Adaptec says the company is on track to build wealth for stockholders

By Lisa Kerner

Charlotte, N.C., Oct. 15 - Adaptec, Inc. said it is setting the record straight regarding Steel Partners II LP and its consent solicitation.

According to a letter to Adaptec shareholders on Thursday, Adaptec believes Steel Partners is seeking to remove chief executive officer Subramanian "Sundi" Sundaresh from the board of directors in order to control the seven-member board without paying a premium to other stockholders, a claim Steel Partners denied.

According to Adaptec, the company is "poised to take the decisive next steps toward building wealth for stockholders, thanks to the turnaround efforts the board launched in 2005."

Steel Partners, a hedge fund and a minority stockholder, "wants to relinquish this hard-won progress," Adaptec said.

Sundaresh was named CEO in November 2005, and Adaptec said that since 2005 the company has:

• Increased its cash position to cash and equivalents of more than $380 million today;

• Launched new products that are beginning to generate enough revenues to offset the expected decline of its legacy products; and

• Generated cash from operations in the last quarter of $4.6 million.

A financial adviser has been exploring three categories of strategic alternatives since April, including a possible sale of the company. Adaptec said that despite Steel Partners' claims, the adviser has not yet issued a formal recommendation nor has the company's board completed its deliberations.

"We believe Steel's plan of selling Adaptec's operations into a depressed market - potentially at a fire-sale price - has more to do with the problems besetting Steel than with the opportunities Adaptec is creating for all stockholders," Adaptec told shareholders in the letter, citing the investors' "steep and well-documented losses."

Steel Partners fires back

Steel Partners reacted to Adaptec's letter to shareholders in a news release late Thursday.

The investor asked Adaptec shareholders to focus on what it said is the most important issue in the consent solicitation: "whether Mr. Sundaresh has earned the right to continue to run and control Adaptec."

In the release, Steel Partners said, "A look at Mr. Sundaresh's resume over the past decade reveals an alarming pattern of failures and value destruction. Two companies where Mr. Sundaresh previously served as president and CEO, Jetstream Communications, Inc. and Candera Inc., were each forced to shut down as a result of his failed leadership."

Adaptec's stock, under Sundaresh, has underperformed its "peer group index" by approximately 100%, according to Steel Partners.

Steel Partners urged Adaptec shareholders to support its consent solicitation and said it is the only way to "ensure a more balanced board that will provide proper oversight and accountability."

Investor cites losses

As previously reported, last week Steel Partners cited a Glass, Lewis & Co. proxy report that stated that Steel Partners has "correctly identified a pattern of underperformance" at Adaptec and agreed that Adaptec's financial results and underperformance warrant a change to its board and management team.

In its letter to Adaptec shareholders, Steel Partners said the company's directors are trying to distract shareholders from their "record of failure and massive destruction of stockholder value" with "misleading propaganda, half-truths and disinformation."

Steel Partners said that since Sundaresh became CEO of the Milpitas, Calif., data storage company, Adaptec has recorded total operating losses of about $270.9 million and net revenue has fallen about 70% to approximately $114.8 million since fiscal year 2006.

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