Adaptec chairman fires back at Steel Partners' efforts to remove CEO

By Lisa Kerner

Charlotte, N.C., Oct. 28 - Adaptec Inc. chairman Joseph Kennedy said it is "time to set the record straight" regarding Steel Partners II, LP's actions, including what Kennedy called the shareholder's "misleading smear campaign."

In a letter to Adaptec shareholders on Wednesday, Kennedy said Steel Partners has "unfortunately decided to avoid the real issues that drive stockholder value and instead has used 'governance' as a smoke-screen" in its consent solicitation.

Steel Partners is seeking the removal of Adaptec chief executive officer S. "Sundi" Sundaresh and legacy director Robert J. Loarie.

Sundaresh, appointed in 2005, has "successfully sold or shut down unprofitable businesses" and "articulated a vision of leading-edge market opportunities that capitalized on Adaptec's technical excellence," the letter said.

In addition, under the CEO's leadership, nearly all of Adaptec's debt has been repaid and cash balances have grown to more than $350 million, according to Kennedy.

"We believe Steel wants to turn Adaptec into a vehicle for leveraged 'hedge fund' style investments," Kennedy said.

Adaptec said it has tried to settle the consent solicitation, but Steel Partners refused to discuss an offer to have a non-binding resolution on the agenda of the annual meeting. Stockholders would have been given a chance to voice their opinions, with the losing side agreeing to resign from the board, Kennedy said.

Steel Partners, according to Kennedy, is offering shareholders a plan to give Adaptec the profile of a "blank check" company, as well as "a commitment to divest Adaptec of its high-technology heritage, its new products, and its future upside."

On the other hand, he said, a majority of the Adaptec board wants to preserve an independent board with high-technology operating and financial experience and return excess capital, estimated at between $140 million and $175 million, to the stockholders.

Kennedy said he does not favor the status quo on the Adaptec board.

"There is more work to be done to translate our business recovery into stockholder wealth," Kennedy said in the letter. "That is why the board has nominated a new slate, refreshing the seven-member board with three highly qualified and independent director nominees."

Steel Partners seeks support

On Monday, Steel Partners urged fellow Adaptec shareholders to follow the recommendation of RiskMetrics Group/ISS and Proxy Governance, Inc. to consent to the removal of Sundaresh and Loarie by signing, dating and returning the white consent card before the Nov. 2 deadline.

According to Steel Partners, the support of the proxy advisory firms validates Steel Partners' "call for changes to the Adaptec board" and "invalidates the legacy directors' personal attacks on Steel Partners and their attempts to distract stockholders from the real issues facing the company."

While Sundaresh and the legacy directors have had four years to turn the Milpitas, Calif., data storage company around, "all they have to show for it is a horrendous track record of stockholder value destruction," Steel Partners said in its letter to shareholders on Monday.

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