Adaptec 2002 Annual Report Download - page 71

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Supply agreements. The Company has wafer supply agreements with two independent foundries, which expire in
December 2003. Under these agreements, the suppliers are obligated to provide certain quantities of wafers
per year. Neither of the agreements have minimum unit volume purchase requirements but the Company is
obligated under one of the agreements to purchase in future periods a minimum percentage of its total annual
wafer requirements, provided that the foundry is able to continue to offer competitive technology, pricing,
quality and delivery.
Investment agreements. The Company participates in four professionally managed venture funds that invest in
early−stage private technology companies which participate in markets of strategic interest to the Company.
From time to time these funds request additional capital for private placements. The Company has committed
to invest an additional $38.1 million in these funds, which may be requested by the fund managers at any
time over the next seven years.
Contingencies. In the normal course of business, the Company receives and makes inquiries with regard to
possible patent infringements. Where deemed advisable, the Company may seek or extend licenses or negotiate
settlements. Outcomes of such negotiations may not be determinable at any point in time; however, management
does not believe that such licenses or settlements will, individually or in the aggregate, have a material
adverse effect on the Company's financial position, results of operations or cash flows.
NOTE 9. Special Shares
At December 31, 2002 and 2001, the Company maintained a reserve of 3,196,000 and 3,373,000 shares,
respectively, of PMC common stock to be issued to holders of PMC−Sierra, Ltd. (LTD) special shares.
The special shares of LTD, the Company's principal Canadian subsidiary, are redeemable or exchangeable for
PMC common stock. Special shares do not vote on matters presented to the Company's stockholders, but in all
other respects represent the economic and functional equivalent of PMC common stock for which they can be
redeemed or exchanged at the option of the holders. The special shares have class voting rights with respect
to transactions that affect the rights of the special shares as a class and for certain extraordinary
corporate transactions involving LTD. If LTD files for bankruptcy, is liquidated or dissolved, the special
shares receive as a preference the number of shares of PMC common stock issuable on conversion plus a
nominal amount per share plus unpaid dividends, or at the holder's option convert into LTD ordinary shares,
which are the functional equivalent of voting common stock. If the Company files for bankruptcy, is
liquidated, or dissolved, special shares of LTD receive the cash equivalent of the value of PMC common stock
into which the special shares could be converted, plus unpaid dividends, or at the holder's option convert
into LTD ordinary shares. If the Company materially breaches its obligations to special shareholders of LTD
(primarily to permit conversion of special shares into PMC common stock), the special shareholders may
convert their shares into LTD ordinary shares.
These special shares of LTD are classified outside of stockholders' equity until such shares are exchanged
for PMC common stock. Upon exchange, amounts will be transferred from the LTD special shares account to the
Company's common stock and additional paid−in capital on the consolidated balance sheet.
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