec, Inc. and Analog Devices, Inc. dated March 24, 1998 2.7 Agreement and Plan of Reorganization by and among Adaptec, Inc., Ridge Technologies and RDS Acquisition dated as of May 21, 1998. 2.8 Agreement and Plan of Merger dated February 23, 1998 between Registrant and Adaptec, Inc., a California corporation. 3.1 Certificate of Incorporation of Registrant filed with Delaware Secretary of State on November 19, 1997. 3.2 Bylaws of Registrant, as adopted on November 19, 1997. 28 4.1 Second Amended and Restated Rights Agreement dated December 5, 1996 between Registrant and Chase Mellon Shareholder Services, Inc. as Rights Agents. (9) 4.2 First Amendment dated March 12, 1998 to Second Amended and Restated Rights Agreement. 4.3 Indenture dated as of February 3, 1997 between Registrant and State Street Bank and Trust Company. (1) 4.4 First Supplemental indenture dated as of March 12, 1998 between Registrant and State Street Bank and Trust Company. 10.1 + Registrant's 1986 Employee Stock Purchase Plan. (7) 10.2 Technology License Agreement dated January 1, 1985 between the Registrant and International Business Machines Corporation. (11) 10.3 + Registrant's Savings and Retirement Plan. (10) 10.4 + 1990 Stock Plan, as amended. (13) 10.5 + Forms of Stock Option Agreement, Tandem Stock Option/SAR Agreement, Restricted Stock Purchase Agreement, Stock Appreciation Rights Agreement, and Incentive Stock Rights Agreement for use in connection with the 1990 Stock Plan, as amended. (8) 10.6 + 1990 Directors' Option Plan and forms of Stock Option Agreement. (7) 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. (7) 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. (7) 10.9* Option Agreement I Between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd. dated October 23, 1995. (2) 29 10.10* Option Agreement II Between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd. dated October 23, 1995. (2) 10.11 Consignment Agreement between Adaptec, Inc. and AT&T Corp. dated January 10, 1996. (2) 10.12 Letter Agreement between Adaptec, Inc. and Lucent Technologies, Inc. dated January 1, 1997. (14) 10.13 Form of Indemnification Agreement entered into with directors and officers of Adaptec, Inc., a California corporation, prior to Registrant's reincorporation into Delaware. (12) 10.14 Form of Indemnification Agreement entered into between Registrant and its officers and directors. 10.14 Term Loan Agreement dated June 24, 1992 between the Registrant and Plaza Bank of Commerce expiring June 30, 1988. (12) 10.15* Deposit and Supply Agreement between Taiwan Semiconductor Manufacturing Co., Ltd. and Adaptec Manufacturing Pte. Ltd. (7) 10.16 Industrial Lease Agreement between the Registrant, as Lessee, and Jurong Town Corporation, as Lessor. (6) 10.17 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. (5) 10.18 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. (13) 13.1 Those portions of Registrant's Annual Report to Stockholders incorporated by reference herein. 21.1 Subsidiaries of Registrant. 23.1 Consent of Independent Accountants, Price Waterhouse LLP. 24.1 Power of Attorney. (See Pages 25). 30 27.1 Financial Data Schedule for the year ended March 31, 1998. 27.2 Financial Data Schedule for the year ended March 31, 1997. 27.3 Financial Data Schedule for the year ended March 31, 1996. - -------------------------------------------------------------------------------- (1) Incorporated by reference to exhibits filed with Registrant's Registration Statement Number 333-24557 on Form S-1 on April 4, 1997. (2) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1996. (3) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended June 28, 1996. (4) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended September 27, 1996. (5) Incorporated by reference to exhibits filed with Registrant's Quarterly Report on Form 10-Q for the quarter ended December 27, 1996. (6) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1995. (7) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1994. (8) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1993. (9) Incorporated by reference to Exhibit 1 filed with Amendment No. 4 to Registrant's Registration Statement Number 0-15071 on Form 8-A as filed on January 4, 1997. (10) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1987. (11) Incorporated by reference to Exhibit 10.15 filed in response to Item 16(a) "Exhibits," of Registrant's Registration Statement on Form S-1 and Amendment No. 1 and Amendment No. 2 thereto (file No. 33-5519), which became effective on June 11, 1986. (12) Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1992. (13) Incorporated by reference to Exhibit 4.2 to Form 10-Q as filed February 7, 1996. (14) Incorporated by reference to Exhibits filed with Registrants Annual Report on Form 10-K for the fiscal year ended March 31, 1997. + Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of said form. * Confidential treatment has been granted for portions of this agreement.