-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F8HuyfXjnhtxjokfyRPN1kmuXG+a8rk0GPEIec2QjiiJySEsmPnD96s9Wt4oCJin 7XcY9+ark00s9UBh5FeNpg== 0001047469-06-008428.txt : 20060614 0001047469-06-008428.hdr.sgml : 20060614 20060614173025 ACCESSION NUMBER: 0001047469-06-008428 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060614 DATE AS OF CHANGE: 20060614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADAPTEC INC CENTRAL INDEX KEY: 0000709804 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 942748530 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15071 FILM NUMBER: 06905602 BUSINESS ADDRESS: STREET 1: 691 S MILPITAS BLVD STREET 2: M/S25 CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4089458600 MAIL ADDRESS: STREET 1: 691 SOUTH MILPITAS BLVD STREET 2: M/S25 CITY: MILPITAS STATE: CA ZIP: 95035 10-K 1 a2171036z10-k.htm 10-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended March 31, 2006
OR
o		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
(State of incorporation)

94-2748530
(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

Common Share Purchase Rights

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No ý

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 ý No o

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. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer ý Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

The aggregate market value of the voting stock held by non-affiliates of the Registrant was $433,817,256 based on the closing sale price of the Registrant's common stock on The Nasdaq National Market on the last business day of the Registrant's most recently completed second fiscal quarter. Shares of the Registrant's common stock beneficially owned by each executive officer and director of the Registrant and by each person known by the Registrant to beneficially own 10% or more of its 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.

At June 9, 2006, the Registrant had 115,633,693 shares of common stock outstanding, $.001 par value per share.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference certain information from the Registrant's definitive Proxy Statement for the Registrant's 2006 Annual Meeting of Stockholders.

Table of Contents

		Page
Part I
Item 1.	Business	3
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	24
Item 2.	Properties	24
Item 3.	Legal Proceedings	25
Item 4.	Submission of Matters to a Vote of Security Holders	25
Item 4A.	Executive Officers of the Registrant	25
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	28
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 8.	Financial Statements and Supplementary Data	51
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	52
Item 9A.	Controls and Procedures	52
Item 9B.	Other Information	53
Part III
Item 10.	Directors and Executive Officers of the Registrant	54
Item 11.	Executive Compensation	54
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	54
Item 13.	Certain Relationships and Related Transactions	54
Item 14.	Principal Accountant Fees and Services	54
Part IV
Item 15.	Exhibits and Financial Statement Schedules	55
	Signatures	62

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. 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 our expectations, beliefs, intentions or strategies regarding our business. This Annual Report on Form 10-K includes forward-looking statements about our business including, but not limited to, the market for our products and their benefits to our customers, the benefits of our strategic partnerships, our intention to divest our systems business, the levels of our expenditures and savings for various expense items and our liquidity in future periods. We may identify these statements by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "project," "should," "will," "would" and other similar expressions. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements, except as may otherwise be required by law.

Our 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 "Risk Factors" section and elsewhere in this document. In evaluating our business, current and prospective investors should consider carefully these factors in addition to the other information set forth in this document.

PART I

Item 1. Business

For your convenience, we have included, in Note 20 to the Notes to Consolidated Financial Statements, a Glossary that contains (1) a brief description of a few key acronyms commonly used in our industry that are used in this Annual Report and (2) a list of accounting rules and regulations that are also referred to herein. These acronyms and accounting rules and regulations are listed in alphabetical order.

Overview

We provide storage solutions that reliably move, manage and protect critical data and digital content. We deliver software and hardware components that provide reliable storage connectivity and advanced data protection to leading OEM and distribution channel partners. Our software and hardware products range from ASICs, HBAs, RAID controllers, host RAID software, Adaptec RAID Code (ARC) software, Advanced Data Protection software, Storage Management software, Snapshot software, ROC and other solutions that span the SCSI, Serial Attached SCSI, SATA and iSCSI interface technologies. System integrators and white box suppliers build server and storage solutions based on Adaptec technology in order to deliver products with superior price and performance, data protection and interoperability.

Our broad range of RAID controllers, ASIC's and add-in cards give businesses a variety of price and performance options for connecting their storage. These options range from low cost HBAs to high performance and high availability RAID controller cards. Further, our products use a common management interface designed to simplify storage administration and reduce related costs. Our products are sold to enterprises, small and midsize businesses, government agencies and retail users engaged in a broad range of vertical markets across geographically diverse markets through OEMs and distribution channel customers, including system integrators.

including our product portfolio, our relationships with strategic partners and our research and development focus. To date, we have implemented the following steps:

•: On January 31, 2006, we signed a definitive agreement with Sanmina-SCI Corporation and its wholly owned subsidiary, Sanmina-SCI USA, Inc., for the sale of our OEM block-based systems business for $14.5 million, of which $5.0 million will be received over the next two years. In addition, Sanmina-SCI USA agreed to pay us contingent consideration of up to an additional $12.0 million if certain revenue levels are achieved over a three year period. We recorded a gain of approximately $12.1 million as a result of this transaction in the fourth quarter of fiscal 2006.
•: On December 23, 2005, we entered into a three-year contract manufacturing agreement with Sanmina-SCI whereby Sanmina-SCI, upon the closing of the transaction on January 9, 2006 assumed manufacturing operations of Adaptec products. In addition, we sold certain manufacturing assets, buildings and improvements and inventory located in Singapore with respect to printed circuit board assemblies and storage system manufacturing operations to Sanmina-SCI for $26.6 million (net of closing costs of $0.6 million) resulting in a loss on disposal of assets of $1.6 million that was recorded in "Other charges (gains)" on the Consolidated Statements of Operations.
•: On September 30, 2005, we sold our IBM i/p Series RAID business to IBM for approximately $22.0 million plus $1.3 million for certain fixed assets. In addition, IBM purchased certain related inventory at our net book value of $0.8 million. We also granted IBM a nonexclusive license to certain intellectual property and sold to IBM substantially all of the assets dedicated to the engineering and manufacturing of RAID controllers and connectivity products for the IBM i/p Series RAID business. Under the terms of the nonexclusive license, IBM will pay us royalties for the sale of our board-level products over the next six quarters, which will be recognized as contingent consideration in discontinued operations when earned. In fiscal 2006, we received royalties of $5.6 million, which we recorded in "Income (loss) from disposal of discontinued operations, net of taxes," in the Consolidated Statements of Operations.
•: On September 29, 2005, our Board of Directors approved management's recommendation to divest our systems business, which includes substantially all of the operating assets and cash flows that were obtained through our acquisitions of Snap Appliance, Inc. in fiscal 2005 and Eurologic Systems Group Limited in fiscal 2004 as well as internally developed hardware and software. In connection with this action, we classified the systems business as a discontinued operation in our consolidated financial statements. Accordingly, we have reclassified the underlying Consolidated Statements of Operations and Consolidated Statements of Cash Flows and related disclosures for all periods presented to reflect that business as part of discontinued operations.
•: We reorganized our internal organization structure related to our OEM and Channel segments in the second quarter of fiscal 2006. While our former OEM and Channel segments each offered an integrated set of customer-focused products, the new organization is managed at the product level. Our segments currently are DPS and DSG. As a result of the segment reorganization, an assessment of the recoverability of goodwill was performed and we wrote-off our entire balance of goodwill of $90.6 million in the second quarter of fiscal 2006. All prior periods have been restated to reflect our new segments.

Unless otherwise indicated the following discussion pertains only to our continuing operations.

In fiscal 2006, we focused on strengthening our market position through innovation and new products. We compete in the markets we serve on the basis of key technologies, ease-of-use and cost effectiveness as follows:

•: PCI, PCI-X and PCIe RAID Controllers. We provide PCI, PCI-X and PCIe RAID controllers based on SCSI, SATA and Serial Attached SCSI technologies that enable end users to use our data

protection solutions independent of the host interface and disk interconnect technology. We have an established proprietary RAID code that we leverage across our hardware, providing customers with continuous data protection through a variety of advanced RAID levels and features. Our PCI, PCI-X and PCIe RAID controllers are primarily used in servers for DAS. In the third quarter of fiscal 2006, we introduced five new HBAs and RAID controllers and one new internal enclosure based on the emerging Serial ATA and Serial Attached SCSI technologies.

•: Storage Software. Our storage products include storage management software that enables customers and IT managers to easily manage storage across DAS and SAN environments as well as our RAID data protection software. In the fourth quarter of fiscal 2006, we announced our Advanced Data Protection Suite, which includes unique RAID levels like RAID 1E, RAID-5EE, dual drive failure protection (RAID 6, 60), and Copyback Hotspare feature. These features, that come standard on our new SATA and Serial Attached SCSI and ROC-based Ultra 320 SCSI RAID controllers, allow our products to deliver a higher level of data protection. We also offer software that includes storage virtualization and Snapshot Backup functionality which, when combined with our hardware, helps to simplify storage management and increase data protection.
•: ASICs. In fiscal 2005, we made a strategic decision to partner on the development of ASIC products containing I/O and RAID functionality. As a result, during our fiscal 2005, we entered into separate strategic alliances with Vitesse Semiconductor Corporation, or Vitesse, and ServerEngines LLP, or ServerEngines, whereby Vitesse and ServerEngines assumed responsibility for the design of certain ASICs. During fiscal 2006, some of our board-level solutions now contain jointly developed ASICs. We believe that these alliances allow us to better focus on our core strengths, driving market leadership and growth by delivering advanced data protection technology to our OEM and channel customers worldwide.
•: Solid Brand Equity. We have been providing reliable storage access products for 25 years and have built a reputation for making complex storage technologies easy to use. We believe that these factors have provided us with strong brand recognition and customer loyalty.

In fiscal 2006, we reorganized our internal organization structure related to our OEM and Channel segments. Where previously our former OEM and Channel segments each offered an integrated set of customer-focused products, the new organization is managed at the product level. Our segments are:

•: DPS: Our DPS group provides storage products and currently sells all of our storage technologies, including board-level products, ASICs, RAID controllers, internal enclosures and stand-alone software. We sell these products directly to OEMs, ODMs that supply OEMs, system integrators, VARs and end users through our network of distribution and reseller channels.
•: DSG: Our DSG group provides high-performance I/O connectivity and digital media products for personal computing platforms, including notebook and desktop PCs. We sell these products to retailers, OEMs and distributors.

We were incorporated in 1981 in California and completed our initial public offering on the Nasdaq National Market in 1986. In March 1998, we reincorporated in Delaware. We are an S&P SmallCap 600 Index member. Our principal executive offices are located at 691 South Milpitas Boulevard, Milpitas, California 95035 and our telephone number at that location is (408) 945-8600. We also maintain our website at www.adaptec.com. The contents of this website are not incorporated in or otherwise to be regarded as part of this annual report.

Available Information

We make available free of charge through our website the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission: our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all

amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

Business Segment and Products Overview

In fiscal 2006, our DPS segment accounted for $276.2 million of our net revenues and our DSG segment accounted for $33.9 million of our net revenues (See Note 16 of the Notes to Consolidated Financial Statements for further discussion of our segments' results).

Following are discussions of our key product offerings for our DPS and DSG businesses.

DPS

Components.

RAID Controllers and HBAs. In fiscal 2006, we enhanced our line of RAID controllers with the introduction of two Serial ATA II solutions for the PCI-X interface and three Serial Attached SCSI solutions, for both PCI-X and PCIe. Serial ATA II (SATA II), the successor to SATA technology for data storage, is a point-to-point connection that delivers full throughput to each storage device by allowing multiple ports to be managed by a single controller. Adaptec SATA II technology delivers data transfer rates with 3 Gb/s while also supporting 1.5 Gb/s (SATA I). Serial Attached SCSI is the enterprise storage interface that takes parallel SCSI into new dimensions of performance, flexibility and scalability. With Serial Attached SCSI, customers enjoy performance many times faster than parallel SCSI and can mix and match Serial Attached SCSI and SATA drives for cost and performance optimization.

Host I/O. Driven by market needs for capacity and data protection, the host I/O interfaces support various connectivity requirements between the central processor to internal and external peripherals, including external storage devices. Adaptec host I/O products, which incorporate our proprietary ASIC technologies, provide customers with high-speed PCI, PCI-X, PCIe, SCSI, Serial Attached SCSI or SATA technology. These technologies can be applied to a variety of applications, including storage of email, medical records, digital images, and financial transactions. We have provided next-generation Serial Attached SCSI products to OEMs for testing and development.

iSCSI/TCP/IP Offload Engine. iSCSI is specifically designed to enable cost-effective SANs to be deployed to a broad market, using existing Ethernet infrastructure and protocols, and provide lower total cost of ownership by retaining the existing networking, interoperability, manageability, and compatibility advantages of Ethernet. With this technology, our customers will be able to use inexpensive, readily available Ethernet switches, hubs and cables to implement iSCSI-based SANs. We ship iSCSI HBAs through distribution channel customers. Our networking focus has been on the development of products that will provide iSCSI and TOE functionality. We have invested over five years of research and development efforts in iSCSI products. As a result of the strategic alliance that we entered into with ServerEngines in March 2005, we believe we have accelerated our ability to deliver next-generation iSCSI products that can provide higher performance (10Gb/s).

Software

Our products incorporate software that simplifies data management and protection for businesses of all sizes. We distribute the software through various methods. Some of our software is licensed independent of the hardware to run on a range of products, including ours.

A discussion of the software we license is as follows:

Host RAID. Host RAID technology allows our customers to leverage the I/O components already incorporated on their servers to connect them with RAID-provided low cost data protection. To date, such

functionality has been considered important for mission critical data only. Host RAID enables customers not only to protect their data drives but also to include protection for the boot drives.

The following software products are available in combination with hardware or can be purchased as an upgrade.

RAID. Our RAID technology reduces a customer's dependence on the reliability of a single disk drive by duplicating data across multiple drives. We apply our RAID technology independent of disk drive interface to provide data protection on SCSI, ATA and SATA disk drives. This independence enables our RAID software, firmware and hardware to be available across the full spectrum of servers from entry to enterprise. Our new RAID 6 solution can sustain two simultaneous drive failures in an array without downtime or data loss. In fiscal 2005, Adaptec became the first vendor to ship a Serial Attached SCSI RAID 6 solution. IBM has standardized on Adaptec RAID 6 software as well as our Zero Channel Serial Attached SCSI RAID controller for IBM's x366 xSeries servers. In fiscal 2006, we made this RAID technology available to the channel by incorporating it into our new SATA and Serial Attached SCSI RAID controllers, as well as our current ROC-based U320 SCSI RAID controllers. Along with the Dual Drive Failure Protection (RAID 6, 60), the Advanced Data Protection Suite also includes Striped Mirror (RAID 1E) that extends RAID 1 data availability across an odd number of drives, Hot Space (RAID 5EE) that enhances RAID 5 performance by utilizing an extra drive, and Cobyback Hot Spare that automatically reconfigures a system when a failed drive is replaced. Snapshot Backup, which allows users to create point-in-time copies of data, is an optional feature that customers may purchase to help streamline disaster recovery operations.

Storage-Virtualization. Our storage-virtualization software enables organizations to simplify management of multiple homogenous external storage systems.

Adaptec Storage Manager. Adaptec Storage Manager is a single RAID storage management utility that enables customers and IT managers to easily manage storage across DAS and SAN environments. It allows the user to configure, expand, manage and monitor local and remote RAID storage from a single client workstation.

DSG

Our DSG segment develops, manufactures and markets high-performance I/O connectivity, digital media products and flexible desktop storage and gaming products for users and professionals in the desktop PC and notebook aftermarket. Our connectivity products enable connections between computers, peripherals and consumer electronic devices. Our digital media products, including video and Media Center products, enable users to capture, create, manage and share television, digital audio and video on their computers, CDs and DVDs.

Sales, Marketing and Customers

We supply a broad range of storage products and maintain a sales, distribution, service and support infrastructure.

We sell our products through our sales force to OEMs worldwide, who market our products under their brands. We work closely with our OEM customers to design and integrate current and next generation products to meet the specific requirements of end users. The OEM sales force focuses on developing relationships with OEM customers. The sales process involved in gaining major design wins can be complex, lengthy, and expensive. Sales to these OEM customers accounted for approximately 62% of our total revenues in fiscal 2006.

We also sell through our sales force to distribution customers worldwide, who market our products under the Adaptec brand; they, in turn, sell to VARs, systems integrators and retail customers. We also sell

directly to direct marketers, VARs and retailers who market our products under the Adaptec brand. We provide training and support for our distribution customers and to VARs. We also sell board-based products and provide technical support to end users worldwide through major computer-product retailers. Sales to distribution customers accounted for approximately 38% of our total revenues in fiscal 2006.

We emphasize customer service as a key element of our marketing strategy and maintain technical applications groups at our corporate headquarters and in the field. This includes assisting current and prospective customers in the use of our products, and providing the systems-level expertise and software experience of our engineering staff to customers with particularly difficult design problems. A high level of customer service is also maintained through technical support hotlines, email and dial-in-fax capabilities.

Our primary OEM customers in fiscal 2006, in alphabetical order, included Dell, Fujitsu-Siemens, Hewlett-Packard and IBM. Our primary distributors in fiscal 2006, in alphabetical order, included CPI Computer Partner Handels GmbH, Ingram Micro, Synnex, and Tech Data. Our primary retail customers in the DSG segment in fiscal 2006, in alphabetical order, included Best Buy, Circuit City and CompUSA.

In fiscal 2006, IBM and Dell accounted for 30% and 16% of our revenues, respectively. In fiscal 2005, IBM and Dell accounted for 24% and 15% of our revenues, respectively. In fiscal 2004, IBM and Dell accounted for 21% and 12% of our revenues, respectively.

We have entered into several arrangements with IBM over the past several years. In May 2000, we entered into a patent cross-license agreement with IBM, which was subsequently amended in March 2002, and obtained a release of past infringement claims made prior to January 1, 2000 and received the right to use certain IBM patents from January 1, 2000 through June 30, 2007. Additionally, we granted IBM a license to use all of our patents for the same period. In March 2002, we entered into a non-exclusive, perpetual technology licensing agreement and an exclusive three-year product supply agreement with IBM. The technology licensing agreement grants us the right to use IBM's ServeRAID technology for our internal and external RAID products. Under the product supply agreement, we deliver RAID software, firmware and hardware to IBM for use in IBM's xSeries servers. In June 2004, we completed an acquisition and licensing agreement with IBM for RAID intellectual property and the delivery of Adaptec RAID controllers for IBM's eServer iSeries and pSeries servers, or IBM i/p Series. In December 2004, we expanded the i/p Series relationship with IBM to deliver Adaptec-branded RAID controllers and connectivity products, which were previously branded as IBM, for IBM's i/p Series directly through IBM's sales channel. In September 2005, we sold the IBM i/p Series RAID business back to IBM. In addition, IBM purchased certain related inventory. We also granted IBM a nonexclusive license to certain intellectual property and sold to IBM substantially all of the assets dedicated to the engineering and manufacturing of RAID controllers and connectivity products for the IBM i/p Series RAID business. For further discussion on agreements between us and IBM, please refer to Notes 2 and 14 to the Notes to Consolidated Financial Statements.

International

We maintain operations in seven foreign countries and sell our products in additional countries through various representatives and distributors. We believe this geographic diversity allows us to draw on business and technical expertise from an international workforce, provides both stability to our operations and diversifies revenue streams to offset geographic economic trends and offers us an opportunity to penetrate new markets.

A summary of our net revenue and net property, plant and equipment by geographic area is set forth in Note 16 in the Notes to Consolidated Financial Statements. We generated approximately 72% of our overall revenues in 2006 from outside of the United States. These sales include sales to foreign subsidiaries of U.S. companies. A majority of our revenues originating outside the United States was from commercial customers rather than foreign governments.

Competition

The markets for all of our products within the DPS and DSG segments are highly competitive and are characterized by rapid technological advances, frequent new product introductions, evolving industry and customer standards and competitive pricing pressures. Our competitive strategy is to continue to leverage our technical expertise and concentrate on delivering a comprehensive set of highly reliable, high performance storage and connectivity products with superior data protection that simplify storage management for organizations of all sizes. We design advanced features into our products, with a particular emphasis on data transfer rates, software-defined features and compatibility with major operating systems and most peripherals.

We believe the principal competitive factors in the markets for our DPS products are: product price versus performance, product features and functionality, reliability, technical service and support, scalability and interoperability and brand awareness. We compete primarily with product offerings from Applied Micro Circuits Corporation (3Ware), Broadcom, LSI Logic and Promise.

We believe the principal competitive factors in the markets for our DSG products are: product price/performance, brand awareness and distribution breadth, reliability, and technical service and support. In the DSG segment, our SCSI products compete primarily against products using technology alternatives such as USB and FireWire/1394, which are available from companies such as Belkin and SIIG, and our digital media products compete with product offerings of Hauppauge Computer Works and Pinnacle Systems. Our desktop storage solutions also compete against products using alternative technologies, such as flash drives and removable media storage, which are available from a variety of companies.

Backlog

Due to industry practice that allows customers to change or cancel orders with limited advance notice prior to shipment, we do not believe that backlog as of any particular date is indicative of future sales. Our backlog for our continuing operations at March 31, 2006 was approximately $21.5 million, consisting of $20.2 million related to our DPS segment and $1.3 million related to our DSG segment. Our backlog at March 31, 2005 was approximately $25.3 million (including our backlog related to our IBM i/p Series RAID and systems businesses that were discontinued in fiscal 2006). We typically receive orders for our products within two weeks or less of the desired delivery date and most orders are subject to rescheduling and/or cancellation with little or no penalty. We maintain remote inventory locations at many of our major OEMs sites. Product ordering and delivery occur when the OEM customer accepts our product into their inventory.

Manufacturing

Beginning in the fourth quarter of fiscal 2006, we employed Sanmina-SCI Corporation to manufacture the majority of our products. We employ Surface Mount Technology Corporation, or SMTC, to manufacture certain of our ServeRAID products that are sold to IBM. We believe that SMTC and Sanmina-SCI will be able to meet our anticipated needs for both current and future technologies.

Our final assembly and test operations are performed by Amkor Technology and Advanced Semiconductor Engineering.

Intellectual Property

We seek to establish and maintain our proprietary rights in our technology and products through the use of patents, copyrights, trademarks and trade secret laws. We encourage our engineers to document patentable inventions, and we have applied for and continue to apply for patents in the United States and in foreign countries. As of March 31, 2006, we had 375 issued patents, expiring between 2007 and 2024, covering various aspects of our technologies. In addition, the Adaptec name and logo are trademarks or registered trademarks of ours in the United States and other countries. We believe our patents and other intellectual property rights have value, but we do not consider any single patent to be essential to our business. We also seek to maintain our trade secrets and confidential information by non-disclosure policies and through the use of appropriate confidentiality agreements.

In May 2000, we entered into a patent cross-license agreement with IBM. Under the agreement, we received a release from infringement claims prior to January 1, 2000 and received the right to use certain of IBM's patents through June 30, 2004. In consideration, we paid, in annual installments, an aggregate patent fee of $13.3 million through June 30, 2004, and we granted IBM a license to use all of our patents for the same period. In March 2002, the patent cross-license agreement was amended to extend the term to June 30, 2007.

Research and Development

We continually enhance our existing products and develop new products to meet changing customer demands. The high technology industry is characterized by rapid technological innovation, evolving industry standards, changes in customer requirements and new product introductions and enhancements. We believe that our future performance will depend in large part on our ability to maintain and enhance our current product line, develop new products that achieve market acceptance, maintain competitiveness and meet an expanding range of customer requirements. To achieve this objective, we intend to continue to leverage our technical expertise and product innovation capabilities to address storage-access products across a broad range of users and platforms. We also expect to continue to make acquisitions and investments where appropriate. We have opened a research and development center in Bangalore, India and anticipate expanding the facility throughout 2007.

Approximately one-third of our employees are engaged in research and development. In fiscal 2006, 2005 and 2004, our research and development expenses were $60.9 million, or 20% of total revenues, $86.5 million, or 23% of total revenues, and $95.6 million, or 24% of total revenues, respectively. Research and development expenses primarily consist of salaries and related costs of employees engaged in ongoing research, design and development activities, amortization of purchased technology and subcontracting costs.

We entered into two strategic alliances in fiscal 2005 with ServerEngines and Vitesse related to a portion of our ASIC development. These alliances are further discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations."

We anticipate that we will continue to have significant research and development expenditures in the future in order to continue to offer innovative, high-quality products and services to maintain and enhance our competitive position. Our investment in research and development primarily focuses on developing new products for external storage, storage software and server storage markets. We also invest in research and development of new technologies, including iSCSI, SATA and Serial Attached SCSI.

Environmental Laws

Certain of our operations involve the use of substances regulated under various federal, state and international environmental laws. It is our policy to apply strict standards for environmental protection to sites inside and outside the United States, even if not subject to regulations imposed by local governments.

The European Parliament has enacted the Restriction on Use of Hazardous Substances Directive, or RoHS Directive, which restricts the sale of new electrical and electronic equipment containing certain hazardous substances, including lead, which is currently used in some of our products. We are working to eliminate lead from products we put on the market by July 1, 2006 as required by the RoHS Directive. The costs associated with compliance may negatively impact our results of operations and competitive position. For example, in fiscal 2006, we had an excess inventory expense of $1.9 million related to the transition of our products to comply with the RoHS Directive. We are also working with our suppliers to redesign or reformulate their components containing lead to reduce or eliminate lead in our products. Based upon current information available to us, we believe that we will be able to comply with the RoHS Directive within the applicable time period. However, if we do not comply with this Directive, we may suffer a loss of revenue, be unable to sell in certain markets or countries and suffer competitive disadvantage.

Employees

As of March 31, 2006, we had 1,128 employees. We believe that we currently have favorable employee relations. None of our employees are represented by a collective bargaining agreement, nor have we ever experienced work stoppages.

Item 1A. Risk Factors

Our business faces significant risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following risks actually occurs, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline.

The impact of ongoing contract negotiations with our large OEM customers, industry technology transitions and market acceptance of our new products could cause our quarterly revenues to continue to decline. Our quarterly revenues have declined in each of the last two quarters and may continue to decline. We depend on a small number of large OEM customers for a significant portion of our revenues, and we are engaged in ongoing contract negotiations concerning product specifications and price. These negotiations may prove to be unfavorable. In addition, we are in the midst of an industry transition from parallel to serial connectivity and the revenue we generate from sales of our serial products may not grow at a fast enough rate to offset of declines in sales of our parallel products. Furthermore, although we are developing new products and technologies to replace our legacy products and technologies these new products and technologies may not gain sufficient market acceptance or contribute significantly to revenue. These factors, individually or in the aggregate, could cause our quarterly revenues to continue to decline.

We depend on contract manufacturers and subcontractors, and if they fail to meet our manufacturing needs, it could delay shipments of our products and result in the loss of customers. We rely on contract manufacturers for manufacturing of our products and subcontractors for the assembly and packaging of the integrated circuits included in our products. On December 23, 2005 we entered into a three-year contract manufacturing agreement with Sanmina-SCI whereby Sanmina-SCI upon the closing of the transaction on January 9, 2006, assumed manufacturing operations of a majority of our products. If the transition of the manufacturing facilities does not go as expected it could result in loss of customers or revenue, which would have an adverse effect on our financial results. We have no long-term agreements with our assembly and packaging subcontractors. We also employ Amkor Technology and Advanced Semiconductor Engineering for our final assembly and test operations related to our ASIC products. We cannot assure you

these subcontractors will continue to be able and willing to meet our requirements for these components or services. Any significant disruption in supplies from or degradation in the quality of components or services supplied by, these contract manufacturers and subcontractors could delay shipments and result in the loss of customers or revenues, which could have an adverse effect on our financial results.

Actions that we have taken and the actions that we are considering could adversely affect our business and financial results in the short-term, and may not have the long-term beneficial results that we intend. Our new management team is continuing to perform a thorough analysis of our operations, which it initiated in the first quarter of fiscal 2006, and has begun making a detailed plan to support our corporate strategy. This analysis of our operations includes a review of all aspects of our business, including our product portfolio, our relationships with strategic partners and our research and development focus. To date, we have implemented the steps described in "Business—Overview," set forth above in Part I, Item 1 of this Annual Report on Form 10-K.

The actions that we have taken and the actions that we are considering could adversely affect our business and financial results in the short-term, may not have the long-term beneficial results that we intend and could result in the following:

•: loss of customers;
•: loss of employees;
•: increased dependency on suppliers;
•: supply issues;
•: reduced revenue base;
•: impairment of our assets;
•: increased operating costs; and
•: material restructuring charges.

If we are unable to successfully complete the divestiture of our systems business it could result in an adverse effect on our business and financial results. Completing the divestiture of our systems business (which includes substantially all of the operating assets that were obtained through the Snap Appliance and Eurologic Systems acquisitions) could cause significant diversions of management time and resources. In addition, if the net proceeds of any such sale, prove to be less than we anticipate, it could lead to an additional impairment charge against our assets. Additionally, customers for our systems products could be reluctant to continue to buy from us due to the uncertainty caused by the planned divestiture. We may not be successful in selling the systems business on terms that are acceptable to us or might not be able to find a buyer for the business. We may not be successful in overcoming these risks or any other problems encountered in connection with this divesture which may adversely affect our business, financial position and operating results.

Our operating results have fluctuated in the past, and are likely to continue to fluctuate, and if our future results are below the expectations of investors or securities analysts, the market price of our common stock would likely decline significantly. Our quarterly operating results have fluctuated in the past, and are likely to vary significantly in the future, based on a number of factors related to our industry and the markets for our products. Factors that are likely to cause our operating results to fluctuate include those discussed in this Risk Factors section. In fiscal 2006, our operating results were materially impacted by unusual charges, such as a goodwill impairment charge of $90.6 million.

Our operating expenses are largely based on anticipated revenues, and a large portion of our expenses, including facility costs and salaries, are fixed in the short term. As a result, lower than

anticipated revenues for any reason could cause significant variations in our operating results from quarter to quarter.

Due to the factors summarized above, and the other risks described in this section, we believe that you should not rely on period-to-period comparisons of our financial results as an indication of our future performance. In the event that our operating results fall below the expectations of market analysts or investors, the market price of our common stock could decline substantially.

Our operating results may be adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment. Adverse economic conditions in some markets may impact our business, which could result in:

•: Reduced demand for our products as a result of a decrease in capital spending by our customers;
•: Increased price competition for our products;
•: Increased risk of excess and obsolete inventories;
•: Excess facilities and manufacturing capacity; and
•: Higher overhead costs as a percentage of revenues.

Demand for our products would likely be negatively affected if demand in the server and network storage markets declines. For example, demand in the server market declined slightly in fiscal 2002 and fiscal 2003, which contributed to a decline in our net revenues. It is difficult to predict future server sales growth, if any. In addition, other technologies may replace the technologies used in our existing products and the acceptance of our products using new technologies in the market may not be widespread, which could adversely affect our revenues.

Because our sales are made by means of standard purchase orders rather than long-term contracts, if demand for our customers' products declines or if our customers do not control their inventories effectively, they may cancel or reschedule shipments previously ordered from us or reduce their levels of purchases from us. The volume and timing of orders received during a quarter are difficult to forecast. Our customers generally order based on their forecasts and they frequently encounter uncertain and changing demand for their products. If demand falls below such forecasts or if our customers do not control their inventories effectively, they may cancel or reschedule shipments previously ordered from us. Our customers have from time to time in the past canceled or rescheduled shipments previously ordered from us, and we cannot assure you that they will not do so in the future. In addition, because our sales are made by means of standard purchase orders rather than long-term contracts, we cannot assure you that these customers will continue to purchase quantities of our products at current levels, or at all. Historically, we have set our operating budget based on forecasts of future revenues because we do not have significant backlog. Because much of our operating budget is relatively fixed in the short-term, if revenues do not meet our expectations, then our financial results will be adversely affected.

We depend on a few key customers and the loss of any of them could significantly reduce our revenues. Historically, a small number of our customers has accounted for a significant portion of our revenues. During fiscal 2006, sales to the ten OEM and distribution customers from which we received the greatest revenues accounted for approximately 92% of our total revenues. In addition, IBM and Dell represented 30% and 16%, respectively, of our total revenues in fiscal 2006. We believe that our major customers continually evaluate whether or not to purchase products from alternate or additional sources. Additionally, customers' economic and market conditions frequently change. Accordingly, we cannot assure you that a major customer will not reduce, delay or eliminate its purchases from us, which would likely cause our revenues to decline. In addition, we do not carry credit insurance on our accounts receivables and any difficulty in collecting outstanding amounts due from our customers, particularly customers that place larger orders or experience financial difficulties, could adversely affect our revenues

and our net income. Because our sales are made by means of standard purchase orders rather than long-term contracts, we cannot assure you that these customers will continue to purchase quantities of our products at current levels, or at all.

If there is a shortage of components used in our customers' products, our sales may decline, which could adversely affect our results of operations and financial position. If our customers are unable to purchase certain components which are embedded into their products, their demand for our products may decline. In addition, we or our customers may be impacted by component shortages if components that comply with the RoHS Directive are not available. Similar shortages of components used in our products or our customers' products could adversely affect our net revenues and financial results in future periods.

We may be subject to a higher effective tax rate that could negatively affect our results of operations and financial position. Historically our effective tax rate was benefited by a Singapore tax holiday relating to certain of our products. As a result of the contract manufacturing agreement that we entered into with Sanmina-SCI, we will no longer qualify for this holiday. If the alternative plans we have developed to reduce our effective tax rate are not successful, our effective tax rate could increase, which would adversely affect our financial results.

We held approximately $88.2 million of cash, cash equivalents and marketable securities at our subsidiary in Singapore at March 31, 2006. During the fourth quarter of fiscal 2005, we repatriated $360.6 million of cash from Singapore to the United States in connection with the American Jobs Creation Act of 2004 which provides a one-time deduction of 85% for certain dividends from controlled foreign corporations. If the amount repatriated does not qualify for the one-time deduction, we could incur additional income taxes at up to the United States Federal statutory rate of 35%, which would negatively affect our results of operations and financial condition.

Our dependence on new products may cause our net revenues to fluctuate or decline. Our future success significantly depends upon our completing and introducing enhanced and new products at competitive prices and performance levels in a timely manner. The success of new product introductions depends on several factors, including the following:

•: Designing products to meet customer needs;
•: Product costs;
•: Timely completion and introduction of new product designs;
•: Quality of new products;
•: Differentiation of new products from those of our competitors; and
•: Market acceptance of our products.

Our product life cycles in each of our segments may be as brief as 12 months. As a result, we believe that we will continue to incur significant expenditures for research and development in the future. We may fail to identify new product opportunities and may not develop and bring new products to market in a timely manner. In addition, products or technologies developed by others may render our products or technologies obsolete or noncompetitive, or our targeted customers may not select our products for design or integration into their products. The failure of any of our new product development efforts could have an adverse effect on our business and financial results.

We have introduced RAID-enabled products based on the next generation SATA technology and delivered our products based on Serial Attached SCSI technology to certain major OEMs for testing and integration. We will not succeed in generating significant revenues from our new SATA and Serial Attached SCSI technology products if the market does not adapt to these new technologies, which would, over time, adversely affect our net revenues and operating results.

Our reliance on industry standards and technological changes in the marketplace may cause our net revenues to fluctuate or decline. The computer industry is characterized by various, evolving standards and protocols. We design our products to conform to certain industry standards and protocols such as the following:

Technologies:
•        ATA
•        Fibre channel
•        FireWire/1394
•        IPsec
•        iSCSI
•        PCI
•        PCI-Express
•        PCI-X

•        RAID
•        Serial Attached SCSI
•        SATA
•        SCSI
•        SMI-S
•        Ultra DMA
•        USB

Operating Systems:
•        Linux
•        Macintosh
•        Netware

•        OS/2
•        UNIX
•        Windows

If user acceptance of these standards declines, or if new standards emerge, and if we do not anticipate these changes and develop new products, these changes could adversely affect our business and financial results.

If we lose the cooperation of other hardware and software producers whose products are integral to ours, our ability to sustain or grow our revenues could be adversely affected. We must design our products to operate effectively with a variety of hardware and software products supplied by other manufacturers, including the following:

•: Microprocessors;
•: Peripherals; and
•: Operating system software.

We depend on significant cooperation from these manufacturers to achieve our design objectives and develop products that operate successfully with their products. These companies could, from time to time, elect to make it more difficult for us to design our products for successful operability with their products. For example, if one or more of these companies were to determine that as a result of competition or other factors our technology or products would not be broadly accepted by the markets we target, these companies may no longer work with us to plan for new products and new generations of our products, which would make it more difficult to introduce products on a timely basis or at all. Further, some of these companies might decide not to continue to offer products that are compatible with our technology and our

markets could contract. If any of these events were to occur, our revenue and financial results could be adversely affected.

We are subject to various environmental laws and regulations that could impose substantial costs upon us and may adversely affect our business. The European Parliament has enacted the RoHS Directive, which restricts the sale of new electrical and electronic equipment containing certain hazardous substances, including lead that is currently used in some of our products. We are working to eliminate lead from our products in accordance with the timelines established in the RoHS Directive. The costs associated with compliance may negatively impact our operating results and competitive position. For example, in fiscal 2006, we had an excess inventory expense of $1.9 million related to the transition of our products to comply with the RoHS Directive. We are also working with our suppliers to redesign or reformulate their components containing lead to reduce or eliminate lead in our products. If we are unable to comply with the RoHS Directive, we may suffer a loss of revenue, be unable to sell affected products in certain markets or countries and be at a competitive disadvantage.

The European Parliament has also finalized the Waste Electrical and Electronic Equipment Directive, or WEEE Directive, which makes producers of electrical and electronic equipment financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. We may incur financial responsibility for the collection, recycling, treatment or disposal of products covered under the WEEE Directive. Because the EU member states have not fully implemented the WEEE Directive, the nature and extent of the costs to comply and fees or penalties associated with non-compliance are unknown at this time. Costs to comply with the WEEE Directive and similar future legislation, if applicable, may also include legal and regulatory costs and insurance costs. We may also be required to take reserves for costs associated with compliance with these regulations.

We entered into strategic alliances with Vitesse for the development of our Serial Attached SCSI ROC product and with ServerEngines to advance our development of iSCSI products, and if these companies fail to develop and bring new products to market in a timely manner, it could result in an adverse effect on our business and financial results. In January 2005, we entered into a strategic alliance with Vitesse for it to develop and market the next generation of our Serial Attached SCSI products. In March 2005, we entered into a strategic alliance with ServerEngines to develop and market the next generation of our IP storage products, such as 10Gb iSCSI. Accordingly, we are at risk that Vitesse and ServerEngines may encounter challenges in fulfilling their responsibilities under these alliances, such as timely completing and introducing new product designs, maintaining the quality of new products, minimizing product costs, differentiating new products from those of our competitors and achieving market acceptance of our products. Vitesse has recently become subject to investigation by the SEC and the U.S. Attorney's office in New York regarding its historical practices with respect to the granting of stock options, which has resulted in Vitesse terminating certain of their executives. To the extent that these investigations cause disruptions in Vitesse's operations, or if we otherwise encounter issues with respect to our strategic alliances, it could have an adverse effect on our business and financial results.

If we do not provide adequate support during our customers' design and development stage, or if we are unable to provide such support in a timely manner, we may lose revenues to our competitors. Certain of our products are designed to meet our customers' specifications and, to the extent we are not able to meet these expectations in a timely manner or provide adequate support during our customers' design and development stage, our customers may choose to buy similar products from another company. If this were to occur we may lose revenues and market share to our competitors.

If we are unable to compete effectively, our net revenues could be adversely affected. The markets for all of our products are intensely competitive and are characterized by the following:

•: Rapid technological advances;
•: Frequent new product introductions;

•: Evolving industry standards; and
•: Price erosion.

Consequently, we must continue to enhance our products on a timely basis to keep pace with market demands. If we do not do so, or if our competition is more effective in developing products that meet the needs of our existing and potential customers, we may lose market share and not participate in the future growth of our target markets. For example, intense competition in the transition from products employing Ultra 160 technology to products employing Ultra 320 technology has adversely affected revenues from our SCSI products. Our future success will depend on the level of acceptance of our RAID products and products based on the next generation SATA and Serial Attached SCSI technologies by new and existing customers. In addition, we expect that our future success will depend significantly on our ability to participate in the ongoing development of the network storage market in which we face intense competition from other companies that are also focusing on networked storage products.

We cannot assure you that we will have sufficient resources to accomplish all of the following:

•: Satisfy any growth in demand for our products;
•: Make timely introductions of new products;
•: Compete successfully in the future against existing or potential competitors;
•: Provide OEMs with design specifications in a timely manner; and
•: Prevent price competition from eroding margins.

As part of our overall strategy we may make acquisitions and enter into strategic alliances. Costs associated with these acquisitions or strategic alliances may adversely affect our results of operations, which could be exacerbated if we are unable to integrate the acquired companies, products or technologies. As part of our overall strategy we may acquire or invest in complementary companies, products or technologies and enter into strategic alliances with other companies. In order to be successful in these activities, we must:

•: Conduct acquisitions that enhance our time to market with new products;
•: Successfully prevail over competing bidders for target acquisitions at an acceptable price;
•: Invest in companies and technologies that contribute to the growth of our business;
•: Integrate acquired operations into our business and maintain uniform standards, controls and procedures;
•: Retain the key employees of the acquired operations; and
•: Develop the capabilities necessary to exploit newly acquired technologies.

The benefits of acquisitions or strategic alliances may prove to be less than anticipated and may not outweigh the costs reported in our financial statements. For example, during fiscal 2006, we sold the IBM i/p Series RAID business for a loss of $2.3 million. Further, we plan to divest the remainder of our systems business, which includes certain assets obtained through the Snap Appliance acquisition. During the fourth quarter of fiscal 2006, we recorded an impairment charge of $10.0 million to reduce these long-lived assets to fair value, less cost to sell.

Completing any potential future acquisitions or strategic alliances could cause significant diversions of management time and resources. If we acquire new businesses, products or technologies in the future, we may be required to assume warranty claims or other contingent liabilities, including liabilities unknown at the time of acquisition, and amortize significant amounts of other intangible assets and, over time, recognize significant charges for impairment of goodwill, other intangible assets or other losses. If we consummate any potential future acquisitions in which the consideration consists of stock or other

securities, our existing stockholders' ownership may be significantly diluted. If we proceed with any potential future acquisitions in which the consideration is cash, we may be required to use a substantial portion of our available cash. In addition, we may be required to invest significant resources in order to perform under a strategic alliance or to complete an acquisition, which could adversely affect our results of operations, at least in the short-term, even if we believe the strategic alliance or acquisition will benefit us in the long-term. We may not be successful in overcoming these risks or any other problems encountered in connection with these or other business combinations, investments or strategic alliances. These transactions may adversely affect our business, financial position and operating results.

Product quality problems could lead to reduced revenues and gross margins. We produce highly complex products that incorporate leading-edge technologies, including both hardware and software. Software often contains "bugs" which can interfere with expected operations. We cannot assure you that our pre-shipment testing programs will be adequate to detect all defects which might interfere with customer satisfaction, reduce sales opportunities, or affect our gross margins if the costs of remedying the problems exceed reserves established for that purpose. An inability to cure a product defect could result in the failure of a product line, and withdrawal, at least temporarily, from a product or market segment, damage to our reputation, inventory costs, product reengineering expenses, and a material impact on revenues and gross margins.

We currently purchase all of the finished production silicon wafers used in our products from wafer suppliers, and if they fail to meet our manufacturing needs, it would delay our production and our product shipments to customers and negatively affect our operations. Independent foundries manufacture to our specifications all of the finished silicon wafers used for our products. We currently purchase finished production silicon wafers used in our products from Taiwan Semiconductor Manufacturing Company, or TSMC, and IBM. The manufacture of semiconductor devices is sensitive to a wide variety of factors, including the following:

•: The availability of raw materials;
•: The availability of manufacturing capacity;
•: Transition to smaller geometries of semiconductor devices;
•: The level of contaminants in the manufacturing environment;
•: Impurities in the materials used; and
•: The performance of personnel and equipment.

We cannot assure you that manufacturing problems may not occur in the future. A shortage of raw materials or production capacity could lead our wafer suppliers to allocate available capacity to other customers. Any prolonged inability to obtain wafers with competitive performance and cost attributes, adequate yields or timely deliveries would delay our production and our product shipments, and could have an adverse effect on our business and financial results. We expect that our wafer suppliers will continually seek to convert their processes for manufacturing wafers to more advanced process technologies. Such conversions entail inherent technological risks that can affect yields and delivery times. If for any reason the wafer suppliers we use are unable or unwilling to satisfy our wafer needs, we will be required to identify and qualify additional suppliers. Additional wafer suppliers may be unavailable, may take significant amounts of time to qualify or may be unable to satisfy our requirements on a timely basis.

We depend on the efforts of our distributors, which if reduced, could result in a loss of sales of our products in favor of competitive offerings. We derived approximately 38% of our revenues for fiscal 2006 from independent distributor and reseller channels. Our financial results could be adversely affected if our relationships with these distributors or resellers were to deteriorate or if the financial condition of these distributors or resellers were to decline.

Our distributors generally offer a diverse array of products from several different manufacturers. Accordingly, we are at risk that these distributors may give higher priority to selling products from other suppliers. A reduction in sales efforts by our current distributors could adversely affect our business and financial results. For example, some of our distributors have threatened to stop selling our products or make pricing of our products non-competitive if we do not agree to absorb their costs to comply with the RoHS and WEEE Directives with respect to our products. Our distributors build inventories in anticipation of future sales, and if such sales do not occur as rapidly as they anticipate, our distributors will decrease the size of their product orders. If we decrease our price protection or distributor-incentive programs, our distributors may also decrease their orders from us. In addition, we have from time to time taken actions to reduce levels of products at distributors and may do so in the future. These actions may affect our net revenues and negatively affect our financial results.

If we do not meet our restructuring objectives, we may have to implement additional plans in order to reduce our operating costs and may, as a result, incur additional material restructuring charges. We have implemented several restructuring plans to reduce our operating costs in fiscal 2006, fiscal 2005 and fiscal 2004, and recorded related restructuring charges of $10.4 million, $5.9 million and $4.3 million, respectively. The plans included primarily the reduction of our workforce and the consolidation of our manufacturing operations in Singapore. The goals of these plans were to support future growth opportunities, focus on investments that grow revenues and increase operating margins. If we do not meet our restructuring objectives, we may have to implement additional restructuring plans to reduce our operating costs, which could cause us to incur material restructuring charges. Further, these restructuring plans may not achieve the original goals we had in implementing them due to such factors as significant costs or restrictions on workforce reductions that may be imposed in some international locales and a potential adverse effect on employee capabilities that could harm our efficiency and our ability to act quickly and effectively in the rapidly changing technology markets in which we sell our products.

Some of our products contain "open source" software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business. Some of our products are distributed with software licensed by its authors or other third parties under so-called "open source" licenses, including, for example, the GNU General Public License, or GPL, GNU Lesser General Public License, or LGPL, the Mozilla Public License, the BSD License, and the Apache License. Some of those licenses may require as a condition of the license that we make available source code for modifications or derivative works we create based upon, incorporating, or using the open source software, that we provide notices with our products, and/or that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of those open source licenses, we could be required to incur legal expenses in defending against such allegations, and if our defenses were not successful we could be enjoined from distribution of the products that contained the open source software and required to either make the source code for the open source software available, to grant third parties certain rights of further use of our software, or to remove the open source software from our products, which could disrupt our distribution and sale of some of our products. In addition, if we combine our proprietary software with open source software in a certain manner, we could under some of the open source licenses, be required to release the source code of our proprietary software. If an author or other third party that distributes open source software were to obtain a judgment against us based on allegations that we had not complied with the terms of any such open source licenses, we could also be subject to liability for copyright infringement damages and breach of contract for our past distribution of such open source software.

Our operations depend on key personnel, the loss of whom could affect the growth and success of our business. In order to be successful, we must retain and motivate our executives, our principal engineers and other key employees, including those in managerial, technical, marketing and information technology support positions. In particular, our product generation efforts depend on hiring and retaining qualified engineers.

Competition for experienced management, technical, marketing and support personnel remains intense. For example, we transitioned certain research and development efforts to North Carolina, where we have experienced significant competition in our efforts to attract and retain qualified software engineers. The loss of any of these key employees could have a significant impact on our operations. We also must continue to motivate employees and keep them focused on our strategies and goals, which may be particularly difficult due to morale challenges posed by workforce reductions, the announcement of the divestiture of the systems business and general uncertainty.

Our international operations involve risks, and may be subject to political or other non-economic barriers to our being able to sell our products in certain countries, local economic conditions that reduce demand for our products among our target markets and potential disruption in the supply of necessary components. Many of our subcontractors are primarily located in Asia and we have sales offices and customers located throughout Europe, Japan and other countries. Our international operations and sales are subject to political and economic risks, including political instability, currency controls, changes in import/export regulations, tariffs and freight rates. In addition, because our primary wafer supplier, TSMC, is located in Taiwan, we may be subject to certain risks resulting from political instability in Taiwan, including conflicts between Taiwan and the People's Republic of China. These and other international risks could result in the creation of political or other non-economic barriers to our being able to sell our products in certain countries, create local economic conditions that reduce demand for our products among our target market or expose us to potential disruption in the supply of necessary components or otherwise adversely affect our ability to generate revenue and operate effectively.

We depend on third parties to transport our products. We rely on independent freight forwarders to move our products between manufacturing plants and our customers. Any transport or delivery problems because of their errors, or because of unforeseen interruptions in their activities due to factors such as strikes, political instability, terrorism, natural disasters and accidents, could adversely affect our business, financial condition and results of operations and ultimately impact our relationship with our customers.

If the carrying value of our long-lived assets is not recoverable, an impairment loss must be recognized which would adversely affect our financial results. Certain events or changes in circumstances would require us to assess the recoverability of the carrying amount of our long-lived assets. For example, in fiscal 2006, we recorded a goodwill impairment charge of $90.6 million related to our DPS segment. In fiscal 2005, we recorded a goodwill impairment charge of $52.3 million related to our former Channel segment. In fiscal 2004, we recorded an impairment charge of $5.0 million related to certain properties classified as held-for sale and a charge of $1.0 million relating to the decline in value of a minority investment. We will continue to evaluate the recoverability of the carrying amount of our long-lived assets, and we may incur substantial impairment charges which could adversely affect our financial results.

If actual results or events differ materially from those contemplated by us in making estimates and assumptions, our reported financial condition and results of operations for future periods could be materially affected. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. For example, we have identified key accounting estimates in our Critical Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended March 31, 2006, which includes revenue recognition, inventory, goodwill and income taxes. In addition, Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended March 31, 2006 describes the significant accounting policies essential to preparing our consolidated financial statements. The preparation of these financial statements requires estimates and assumptions that affect the reported amounts and disclosures. Although we believe that our judgments and estimates are appropriate and correct, actual future results may differ materially from our estimates.

If we are unable to protect and enforce our intellectual property rights, we may be unable to compete effectively. Although we actively maintain and defend our intellectual property rights, we may be unable to adequately protect our proprietary rights. In addition, the laws of certain territories in which our products are or may be developed, manufactured or sold, including Asia and Europe, may not protect our products and intellectual property rights to the same extent as the laws of the United States. Because we conduct a substantial portion of our operations outside of the United States and sell to a worldwide customer base, we are more dependent on our ability to protect our intellectual property in international environments than would be the case if a larger portion of our operations were domestic.

Despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property, which could harm our business and ability to compete effectively. We have from time to time discovered counterfeit copies of our products being manufactured or sold by others. Although we have programs to detect and deter the counterfeiting of our products, significant availability of counterfeit products could reduce our revenues and damage our reputation and goodwill with customers.

Third parties may assert infringement claims against us, which may be expensive to defend and could divert our resources. From time to time, third parties assert exclusive patent, copyright and other intellectual property rights to our key technologies, and we expect to continue to receive such claims in the future. For example, in fiscal 2005, we, Nevada SCSI Enterprises, Inc. and Thomas A. Gafford (jointly, "NSE") entered into a license and release agreement, pursuant to which we paid NSE $1.7 million as a one-time, fully paid-up license fee to settle NSE's claims that some of our products infringed certain patents. In addition, we entered into a patent cross-license agreement with IBM in May 2000. Under this agreement, which was amended in March 2002, we received a release from infringement claims prior to January 1, 2000 and received the right to use certain of IBM's patents through June 30, 2007. In consideration, we paid, in annual installments, an aggregate patent fee of $13.3 million through June 30, 2004. The risks of our receiving additional claims from third parties may be increased in periods such as the one that we are currently entering where we are beginning to offer product lines employing new technologies relative to our existing products.

We cannot assure you that third parties will not assert other infringement claims against us, directly or indirectly, in the future, that assertions by third parties will not result in costly litigation or that we would prevail in such litigation or be able to license any valid and infringed intellectual property from third parties on commercially reasonable terms. These claims may be asserted in respect of intellectual property that we own or that we license from others. In addition to claims brought against us by third parties, we may also bring litigation against others to protect our rights. Intellectual property litigation, regardless of the outcome, could result in substantial costs to us and diversion of our resources, and could adversely affect our business and financial results.

We may be required to pay additional federal income taxes which could negatively affect our results of operations and financial position. On December 15, 2000, we received a statutory notice of deficiency from the IRS with respect to our Federal income tax return for fiscal 1997. We filed a Petition with the United States Tax Court on March 14, 2001, contesting the asserted deficiencies and settlement agreements have been filed with the United States Tax Court on all but one issue. In addition, the IRS is currently auditing our Federal income tax returns for fiscal 1998 through fiscal 2003. We have resolved all issues for fiscal 1998 through fiscal 2001 other than the rollover impact of any potential resolution on the remaining fiscal 1997 issue and tax credits that were generated but not used in subsequent years that may be carried back. While we believe we have meritorious defenses against the asserted deficiencies and any proposed adjustments, and that sufficient taxes have been provided, we cannot predict the final outcome of these matters, and the final resolution could adversely affect our results of operations and financial position.

We may be engaged in legal proceedings that could cause us to incur unforeseen expenses and could occupy a significant amount of our management's time and attention. From time to time we are subject to litigation or

claims that could negatively affect our business operations and financial position. Such disputes could cause us to incur unforeseen expenses, could occupy a significant amount of our management's time and attention, and could negatively affect our business operations and financial position.

We have in the past financed a portion of our capital expenditure needs from capital market financing, and if we need to seek additional financing, it may not be available on favorable terms. In order to finance strategic acquisitions, capital asset acquisitions and other general corporate needs, we have in the past relied, in part, on the capital markets. Historically, we have been able to access capital markets, but this does not necessarily guarantee that we will be able to access these markets in the future or at terms that are acceptable to us. The availability of capital in these markets is affected by several factors, including geopolitical risk, the interest rate environment and the condition of the economy as a whole. In addition, our own operating performance, capital structure and expected future performance impacts our ability to raise capital. For example, in the third quarter of fiscal 2006, Standard and Poor's Ratings Services downgraded our subordinated debt rating from B- to CCC+. We believe that our current cash, cash equivalents, short-term investments and future cash provided by operations will be sufficient to fund our needs for at least the next twelve months. However, if our operating performance falls below expectations, we may need additional funds, which may not be available on favorable terms, if at all.

We are exposed to fluctuations in foreign currency exchange rates. Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in non-United States currency exchange rates. These exposures may change over time as business practices evolve and could have an adverse impact on our financial results and cash flows. Historically, our exposures have related to non-dollar-denominated operating expenses in Europe and Asia. We began Euro-denominated sales to our distribution customers in the European Union in the fourth quarter of fiscal 2003. An increase in the value of the dollar could increase the real cost to our customers of our products in markets outside the United States where we sell in dollars, and a weakened dollar could increase the cost of local operating expenses and procurement.

We hold minority interests in privately held venture funds, and if these venture funds face financial difficulties in their operations, our investments could be impaired. We continue to hold minority interests in privately held venture funds. At March 31, 2006, the carrying value of such investments aggregated $2.9 million. We have also committed to provide additional funding of up to $0.2 million. These investments are inherently risky because these venture funds invest in companies that may still be in the development stage or depend on third parties for financing to support their ongoing operations. In addition, the markets for the technologies or products of these companies are typically in the early stages and may never develop. If these companies do not have adequate cash funding to support their operations, or if they encounter difficulties developing their technologies or products, the venture funds' investments in these companies may be impaired, which in turn, could result in impairment of our investment in these venture funds.

Our spin-off of Roxio Inc., which is now known as Napster Inc., may have potential subsequent tax liabilities that could negatively affect our results of operations. Pursuant to our distribution of the Roxio, Inc. common stock, we received an opinion from PricewaterhouseCoopers LLP, or PwC, regarding the tax-free nature of the transaction to us and to our stockholders under Section 355 of the Internal Revenue Code. The validity of the PwC opinion relating to the qualification of the distribution as a tax-free transaction is subject to factual representations and assumptions. We are not aware of any facts or circumstances that would cause such representations and assumptions to be untrue. In addition, the opinion of PwC is not binding on the IRS. If Napster or we fail to conform to the requirements set forth in the IRS regulations, it could cause the distribution to be taxable to us and to our stockholders, and our financial results could be adversely affected.

Changes in securities laws and regulations have increased and may continue to increase our costs. Changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules promulgated by the Securities and Exchange Commission, have increased and may

continue to increase our expenses as we evaluate the implications of these rules and devote resources to respond to their requirements. In particular, we incurred additional administrative expense to implement Section 404 of the Sarbanes-Oxley Act, which requires management to report on, and our independent registered public accounting firm to attest to, our internal control over financial reporting.

In addition, the Nasdaq National Market, on which our common stock is listed, has also adopted comprehensive rules and regulations relating to corporate governance. These laws, rules and regulations have increased and will continue to increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices. We also expect these developments to make it more difficult and more expensive for us to obtain director and officer liability insurance in the future, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Further, our board members, Chief Executive Officer and Chief Financial Officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficultly attracting and retaining qualified board members and executive officers, which would adversely affect our business.

Internal control deficiencies or weaknesses that are not yet identified could emerge. Over time we may identify and correct deficiencies or weaknesses in our internal control over financial reporting and, where and when appropriate, report on the identification and correction of these deficiencies or weaknesses. However, the internal control procedures can provide only reasonable, and not absolute, assurance that deficiencies or weaknesses are identified. Deficiencies or weaknesses that are not yet identified could emerge, and the identification and corrections of these deficiencies or weaknesses could have a material impact on our results of operations.

Internal control issues that appear minor now may later become material weaknesses. We are required to publicly report on deficiencies or weaknesses in our internal control over financial reporting that meet a materiality standard as required by law and related regulations and interpretations. Management may, at a point in time, accurately categorize a deficiency or weakness as immaterial or minor and therefore not be required to publicly report such deficiency or weakness. Such determination, however, does not preclude a change in circumstances such that the deficiency or weakness could, at a later time, become a material weakness that could have a material impact on our results of operations.

We may encounter natural disasters, which could cause disruption to our employees or interrupt the manufacturing process for our products. Our operations could be subject to natural disasters and other business disruptions, which could seriously harm our revenues and financial condition and increase our costs and expenses. Our corporate headquarters are located in California, near major earthquake faults. Additionally, our primary wafer supplier, TSMC, is located in Taiwan, which has experienced significant earthquakes in the past. A severe earthquake could cause disruption to our employees or interrupt the manufacturing process, which could affect TSMC's ability to supply wafers to us, which would negatively affect our business and financial results. The ultimate impact on us and our general infrastructure of being located near major earthquake faults is unknown, but our net revenues and financial condition and our costs and expenses could be significantly impacted in the event of a major earthquake.

Manmade problems such as computer viruses or terrorism may disrupt our operations and harm our operating results. Despite our implementation of network security measures, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. Any such event could have an adverse effect on our business, operating results, and financial condition. In addition, the effects of war or acts of terrorism could have an adverse effect on our business, operating results, and financial condition. In addition, as a company with headquarters and significant operations located in the United States, we may be impacted by actions against the United States. We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war.

We may experience significant fluctuations in our stock price, which may, in turn, significantly affect the trading price of our convertible notes. Our stock has experienced substantial price volatility, particularly as a

result of quarterly variations in our operating results, the published expectations of analysts and as a result of announcements by our competitors and us. In addition, the stock market has experienced price and volume fluctuations that have affected the market price of many technology companies, in particular, and that have often been unrelated to the operating performance of such companies. In addition, the price of our securities may also be affected by general global, economic and market conditions and the cost of operations in one or more of our product markets. While we cannot predict the individual effect that these factors may have on the price or our securities, these factors, either individually or in the aggregate, could result in significant variations in the price of our common stock during any given period of time. These fluctuations in our stock price also impact the price of our outstanding convertible securities and the likelihood of the convertible securities being converted into our common stock.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

As of March 31, 2006, we owned and leased various properties in the United States and in foreign countries totaling approximately 724,000 square feet, of which approximately 322,000 was leased/subleased or available to lease/sublease to third parties. The building leases expire at varying dates through fiscal 2012 and include renewals at our option. Our headquarters are located in Milpitas, California, which includes research and development, technical support, sales, marketing and administrative functions. In addition, we lease buildings in Colorado, Florida, Minnesota, New Hampshire, North Carolina, Texas and Washington. We use these properties primiarly for research and development, technical support, sales and marketing functions. Internationally, we operate in Australia, China, England, Germany, India and Japan. We use these properties primarily for research and development, technical design, technical support and sales functions.

The table below is a summary of the facilities we owned and leased at March 31, 2006:

		United States		Other Countries		Total
		(in square feet)
Owned Facilities		279,000	^A	—		279,000
Leased Facilities		383,000	^B	62,000	^C	445,000

	Total Facilities	662,000		62,000		724,000

(A): Leases on a portion of these facilities of approximately 8,000 square feet and approximately 35,000 square feet are available for lease.
(B): Leases on a portion of these facilities of approximately 195,000 square feet and approximately 80,000 square feet are available for lease.
(C): Approximately 4,000 square feet are available for sublease.

We do not separately track our major facilities by segments nor are the segments evaluated under these criteria. Substantially all of the properties are used at least in part by more than one of our segments and we retain the flexibility to use each of the properties in whole or in part for each of the segments.

We believe our existing facilities and equipment are well maintained and in good operating condition, and we believe our facilities are sufficient to meet our needs for the foreseeable future. Our future facilities requirements will depend upon our business, and we believe additional space, if required, can be obtained on reasonable terms.

Item 3. Legal Proceedings

We have been, or are, subject to IRS audits for our fiscal years 1994 through 2003. The fiscal 1994 through fiscal 1996 cycle, which is docketed in the United States Tax Court, was resolved in December 2001. The outcome did not have a material adverse effect on our financial position or results of operations, as sufficient tax provisions had been made. The final Tax Court stipulation will be filed when the subsequent audit cycles are completed. Tax credits that were generated but not used in subsequent years may be carried back to the fiscal 1994 to 1996 audit cycle.

On December 15, 2000, we received a statutory notice of deficiency from the IRS with respect to our Federal income tax return for fiscal 1997. We filed a Petition with the United States Tax Court on March 14, 2001, contesting the asserted deficiencies. Settlement agreements have been filed with the United States Tax Court on all but one issue. We believe that the final outcome of all issues will not have a material adverse impact on our financial position or results of operations, as we believe that we have meritorious defenses against the asserted deficiencies and any proposed adjustments and that we have made sufficient tax provisions. However, we cannot predict with certainty how these matters will be resolved and whether we will be required to make additional payments.

In addition, the IRS is currently auditing our Federal income tax returns for fiscal 1998 through fiscal 2003. In the third quarter of fiscal 2005, we resolved all issues for fiscal 1998 through fiscal 2001, other than the rollover impact of any potential resolution on the remaining fiscal 1997 issue and tax credits that were generated but not used in subsequent years that may be carried back. We believe that we have provided sufficient tax provisions for these years and the ultimate outcome of the IRS audits will not have a material adverse impact on our financial position or results of operations in future periods. However, we cannot predict with certainty how these matters will be resolved and whether we will be required to make additional tax payments.

We are a party to other litigation matters and claims, including those related to intellectual property, which are normal in the course of our operations, and while the results of such litigation matters and claims cannot be predicted with certainty, we believe that the final outcome of such matters will not have a material adverse impact on our financial position or results of operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

Item 4A. Executive Officers of the Registrant

The following sets forth certain information regarding our executive officers as of June 2, 2006:

Mr. Subramanian Sundaresh (age 50) has served as our Chief Executive Officer since November 2005, President since May 2005 and briefly served as our Executive Vice President of Marketing and Product Development in May 2005. Prior to rejoining Adaptec, Mr. Sundaresh provided consulting services at various companies, including Adaptec, from December 2004 to April 2005. Between July 2002 and December 2004, Mr. Sundaresh served as President and Chief Executive Officer of Candera, Inc., a supplier of network storage controllers. From July 1998 to April 2002, Mr. Sundaresh served as President and Chief Executive Officer of Jetstream Communications, a provider of Voice over Broadband solutions. Mr. Sundaresh previously worked at Adaptec from March 1993 to June 1998 as Vice President and General Manager for the Personal I/O business and Corporate Vice President of Worldwide Marketing.

Mr Christopher O'Meara (age 48) has served as our Vice President and Chief Financial Officer since March 2006. Prior to rejoining Adaptec, Mr. O'Meara was Executive Vice President and Chief Financial Officer at Tibco Software, Inc., a business integration and process management software company, from

August, 2001 to October, 2005 and as Vice President, Finance and Treasurer of Tibco from August 1998 to August 2001. Mr. O'Meara previously worked at Adaptec from June 1988 to July 1998 in various positions, which included Vice President, Treasurer and Director of Financial Planning.

Mr. Marcus D. Lowe (age 50) has served as our Vice President and General Manager since July 2005. Prior to rejoining Adaptec, Mr. Lowe was a Managing Director at Praxis Ventures, a consulting and investment firm, from April 2004 to June 2005. Between July 2000 and March 2004, Mr. Lowe served as Chief Executive Officer and President of New Moon Systems, Inc., a software provider to manage and deploy Windows-based applications to end-user desktops. Mr. Lowe previously worked at Adaptec from 1991 to 1997 as a General Manager for the SCSI business group, and later the Fibre Channel products group.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information for Common Stock

Our common stock is traded on the Nasdaq National Market under the symbol "ADPT." The following table sets forth the high and low sales prices of our common stock for the periods indicated as reported by the Nasdaq National Market. The market price of our common stock has been volatile. See "Risk Factors."

	Fiscal 2006				Fiscal 2005
	High		Low		High		Low
First quarter	$	4.88	$	3.34	$	9.53	$	7.15
Second quarter		4.50		3.12		8.03		6.62
Third quarter		6.22		3.46		8.50		7.28
Fourth quarter		6.70		5.40		7.64		4.52

As of June 9, 2006, there were approximately 650 stockholders of record of our common stock.

Dividends

We have not paid cash dividends on our common stock. It is presently our policy to reinvest earnings for our business.

Item 6. Selected Financial Data

The following selected financial information has been derived from the audited consolidated financial statements. The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. We completed the sale to IBM of the Company's IBM i/p Series RAID business in September 2005, sold a portion of our systems business to Sanmina-SCI Corporation and its wholly owned subsidiary, Sanmina-SCI USA, Inc. in January 2006 and we plan to divest the remaining portion of our systems business. We also successfully completed the spin-off of our software segment, Roxio, which is now known as Napster, into a fully independent and separate company in May 2001. The information below has been restated to reflect the IBM i/p Series RAID business, systems business and Napster as discontinued operations.

			Years Ended March 31,
			2006³			2005³			2004³			2003³			2002³
			(in thousands, except per share amounts)
Consolidated Statements of Operations Data:
	Net revenues²		$	310,145		$	371,257		$	395,688		$	408,113		$	418,749
	Cost of revenues²			201,890			219,455			209,268			203,203			203,030

	Gross profit			108,255			151,802			186,420			204,910			215,719

	Total operating expenses^1,2			235,650			225,728			196,014			237,167			426,376
	Income (loss) from continuing operations			(114,696	)		(121,890	)		78,207			(13,184	)		(196,673	)
	Income (loss) from discontinued operations, net of taxes			(43,546	)		(23,216	)		(15,300	)		(2,242	)		495
	Income from disposal of discontinued operations, net of taxes			9,810			—			—			—			—
	Net income (loss)			(148,432	)		(145,106	)		62,907			(15,426	)		(196,178	)
Net Income (Loss) Per Share Data:
	Basic:
		Continuing operations	$	(1.01	)	$	(1.10	)	$	0.72		$	(0.12	)	$	(1.92	)
		Discontinued operations	$	(0.30	)	$	(0.21	)	$	(0.14	)		(0.02	)	$	0.00
		Net income (loss)	$	(1.31	)	$	(1.31	)	$	0.58		$	(0.14	)	$	(1.91	)
	Diluted:
		Continuing operations	$	(1.01	)	$	(1.10	)	$	0.65		$	(0.12	)	$	(1.92	)
		Discontinued operations	$	(0.30	)	$	(0.21	)	$	(0.12	)		(0.02	)	$	0.00
		Net income (loss)	$	(1.31	)	$	(1.31	)	$	0.53		$	(0.14	)	$	(1.91	)
	Shares used in computing net income (loss) per share:
		Basic		113,405			110,798			108,656			106,772			102,573
		Diluted		113,405			110,798			128,807			106,772			102,573

		March 31,
		2006		2005		2004		2003		2002²
		(in thousands)
Consolidated Balance Sheets Data:
	Cash, cash equivalents and marketable securities	$	556,552	$	526,556	$	663,854	$	742,302	$	803,659
	Restricted cash and marketable securities		4,749		6,381		9,161		14,789		21,212
	Net assets of discontinued operations		14,500		—		—		—		—
	Total assets		737,399		963,506		1,051,104		1,102,979		1,208,422
	Long-term liabilities		229,349		275,539		263,852		252,596		457,625
	Stockholders' equity		369,445		510,323		644,891		602,777		597,392
	Working capital		522,039		507,122		715,228		645,320		793,854

Notes:

(1): As of April 1, 2002, we ceased amortization of goodwill to conform with the provisions of SFAS No. 142.

(2): Prior period consolidated financial statements have been reclassified to conform to the current period presentation.
(3): We completed a total of six acquisitions in fiscal 2005, 2004 and 2002 and recorded write-offs of acquired in-process technologies for certain acquisitions (Note 17). We recorded restructuring charges in fiscal 2006, 2005, 2004, 2003 and 2002 (Note 9). In fiscal 2006, (i) we recorded an impairment charge of $90.6 million to the write-off of goodwill (Note 5), (ii) a gain of $12.1 million on the sale of the OEM block based systems business (Note 2), (iii) of a loss of $2.3 million on the disposal of the IBM i/p Series RAID business (Note 2) and (iv) an impairment charge of $10.0 million to writedown the systems business' long-lived assets to fair value (Note 2) and recorded a loss on disposal of assets of $1.6 million (Note 10). In fiscal 2005, we (i) recorded an impairment charge of $52.3 million to reduce goodwill related to our former Channel segment (Note 5), (ii) recorded a gain of $2.8 million on the sale of certain properties (Note 10), (iii) recorded charges of $0.9 million and $1.6 million for severance, benefits, loss on the sale of property and equipment and legal fees associated with the strategic alliances entered into with ServerEngines and Vitesse, respectively (Note 10), (iv) made a payment of $1.7 million to NSE in the form of a license fee (Note 11), (v) received a tax benefit from the settlement of disputes with the IRS, (vi) incurred $17.6 million in tax expense and a $4.5 million loss on marketable securities (Note 3) associated with the repatriation of $360.6 million in cash from our Singapore subsidiary and (vii) recorded a valuation allowance for deferred tax assets of $67.9 million (Note 12). In fiscal 2004, we recorded a gain of $49.3 million related to the settlement with the former president of Distributed Processing Technology Corporation, or DPT (Note 11), a reduction in the deferred tax asset valuation allowance of $21.6 million (Note 12), a $6.0 milllion impairment charge (Note 10), and a reduction of previously accrued tax related liabilities of $6.3 million (Note 12). In fiscal 2002, we recorded an impairment charge of $69.0 million to reduce goodwill related to the DPT acquisition. These actions affect the comparability of this data.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This "Management's Discussion and Analysis of Financial Condition and Results of Operations" section should be read in conjunction with the other sections of this Annual Report on Form 10-K, including "Item 1: Business"; "Item 6: Selected Financial Data"; and "Item 8: Financial Statements and Supplementary Data." This section contains a number of forward-looking statements, including statements regarding our intention to divest our systems business, revenues from our SCSI-based desktop products and our liquidity in future periods. These forward-looking statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in the "Risk Factors" set forth in Part I, Item 1A of this Annual Report on Form 10-K. Our actual results may differ materially, and these forward-looking statements do not reflect the potential impact of any mergers, acquisitions or other business combinations that had not been completed as of June 9, 2006.

Overview

Our new management team is continuing to perform a thorough analysis of our operations, which it initiated in the first quarter of fiscal 2006, and has begun implementing a detailed plan of our corporate strategy. This analysis of our operations includes a review of all aspects of our business, including our product portfolio, our relationships with strategic partners and our research and development focus. To date, we have implemented the following steps:

•: On January 31, 2006, we signed a definitive agreement with Sanmina-SCI Corporation and its wholly owned subsidiary, Sanmina-SCI USA, Inc., for the sale of our OEM block-based systems business for $14.5 million, of which $5.0 million will be received over the next two years. In addition, Sanmina-SCI USA agreed to pay us contingent consideration of up to an additional $12.0 million if certain revenue levels are achieved over a three year period. We recorded a gain of approximately $12.1 million was recorded on the disposal of the OEM block-based systems business in the fourth quarter of fiscal 2006.

•: On December 23, 2005, we entered into a three-year contract manufacturing agreement with Sanmina-SCI, upon the closing of the transaction on January 9, 2006, assumed manufacturing operations of a majority of Adaptec products. In addition, we sold certain manufacturing assets, buildings and improvements and inventory located in Singapore with respect to printed circuit board assemblies and storage system manufacturing operations to Sanmina-SCI for $26.6 million (net of closing costs of $0.6 million) resulting in a loss on disposal of assets of $1.6 million that was recorded in "Other charges (gains)" on the Consolidated Statements of Operations.
•: On September 30, 2005, we sold our IBM i/p Series RAID Business to IBM for approximately $22.0 million plus $1.3 million for certain fixed assets. In addition, IBM purchased certain related inventory at our net book value of $0.8 million. We also granted IBM a nonexclusive license to certain intellectual property and sold to IBM substantially all of the assets dedicated to the engineering and manufacturing of RAID controllers and connectivity products for the IBM i/p Series RAID Business. Under the terms of the nonexclusive license, IBM will pay us royalties for the sale of our board-level products over the next six quarters, which will be recognized as contingent consideration in discontinued operations when earned. In fiscal 2006, we received royalties of $5.6 million, which we recorded in "Income (loss) from disposal of discontinued operations, net of taxes," in the Consolidated Statements of Operations.
•: On September 29, 2005, our Board of Directors approved management's recommendation to divest our systems business, which includes substantially all of the operating assets and cash flows that were obtained through our acquisitions of Snap Appliance and Eurologic Systems in fiscal 2004 as well as internally developed hardware and software. In connection with this action, we classified the systems business as a discontinued operation in our consolidated financial statements. Accordingly, we have reclassified the underlying Consolidated Statements of Operations and Consolidated Statements of Cash Flows and related disclosures for all periods presented to reflect that product line as part of discontinued operations.
•: We reorganized our OEM and Channel segments in the second quarter of fiscal 2006. While our former OEM and Channel segments each offered an integrated set of customer-focused products, the new organization is managed at the product level. Our segments currently are DPS and DSG. As a result of the segment reorganization, an assessment of the recoverability of goodwill was performed and we wrote-off our entire balance of goodwill of $90.6 million in the second quarter of fiscal 2006. All prior periods have been restated to reflect our new segments.

•: Loss of customers;
•: Loss of employees;
•: Increased dependency on suppliers;
•: Supply issues;
•: Reduced revenue base;
•: Impairment of our assets;
•: Increased operating costs; and
•: Material restructuring charges.

Our future revenue growth remains largely dependent on the success of our data protection solutions, new OEM design wins and our products addressing new technologies (i.e., Serial Attached SCSI, SATA and iSCSI).

Results of Operations

The following table sets forth the items in the Consolidated Statements of Operations as a percentage of revenues (references to notes in the footnotes to this table are to the Notes to Consolidated Financial Statements appearing in this Annual Report on Form 10-K):

			Years Ended March 31,
			2006²		2005²		2004²
Net revenues			100	%	100	%	100	%
Cost of revenues¹			65		59		53

Gross margin			35		41		47

Operating expenses:
	Research and development¹		20		23		24
	Selling, marketing and administrative¹		21		19		18
	Amortization of acquisition-related intangible assets		2		3		4
	Write-off of acquired in-process technology		—		—		1
	Restructuring charges		3		2		1
	Goodwill impairment		29		14		—
	Other charges (gains)		1		(0	)	2

		Total operating expenses	76		61		50

Loss from continuing operations			(41	)	(20	)	(3	)
Interest and other income¹			6		2		17
Interest expense			(1	)	(1	)	(2	)

Income (loss) from continuing operations before income taxes			(36	)	(19	)	12
Provision for (benefit from) income taxes			1		14		(8	)

Income (loss) from continuing operations			(37	)	(33	)	20
Discontinued operations, net of taxes:
	Loss from discontinued operations, net of taxes		(14	)	(6	)	(4	)
	Income from disposal of discontinued operations, net of taxes		3		—		—

Loss from discontinued operations, net of taxes			(11	)	(6	)	(4	)

Net income (loss)			(48	)%	(39	)%	16	%

Notes:

(1): Prior period financial statements have been reclassified to conform to the current period presentation.
(2): We completed a total of five acquisitions in fiscal 2005 and fiscal 2004 (Note 17) and recorded a write-off of acquired in-process technology for the Elipsan acquisition. We recorded restructuring charges in fiscal 2006, 2005 and 2004 (Note 8). In fiscal 2006, we recorded an impairment charge of $90.6 million to write-off goodwill (Note 5) and an impairment charge of $10.0 million to write down the Systems long-lived assets to fair value (Note 2) and recorded a loss on disposal of assets of $1.6 million (Note 10). In fiscal 2005, we (i) recorded an impairment charge of $52.3 million to reduce goodwill related to our former Channel segment (Note 4), (ii) recorded a gain of $2.8 million on the sale of certain properties (Note 9), (iii) recorded charges of $0.9 million and $1.6 million for severance, benefits, loss on the sale of property and equipment and legal fees associated with the strategic alliances entered into with ServerEngines and Vitesse, respectively (Note 9), (iv) made a payment of $1.7 million to NSE in the form of a license fee (Note 10), (v) received a tax benefit from the settlement of disputes with the IRS, (vi) incurred $17.6 million in tax expense associated with the repatriation of $360.6 million in cash from our Singapore subsidiary and (vii) recorded a valuation allowance for deferred tax assets of $67.9 million (Note 11). In fiscal 2004, we recorded a gain of

$49.3 million related to the settlement with the former president of DPT (Note 10), a reduction in the deferred tax asset valuation allowance of $21.6 million (Note 11) and a reduction of previously accrued tax related liabilities of $6.3 million (Note 11). These actions affect the comparability of this data.

Net Revenues.

	FY 2006		Percentage Change		FY 2005		Percentage Change		FY 2004
	(in millions, except percentage)
DPS	$	276.2	(17	)%	$	333.0	(6	)%	$	352.3
DSG		33.9	(11	)%		38.3	(12	)%		43.4

Total Revenues	$	310.1	(16	)%	$	371.3	(6	)%	$	395.7

Fiscal 2006 compared to Fiscal 2005

Revenues from our DPS segment decreased by $56.8 million in fiscal 2006 as compared to fiscal 2005 reflecting a decline in sales volumes and average selling prices of our parallel SCSI products, which was partially offset by increased sales of our serial products and benefits associated with the renegotiation of a customer supply contract. The decline in sales volumes of our SCSI products was primarily attributable to the transition from our Ultra 160 products to our Ultra 320 products in which we have a lower market share and a shift to lower cost SATA solutions in which there is a more competitive market.

Revenues from our DSG segment decreased by $4.4 million in fiscal 2006 compared to fiscal 2005 primarily due to the decline in sales volumes of our SCSI-based desktop computer products. This decline was partially offset by increased sales of our digital media products and sales of storage products that were introduced in the fourth quarter of fiscal 2005. We expect revenues from our DSG products to continue to decline as OEMs are incorporating other connectivity technologies directly into their products.

Fiscal 2005 compared to Fiscal 2004

Revenues from our DPS segment decreased by $19.3 million in fiscal 2005 as compared to fiscal 2004 reflecting a decline in sales volumes of our SCSI products primarily attributable to the industry shortage of SCSI disk drives in the fourth quarter of fiscal 2005, the transition from our Ultra 160 products to Ultra 320 products and a change in the sales mix of products incorporating our SCSI technology due to customers purchasing more software and chip products which generally have lower average selling prices compared to HBAs or other board level SCSI products. This was partially offset by increased sales from products based on next generation SATA technology and external storage systems.

Revenues from our DSG segment decreased by $5.1 million in fiscal 2005 as compared to fiscal 2004 as a result of the decline in sales volumes of our SCSI-based desktop computer products and our digital media products, partially offset by increased sales of non-SCSI based connectivity and TV tuner products.

Geographical Revenues and Customer Concentration

Geographical Revenues:	FY 2006		FY 2005		FY 2004
North America	37	%	35	%	40	%
Europe	30	%	32	%	31	%
Pacific Rim	33	%	33	%	29	%

Total Revenues	100	%	100	%	100	%

Our North America revenues increased as a percentage of our total revenues in fiscal 2006 as compared to fiscal 2005 primarily as a result of benefits associated with the renegotiation of a customer supply contract and increased sales related to a North American OEM, partially offset by a decline in channel sales in North America. Included in European revenues for fiscal 2006 was $11.7 million of a last time buy customer order. Our North America revenues decreased as a percent of our total revenues in fiscal 2005 as compared to fiscal 2004 primarily as a result of decreased sales related to a North American OEM.

A small number of our customers account for a substantial portion of our revenues, and we expect that a limited number of customers will continue to represent a substantial portion of our revenues for the foreseeable future. In fiscal 2006, IBM and Dell accounted for 30% and 16% of our total revenues, respectively. In fiscal 2005, IBM and Dell accounted for 24% and 15% of our total revenues, respectively. In fiscal 2004, IBM and Dell accounted for 21% and 12% of our total revenues, respectively.

Gross Margin.

	FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
	(in millions, except percentages)
Gross Margin	$	108.3		(29	)%	$	151.8		(19	)%	$	186.4
As a Percentage of Net Revenues		35	%				41	%				47	%

The decline in gross margin in fiscal 2006 compared to fiscal 2005 was primarily due to changes in our product and customer mix, which led to lower average margins, fixed costs that were distributed over lower revenue levels and an excess inventory expense of $1.9 million recorded in fiscal 2006 related to the transition of our products to comply with the European Union Restriction on Use of Hazardous Substances Directive, or RoHS Directive. This was partially offset by decreased component costs and benefits associated with the renegotiation of a customer supply contract. Our gross margins may be impacted in the future by the mix of OEM and channel revenue.

The decline in gross margin in fiscal 2005 compared to fiscal 2004 was primarily due to changes in our product mix, which led to lower average margins, and negative margins associated with our new external storage products sold to IBM. Costs associated with our new external storage products sold to IBM impacted our gross margin by $5.2 million compared to the margin we expected to obtain on these products.

Research and Development Expense.

		FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
		(in millions, except percentages)
Research and Development		$	60.9		(30	)%	$	86.5		(10	)%	$	95.6

Our investment in research and development primarily focuses on developing new products for external storage, storage software and server storage markets. We also invest in research and development of new technologies, including iSCSI, SATA and Serial Attached SCSI. A portion of our research and development expense fluctuates depending on the timing of major project costs such as prototype costs.

The decrease in research and development expense in fiscal 2006 as compared to fiscal 2005 was primarily a result of reduced headcount achieved as a result of the ServerEngines and Vitesse strategic alliances we entered into in the fourth quarter of fiscal 2005, decreased infrastructure spending and reduced headcount as a result of restructuring programs implemented in fiscal 2005 and decreased deferred compensation charges in fiscal 2006 compared to fiscal 2005. Deferred compensation charges

represented the vesting of assumed stock options in connection with our acquisition of Platys Communications, Inc., or Platys, in August 2001. Deferred compensation charges associated with the Platys acquisition ceased in the first quarter of fiscal 2006.

The decrease in research and development expense in fiscal 2005 as compared to fiscal 2004 was primarily a result of decreased infrastructure spending and reduced headcount as a result of restructuring programs implemented in fiscal 2005 and 2004, the reduced headcount as a result of the Vitesse strategic alliance and decreased deferred compensation charges of $2.1 million in fiscal 2005 compared to fiscal 2004. Deferred compensation charges represented the vesting of restricted stock, unvested cash and assumed stock options in connection with our Platys acquisition. This was partially offset by costs associated with the development of the IBM DS300 and DS400 products.

Selling, Marketing and Administrative Expense.

		FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
		(in millions, except percentages)
Selling, Marketing and Administrative		$	65.0		(10	)%	$	72.1		1	%	$	71.2

As our selling, marketing and administrative expense consists primarily of salaries, including commissions, our expense fluctuates based on changes to our revenue levels.

The decrease in selling, marketing and administrative expense in fiscal 2006 as compared to fiscal 2005 was primarily a result of decreased spending due to lower revenues and reductions of our workforce and infrastructure spending as a result of the restructuring plans we implemented in fiscal 2005 and the third quarter of fiscal 2006. This was partially offset by compensation of $1.2 million recorded in the first quarter of fiscal 2006 related to retirement costs of our former Chief Executive Officer.

The increase in selling, marketing and administrative expense in fiscal 2005 as compared to fiscal 2004 was primarily a result of increased deferred compensation charges of $0.3 million representing the vesting of assumed stock options in connection with our Platys acquisition, and an increase in general corporate expenses related to acquisitions. This was partially offset by decreased spending due to reductions of our workforce and infrastructure spending as a result of the restructuring plans implemented in fiscal years 2005 and 2004.

Amortization of Acquisition-Related Intangible Assets.

		FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
		(in millions, except percentages)
Amortization of Acquisition-Related Intangible Assets		$	7.2		(23	)%	$	9.3		(38	)%	$	14.9

Acquisition-related intangible assets include patents, core and existing technologies, covenants-not-to-compete, supply agreement, foundry agreement, customer relationships, trade names, backlog and royalties. We amortize the acquisition-related intangible assets over periods which reflect the pattern in which the economic benefits of the assets are expected to be realized, which is primarily using the straight-line method over their estimated useful lives, ranging from three months to five years.

The decrease in amortization of acquisition-related intangible assets in fiscal 2006 compared to fiscal 2005 was due to intangible assets that became fully amortized in August 2005 associated with our Platys acquisition and certain intangible assets that became fully amortized in fiscal 2005 associated with our acquisition of Eurologic Systems Group Limited in April 2003.

The decrease in amortization of acquisition-related intangible assets in fiscal 2005 compared to fiscal 2004 was due to intangible assets that became fully amortized in December 2003 associated with our DPT acquisition and certain intangible assets associated with our Platys acquisition. This was partially offset by the amortization of $2.2 million of purchased intangible assets related to the acquisition of Elipsan Limited in February 2004.

Restructuring Charges.

		FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
		(in millions, except percentages)
Restructuring Charges		$	10.4		77	%	$	5.9		37	%	$	4.3

During fiscal 2006, 2005 and 2004, we implemented several restructuring plans which included reductions of our workforce and consolidation of operations. The goal of these plans was to bring our operational expenses to appropriate levels relative to our net revenues, while simultaneously implementing extensive new company-wide expense-control programs. All expenses, including adjustments, associated with our restructuring plans are included in "Restructuring charges" in the Consolidated Statements of Operations and are not allocated to segments but rather managed at the corporate level. For further discussion on our restructuring plans, please refer to Note 9 to the Notes to Consolidated Financial Statements.

Fiscal 2006 Restructuring Plans

In the third and fourth quarters of fiscal 2006, management approved and initiated plans to restructure our operations by simplifying our infrastructure. These restructuring plans eliminated certain duplicative resources in all functions of the organization worldwide, due in part, to the discontinued operations, the vacating of redundant facilities in order to reduce our cost structure, and sale of our Singapore manufacturing facility.

Fiscal 2005 Restructuring Plans

In each quarter of fiscal 2005, we implemented restructuring plans (collectively called the fiscal 2005 restructuring provision) to streamline the corporate organization, thereby reducing operating costs by consolidating duplicative resources in connection with the acquisition of Snap Appliance and the Vitesse strategic alliance and costs pertaining to estimated future obligations for non-cancelable lease payments for excess facilities in Germany and United Kingdom. This resulted in a restructuring charge of $5.8 million, of which $5.2 million related to the involuntary termination of employees in all functions of the organization and $0.6 million related to the estimated loss on our facilities. As of March 31, 2006, we had utilized all of these charges and the plan is now complete.

Fiscal 2004 Restructuring Plans

In the fourth, third and second quarters of fiscal 2004, we implemented restructuring plans (collectively called the fiscal 2004 restructuring provision) to consolidate primarily research and development resources, the involuntary termination of certain technical support, marketing and administrative personnel, the shutdown of our Hudson, Wisconsin facility, and asset impairments associated with the identification of duplicative assets and facilities. As a result, we recorded a restructuring charge of $3.7 million, of which $3.3 million related to severance and benefits to 30 employees. We recorded an adjustment to the fiscal 2004 restructuring provision of $0.2 million in fiscal 2005 as a reduction of severance and benefits as actual results were lower than anticipated, offset by an adjustment of $0.6 million in fiscal 2004 related to the additional lease costs. As of March 31, 2006, we had utilized all of these charges and the plan is now complete.

In addition, we recorded provision adjustments related to our fiscal 2003, fiscal 2002 and fiscal 2001 restructuring plans and Snap Appliance Acquisition-Related Restructuring Plan (Note 9) in fiscal 2006, 2005 and 2004 for $1.0 million, $0.5 million and $0.3 million, respectively, primarily related to additional lease costs related to the estimated loss on our facilities, which was partially offset by the reduction of severance and benefits as actual results were lower than anticipated.

Goodwill Impairment.

		FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
		(in millions, except percentages)
Goodwill Impairment		$	90.6		73	%	$	52.3		100	%	$	—

Goodwill is not amortized, but instead is reviewed annually and whenever events or circumstances occur which indicate that goodwill might be impaired. Impairment of goodwill is tested at our reporting unit level which is at our operating segment level, by comparing each segment's carrying amount, including goodwill, to the fair value of that segment. To determine fair value, our review process uses the income or discounted cash flows approach and the market approach. In performing our analysis, we use the best information available under the circumstances, including reasonable and supportable assumptions and projections. If the carrying amount of the segment exceeds its implied fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any.

In connection with the reorganization of our segments in fiscal 2006, which is discussed above and in Note 16 to the Notes to Consolidated Financial Statements appearing in this Annual Report on Form 10-K, an assessment of the recoverability of goodwill was performed. As a result of this review, we wrote-off our entire balance of goodwill of $90.6 million in the second quarter of 2006. Factors that led to this conclusion included but were not limited to, industry technology changes experienced in the first half of fiscal 2006 such as the shift from parallel to serial technology and the migration of core functionality to server chipsets; required increased investments that eventually led us to sell the IBM i/p Series RAID business in fiscal 2006 and the decision to sell the systems business; continued losses associated with sales of systems to IBM; and general market conditions.

Based on our annual review of goodwill in the fourth quarter of fiscal 2005, we recorded an impairment charge of $52.3 million related to our former Channel segment. Factors that led to this conclusion included, but were not limited to, the negative impact of estimates of expected future income associated with increased costs related to recent acquisitions and business alliances that occurred in fiscal 2005. These additional costs, along with industry technology transitions, placed significant risk on our ability to achieve and maintain profitability, and, therefore adversely impacted our profitability forecasts.

Other Charges (Gains).

		FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
		(in millions, except percentages)
Other Charges (Gains)		$	1.6		(644	)%	$	(0.3	)	(105	)%	$	6.0

Other charges consisted of asset impairment charges related to certain properties or assets and our minority investments. Other charges also included charges associated with our strategic alliances with ServerEngines and Vitesse.

On December 23, 2005, we entered into a three-year contract manufacturing agreement with Sanmina-SCI whereby Sanmina-SCI, upon the closing of the transaction of January 9, 2006, assumed manufacturing operations of Adaptec products. In addition, we sold certain manufacturing assets, buildings and improvements and inventory located in Singapore with respect to printed circuit board

assemblies and storage system manufacturing operations to Sanmina-SCI for $26.6 million (net of closing costs of $0.6 million) resulting in a loss on disposal of assets of $1.6 million that was recorded in fiscal 2006 in "Other charges (gains)" on the Consolidated Statements of Operations.

On March 16, 2005, we entered into a strategic alliance with ServerEngines to develop and market next-generation IP storage products. Under the terms of the alliance, ServerEngines employed 33 of our former engineering employees and licensed certain technology and acquired certain assets related to our iSCSI and TCP/IP offload protocol engines. On January 26, 2005, we entered into a strategic alliance with Vitesse to develop and market next-generation Serial Attached SCSI products. Under the terms of the alliance, Vitesse employed 44 of our former engineering employees and licensed certain Serial Attached SCSI technology and assets related to our development of Serial Attached SCSI ROC products. As a result, we incurred charges in fiscal 2005 of $0.9 million and $1.6 million for severance, benefits, loss on the sale of property and equipment and legal fees associated with the ServerEngines and Vitesse alliances, respectively.

In fiscal 2004, we recorded an impairment charge of $5.0 million to reduce the carrying value of certain properties classified as assets held for sale to fair value less cost to sell. We decided to consolidate our properties in Milpitas, California to better align our business needs with existing operations and to provide more efficient use of our facilities. As a result, two owned buildings, including associated building improvements and property, plant and equipment, were classified as assets held for sale and were included in "Other current assets" in the Consolidated Balance Sheets at March 31, 2004 at their expected fair value less expected cost to sell. In October 2004, we completed the sale of these properties that were previously classified as held for sale. Net proceeds from the sale of the properties aggregated $9.6 million, which exceeded our estimated fair value of $6.8 million. As a result, a gain on the sale of the properties of $2.8 million was recorded in fiscal 2005 as a credit to "Other charges (gains)" in the Consolidated Statements of Operations.

We hold minority investments in non-public companies. We regularly monitor these minority investments for impairment and record reductions in the carrying values when necessary. Circumstances that indicate an other-than-temporary decline include valuation ascribed to the issuing company in subsequent financing rounds, decreases in quoted market price and declines in operations of the issuer. We recorded impairment charges of $1.0 million in fiscal 2004 related to a decline in the value of a minority investment deemed to be other-than-temporary.

Interest and Other Income.

	FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
	(in millions, except percentages)
Interest Income	$	16.6		41	%	$	11.8		(39	)%	$	19.2
Gain on Settlement with Former President of DPT		—		0	%		—		(100	)%		49.3
Payment of License Fee with NSE		—		(100	)%		(1.7	)	(100	)%		—
Loss on Extinguishment of Debt		(0.1	)	100	%		—		100	%		(6.5	)
Realized Loss on Repatriation		—		(100	)%		(4.5	)	(100	)%		—
Other		1.1		(60	)%		2.8		(39	)%		4.4

Total Interest and Other Income	$	17.6		111	%	$	8.4		(87	)%	$	66.4

Interest and other income is primarily attributable to interest income earned on our cash, cash equivalents and marketable securities, gains or losses from the repurchase of our 3% Convertible Subordinated Notes due 2007, or 3% Notes, and 4³/4% Convertible Subordinated Notes, due 2004, or 4³/4% Notes, fluctuations in foreign currency gains or losses, realized gains and losses on marketable securities and sublease income received from third parties.

The increase in interest and other income in fiscal 2006 as compared to fiscal 2005 was primarily due to higher interest rates earned on our cash, cash equivalents and marketable securities in fiscal 2006 and a one-time fully paid-up license payment fee of $1.7 million to Nevada SCSI Enterprises, Inc. and Thomas A. Gaffird (jointly, "NSE"), which was recorded in fiscal 2005, primarily for historical products that incorporated certain technology.

The decrease in interest and other income in fiscal 2005 as compared to fiscal 2004 was primarily due to: (1) a gain recorded in fiscal 2004 of $49.3 million in relation to a settlement with the former president of DPT; (2) lower interest income earned on our cash, cash equivalents and marketable securities related to lower average cash balances; (3) realized losses on our cash, cash equivalents and marketable securities, of which $4.5 million primarily resulted from the liquidation of investments held by our Singapore subsidiary in connection with the repatriation of undistributed earnings to the U.S.; and (4) a one-time fully paid-up license fee of $1.7 million to NSE, which was recorded in fiscal 2005, primarily for historical products that incorporated certain technology. This was partially offset by losses of $6.5 million on the repurchase of our 3% Notes the redemption of our 4³/4% Notes in fiscal 2004 and a refund from the State Board of Equalization for prior qualifying sales and use tax payments of $0.7 million in fiscal 2005. For further discussion on the settlement with the former president of DPT and NSE, please refer to Note 11 to the Notes to Consolidated Financial Statements.

Interest Expense

		FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
		(in millions, except percentages)
Interest Expense		$	(3.3	)	(25	)%	$	(4.4	)	(53	)%	$	(9.4	)

Interest expense is primarily associated with our ³/4% Convertible Senior Notes due 2023, or ³/4% Notes. 3% Notes and 4³/4% Notes, issued in December 2003, March 2002 and February 1997, respectively. The decrease in interest expense for fiscal 2006 compared to fiscal 2005 was primarily due to the reduction in the outstanding balances of the 3% Notes, as we repurchased $24.6 million in aggregate principal amount of our 3% Notes during fiscal 2006.The decrease in interest expense for fiscal 2005 compared to fiscal 2004 was primarily due to the reduction in the outstanding balances of the 3% Notes and 4³/4% Notes, partially offset by interest expense related to our ³/4% Notes.

Income Taxes

		FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
		(in millions, except percentages)
Provision For (Benefit From) Income Taxes		$	1.6		(97	)%	$	51.9		(269	)%	$	(30.8	)

For fiscal 2006, we recorded an income tax provision of $1.6 million on a pre-tax loss of $113.1 million. Our fiscal 2006 effective income tax rate included an increase in the valuation allowance for deferred tax assets of $14.6 million. In addition, our effective tax rate for fiscal 2006 differs from the combined United States federal and state statutory income tax rate of 40% primarily due to acquisition related impairment charges and losses incurred in foreign jurisdictions for which no tax benefit is derived.

We had a valuation allowance for deferred tax assets of $91.5 million at March 31, 2006 as we determined that it was more likely than not that substantially all of our U.S. deferred tax assets will not be realized. We continuously monitor the circumstances impacting the expected realization of our deferred tax assets on a jurisdiction by jurisdiction basis. At March 31, 2006, our analysis of our deferred tax assets demonstrated that it was more likely than not that all of our U.S. deferred tax assets would not be realized. Factors that led to this conclusion included, but were not limited to, our past operating results, cumulative tax losses in the U.S., and uncertain future income on a jurisdiction by jurisdiction basis.

On October 22, 2004, the American Jobs Creation Act of 2004, also referred to as the Act, was signed into law. The Act created a temporary incentive for U.S. companies to repatriate accumulated foreign earnings subject to certain limitations by providing a one-time deduction of 85% for certain dividends from controlled foreign corporations. In the fourth quarter of fiscal 2005, we repatriated $360.6 million of undistributed earnings from Singapore to the United States, resulting in a tax liability of $17.6 million. The one-time deduction is allowed to the extent that the repatriated amounts are used to fund a qualified Domestic Reinvestment Plan, as required by the Act. If we do not spend the repatriated funds in accordance with our reinvestment plan, we may incur additional tax liabilities. We have not provided for U.S. deferred income taxes or foreign withholding taxes on the remaining undistributed earnings of $257.2 million since these earnings are intended to be reinvested indefinitely. Although we do not have any current plans to repatriate the remaining undistributed earnings from our Singapore subsidiary to our United States parent company, if we were to do so, additional income taxes at the combined United States Federal and state statutory rate of approximately 40% could be incurred from the repatriation.

The net tax benefit of $26.4 million for fiscal 2005 related to settled tax controversies, which includes discrete items totaling $31.9 million related to the amount and methodology of resolving issues related to the IRS's audit of our federal income tax audits from fiscal 1998 through fiscal 2001, offset by changes in current pending IRS audits.

For fiscal 2004, we recorded an income tax benefit of $30.8 million on pre-tax income of $47.4 million. Our fiscal 2004 effective income tax rate included a tax benefit for the reduction in the valuation allowance of $21.6 million and the reduction of previously accrued tax related liabilities of $6.3 million. The valuation allowance for deferred tax assets was established in fiscal 2002 as we determined that it was more likely than not that the deferred tax assets would not be realized. We continuously monitor the circumstances impacting the expected realization of our deferred tax assets and the tax provisions established for fiscal years under IRS audit. At March 31, 2004, our analysis of our deferred tax assets demonstrated that it was more likely than not that all of our deferred tax assets would be realized. Factors that led to this conclusion included, but were not limited to, expected future income, which included the completion of key products based on serial technologies, and increased revenue opportunities, particularly for our systems products, and our historical success in managing our deferred tax assets. In addition, our acquisitions and business alliances, together with our streamlined operations and revised product roadmaps, were expected to be accretive in future periods. Accordingly, we released the valuation allowance and additional tax provision in the fourth quarter of fiscal 2004, based on our conclusion that it was more likely than not that the deferred tax assets existing at March 31, 2004 would be realized. Our effective tax rate for fiscal 2004 also differed from the combined United States federal and state statutory income tax rate of 40% primarily due to the tax benefits from our Singapore tax holiday, research and development credits, and the tax benefit applicable to the DPT purchase price adjustment.

Our subsidiary in Singapore operated under a tax holiday through March 31, 2006. As the result of the divestiture of our manufacturing operations in Singapore, we are in the process of terminating our tax holiday. We are currently making modifications to our international tax structure to reflect our revised foreign operations. We do not expect these changes, to cause our worldwide effective tax rate to differ materially.

Income (Loss) From Discontinued Operations.

		FY 2006			Percentage Change		FY 2005			Percentage Change		FY 2004
		(in millions, except percentages)
Income (Loss) From Discontinued Operations		$	(33.7	)	45	%	$	(23.2	)	52	%	$	(15.3	)

IBM i/p Series RAID Business: On September 30, 2005, we entered into a series of arrangements with IBM pursuant to which we sold our IBM i/p Series RAID business to IBM for approximately $22.0 million plus $1.3 million for certain fixed assets. In addition, IBM purchased certain related inventory at our net book value of $0.8 million. Expenses incurred in the transaction primarily included costs of approximately $0.5 million for legal and accounting fees. In addition, we accrued $0.3 million for lease obligations. Under the terms of the agreements, we granted IBM a nonexclusive license to certain intellectual property and sold to IBM substantially all of the assets dedicated to the engineering and manufacturing of RAID controllers and connectivity products for the IBM i/p Series RAID business. Under the terms of the nonexclusive license, IBM will pay us royalties for the sale of our board-level products over the next six quarters, which will be recognized as contingent consideration in discontinued operations when earned. In fiscal 2006, we received royalties of $5.6 million, which we recorded in "Income (loss) from disposal of discontinued operations, net of taxes," in the Consolidated Statements of Operations.

For fiscal 2005 the loss from discontinued operations for the IBM i/p Series RAID business included the write off of acquired in process technology of $3.0 million and amortization of intangible assets of $4.5 million. The Company also incurred $16.8 million in Research and Development costs while it generated a gross margin of $14.0 million.

Systems Business: On September 29, 2005, our Board of Directors approved management's recommendation to divest our systems business, which includes substantially all of the operating assets and cash flows that we obtained through the Snap Appliance and Eurologic Systems acquisitions, as well as internally developed hardware and software. In connection with this action, we classified the systems business as a discontinued operations in our consolidated financial statements and are actively pursuing a sale of this business. In the fourth quarter of fiscal 2006 we revised our estimate of the fair values, less cost to sell and recorded a $10.0 million impairment charge on the Snap Appliance assets.

On January 31, 2006, we signed a definitive agreement with Sanmina—SCI Corporation and its wholly owned subsidiary, Sanmina-SCI USA, Inc. for the sale of our OEM block-based systems business for $14.5 million, of which $5.0 million will be received over the next two years. In addition, Sanmina-SCI USA agreed to pay us contingent consideration of up to an additional $12.0 million if certain revenue levels are achieved over the three-year period.. We recorded a gain of $12.1 million on the disposal of the OEM block-based systems business in the fourth quarter of fiscal 2006.

For fiscal 2005 the $9.5 million loss was attributed to higher product margins due in part because the acquisition of Snap Appliances. Revenues increased by $19.9 million and gross margin increased by $18.0 million while there was only a slight increase in operating expenses of $5.1 million.

For fiscal 2004 the systems business experienced a low gross margin on its products of 15% while there were no significant decreases in operating expenses.

Liquidity and Capital Resources

Key Components of Cash Flow

Cash used for operations was $7.1 million in fiscal 2006 and $10.3 million in fiscal 2005 compared to cash provided by operations of $95.4 million in fiscal 2004. Cash used for operations for fiscal 2006 resulted primarily from our net loss. This was partially offset by the benefit of non-cash items included in operating results which primarily consisted of an impairment of goodwill of $90.6 million and depreciation and amortization of intangible assets and property and equipment of $24.5 million. Additional factors included changes to working capital assets and liabilities that decreased cash provided by operating activities by $16.3 million, of which $21.4 million was due to a reduction in accounts payable and a decrease in inventory of $36.9 million, which was related to an overall decrease in the business and required lower inventory amounts that in turn reduced the amounts owed to vendors,, and an increase in cash provided by operating activities of discontinued operations of $5.6 million. Cash used for operations for fiscal 2005

resulted primarily from our net loss. This was offset by the benefit of non-cash items included in operating results which primarily consisted of an impairment of goodwill of $52.3 million, a decrease in our deferred tax assets of $50.7 million, depreciation and amortization of intangible assets and property and equipment of $37.2 million and amortization of deferred stock-based compensation of $2.9 million. Additional factors included the non-cash effect on tax settlement of $26.0 million, gain on the sale of long-lived assets of $1.4 million, a decrease in cash provided by operating activities of discontinued operations of $30.6 million, which included decreases in accrued expenses of $16.1 million and was offset by $47.1 million related to impairment charges for other intangible assets, and changes to working capital assets and liabilities that increased cash used for operations by $27.0 million.

Operating cash for fiscal 2004 resulted primarily from our net income of $62.9 million, adjusted for non-cash items including depreciation and amortization of intangible assets of $49.7 million, amortization of deferred stock-based compensation of $4.1 million, write-off of acquired in process technology of $4.0 million, impairment loss recognized on assets held for sale of $5.0 million, write-off of minority investment of $1.0 million, loss of $6.5 million related to the repurchase of our 3% Notes and 4³/4% Notes and changes to working capital assets and liabilities that increased cash provided by operating activities by $4.6 million offset by the non-cash portion of the gain on settlement with the former president of DPT of $18.3 million. These factors were partially offset by cash used in operating activities of discontinued operations of $16.0 million.

Cash used in investing activities was $287.3 million in fiscal 2006 and $22.9 million in fiscal 2004 compared to cash provided by investing activities of $340.8 million in fiscal 2005. Cash used for investing activities in fiscal 2006 was primarily due to net sales and maturities of restricted marketable securities and marketable securities, net of purchases, of $340.9 million and purchases of property and equipment from continuing operations of $7.1 million, partially offset by proceeds from the sale of the IBM i/p Series RAID and Systems businesses of $33.6 million and the sale of the Singapore manufacturing assets of $26.0 million. The cash provided by investing activities in fiscal 2005 was primarily related to sales and maturities of restricted marketable securities and marketable securities, net of purchases, of $470.6 million and proceeds from the sale of long-lived assets of $10.9 million. This was partially offset by our use of cash for the acquisitions of Snap Appliance and the IBM i/p Series RAID business of $65.4 million, purchases of property and equipment from continuing operations of $9.5 million and cash used in investing activities of discontinued operations of $63.4 million. The cash used in investing activities in fiscal 2004 was primarily due to our acquisitions of Eurologic, ICP vortex Computersysteme GmbH, orICP vortex, and Elipsan, payment of holdback amounts in connection with our acquisition of Platys, partially offset by net sales and maturities of marketable securities.

Cash used for financing activities was $14.9 million in fiscal 2006 and $110.2 million in fiscal 2004 compared to cash provided by financing activities of $8.5 million in fiscal 2005. The cash used for financing activities in fiscal 2006 was primarily driven by the repurchase of $24.3 million in aggregate principal amount of our 3% Notes for $24.3 million, partially offset by proceeds from our issuance of common stock in connection with the exercise of stock options. The cash provided by financing activities in fiscal 2005 was related to net proceeds received from our issuance of common stock in connection with purchases made under our employee stock purchase plan and the exercise of stock options. The cash used in financing activities in fiscal 2004 was primarily driven by repurchases of our 4³/4% and 3% Notes, partially offset by net proceeds from the issuance of our ³/4% Notes.

Liquidity, Capital Resources and Financial Condition

At March 31, 2006, we had $556.5 million in unrestricted cash, cash equivalents and marketable securities, of which approximately $88.2 million was held by our Singapore subsidiary. In the fourth quarter of fiscal 2005, we repatriated $360.6 million of undistributed earnings from Singapore to the United States and incurred a tax liability of $17.6 million. The repatriated amounts will be used to fund a qualified Domestic Reinvestment Plan, as required by the American Jobs Creation Act of 2004. If we do not spend

the repatriated funds in accordance with our reinvestment plan, we may incur additional tax liabilities. We have not provided for U.S. deferred income taxes or foreign withholding taxes on the remaining undistributed earnings of approximately $257.2 million since we do not have any current plans to repatriate the remaining undistributed earnings from our Singapore subsidiary to our United States parent company. If we were to do so, additional income taxes at the combined United States Federal and state statutory rate of approximately 40% could be incurred from the repatriation.

In December 2003, we issued $225.0 million in aggregate principal amount of our ³/4% Notes. The issuance costs associated with the ³/4% Notes totaled $6.8 million and the net proceeds from the offering were $218.2 million. In conjunction with the issuance of the ³/4% Notes, we spent $64.1 million to enter into a convertible bond hedge transaction. We also received $30.4 million from the issuance of warrants to purchase up to 19.2 million shares of our common stock. Please refer to Note 6 for a detailed discussion of our debt and equity transactions. At March 31, 2006, we had $235.6 million of aggregate principal amount in convertible notes that are due in March 2007 and December 2023 in the amount of $10.6 million and $225.0 million, respectively.

We are required to maintain restricted cash or investments to serve as collateral for the first six scheduled interest payments and the first ten scheduled interest payments on our 3% Notes and ³/4% Notes, respectively. As of March 31, 2006, we had $4.8 million of restricted cash and restricted marketable securities, consisting of United States government securities, of which $1.7 million was classified as short-term and $3.1 million was classified as long-term.

We expect capital expenditures of between $5.0 million and $10.0 million during fiscal 2007, without taking into account any acquisitions.

We filed a petition in United States Tax Court contesting asserted deficiencies related to the IRS' audit of our fiscal 1997 tax return and final settlement agreements have been filed with the United States Tax Court on all but one issue. In addition, the IRS is auditing our Federal income tax returns for fiscal 1998 through fiscal 2003. We have resolved all issues for fiscal 1998 through fiscal 2001 other than the rollover impact of any potential resolution on the remaining fiscal 1997 issue and tax credits that were generated but not used in subsequent years that may be carried back. The fiscal 2002 and 2003 audit is ongoing. We believe that we have sufficient tax provisions for these years. We believe the final outcome of the IRS audits will not have a material adverse impact on our liquidity.

The IRS is currently auditing our income tax returns for fiscal 1997 and final settlement agreements have been filed with the United States Tax Court on all but one issue. In addition, the IRS is auditing our Federal income tax returns for fiscal 1998 through fiscal 2001. We have resolved all issues for fiscal 1998 through fiscal 2001 other than the rollover impact of any potential resolution on the remaining fiscal 1997 issue and tax credits that were generated but not used in subsequent years that may be carried back. The fiscal 2000 and 2001 audit is ongoing. We believe that we have sufficient tax provisions for these years. We believe the final outcome of the IRS audits will not have a material adverse impact on our liquidity.

We believe that our cash balances and the cash flows generated by operations will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. However, we may require additional cash to fund acquisitions or investment opportunities. In these instances, we may seek to raise such additional funds through public or private equity or debt financings or from other sources. We may not be able to obtain adequate or favorable financing at that time. Any equity financing we obtain may dilute existing ownership interests and any debt financing could contain covenants that impose limitations on the conduct of our business.

The following table summarizes our contractual obligations at March 31, 2006.

	Payments Due By Period
Contractual Obligations (in thousands)	Total		Less than 1 Year		1-3 years		3-5 years		More than 5 years
Long-Term Debt and Associated Interest	$	266,309	$	12,621	$	3,375	$	3,375	$	246,938
Operating Leases		21,054		7,482		9,090		3,651		831
Purchase Obligations¹		8,298		8,298		—		—		—
Other Long-Term Liabilities		3,506		583		801		—		2,122

Total	$	299,167	$	28,984	$	13,266	$	7,026	$	249,891

(1): For the purposes of this table, contractual obligations for the purchase of goods or services are defined as agreements that are enforceable, non-cancelable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Our purchase orders are based on our current needs and are fulfilled by our vendors within short time horizons. The expected timing of payment of the obligations discussed above was estimated based on information available to us as of March 31, 2006. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

We invest in technology companies through two venture capital funds, Pacven Walden Venture V Funds and APV Technology Partners II, L.P. At March 31, 2006, the carrying value of such investments aggregated $2.9 million. We have also committed to provide additional funding of up to $0.2 million.

Off Balance-Sheet Arrangements

In conjunction with the issuance of the ³/4% Notes in December 2003, we entered into a convertible bond hedge transaction with an affiliate of one of the original purchasers of the ³/4% Notes. The convertible bond hedge is designed to mitigate stock dilution from conversion of the ³/4% Notes. The convertible bond hedge has value if the average market price per share of our common stock upon exercise or expiration of the bond hedge is greater than $11.704 per share. Under the convertible bond hedge arrangement, the counterparty agreed to sell to us up to 19.2 million shares of our common stock, which is the number of shares issuable upon conversion of the ³/4% Notes in full, at a price of $11.704 per share. The convertible bond hedge transaction may be settled at our option either in cash or net shares and expires in December 2008. Settlement of the convertible bond hedge in net shares on the expiration date would result in us receiving a number of shares of our common stock with a value equal to the amount otherwise receivable on cash settlement. Should there be an early unwind of the convertible bond hedge transaction, the amount of cash or net shares potentially received by us will depend upon then-existing overall market conditions, and on our stock price, the volatility of our stock and the amount of time remaining on the convertible bond hedge.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Note 1 of the Notes to Consolidated Financial Statements describes the significant accounting policies essential to our consolidated financial statements. The preparation of these financial statements requires estimates and assumptions that affect the reported amounts and disclosures. Although we believe that our judgments and estimates are appropriate and correct, actual future results may differ materially from our estimates.

We believe the following to be our critical accounting policies because they are both important to the portrayal of our financial condition and results of operations and they require critical management judgments and estimates about matters that are uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operation for future periods could be materially affected. See "Risk Factors" for certain risks relating to our future operating results.

Revenue Recognition: We recognize revenue from the majority of our product sales, including sales to OEMs, distributors and retailers, upon shipment from us, provided that persuasive evidence of an arrangement exists, the price is fixed or determinable and collectibility is reasonably assured. Revenue from sales where software is essential to the functionality is recognized when passage of title and risk of ownership is transferred to customers, persuasive evidence of an arrangement exists, which is typically upon sale of product by our customer, the price is fixed or determinable and collectibility is reasonably assured.

Our distributor arrangements provide distributors with certain product rotation rights. Additionally, we permit our distributors to return products subject to certain conditions. We establish allowances for expected product returns in accordance with SFAS No. 48. We also establish allowances for rebate payments under certain marketing programs entered into with distributors. These allowances comprise our revenue reserves and are recorded as direct reductions of revenue and accounts receivable. We make estimates of future returns and rebates based primarily on our past experience as well as the volume of products in the distributor channel, trends in distributor inventory, economic trends that might impact customer demand for our products (including the competitive environment), the economic value of the rebates being offered and other factors. In the past, actual returns and rebates have not been significantly different from our estimates. However, actual returns and rebates in any future period could differ from our estimates, which could impact the net revenue we report.

Inventory: The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of salable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products within specific time horizons, generally six to twelve months. To the extent our demand forecast for specific products is less than quantities of our product on hand and our non-cancelable orders, we could be required to record additional inventory reserves, which would have a negative impact on our gross margin. Additionally, if actual demand is higher than our demand forecast for specific products that have been fully reserved, our future margins may be higher.

Goodwill: Goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. We perform an annual review on the last day of February of each year, or more frequently if indicators of potential impairment exist, to determine if the recorded goodwill is impaired. Our impairment review process compares the fair value of our segments (which we have determined to be our reporting units) to their carrying value, including the goodwill related to the segments. To determine the fair value, our review process uses the income, or discounted cash flows approach and the market approach, which utilizes comparable companies' data. The discounted future cash flow approach uses estimates including the following for each segment: revenue, based on assumed market growth rates and our assumed market share; estimated costs; and appropriate discount rates based on the particular business's weighted average cost of capital. Our estimates of market segment growth, our market segment share and costs are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying businesses. Our business consists of both established and emerging technologies and our forecasts for emerging technologies are based upon internal estimates and external sources rather than historical information. If future forecasts are revised, they may indicate or require future impairment charges. We also considered our market capitalization on the dates of our impairment tests under SFAS 142, in determining the fair value of the respective

businesses. If the carrying amount of the reporting unit, which is at our segment level, exceeds its implied fair value, goodwill is considered impaired and a second step is performed to measure the amount of the impairment loss, if any. In fiscal 2006, we performed an assessment of the recoverability of goodwill in connection with the reorganization of our segments and determined that goodwill was impaired. As a result, we recorded an impairment charge and wrote-off our entire balance of goodwill of $90.6 million in the second quarter of 2006. We also performed our annual goodwill impairment test in the fourth quarter of fiscal 2005 and determined that goodwill was impaired. As a result, we recorded an impairment charge of $52.3 million in fiscal 2005 related to our former Channel segment.

The discounted cash flow approach for estimating the fair value is dependent on a number of factors including estimates of future market growth, forecasted revenue and costs, expected periods the assets will be utilized and appropriate discount rates used to calculate the discounted cash flow. Our fair value estimates, as well as the allocation of net assets to reporting units, are based on assumptions we believe to be reasonable but which are unpredictable and inherently uncertain and, as a result, actual results may differ from those estimates.

Income Taxes: We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

We must assess the likelihood that we will be able to recover our deferred tax assets. We consider historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable. As a result of our analysis of expected future income at March 31, 2005, it was considered more likely than not that a valuation allowance for all U.S. deferred tax assets was required, resulting in a $67.9 million charge included in our tax provision. At March 31, 2006, the valuation allowance against our deferred tax assets totaled $91.5 million.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes and related interest will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be. Tax related liabilities were released generating a net tax benefit of $26.4 million and $6.3 million in fiscal 2005 and fiscal 2004, respectively. For a discussion of current tax matters, see Note 12 in the Notes to Consolidated Financial Statements.

Acquisitions and Other Major Transactions

We are continually exploring strategic acquisitions to build upon our existing library of intellectual property and enhance our technological leadership in the markets where we operate.

Fiscal 2006

Dispositions

On December 23, 2005, we entered into a three-year contract manufacturing agreement with Sanmina-SCI whereby Sanmina-SCI, upon the closing of the transaction on January 9, 2006, assumed manufacturing operations of a majority of Adaptec products. In addition, we sold certain manufacturing assets, buildings and improvements and inventory located in Singapore with respect to printed circuit board assemblies and storage system manufacturing operations to Sanmina-SCI for $26.6 million (net of closing costs of $0.6 million) resulting, in a loss on disposal of assets of $1.6 million that was recorded in "Other charges (gains)" on the Consolidated Statements of Operations.

On September 30, 2005, we sold our IBM i/p Series RAID business to IBM for approximately $22.0 million plus $1.3 million for certain fixed assets. In addition, IBM purchased certain related inventory at our net book value of $0.8 million. We also granted IBM a nonexclusive license to certain intellectual property and sold to IBM substantially all of the assets dedicated to the engineering and manufacturing of RAID controllers and connectivity products for the IBM i/p Series RAID business. Under the terms of the nonexclusive license, IBM will pay us royalties for the sale of our board-level products over the next six quarters, which will be recognized as contingent consideration in discontinued operations when earned. In fiscal 2006, we received royalties of $5.6 million, which we recorded in "Income (loss) from disposal of discontinued operations, net of taxes," in the Consolidated Statements of Operations.

On September 29, 2005, our Board of Directors approved management's recommendation to divest our systems business, which includes substantially all of the operating assets and cash flows that were obtained through the Snap Appliance and Eurologic Systems acquisitions, as well as internally developed hardware and software. In connection with this action, we have classified the systems business as a discontinued operation in our consolidated financial statements. Accordingly, we have reclassified the underlying Consolidated Statements of Operations and Consolidated Statements of Cash Flows and related disclosures for all periods presented to reflect this business as part of discontinued operations.

On January 31, 2006, we signed a definitive agreement with Sanmina-SCI Corporation and its wholly owned subsidiary, Sanmina-SCI USA, Inc., for the sale of our OEM block-based systems business for $14.5 million, of which $5.0 million will be received over the next two years. In addition, Sanmina-SCI USA agreed to pay us contingent consideration of up to an additional $12.0 million if certain revenue levels are achieved over a three-year period. We recognized a gain of $12.1 million was recognized on the disposal of the OEM block-based systems business.

Fiscal 2005

Acquisitions

During the first quarter of fiscal 2005, we purchased the IBM i/p Series RAID business. During the second quarter of fiscal 2005, we purchased Snap Appliance. Accordingly, the estimated fair value of assets acquired and liabilities assumed in the acquisitions and the results of operations of the acquired entities were included in our consolidated financial statements as of the respective effective dates of the acquisitions. There were no significant differences between our accounting policies and those of the IBM i/p Series RAID business and Snap Appliance. However, as a result of the sale of the IBM i/p Series RAID business and our plan to divest our systems business, the assets expected to be sold have been reclassified as Assets and Liabilities of Discontinued Operations on the Consolidated Balance Sheet at March 31, 2006 and the related operations have been reclassified to "Income (loss) from discontinued operations, net of taxes" on the Consolidated Statements of Operations, as discussed in Note 2.

IBM i/p Series RAID: On June 29, 2004, we completed the acquisition of IBM's i/p Series RAID component business line consisting of certain purchased RAID data protection intellectual property,

semiconductor designs and assets, and licensed from IBM related RAID intellectual property. The licensing agreement granted us the right to use IBM's RAID technology and embedded Power PC technology for our internal and external RAID products to be sold to IBM and other customers. In conjunction with the acquisition, we also entered into a three-year exclusive product supply agreement under which we will supply RAID software, firmware and hardware to IBM for use in IBM's iSeries and pSeries servers. We also entered into an agreement for IBM to provide silicon wafer manufacturing processing services to us for the term of the supply agreement at agreed upon rates.

The final purchase price totaled $49.3 million, which consists of a cash payment to IBM of $47.5 million, warrants valued at $1.1 million, net of registration costs, and transaction costs of $0.7 million. This purchase price included a final adjustment of $0.2 million in the first quarter of fiscal 2006 to both goodwill and acquisition costs. In connection with the acquisition, we issued to IBM a warrant to purchase 250,000 shares of our common stock at an exercise price of $8.13 per share. The warrant has a term of 5 years from the date of issuance and is immediately exercisable. The warrant was valued using the Black-Scholes valuation model using a volatility rate of 62%, a risk-free interest rate of 3.9% and an estimated life of 5 years. The transaction costs consisted primarily of legal, valuation and other fees.

Snap Appliance: On July 23, 2004, we completed the acquisition of Snap Appliance, a provider of NAS products, to expand our product offerings in the external storage market and to deliver cost-effective, scalable and easy-to-use DAS, NAS, Fibre Channel and IP-based SAN products from the workgroup to the data center. The final purchase price was $83.7 million, consisting of $76.7 million in cash and transaction fees and $7.0 million related to the fair value of assumed stock options to purchase 1.2 million shares of our common stock. This purchase price included a final adjustment of $0.7 million in the first quarter of fiscal 2006 to both goodwill and acquisitions costs. The assumed stock options were valued using the Black-Scholes valuation model with the following assumptions: volatility rate of 58%; a risk-free interest rate of 2.6%; and an estimated life of 2.25 years.

Of the total assumed stock options, stock options to purchase approximately 0.7 million shares of our common stock, with exercise prices ranging between $1.42 and $5.66 per share, were unvested, which we refer to as the Snap Unvested Options. The Snap Unvested Options have a ten-year term and vest primarily over four years from the date of grant. The intrinsic value of the Snap Unvested Options of $3.6 million was accounted for as deferred stock-based compensation and is being recognized as compensation expense over the related vesting periods.

In addition, a management incentive program was established to pay former employees of Snap Appliance cash payments totaling $13.8 million, which is being paid, contingent upon their employment with us, over a two-year period through the second quarter of fiscal 2007. Payments under the management incentive program will be expensed as employees meet their employment obligations or are recorded as part of the Snap Appliance acquisition-related restructuring for involuntarily terminations by us. In fiscal 2005, the Consolidated Statements of Operations included compensation expense related to the management incentive program of $5.7 million and an additional $1.4 million was originally accrued in the Snap Appliance acquisition-related restructuring. Any amounts outstanding as of the completion of the sale of the systems business, which includes Snap Applicance, will be accelerated.

A portion of the Snap Appliance acquisition price totaling $5.4 million was held back, and in connection with the management incentive program, $1.3 million will be held back for a total of $6.7 million, also referred to as the Snap Appliance Holdback, for unknown liabilities that may have existed as of the acquisition date. The Snap Appliance Holdback was to be paid in the second quarter of fiscal 2006, except for funds necessary to provide for any pending claims: we have asserted claims against the holdback totaling approximately $3.0 million.

Acquisition-Related Restructuring: During the first quarter of fiscal 2006, we finalized our Snap Appliance integration plan to eliminate certain duplicative resources, including severance and benefits in connection with the involuntary termination of approximately 24 employees, exiting duplicative facilities

and disposing of duplicative assets. The acquisition-related restructuring liabilities were accounted for under EITF No. 95-3 and therefore were included in the purchase price allocation. We recorded a total liability of $6.7 million for these activities, of which the original estimate of $6.0 million was recorded in the second quarter of fiscal 2005 and total adjustments of $0.7 million were recorded in each subsequent quarter through the first quarter of fiscal 2006. Any further changes to our finalized plan will be accounted for under SFAS No. 146 and will be recorded in "Discontinued operations, net of taxes" in the Consolidated Statements of Operations. In the third quarter of fiscal 2006, we recorded additional adjustments of $0.2 million due to additional lease costs related to the estimated loss of facilities that we subleased. As of March 31, 2006, we had utilized $4.4 million of these charges. We anticipate that the remaining restructuring reserve balance of $2.5 million will be paid out by the third quarter of fiscal 2012, primarily related to long-term facility leases.

IBM Distribution Agreement

In December 2004, we entered into a distribution agreement with IBM for our RAID controllers and connectivity products sold for IBM's iSeries and pSeries servers. The agreement was made through an amendment to our existing i/p Series RAID supply and intellectual property agreement entered into in June 2004 (See Note 17). The distribution agreement was accounted for as a standalone transaction as it was not contemplated at the time we entered into the original IBM i/p Series RAID transaction.

On September 30, 2005, we sold the IBM i/p Series RAID business to IBM. As a result the distribution agreement was cancelled as part of the sale.

Fiscal 2004

Acquisitions

During the first quarter of fiscal 2004, we purchased Eurologic and ICP vortex. During the fourth quarter of fiscal 2004, we purchased Elipsan. Accordingly, the estimated fair value of assets acquired and liabilities assumed in the acquisitions and the results of operations of the acquired entities were included in our consolidated financial statements as of the respective effective dates of the acquisitions. There were no significant differences between our accounting policies and those of Eurologic, ICP vortex or Elipsan. However, as a result of our plan to divest the systems business, which includes Eurologic, the assets expected to be sold have been reclassified as Assets and Liabilities of Discontinued Operations on the Consolidated Balance Sheet at March 31, 2006 and the related operations have been reclassified to "Income (loss) from discontinued operations, net of taxes" on the Consolidated Statements of Operations, as discussed in Note 2.

Eurologic: On April 2, 2003, we completed the acquisition of Eurologic, a provider of external and networked storage products. We acquired Eurologic to further enhance our direct-attached and fibre-attached server storage capabilities by allowing us to provide end-to-end block- and file-based networked storage products. As consideration for the acquisition of all of the outstanding capital stock of Eurologic, we paid $25.6 million in cash, subject to a Holdback as described below, and assumed stock options to purchase 0.5 million shares of our common stock, with a fair value of $1.6 million. We also incurred $1.1 million in transaction fees, including legal, valuation and accounting fees. The assumed stock options were valued using the Black-Scholes valuation model with the following assumptions: volatility rate ranging from 57% to 81%; a risk-free interest rate ranging from 1.1% to 2.5%; and an estimated life ranging from 0.08 to 4 years.

Eurologic Holdback: As part of the Eurologic purchase agreement, $3.8 million of the cash payment was held back, also known as the Holdback, for unknown liabilities that may have existed as of the acquisition date. The Holdback, which was included as part of the purchase price, was included in "Accrued liabilities" in the Consolidated Balance Sheet as of March 31, 2005 and was to be paid to the former Eurologic stockholders 18 months after the acquisition closing date, except for funds necessary to

provide for any pending claims. We paid $2.3 million of the Holdback as of March 31, 2005 and have asserted claims against the remaining amount for liabilities of which we became aware following the consummation of the transaction. The former Eurologic stockholders have disputed these claims and have requested release of the remaining Holdback.

Eurologic Earn-out Payments: We also agreed to pay the stockholders of Eurologic contingent consideration of up to $10.0 million in cash if certain revenue levels were achieved by the acquired Eurologic business in the period from July 1, 2003 through June 30, 2004. The milestone to achieve the contingent consideration was not attained as of June 30, 2004. As a result, no additional payments were made to former stockholders of Eurologic.

Eurologic Acquisition-Related Restructuring: During the fourth quarter of fiscal 2004, we finalized our plans to integrate the Eurologic operations. The integration plan included the involuntary termination or relocation of approximately 110 employees, exiting duplicative facilities and the transition of all manufacturing operations from Dublin, Ireland to our manufacturing facility in Singapore. The consolidation of the manufacturing operations as well as involuntary employee terminations was completed in the fourth quarter of fiscal 2004. The acquisition-related restructuring liabilities were accounted for under EITF No. 95-3 and therefore were included in the purchase price allocation of the cost to acquire Eurologic. We recorded a liability of $3.3 million in fiscal 2004 for these activities. As of December 31, 2004, we utilized all of these charges and the plan is materially complete.

ICP vortex: On June 5, 2003, we completed the acquisition of ICP vortex. ICP vortex was a wholly-owned subsidiary of Intel Corporation and provided a broad range of hardware and software RAID data protection products, including SCSI, SATA and fibre channel products. The final purchase price was $14.5 million in cash, which included $0.3 million in transaction fees, consisting of legal, valuation and accounting fees. This purchase price included a final adjustment of $0.1 million in the first quarter of fiscal 2005 to both goodwill and acquisitions costs.

During the first quarter of fiscal 2005, we finalized our plans to integrate the ICP vortex operations. The integration plan included the involuntary termination of 19 employees, the transfer of manufacturing operations to Singapore and the integration of certain duplicative resources. The acquisition-related restructuring liabilities were accounted for under EITF No. 95-3 and therefore were included in the purchase price allocation of the cost to acquire ICP vortex. In fiscal 2004, we recorded a liability of $0.4 million for severance and benefits, of which $0.3 million of these charges were utilized and $0.1 million was recorded as a reduction to the restructuring liability with a corresponding decrease to goodwill in the first quarter of fiscal 2005.

Elipsan: On February 13, 2004, we completed the acquisition of Elipsan, a provider of networked storage infrastructure software. Elipsan's storage virtualization technology was acquired to enable us to make storage more cost-effective, easier to scale, and to increase performance across multiple RAID subsystems. The final purchase price was $19.4 million in cash, which included $0.7 million in transaction fees, consisting of legal, valuation and accounting fees. The purchase price included a final adjustment of $0.8 million in fiscal 2005, primarily related to the reversal of the acquisition-related restructuring reserves of approximately $0.7 million.

Elipsan Holdback: As part of the Elipsan purchase agreement, $2.0 million of the cash payment was held back, also known as the Elipsan Holdback, for unknown liabilities that may have existed as of the acquisition date. The Elipsan Holdback of $2.0 million was paid in the second quarter of fiscal 2006.

Elipsan Acquisition-Related Restructuring: During the fourth quarter of fiscal 2005, we finalized our plans related to the integration of the Elipsan operations. The plan included the integration of certain duplicative resources, related to both severance and benefits in connection with the involuntary termination or relocation of employees and, accordingly, recorded a $0.8 million reserve as of March 31,

2004. In fiscal 2005, we recorded an adjustment of $0.7 million as a reduction to the liability with a corresponding decrease to goodwill, as we intend to retain these employees. The acquisition-related restructuring liabilities were accounted for under EITF No. 95-3 and therefore were included in the purchase price allocation of the cost to acquire Elipsan. As of March 31, 2005, we made payments of approximately $25,000 under the plan. We anticipate that the remaining restructuring reserve balance of approximately $45,000 will be paid out by the second quarter of fiscal 2007.

Recent Accounting Pronouncements

In June 2005, the FASB issued SFAS No. 154, which changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS No. 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the statement does not change the transition provisions of any existing accounting pronouncements. Our results of operations and financial condition will only be impacted following the adoption of SFAS No. 154 if we implement changes in accounting principles that are addressed by the standard or correct accounting errors in future periods.

In December 2004, the FASB issued SFAS No. 123(R). This statement replaces SFAS No. 123, amends SFAS No. 95 and supersedes APB Opinion No. 25. SFAS No. 123(R) requires companies to apply a fair-value based measurement method in accounting for share-based payment transactions with employees and to record compensation expense for all stock awards granted and to awards modified, repurchased or cancelled after the required effective date. In addition, we are required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. In April 2005, the SEC approved that SFAS No. 123(R) will be effective for annual periods, as opposed to interim periods as originally issued by the FASB, beginning after June 15, 2005. In March 2005, the SEC issued SAB 107, which offers guidance on SFAS No. 123(R). SAB 107 was issued to assist preparers by simplifying some of the implementation challenges of SFAS No. 123(R) while enhancing the information that investors receive. We intend to use the modified prospective method, which will result in a significant increase to expenses on our consolidated financial statements beginning April 1, 2006. We cannot currently quantify the impact of the adoption of SFAS No. 123(R) and SAB 107 as it will depend on the amount of share-based payments that we grant in the future as well as other variables that affect the fair market value estimates which cannot be forecasted at this time. The pro forma disclosures of the impact of SFAS No. 123 provided in Note 1 of the Notes to the Consolidated Financial Statements may not be representative of the impact of adopting this statement.

In June 2005, the FASB issued FSP 143-1, which provides guidance in accounting for obligations associated with Directive 2002/96/EC (the "Directive") on Waste Electrical and Electronic Equipment adopted by the European Union. FSP 143-1 is required to be applied to the later of the first period ending after June 6, 2005 or the date of the Directive's adoption into law by the applicable EU member countries in which we have significant operations. The Directive distinguishes between "new" and "historical" waste. New waste relates to products put on the market after August 13, 2005. FSP 143-1 directs commercial users to apply the provisions of SFAS No. 143 and the related FIN No. 47 for the measurement and recognition of the liability and asset retirement obligation associated with the historical waste management requirements of the Directive. Additonally, FSP 143-1 provides guidance for the accounting by producers for the financing of the obligations of historical waste held by private households. We expect to adopt FSP 143-1 in fiscal 2007. We are continuing to analyze the impact of the Directive and FSP 143-1 on our financial position and results of operations.

In November 2005, the FASB issued FSP 115-1 and FAS 124-1, which clarifies when an investment is considered impaired, whether the impairment is other than temporary, and the measurement of an

impairment loss. It also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certaindisclosures about unrealized losses that have not been recognized as other-than-temporary impairments. FSP 115-1 and FAS 124-1 are effective for all reporting periods beginning after December 15, 2005. At March 31, 2006, none of our unrealized investment losses were recognized as other-than-temporary impairments in our available-for-securities. We do not believe FSP 115-1 and FAS 124-1 will have a material effect on our consolidated financial position, results of operations or cash flow.

In November 2004, the FASB issued SFAS No. 151, which clarifies the accounting for abnormal amounts of facility expense, freight, handling costs and wasted materials (spoilage) to require them to be recognized as current-period charges. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted. The adoption of this standard is not expected to have a material impact on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our exposure to market risk for a change in interest rates relates primarily to our investment portfolio. As of March 31, 2006, our available-for-sale debt investments, excluding those classified as cash equivalents, totaled $430.0 million (see Note 3 of the Notes to Consolidated Financial Statements) and included corporate obligations, commercial paper, other debt securities, municipal bonds and United States government securities, all of which are of high investment grade. They are subject to interest rate risk and will decline in value if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from levels as of March 31, 2006, the decline in the fair value of the portfolio would not be material to our financial position. Declines in interest rates will, over time, reduce our interest income.

Equity Price Risk

We consider our direct exposure to equity price risk to be minimal. We invest in technology companies through two venture capital funds. As of March 31, 2006, the carrying value of such investments aggregated $2.9 million. We monitor our equity investments on a periodic basis. In the event that the carrying value of our equity investments exceeds their fair value, and the decline in value is determined to be other-than-temporary, the carrying value is reduced to its current fair value.

Foreign Currency Risk

We translate foreign currencies into U.S dollars for reporting purposes; currency fluctuations can have an impact on our results. For all three fiscal years presented there was an immaterial currency exchange impact from our intercompany transactions. In the past, we have entered into forward exchange contracts to hedge certain firm commitments denominated into foreign currencies. Forward exchange contracts are denominated in the same currency as the underlying transaction and the terms of the forward foreign exchange contracts generally match the terms of the underlying transactions. The amount of local currency obligations settled in any period is not significant to our cash flows or results of operations, although we continuously monitor the amount and timing of those obligations. As there were no forward exchange contracts outstanding as of March 31, 2006 and 2005, the effect of an immediate 10% change in exchange rates on forward exchange contracts would not have affected our financial position or results of operations.

Item 8. Financial Statements and Supplementary Data

See the index appearing under Item 15(a)(1) on page 55 of this Annual Report on Form 10-K for the Consolidated Financial Statements at March 31, 2006 and 2005 and for each of the three years in the period ended March 31, 2006 and the Report of Independent Registered Public Accounting Firm.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), we conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, our CEO and our CFO have concluded that the design and operation of our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2006, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included evaluation of such elements as the design and operating effectiveness of financial reporting controls, process documentation, accounting policies, and our overall control environment. We reviewed the results of management's assessment with the Audit Committee of our Board of Directors.

Based on our assessment, management has concluded that our internal control over financial reporting was effective as of March 31, 2006.

Our assessment of the effectiveness of our internal control over financial reporting as of March 31, 2006, has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report which is included herein.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the

fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Item 9B. Other Information

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

Information with respect to our directors is incorporated by reference from the information under the caption: "Proposal No. 1—Election of Directors" in our definitive Proxy Statement for our Annual Meeting of Stockholders or the Proxy Statement. Information regarding the compliance by our directors, executive officers and 10% or greater stockholders with Section 16(a) of the Exchange Act is incorporated by reference from the information under the caption: "Section 16(a) Beneficial Ownership Reporting Compliance" from our Proxy Statement. Information with respect to our executive officers is included in Item 4A of Part I of this Annual Report on Form 10-K under the heading "Executive Officers."

Adaptec maintains a Code of Business Conduct, Ethics, and Compliance, which incorporates our code of ethics that is applicable to all employees, including all officers, and including our independent directors who are not employees of Adaptec, with regard to their Adaptec-related activities. The Code of Business Conduct, Ethics, and Compliance incorporates our guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. It also incorporates our expectations of our employees that enable us to provide accurate and timely disclosure in our filings with the Securities and Exchange Commission and other public communications. In addition, it incorporates Adaptec guidelines pertaining to topics such as health and safety compliance; diversity and non-discrimination; supplier expectations; and privacy.

The full text of our Code of Business Conduct, Ethics, and Compliance is published on our Investor Relations web site at www.adaptec.com. We will post any amendments to the Code of Business Conduct, Ethics, and Compliance, as well as any waivers that are required to be disclosed by the rules of either the SEC or The Nasdaq Stock Market, on our website.

Item 11. Executive Compensation

Information with respect to executive compensation is incorporated by reference from the information under the caption "Executive Compensation," "Compensation Committee Interlocks and Insider Participation" and "Report on Executive Compensation" in our Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information with respect to the securities authorized for issuance under our equity compensation plans and the security ownership of our common stock by our directors, executive officers and 5% stockholders is incorporated by reference from the information under the captions: "Executive Compensation—Equity Compensation Plan Information" and "Stock Ownership of Principal Stockholders and Management" in our Proxy Statement.

Item 13. Certain Relationships and Related Transactions

Information with respect to certain relationships of our directors, executive officers and 5% stockholders and related transactions is incorporated by reference from the information under the caption: "Certain Relationships and Related Party Transactions" in our Proxy Statement.

Item 14. Principal Accountant Fees and Services

Information with respect to principal independent registered public accounting firm fees and services is incorporated by reference from the information under the caption "Proposal No. 3—Ratification of Appointment of Independent Registered Public Accounting Firm" and "Fees Paid to PricewaterhouseCoopers" in our Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a): The following documents are filed as a part of this Annual Report on Form 10-K:
1.: Index to Financial Statements:

The following Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm are contained in this Annual Report on Form 10-K:

		Page
Consolidated Statements of Operations—Fiscal Years Ended March 31, 2006, 2005 and 2004		F-1
Consolidated Balance Sheets at March 31, 2006 and 2005		F-2
Consolidated Statements of Cash Flows—Fiscal Years Ended March 31, 2006, 2005 and 2004		F-3
Consolidated Statements of Stockholders' Equity—Fiscal Years Ended March 31, 2006, 2005 and 2004		F-4
Notes to Consolidated Financial Statements		F-5
Report of Independent Registered Public Accounting Firm		F-59

2. Financial Statement Schedule:

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 2006, 2005 AND 2004

		Balance at Beginning of Period		Additions		Deductions		Balance at End of Period
		(in thousands)
Year ended March 31, 2006
	Allowance for doubtful accounts¹	$	1,029	$	5	$	220	$	814
	Sales returns¹		4,199		12,445		11,901		4,743
	Allowances¹		10,090		14,350		18,373		6,067
Year ended March 31, 2005
	Allowance for doubtful accounts¹	$	1,269	$	132	$	372	$	1,029
	Sales returns¹		3,960		15,535		15,296		4,199
	Allowances¹		4,727		23,362		17,999		10,090
Year ended March 31, 2004
	Allowance for doubtful accounts¹	$	1,298	$	378	$	407	$	1,269
	Sales returns¹		3,904		13,112		13,056		3,960
	Allowances¹		3,930		12,286		11,489		4,727

Notes:

(1): Amounts are included in "Accounts receivable" in the Consolidated Balance Sheets.

All other schedules are omitted because they are not applicable or the amounts are immaterial or the required information is presented in the Consolidated Financial Statements and Notes thereto.

3. Exhibits:

			Incorporated by Reference
			Incorporated by Reference			Filed with this 10-K
Exhibit Number	Exhibit Description	Form	File Number	Exhibit	File Date	Filed with this 10-K
2.01	Tax Sharing Agreement between the Registrant and Roxio, Inc., dated May 5, 2001.	10-Q	000-15071	2.9	08/13/01
2.02	Agreement and Plan of Merger and Reorganization, dated July 2, 2001, by and among the Registrant, Pinehurst Acquisition Corporation and Platys Communications, Inc.	8-K	000-15071	2.1	09/07/01
2.03	Asset Purchase Agreement, dated September 30, 2005, by and between the Registrant and International Business Machines Corporation	8-K	000-15071	2.01	10/06/05
3.01	Certificate of Incorporation of Registrant filed with Delaware Secretary of State on November 19, 1997.	10-K	000-15071	3.1	06/26/98
3.02	Bylaws of Registrant, as amended on May 18, 2006.	8-K	000-15071	3.01	05/24/06
4.01	Indenture, dated as of March 5, 2002, by and between the Registrant and Wells Fargo Bank, National Association.	S-3	333-89666	4.04	06/03/02
4.02	Form of 3% Convertible Subordinated Note.	S-3	333-89666	4.05	06/03/02
4.03	Registration Rights Agreement, dated as of March 5, 2002, by and among the Registrant and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC and Morgan Stanley & Co. Incorporated.	S-3	333-89666	4.06	06/03/02
4.04	Collateral Pledge and Security Agreement, dated as of March 5, 2002, by and among the Registrant, Wells Fargo Bank, National Association, as trustee and Wells Fargo Bank, National Association, as collateral agent.	S-3	333-89666	4.07	06/03/02
4.05	Stock Purchase Warrant, dated March 24, 2002, issued to International Business Machines Corporation.	S-3	333-86098	4.04	04/12/02
4.06	Indenture, dated as of December 22, 2003, by and between the Registrant and Wells Fargo Bank, National Association.	10-Q	000-15071	4.01	02/09/04
4.07	Form of ³/4% Convertible Senior Subordinated Note.	10-Q	000-15071	4.02	02/09/04
4.08	Registration Rights Agreement, dated as of December 22, 2003, by and among the Registrant, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC.	10-Q	000-15071	4.03	02/09/04
4.09	Collateral Pledge and Security Agreement, dated as of December 22, 2003, by and among the Registrant, Wells Fargo Bank, National Association, as trustee, and Wells Fargo Bank, National Association, as collateral agent.	10-Q	000-15071	4.04	02/09/04

4.10		Warrant Agreement, dated as of June 29, 2004, between the Registrant and International Business Machines Corporation	S-3	333-119266	4.03	09/02/04
4.11		Warrant Agreement, dated as of August 10, 2004, between the Registrant and International Business Machines Corporation	S-3	333-119266	4.04	09/02/04
4.12		Third Amended and Restated Rights Agreement dated February 1, 2001 between the Registrant and Mellon Investor Services LLC, as Rights Agent	8-A/A	000-15071	4.1	03/20/01
10.01	†	Registrant's Savings and Retirement Plan.	10-K	000-15071	(A)	(A)
10.02	†	Second Amendment to the Registrant's Savings and Retirement Plan.	10-K	000-15071	10.02	06/14/04
10.03	†	Third Amendment to the Registrant's Savings and Retirement Plan.	10-K	000-15071	10.03	06/14/05
10.04	†	Registrant's 1986 Employee Stock Purchase Plan (amended and restated June 1998, August 2000 and August 2003).	10-Q	000-15071	10.01	11/03/03
10.05	†	1990 Stock Plan, as amended.	SC TO-I	005-38119	99.(d)(1)	05/22/01
10.06	†	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.	10-K	000-15071	(B)	(B)
10.07	†	1999 Stock Plan.	SC TO-I	005-38119	99.(d)(2)	05/22/01
10.08	†	2000 Nonstatutory Stock Option Plan and Form of Stock Option Agreement.	SC TO-I	005-38119	99.(d)(3)	05/22/01
10.09	†	1990 Directors' Option Plan and forms of Stock Option Agreement, as amended.	10-K	000-15071	10.6	06/29/99
10.10	†	2000 Director Option Plan and Form of Agreement.	10-Q	000-15071	10.1	11/06/00
10.11	*	Option Agreement I between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd. dated October 23, 1995.	10-Q	000-15071	10.1	02/09/96
10.12	*	Option Agreement II between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd. dated October 23, 1995.	10-Q	000-15071	10.2	02/09/96
10.13		Modification to Amendment to Option Agreement I & II between Taiwan Semiconductor Manufacturing Co., Ltd. and Adaptec Manufacturing (S) Pte. Ltd.	10-K	000-15071	10.17	06/29/99
10.14	*	Amendment to Option Agreements I & II between Taiwan Semiconductor Manufacturing Co., Ltd. and Adaptec Manufacturing (S) Pte. Ltd.	10-K	000-15071	10.16	06/29/99

10.15	*	Amendment No. 3 to Option Agreement II between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd.	10-K	000-15071	10.15	06/27/00
10.16	*	Amendment No. 4 to Option Agreement II between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd.	10-K	000-15071	10.15	06/26/01
10.17	*	Amendment No. 5 to Option Agreement II between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd.	10-Q	000-15071	10.01	02/11/02
10.18	†	Form of Indemnification Agreement entered into between Registrant and its officers and directors.	10-K	000-15071	10.14	06/26/98
10.19		Industrial Lease Agreement between the Registrant, as Lessee, and Jurong Town Corporation, as Lessor.	10-K	000-15071	10.16	06/28/95
10.20		Amendment to the Industrial Lease Agreement between the Registrant, as Lessee, and Jurong Town Corporation, as Lessor.	10-K	000-15071	10.20	06/14/04
10.21		License Agreement between International Business Machines Corporation and the Registrant.	10-K	000-15071	10.14	06/27/00
10.22		Amendment to License Agreement between International Business Machines Corporation and the Registrant.	10-K	000-15071	10.21	06/24/02
10.23		Asset Purchase Agreement between International Business Machines Corporation and the Registrant.	10-K	000-15071	10.22	06/24/02
10.24	*	Dell Supplier Master Purchase Agreement, dated as of September 27, 2002, by and between Dell Products L.P. and the Registrant.	8-K	000-15071	99.1	01/24/03
10.25	†	Registrant's Incentive Plan	10-Q	000-15071	10.01	08/09/04
10.26	†	Amended Registrant's Incentive Plan	10-Q	000-15071	10.01	02/07/05
10.27		Base Agreement, dated as of March 24, 2002, by and between the Registrant and International Business Machines Corporation	10-Q	000-15071	10.03	08/09/04
10.28	†	2004 Equity Incentive Plan	S-8	333-119271	4.03	09/24/04
10.29	†	Form of Stock Option Agreement under the 2004 Equity Incentive Plan	10-Q	000-15071	10.02	11/10/04
10.30	†	Form of Restricted Stock Purchase Agreement under the 2004 Equity Incentive Plan	10-Q	000-15071	10.03	11/10/04
10.31	†	Form of Restricted Stock Unit Agreement under the 2004 Equity Incentive Plan	10-Q	000-15071	10.04	11/10/04
10.32	†	Registrant's Variable Incentive Plan	10-Q	000-15071	10.05	11/10/04

10.33	†	Eurologic Systems Group Limited 1998 Share Option Plan Rules (Amended as of 1 April 2003)	S-8	333-104685	4.03	04/23/03
10.34	†	Broadband Storage, Inc. 2001 Stock Option and Restricted Stock Purchase Plan	S-8	333-118090	4.03	08/10/04
10.35	†	Snap Appliance, Inc. 2002 Stock Option and Restricted Stock Purchase Plan	S-8	333-118090	4.04	08/10/04
10.36	†	Chairman of the Board Compensation Arrangement	10-K	000-15071	10.41	06/14/05
10.37	†	Stargate Solutions, Inc. 1999 Incentive Stock Plan	S-8	333-69116	4.03	09/07/01
10.38	†	Separation agreement and general release for Mr. Robert N. Stephens, effective as of July 8, 2005	8-K	000-15071	10.01	07/06/05
10.39	†	Employment Agreement of Subramanian "Sundi" Sundaresh, effective as of September 21, 2005	8-K	000-15071	10.01	09/27/05
10.40	†	Employment Agreement Addendum of Mr. Subramanian Sundaresh, effective as of November 14, 2005	8-K/A	000-15071	10.01	11/17/05
10.41	†	Employment Agreement of Marcus Lowe, effective as of September 21, 2005	8-K	000-15071	10.03	09/27/05
10.42	†	2005 Deferred Compensation Plan	10-Q	000-15071	10.01	11/07/05
10.43	**	Manufacturing Services and Supply Agreement by and between the Registrant and Sanmina-SCI Corporation	10-Q	000-15071	10.1	02/07/06
10.44	**	Asset Purchase and Sale Agreement, dated as of December 23, 2005, by and among Adaptec Manufacturing (s) Pte. Ltd., Sanmina-SCI Corporation and Sanmina-SCI Systems Singapore Pte. Ltd.	10-Q	000-15071	10.2	02/07/06
10.45	**	Amendment to Manufacturing Services and Supply Agreement by and between the Registrant and Sanmina-SCI Corporation	10-Q	000-15071	10.3	02/07/06
10.46	†	Employment Agreement of Mr. Christopher O'Meara, effective as of March 21, 2006	8-K	000-15071	10.01	03/27/06
10.47	†	Form of New Indemnification Agreement entered into between Registrant and its officers and directors	8-K	000-15071	99.1	04/11/06
10.48		Adaptec Incentive Plan, Fiscal 2007	8-K	000-15071	99.01	05/24/06
10.49	**	Asset Purchase and Sale Agreement, dated as of January 31, 2006, by and among Adaptec, Inc., Sanmina-SCI Corporation and Sanmina-SCI USA, Inc.					X
21.01		Subsidiaries of Registrant.	10-K	000-15071	21.01	06/14/05
23.01		Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP.					X

31.01

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(A): Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1987.
(B): Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1993.
†: Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of said form.
*: Confidential treatment has been granted for portions of this agreement.
**: Confidential treatment has been requested for portions of this agreement.
(b): Exhibits

See Item 15(a)(3), above.

(c): Financial Statement Schedules

See Item 15(a)(2), above.

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 13, 2006	/s/ SUBRAMANIAN SUNDARESH Subramanian Sundaresh President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ SUBRAMANIAN SUNDARESH Subramanian Sundaresh	President and Chief Executive Officer (principal executive officer)	June 13, 2006
/s/ CHRISTOPHER O'MEARA Christopher O'Meara	Vice President and Chief Financial Officer (principal financial officer)	June 13, 2006
/s/ JOHN M. WESTFIELD John M. Westfield	Vice President and Corporate Controller (principal accounting officer)	June 13, 2006
/s/ CARL J. CONTI Carl J. Conti	Chairman	June 13, 2006
/s/ LUCIE J. FJELDSTAD Lucie J. Fjeldstad	Director	June 13, 2006
/s/ JOSEPH S. KENNEDY Joseph S. Kennedy	Director	June 13, 2006
/s/ ILENE H. LANG Ilene H. Lang	Director	June 13, 2006
/s/ ROBERT J. LOARIE Robert J. Loarie	Director	June 13, 2006
/s/ D. SCOTT MERCER D. Scott Mercer	Director	June 13, 2006
/s/ CHARLES J. ROBEL Charles J. Robel	Director	June 13, 2006
/s/ DR. DOUGLAS E. VAN HOUWELLING Dr. Douglas E. Van Houweling	Director	June 13, 2006

ADAPTEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

			Years Ended March 31,
			2006			2005			2004
			(in thousands, except per share amounts)
Net revenues			$	310,145		$	371,257		$	395,688
Cost of revenues				201,890			219,455			209,268

	Gross profit			108,255			151,802			186,420

Operating expenses:
	Research and development			60,895			86,479			95,610
	Selling, marketing and administrative			64,989			72,120			71,185
	Amortization of acquisition-related intangible assets			7,155			9,251			14,929
	Write-off of acquired in-process technology						—			4,000
	Restructuring charges			10,430			5,896			4,313
	Goodwill impairment			90,602			52,272			—
	Other charges (gains)			1,579			(290	)		5,977

		Total operating expenses		235,650			225,728			196,014

Loss from continuing operations				(127,395	)		(73,926	)		(9,594	)
Interest and other income				17,621			8,369			66,429
Interest expense				(3,314	)		(4,439	)		(9,424	)

Income (loss) from continuing operations before income taxes				(113,088	)		(69,996	)		47,411
Provision for (benefit from) income taxes				1,608			51,894			(30,796	)

Income (loss) from continuing operations				(114,696	)		(121,890	)		78,207
Discontinued operations, net of taxes:
	Loss from discontinued operations, net of taxes			(43,546	)		(23,216	)		(15,300	)
	Income from disposal of discontinued operations, net of taxes			9,810			—			—

Loss from discontinued operations, net of taxes				(33,736	)		(23,216	)		(15,300	)

Net income (loss)			$	(148,432	)	$	(145,106	)	$	62,907

Net income (loss) per share:
	Basic
		Continuing operations	$	(1.01	)	$	(1.10	)	$	0.72
		Discontinued operations	$	(0.30	)	$	(0.21	)	$	(0.14	)
		Net income (loss)	$	(1.31	)	$	(1.31	)	$	0.58
	Diluted
		Continuing operations	$	(1.01	)	$	(1.10	)	$	0.65
		Discontinued operations	$	(0.30	)	$	(0.21	)	$	(0.12	)
		Net income (loss)	$	(1.31	)	$	(1.31	)	$	0.53
Shares used in computing net income (loss) per share:
	Basic			113,405			110,798			108,656
	Diluted			113,405			110,798			128,807

See accompanying Notes to the Consolidated Financial Statements.

F-1

ADAPTEC, INC.
CONSOLIDATED BALANCE SHEETS

			March 31,
			2006			2005
			(in thousands, except per share amounts)
Assets
Current assets:
	Cash and cash equivalents		$	131,373		$	441,588
	Marketable securities			425,179			84,968
	Restricted cash and marketable securities			1,663			1,766
	Accounts receivable, net of allowance for doubtful accounts of $814 in 2006 and $1,029 in 2005			47,876			70,159
	Inventories			23,423			60,204
	Prepaid expenses			2,730			21,822
	Other current assets			23,504			4,259
	Current assets of discontinued operations			4,896			—

		Total current assets		660,644			684,766
Property and equipment, net				30,665			56,180
Restricted marketable securities, less current portion				3,086			4,615
Goodwill				—			91,486
Other intangible assets, net				18,471			79,457
Other long-term assets				10,073			47,002
Long-term assets of discontinued operations				14,460			—

Total assets			$	737,399		$	963,506

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	40,246		$	61,637
	Accrued liabilities			82,866			116,007
3% Convertible Subordinated Notes				10,637			—
Current liabilities of discontinued operations				4,856			—

		Total current liabilities		138,605			177,644

³/4% Convertible Senior Subordinated Notes				225,000			225,000
3% Convertible Subordinated Notes, less current portion				—			35,190
Other long-term liabilities				4,349			15,349
Commitments and contingencies (Note 7)
Stockholders' equity:
	Preferred stock; $0.001 par value
		Authorized shares, 1,000; Series A shares, 250 designated; outstanding shares, none		—			—
	Common stock; $0.001 par value
		Authorized shares, 400,000; outstanding shares, 115,467 as of March 31, 2006 and 112,339 as of March 31, 2005		115			112
	Additional paid-in capital			174,648			165,707
	Deferred stock-based compensation			(319	)		(2,416	)
	Accumulated other comprehensive income (loss), net of taxes			(2,781	)		706
	Retained earnings			197,782			346,214

		Total stockholders' equity		369,445			510,323

Total liabilities and stockholders' equity			$	737,399		$	963,506

See accompanying Notes to Consolidated Financial Statements.

F-2

ADAPTEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years Ended March 31,
			2006			2005			2004
			(in thousands)
Cash Flows From Operating Activities:
Net income (loss)				(148,432	)		(145,106	)		62,907
Add: Loss from discontinued operations, net of taxes				33,736			23,216			15,300
Income (loss) from continuing operations			$	(114,696	)	$	(121,890	)	$	78,207
Adjustments to reconcile income (loss) from continuing operataions to net cash provided by (used for) operating activities:
	Write-off of acquired in-process technology			—			—			4,000
	Non-cash charges associated with restructuring and other charges			—			109			6,082
	Stock-based compensation			302			2,873			4,078
	Loss (gain) on the sale of long-lived assets			1,579			(1,359	)		—
	Goodwill impairment			90,602			52,272			—
	Non-cash effect of tax settlement			—			(26,009	)		—
	Loss on extinguishment of debt			80			—			6,466
	Non-cash portion of DPT settlement gain			—			—			(18,256	)
	Depreciation and amortization			24,511			37,234			49,653
	Deferred income taxes			—			50,739			(24,602	)
	Income tax benefits (provision) of employees' stock transactions			—			(616	)		580
	Other non-cash items			1,267			(36	)		596
	Changes in assets and liabilities (net of acquired businesses):
		Accounts receivable		22,289			(12,546	)		14,055
		Inventories		11,529			(7,121	)		(12,313	)
		Prepaid expenses and other current assets		(5,314	)		15,710			18,439
		Other assets		(452	)		(956	)		9,449
		Accounts payable		(21,366	)		21,380			(3,077	)
		Other liabilities		(23,014	)		10,559			(21,951	)

Net Cash Provided by (Used for) Operating Activities of Continuing Operations				(12,683	)		20,343			111,406
Net Cash Provided by (Used for) Operating Activities of Discontinued Operations				5,573			(30,600	)		(16,004	)

Net Cash Provided by (Used for) Operating Activities				(7,110	)		(10,257	)		95,402

Cash Flows From Investing Activities:
Payment of holdback in connection with acquisition of Platys				—			—			(3,589	)
Payment of holdback in connection with acquisition of Eurologic				—			(2,279	)		—
Purchases of businesses, net of cash acquired				—			(65,380	)		(36,589	)
Purchases of restricted marketable securities				—			—			(7,915	)
Maturities of restricted marketable securities				1,688			2,736			6,378
Purchases of property and equipment				(7,058	)		(9,533	)		(7,572	)
Proceeds from the sale of the IBM i/p and systems business				33,630			—			—
Proceeds from the sale of the Singapore manufacturing assets				25,986			—			—
Proceeds from sale of long-lived assets				2,684			10,877			—
Purchases of marketable securities				(596,866	)		(328,167	)		(807,889	)
Sales of marketable securities				217,186			718,009			730,211
Maturities of marketable securities				37,090			77,997			114,946

Net Cash Provided by (Used for) Investing Activities of Continuing Operations				(285,660	)		404,260			(12,019	)
Net Cash Used for Investing Activities of Discontinued Operations				(1,655	)		(63,418	)		(10,847	)

Net Cash Provided by (Used for) Investing Activities				(287,315	)		340,842			(22,866	)

Cash Flows From Financing Activities:
Proceeds from the issuance of convertible notes, net of issuance costs				—			—			218,250
Repurchases and redemption of convertible notes				—			—			(298,554	)
Repurchases and redemption on long-term debt				(24,309	)		—			—
Purchase of convertible bond hedge				—			—			(64,140	)
Proceeds from issuance of warrant				—			—			30,390
Proceeds from the issuance of common stock				9,388			8,503			7,522
Installment payment on acquisition of software licenses				—			—			(3,633	)

Net Cash Provided by (Used for) Financing Activities				(14,921	)		8,503			(110,165	)

Effect of foreign currency translation on cash and cash equivalents				(869	)		37			919

Net Increase (Decrease) in Cash and Cash Equivalents				(310,215	)		339,125			(36,710	)
Cash and Cash Equivalents at Beginning of Year				441,588			102,463			139,173

Cash and Cash Equivalents at End of Year			$	131,373		$	441,588		$	102,463

See accompanying Notes to Consolidated Financial Statements.

F-3

ADAPTEC, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

			Common Stock										Accumulated Other Comprehensive Income
			Common Stock				Additional Paid-in Capital			Deferred Stock-based Compensation						Retained Earnings
			Shares		Amount		Additional Paid-in Capital			Deferred Stock-based Compensation						Retained Earnings			Total
			(in thousands)
Balance, March 31, 2003			107,894		$	108	$	178,580		$	(8,114	)	$	3,790		$	428,413		$	602,777
Components of comprehensive income:
	Net income		—			—		—			—			—			62,907			62,907
	Unrealized loss on available-for-sale investments, net of taxes		—			—		—			—			(1,709	)		—			(1,709	)
	Foreign currency translation adjustment, net of taxes		—			—		—			—			919			—			919

		Total comprehensive income, net of taxes	—																	62,117

Sale of common stock under employee stock purchase and option plans			1,926			2		7,520			—			—			—			7,522
Income tax benefits of employees' stock transactions			—			—		580			—			—			—			580
Issuance of common stock in connection with acquisitions			—			—		1,582			—			—			—			1,582
Amortization of deferred stock-based compensation			—			—		—			4,078			—			—			4,078
Adjustment of deferred stock-based compensation			(10	)		—		(1,323	)		1,323			—			—			—
Net cash paid for convertible bond hedge, warrant and related costs			—			—		(33,765	)		—			—			—			(33,765	)

Balance, March 31, 2004			109,810			110		153,174			(2,713	)		3,000			491,320			644,891
Components of comprehensive loss:
	Net loss		—			—		—			—			—			(145,106	)		(145,106	)
	Unrealized loss on available-for-sale investments, net of taxes		—			—		—			—			(2,732	)		—			(2,732	)
	Foreign currency translation adjustment, net of taxes		—			—		—			—			438			—			438

		Total comprehensive loss, net of taxes																		(147,400	)

Sale of common stock under employee stock purchase and option plans			2,514			1		8,502			—			—			—			8,503
Income tax provision of employees' stock transactions			—			—		(616	)		—			—			—			(616	)
Issuance of restricted stock			15			1		117			(118	)		—			—			—
Issuance of common stock in connection with acquisition			—			—		3,464			—			—			—			3,464
Deferred stock-based compensation								3,598			(3,598	)		—			—			—
Amortization of deferred stock-based compensation			—			—		75			3,450			—			—			3,525
Adjustment of deferred stock-based compensation			—			—		(563	)		563			—			—			—
Issuance of warrant in connection with acquisition			—			—		2,024			—			—			—			2,024
Non-cash tax settlement			—			—		(4,068	)		—			—			—			(4,068	)

Balance, March 31, 2005			112,339			112		165,707			(2,416	)		706			346,214			510,323
Components of comprehensive loss:
	Net loss		—			—		—			—			—			(148,432	)		(148,432	)
	Unrealized loss on available-for-sale investments, net of taxes		—			—		—			—			(2,687	)		—			(2,687	)
	Foreign currency translation adjustment, net of taxes		—			—		—			—			(800	)		—			(800	)

		Total comprehensive loss, net of taxes																		(151,919	)

Sale of common stock under employee stock purchase and option plans			3,131			3		9,385			—			—			—			9,388
Amortization of deferred stock-based compensation						—					1,653						—			1,653
Adjustment of deferred stock-based compensation			(3	)		—		(444	)		444			—			—			—

Balance, March 31, 2006			115,467		$	115	$	174,648		$	(319	)	$	(2,781	)	$	197,782		$	369,445

See accompanying Notes to the Consolidated Financial Statements.

F-4

ADAPTEC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Description

Adaptec, Inc. ("Adaptec" or the "Company") designs, manufactures and markets storage products and software that are easy to manage and enable organizations to move, manage and protect critical data and digital content. The Company's software and hardware products range from ASIC and RAID components to external storage arrays, and span SCSI, Serial Attached SCSI, SATA, Fibre Channel, and iSCSI technologies. Adaptec's broad range of chips, add-in cards and network storage arrays gives businesses a migration path from internal to external storage. Adaptec's products use a common management tool to simplify storage administration and reduce related costs. Adaptec products are sold through OEMs and distribution channel customers to enterprises, small and midsize businesses, government agencies, VARs, direct marketers, and retail users across geographically diverse markets.

Basis of Presentation

The consolidated financial statements include the accounts of Adaptec and all of its wholly-owned subsidiaries after elimination of intercompany transactions and balances.

The glossary of key acronyms used in the Company's industry and accounting rules and regulations referred to within the Notes are listed in alphabetical order in Note 20.

Use of Estimates and Reclassifications

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company relies on forward looking projections to estimate any potential valuation allowances required related to net deferred tax assets, inventory reserves or impairments of long-lived assets. These estimates include, among other things, the amount and timing of future revenues that are expected to come from products and services that have either recently been introduced or that are to be introduced in the future. It is reasonably possible that actual results could differ from such estimates resulting in valuation allowances of net deferred tax assets, inventory reserve charges, goodwill impairments or other charges.

Certain reclassifications have been made to prior period reported amounts to conform to the current year presentation, including reclassification of auction rate securities from cash and cash equivalents to marketable securities. Previously, such auction rate securities were classified as cash and cash equivalents. Accordingly, the Company revised its presentation to exclude from cash and cash equivalents $16.7 million of auction rate securities at March 31, 2004, and to include such amounts as marketable securities. In addition, the Company has made corresponding adjustments to the accompanying consolidated statements of cash flows to reflect the gross purchases and sales of these auction rate securities as investing activities. This reclassification resulted in a net decrease in cash used for investing activities by $6.5 million in fiscal 2004. This reclassification had no impact on previously reported results of operations, cash flows from operating activities or working capital of the Company.

In addition, as discussed in Note 2, on September 30, 2005, the Company completed the sale to International Business Machines ("IBM") of its IBM i/p Series RAID component business ("IBM i/p Series RAID Business"), and on September 29, 2005 the Company's Board of Directors approved management's recommendation to divest its systems business, which includes substantially all of the operating assets and cash flows that were obtained through the Company's acquisition of Snap Appliance,

F-5

Inc. in fiscal 2005 and Eurologic Systems Group Limited in fiscal 2004 as well as internally generated hardware and software. Both of these businesses have been accounted for as discontinued operations. Accordingly, the Company has reclassified the underlying Consolidated Statements of Operations and Consolidated Statements of Cash Flows and related disclosures for all periods presented to reflect the IBM i/p Series RAID Business and the systems business as discontinued operations. In the third quarter of fiscal 2006, in conjunction with the renegotiation of a customer supply contract, the Company decided to retain a product line that was previously classified within discontinued systems business. Accordingly, the Company has reclassified the underlying Consolidated Statements of Operations and Consolidated Statements of Cash Flows and related disclosures for all periods presented to reflect that product line as part of continuing operations.

Unless otherwise indicated and other than balance sheet amounts as of March 31, 2005, the Notes to the Consolidated Financial Statements relate to the discussion of the Company's continuing operations.

Acquisitions

In fiscal 2005, the Company purchased the IBM i/p Series RAID business and Snap Appliance, Inc. ("Snap Appliance"). In fiscal 2004, the Company purchased Eurologic Systems Group Limited ("Eurologic"), ICP vortex Computersysteme GmbH ("ICP vortex") and Elipsan Limited ("Elipsan"). Accordingly, the estimated fair value of assets acquired and liabilities assumed in the acquisitions and the results of operations of the acquired entities were included in the Company's consolidated financial statements as of the respective effective dates of the acquisitions. There were no significant differences between the Company's accounting policies and those of the IBM i/p Series RAID business, Snap Appliance, Eurologic, ICP vortex or Elipsan. See Note 17 for further discussion of the Company's acquisition activities. However, as a result of the sale of the IBM i/p Series RAID Business and the Company's plan to divest its systems business, the assets expected to be sold have been classified as Assets and Liabilities of Discontinued Operations on the Consolidated Balance Sheet at March 31, 2006 and the related operations have been reclassified to "Income (loss) from discontinued operations, net of taxes" on the Consolidated Statements of Operations, as discussed in Note 2. This reclassification is primarily related to the IBM i/p Series RAID Business, Snap Appliance and Eurologic acquisitions.

Foreign Currency Translation

For foreign subsidiaries whose functional currency is the local currency, the Company translates assets and liabilities to United States dollars using period-end exchange rates, and translates revenues and expenses using average monthly exchange rates. The resulting cumulative translation adjustments are included in "Accumulated other comprehensive income, net of taxes," a separate component of stockholders' equity in the Consolidated Balance Sheets.

For foreign subsidiaries whose functional currency is the United States dollar, certain assets and liabilities are remeasured at the period-end or historical rates as appropriate. Revenues and expenses are remeasured at the average monthly rates. Currency transaction gains and losses are recognized in current operations and have not been material to the Company's operating results for the periods presented.

Derivative Financial Instruments

The Company did not enter into forward exchange or other derivative foreign currency contracts during the fiscal years ended March 31, 2006, 2005 and 2004. The Company does not hold or issue foreign

F-6

exchange contracts for trading or speculative purposes. In connection with the issuance of its ³/4% Convertible Senior Subordinated Notes due 2023 ("³/4% Notes"), the Company entered into a derivative financial instrument to repurchase its common stock, at the Company's option, at specified prices in the future to mitigate potential dilution as a result of the conversion of the ³/4% Notes. See Note 6 for further details.

Fair Value of Financial Instruments

For certain of the Company's financial instruments, including accounts receivable and accounts payable, the carrying amounts approximate fair value due to their short maturities. The following table represents the related cost basis and the estimated fair values, which are based on quoted market prices, for the Company's publicly traded debt:

	March 31, 2006				March 31, 2005
	Cost Basis		Estimated Fair Value		Cost Basis		Estimated Fair Value
	(in thousands)
³/4% Notes	$	225,000	$	195,188	$	225,000	$	184,954
3% Convertible Subordinated Notes ("3% Notes")		10,637		10,527		35,190		34,574

Total	$	235,637	$	205,715	$	260,190	$	219,528

Cash Equivalents and Marketable Securities

Cash equivalents consist of highly liquid investments with remaining maturities of three months or less at the date of purchase. Marketable securities consist of corporate obligations, commercial paper, other debt securities, municipal bonds and United States government securities with remaining maturities beyond three months. The Company's policy is to protect the value of its investment portfolio and minimize principal risk by earning returns based on current interest rates.

Marketable securities, including equity securities, are classified as available-for-sale and are reported at fair market value and unrealized gains and losses, net of income taxes are included in "Accumulated other comprehensive income, net of taxes" as a separate component of stockholders' equity in the Consolidated Balance Sheets. The marketable securities are adjusted for amortization of premiums and discounts and such amortization is included in "Interest and other income" in the Consolidated Statements of Operations. When the fair value of an investment declines below its original cost, the Company considers all available evidence to evaluate whether the decline in value is other-than-temporary. Among other things, the Company considers the duration and extent to which the market value has declined relative to its cost basis and economic factors influencing the markets. Unrealized losses considered other-than-temporary are charged to "Interest and other income" in the Consolidated Statements of Operations in the period in which the determination is made. Gains and losses on securities sold are determined based on the average cost method and are included in "Interest and other income" in the Consolidated Statements of Operations. The Company does not hold its securities for trading or speculative purposes.

Restricted marketable securities consist of United States government securities that are required as security under both the indenture related to the 3% Notes and the indenture related to the ³/4% Notes (Note 6).

F-7

Concentration of Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, marketable securities and trade accounts receivable. The Company invests in high-credit quality investments, maintained with major financial institutions. The Company, by policy, limits the amount of credit exposure through diversification and management regularly monitors the composition of its investment portfolio for compliance with the Company's investment policies.

The Company sells its products to OEMs, distributors and retailers throughout the world. Sales to customers are predominantly denominated in United States dollars and, as a result, the Company believes its foreign currency risk is minimal. The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral from its customers. The Company maintains an allowance for doubtful accounts based upon the expected collectibility of all accounts receivable.

Two customers accounted for 28% and 18% of gross accounts receivable at March 31, 2006. Two customers accounted for 14% and 11% of gross accounts receivable at March 31, 2005. In fiscal 2006, IBM and Dell accounted for 30% and 16% of total revenues, respectively. In fiscal 2005, IBM and Dell accounted for 24% and 15% of total revenues, respectively. In fiscal 2004, IBM and Dell accounted for 21% and 12% of total revenues, respectively.

The Company currently purchases the majority of its finished products from Sanmina-SCI and if Sanmina- SCI fails to meet the Company's manufacturing needs, it would delay product shipments to the Company's customers.

The Company's industry is characterized by rapid technological change, competitive pricing pressures and cyclical market patterns. The Company's financial results are affected by a wide variety of factors, including general economic conditions worldwide, economic conditions specific to its industry, the timely implementation of new manufacturing technologies and the ability to safeguard patents and intellectual property in a rapidly evolving market. In addition, the market for its products has historically been cyclical and subject to significant economic downturns at various times. As a result, the Company may experience significant period-to-period fluctuations in future operating results due to the factors mentioned above or other factors. The Company believes that its existing sources of liquidity, including its cash, cash equivalents and investments, will be adequate to support its operating and capital investment activities for the next twelve months.

Inventories

Inventories are stated at the lower of cost or market, with cost determined on a first-in, first-out basis. The Company writes down inventories based on estimated excess and obsolete inventories determined primarily by future demand forecasts. At the point of loss recognition, a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Property and Equipment

Property and equipment are stated at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the assets. The Company capitalizes substantially all costs related to the purchase and implementation of software projects used for internal business operations. Capitalized

F-8

internal-use software costs primarily include license fees, consulting fees and any associated direct labor costs and are amortized over the estimated useful life of the asset, typically a three to five-year period.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price paid over the fair value of tangible and identifiable intangible net assets acquired in business combinations. Goodwill is reviewed annually and whenever events or circumstances occur which indicate that goodwill might be impaired. Other intangible assets, net, consist of acquisition-related intangible assets, intellectual property and warrants. Other intangible assets, net, are carried at cost less accumulated amortization. Other intangible assets are amortized over their estimated useful lives ranging from three months to seven years, reflecting the pattern in which the economic benefits of the assets are expected to be realized.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, the Company regularly performs reviews to determine if facts or circumstances are present, either internal or external, which would indicate if the carrying values of its long-lived assets are impaired. When the Company determines that the carrying value of its long-lived assets, other than goodwill, may not be recoverable based upon the existence of one or more indicators of impairment, the Company measures any impairment based on a discounted estimated future cash flows method and applying a discount rate commensurate with the risks inherent in its current business model. The impairment of long-lived assets is included in "Other charges (gains)" in the Consolidated Statements of Operations. In fiscal 2004, the Company recorded a $5.0 million charge for impairment of properties classified as assets held for sale as the carrying amount exceeded its estimated fair value less cost to sell (Note 10). In fiscal 2005, the Company recorded a gain on the sale of these properties of $2.8 million and was credited to "Other charges (gains)" in the Consolidated Statements of Operations. In 2006, the Company recorded a loss of $1.6 million on sale of its Singapore manufacturing operations in "Other charges (gains)" in the Consolidated Statement of Operations.

Stock-Based Compensation

The Company has employee and director stock compensation plans which are more fully described in Note 7. The Company accounts for stock-based compensation in accordance with APB Opinion No. 25 as interpreted by FIN 44, and complies with the disclosure provisions of SFAS No. 148, an amendment of SFAS No. 123. Under APB Opinion No. 25, compensation expense is recognized on the measurement date based on the excess, if any, of the fair value of the Company's common stock over the amount an employee must pay to acquire the common stock.

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF No. 96-18, which requires that such equity instruments be recorded at their fair value on the measurement date, which is typically the date of grant.

The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to employee and director

F-9

stock option plans, including shares issued under the Company's ESPP, collectively called "options," for all periods presented:

	Years Ended March 31,
	2006			2005			2004
	(in thousands, except per share amounts)
Net income (loss), as reported	$	(148,432	)	$	(145,106	)	$	62,907
Add: Deferred stock-based compensation expense included in reported net income (loss), net of tax		1,653			3,191			3,811
Deduct: Total stock-based compensation expense determined under the fair value-based method, net of tax		(12,826	)		(26,853	)		(25,555	)

Pro forma net income (loss)	$	(159,605	)	$	(168,768	)	$	41,163

Basic net income (loss) per share:
As reported	$	(1.31	)	$	(1.31	)	$	0.58
Pro forma	$	(1.41	)	$	(1.52	)	$	0.38
Diluted net income (loss) per share:
As reported	$	(1.31	)	$	(1.31	)	$	0.53
Pro forma	$	(1.41	)	$	(1.52	)	$	0.36

See Note 7 for a discussion of the assumptions used in the Black-Scholes option pricing model and estimated fair value of options.

Revenue Recognition

The Company recognizes revenue from the majority of its product sales, including sales to OEMs, distributors and retailers, upon shipment from the Company, provided that persuasive evidence of an arrangement exists, the price is fixed or determinable and collectibility is reasonably assured. Revenue from sales where software is essential to the functionality, is recognized when passage of title and risk of ownership is transferred to customers, persuasive evidence of an arrangement exists, which is typically upon sale of product by the customer, the price is fixed or determinable and collectibility is reasonably assured.

The Company's distributor arrangements provide distributors with certain product rotation rights. Additionally, the Company permits distributors to return products subject to certain conditions. The Company establishes allowances for expected product returns in accordance with SFAS No. 48. The Company also establishes allowances for rebate payments under certain marketing programs entered into with distributors. These allowances comprise the Company's revenue reserves and are recorded as direct reductions of revenue and accounts receivable. The Company makes estimates of future returns and rebates based primarily on its past experience as well as the volume of products in the distributor channel, trends in distributor inventory, economic trends that might impact customer demand for its products (including the competitive environment), the economic value of the rebates being offered and other factors. In the past, actual returns and rebates have not been significantly different from the Company's estimates. However, actual returns and rebates in any future period could differ from the Company's estimates, which could impact the net revenue it reports.

For products which contain software, where software is essential to the functionality of the product, or software product sales, the Company recognizes revenue in accordance with SOP No. 97-2, as amended and modified by SOP 98-9. For software sales that are considered multiple element transactions, the entire

F-10

fee from the arrangement is allocated to each respective element based on its vendor specific fair value or upon the residual method and recognized when revenue recognition criteria for each element are met. Vendor specific fair value for each element is established based on the sales price charged when the same element is sold separately or based upon a renewal rate.

Software Development Costs

The Company's policy is to capitalize software development costs incurred after technological feasibility has been demonstrated, which is determined to be the time a working model has been completed. Through March 31, 2006, costs incurred subsequent to the establishment of technological feasibility have not been significant and all software development costs have been charged to "Research and development" in the Consolidated Statements of Operations.

Income Taxes

The Company accounts for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements, but have not been reflected in the Company's taxable income. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value. The Company provides a valuation allowance to the extent that the Company does not believe it is more likely than not that it will generate sufficient taxable income in future periods to realize the benefit of its deferred tax assets. Predicting future taxable income is difficult, and requires the use of significant judgment.

Recent Accounting Pronouncements

In June 2005, the FASB issued SFAS No. 154, which changes the requirements for the accounting for, and reporting of, a change in accounting principle. Previously, most voluntary changes in accounting principles were required to be recognized by way of a cumulative effect adjustment within net income during the period of the change. SFAS No. 154 requires retrospective application to prior periods' financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements. The Company's results of operations and financial condition will only be impacted following the adoption of SFAS No. 154 if it implements changes in accounting principles that are addressed by the standard or corrects accounting errors in future periods.

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challenges of SFAS No. 123(R) while enhancing the information that investors receive. The Company intends to use the modified prospective method, which will result in a significant increase to expenses on the Company's consolidated financial statements beginning April 1, 2006. The Company cannot currently quantify the impact of the adoption of SFAS No. 123(R) and SAB 107 as it will depend on the amount of share-based payments that the Company grants in the future as well as other variables that affect the fair market value estimates which cannot be forecasted at this time. The pro forma disclosures of the impact of SFAS No. 123 provided in Note 1 may not be representative of the impact of adopting this statement.

In June 2005, the FASB issued FSP 143-1, which provides guidance in accounting for obligations associated with Directive 2002/96/EC (the "Directive") on Waste Electrical and Electronic Equipment adopted by the European Union. FSP 143-1 is required to be applied to the later of the first period ending after June 6, 2005 or the date of the Directive's adoption into law by the applicable EU member countries in which we have significant operations. The Directive distinguishes between "new" and "historical" waste. New waste relates to products put on the market after August 13, 2005. FSP 143-1 directs commercial users to apply the provisions of SFAS No. 143 and the related FIN No. 47 for the measurement and recognition of the liability and asset retirement obligation associated with the historical waste management requirements of the Directive. Additionally, FSP 143-1 provides guidance for the accounting by producers for the financing of the obligations of historical waste held by private households. We expect to adopt FSP 143-1 in fiscal 2007. We are continuing to analyze the impact of the Directive and FSP 143-1 on our financial position and results of operations.

In November 2005, the FASB issued FSP 115-1 and FAS 124-1, which clarifies when an investment is considered impaired, whether the impairment is other than temporary, and the measurement of an impairment loss. It also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. FSP 115-1 and FAS 124-1 are effective for all reporting periods beginning after December 15, 2005. At March 31, 2006, none of our unrealized investment losses were recognized as other-than-temporary impairments in our available-for-securities. We do not believe FSP 115-1 and FAS 124-1 will have a material effect on our consolidated financial position, results of operations or cash flow.

Note 2. Discontinued Operations

IBM i/p Series RAID Business:

On September 30, 2005, the Company entered into a series of arrangements with IBM pursuant to which the Company sold its IBM i/p Series RAID Business to IBM for approximately $22.0 million plus $1.3 million for certain fixed assets. In addition, IBM purchased certain related inventory at the Company's net book value of $0.8 million. Expenses incurred in the transaction primarily included costs of approximately $0.5 million for legal and accounting fees. In addition, the Company accrued $0.3 million for lease obligations. Under the terms of the agreements, the Company granted IBM a nonexclusive license to certain intellectual property and sold to IBM substantially all of the assets dedicated to the

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engineering and manufacturing of RAID controllers and connectivity products for the IBM i/p Series RAID Business. Under the terms of the nonexclusive license, IBM will pay royalties to the Company for the sale of its board-level products over the next six quarters, which will be recognized as contingent consideration in discontinued operations when earned. In fiscal 2006, the Company received royalties of $5.6 million, which the Company recorded in "Income (loss) from disposal of discontinued operations, net of taxes," in the Consolidated Statements of Operations. Through March 31, 2006, the Company had incurred a loss of $2.3 million on the disposal of the IBM i/p Series RAID Business.

Net revenues and the components of income (loss) related to the IBM i/p Series RAID business included in discontinued operations, which were previously included in the Company's DPS segment, were as follows:

	Years Ended March 31,
	2006			2005
	(in thousands)
Net revenues	$	19,734		$	26,583

Income (loss) from discontinued operations before income taxes		(14,551	)		(10,728	)
Provision for (benefit from) income taxes		(360	)		1,110

Income (loss) from discontinued operations, net of taxes	$	(14,191	)	$	(11,838	)

The components of net assets, at the time of the sale of the IBM i/p Series RAID Business, were as follows:

		September 30, 2005
		(in thousands)
Inventories		$	838
Prepaid expenses			11,139
Property and equipment, net			3,326
Other intangibles, net			10,958
Other long-term assets			24,507
Accrued liabilities			(10,051	)
Other long-term liabilities			(10,625	)

	Net assets of discontinued operations	$	30,092

Accounts receivable related to the IBM i/p Series RAID Business were not included in discontinued operations as the Company retained these assets.

Systems Business:

On September 29, 2005, the Company's Board of Directors approved management's recommendation to divest its systems business, which includes substantially all of the operating assets and cash flows that were obtained through the Snap Appliance and Eurologic Systems acquisitions as well as internally developed hardware and software. Accordingly, the Company classified the systems business as a discontinued operation in the consolidated financial statements and is actively pursuing a sale of the systems business. In the fourth quarter of fiscal 2006, the Company recorded an impairment charge of

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$10.0 million on the long-lived assets held for sale to adjust the carrying value of these assets to fair value, less cost to sell.

On January 31, 2006, the Company signed a definitive agreement with Sanmina-SCI Corporation and its wholly owned subsidiary, Sanmina-SCI USA, Inc., for the sale of the Company's OEM block-based systems business for $14.5 million, of which $5.0 million will be received over the next two years. In addition, Sanmina-SCI USA agreed to pay the Company contingent consideration of up to an additional $12.0 million if certain revenue levels are achieved over a three-year period. The Company recorded a gain of $12.1 million on the disposal of the OEM block-based systems business in the fourth quarter of fiscal 2006.

Net revenues and the components of net loss related to the systems business included in the discontinued operations, were as follows:

	Years Ended March 31,
	2006			2005			2004
	(in thousands)
Net revenues	$	65,720		$	77,150		$	57,220

Loss from discontinued operations before provision for income taxes		(29,355	)		(11,695	)		(17,477	)
Provision for (benefit from) income taxes		—			(317	)		(2,177	)

Loss from discontinued operations, net of taxes	$	(29,355	)	$	(11,378	)	$	(15,300	)

The components of net assets related to the systems business included in the discontinued operations were as follows:

		March 31, 2006
		(in thousands)
Inventories		$	4,836
Prepaid expenses			60

	Current assets of discontinued operations		4,896
Property and equipment, net			407
Other intangibles, net			14,053

	Total assets of discontinued operations		19,356
Accrued liabilities			(4,856	)

Current liabilities of discontinued operations			(4,856	)

	Net assets of discontinued operations	$	14,500

Accounts receivable related to the systems business have not been included in the assets of discontinued operations, as the Company intends to retain these assets.

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Note 3. Marketable Securities

The Company's portfolio of marketable securities at March 31, 2006 was as follows:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Available-for-Sale Marketable Securities:
Short-term deposits	$	44,278	$	—	$	—		$	44,278
Corporate obligations		146,388		—		(1,562	)		144,826
United States government securities		118,564		—		(1,254	)		117,310
Other debt securities		171,757		643		(1,096	)		171,304

Total available-for-sale securities		480,987		643		(3,912	)		477,718
Less amounts classified as cash equivalents		47,792		—		2			47,790

Total	$	433,195	$	643	$	(3,910	)	$	429,928

The Company's portfolio of marketable securities at March 31, 2005 was as follows:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Available-for-Sale Marketable Securities:
Short-term deposits	$	373,190	$	—	$	—		$	373,190
Corporate obligations		32,119		—		(443	)		31,676
United States government securities		22,864		2		(320	)		22,546
Other debt securities		43,917		160		(312	)		43,765

Total available-for-sale securities		472,090		162		(1,075	)		471,177
Less amounts classified as cash equivalents		379,828		—		—			379,828

Total	$	92,262	$	162	$	(1,075	)	$	91,349

Sales of marketable securities resulted in gross realized gains of $0.1 million, $0.6 million and $2.5 million during fiscal years 2006, 2005 and 2004, respectively. Sales of marketable securities resulted in gross realized losses of $0.7 million, $5.9 million and $1.4 million during fiscal years 2006, 2005 and 2004, respectively. In the fourth quarter of fiscal 2005, the Company repatriated $360.6 million of undistributed earnings from Singapore to the United States. In connection with this transaction, the Company liquidated $408.6 million of investments held by its Singapore subsidiary resulting in gross realized losses of $4.5 million.

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The following table summarizes the fair value and gross unrealized losses of the Company's available-for-sale marketable securities, aggregated by type of investment instrument and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2006:

	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in thousands)
Corporate obligations	$	130,549	$	(1,432	)	$	16,270	$	(132	)	$	146,819	$	(1,564	)
United States government securities		139,451		(1,323	)		11,440		(209	)	$	150,891	$	(1,532	)
Other debt securities		105,784		(704	)		8,787		(112	)	$	114,571	$	(816	)

	$	375,784	$	(3,459	)	$	36,497	$	(453	)	$	412,281	$	(3,912	)

The Company's investment portfolio consists of both corporate and government securities that have a maximum maturity of three years. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As yields increase, those securities purchased with a lower yield-at-cost show a mark-to-market unrealized loss. All unrealized losses are due to changes in interest rates and bond yields. The Company expects to realize the full value of all these investments upon maturity or sale.

The amortized cost and estimated fair value of investments in available-for-sale debt securities at March 31, 2006, by contractual maturity, were as follows:

	Available-for-Sale Debt Securities Cost		Estimated Fair Value
	(in thousands)
Mature in one year or less	$	236,169	$	235,645
Mature after one year through three years		244,818		242,073

Total	$	480,987	$	477,718

The maturities of asset-backed and mortgage-backed securities were allocated primarily based upon assumed prepayment forecasts utilizing interest rate scenarios and mortgage loan characteristics.

Note 4. Balance Sheets Details

Inventories

The components of net inventories at March 31, 2006 and 2005 were as follows:

	March 31,
	2006		2005
	(in thousands)
Raw materials	$	4,258	$	15,914
Work-in-process		4,732		7,435
Finished goods		14,433		36,855

Total	$	23,423	$	60,204

F-16

Property and Equipment

The components of property and equipment at March 31, 2006 and 2005 were as follows:

		March 31,
	Life	2006			2005
		(in thousands)
Land	—	$	8,443		$	9,537
Buildings and improvements	5-40 years		28,646			43,439
Machinery and equipment	3-5 years		50,731			83,304
Furniture and fixtures	3-7 years		55,950			64,093
Leasehold improvements	Lower of useful life or life of lease		5,840			5,547
Construction in progress			—			162

			149,610			206,082
Accumulated depreciation and amortization			(118,945	)		(149,902	)

Total		$	30,665		$	56,180

Depreciation expense was $1.6 million, $14.2 million and $19.4 million in fiscal 2006, 2005 and 2004, respectively.

Accrued Liabilities

The components of accrued liabilities at March 31, 2006 and 2005 were as follows:

	March 31,
	2006		2005
	(in thousands)
Tax related	$	46,704	$	57,538
Acquisition related		3,635		6,748
Accrued compensation and related taxes		16,235		18,304
IBM distribution agreement (Note 14)		—		11,575
Other		16,292		21,842

Total	$	82,866	$	116,007

F-17

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, net of income taxes, at March 31, 2006 and 2005 were as follows:

	March 31,
	2006			2005
	(in thousands)
Unrealized loss on marketable securities, net of tax of $— in fiscal 2006 and $— in fiscal 2005	$	(3,233	)	$	(546	)
Foreign currency translation, net of tax of $— in fiscal 2006 and $834 in fiscal 2005		452			1,252

Total	$	(2,781	)	$	706

Note 5. Goodwill and Other Intangible Assets

Goodwill

Goodwill allocated to the Company's segments and changes in the carrying amount of goodwill for fiscal 2006 was as follows:

	SSG			SNG			OEM			Channel			Total
	(in thousands)
Balance at March 31, 2004	$	22,825		$	45,667		$	—		$	—		$	68,492
Reallocation (See Note 16)		(22,825	)		(45,667	)		30,326			38,166			—
Goodwill acquired (See Note 17)		—			—			18,915			57,043			75,958
Goodwill impairment		—			—			—			(52,272	)		(52,272	)
Goodwill adjustments		—			—			(458	)		(234	)		(692	)

Balance at March 31, 2005	$	—		$	—		$	48,783		$	42,703		$	91,486
Goodwill adjustments		—			—			(166	)		(718	)		(884	)
Goodwill impairment		—			—			(48,617	)		(41,985	)		(90,602	)

Balance at March 31, 2006	$	—		$	—		$	—		$	—		$	—

Goodwill is not amortized, but instead is reviewed annually and whenever events or circumstances occur which indicate that goodwill might be impaired. Impairment of goodwill is tested at the Company's reporting unit level which is at the segment level by comparing each segment's carrying amount, including goodwill, to the fair value of that segment. To determine fair value, the Company's review process uses the income, or discounted cash flows approach and the market approach. In performing its analysis, the Company uses the best information available under the circumstances, including reasonable and supportable assumptions and projections. If the carrying amount of the segment exceeds its implied fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any.

In connection with the segment reorganization in fiscal 2006, which is discussed in Note 16, an assessment of the recoverability of goodwill was performed. As a result of this review, the Company wrote-off its entire balance of goodwill of $90.6 million in the second quarter of 2006. Factors that led to

F-18

this conclusion were industry technology changes such as the shift from parallel to serial technology and the migration of core functionality to server chipsets; required increased investments that eventually led the Company to sell the IBM i/p Series RAID Business and the proposed sale of the systems business; continued losses associated with sales of systems to IBM; and general market conditions.

Based on its annual review of goodwill in the fourth quarter of fiscal 2005, the Company recorded an impairment charge of $52.3 million related to its former Channel segment. Factors that led to this conclusion included, but were not limited to, the negative impact of estimates of expected future income associated with increased costs related to recent acquisitions and business alliances that occurred in fiscal 2005. These additional costs, along with industry technology transitions, place significant risk on the Company's ability to achieve and maintain profitability, and, therefore have adversely impacted its profitability forecasts.

Other Intangible Assets

	March 31, 2006					March 31, 2005
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
	(in thousands)
Acquisition-related intangible assets:
Patents, core and existing technologies	$	39,578	$	(29,426	)	$	74,009	$	(26,265	)
Supply agreement		—		—			7,600		(1,140	)
Customer relationships		1,047		(773	)		1,290		(631	)
Trade names		674		(635	)		10,930		(1,523	)
Foundry agreement		—		—			600		(90	)

Subtotal		41,299		(30,834	)		94,429		(29,649	)
Intellectual property assets and warrants		41,623		(33,617	)		41,942		(27,265	)

Total	$	82,922	$	(64,451	)	$	136,371	$	(56,914	)

Intellectual property assets consist of a patent license fee (Note 14), a technology license fee (Note 14), an amount allocated to a product supply agreement (Note 14) and certain intellectual property acquired in fiscal 2003.

In August 2004, the Company entered into an agreement to sell external storage products to IBM. In connection with the agreement, the Company issued IBM a warrant to purchase 250,000 shares of the Company's common stock at an exercise price of $6.94 per share. The warrant has a term of five years from the date of issuance and was immediately exercisable. The warrant was valued at $1.0 million using the Black-Scholes valuation model using a volatility rate of 62%, a risk-free interest rate of 4.0% and an estimated life of 5 years. The value of the warrant was fully expensed, as the economic benefits were not considered probable, at March 31, 2005.

Other intangible assets increased by approximately $57.0 million in fiscal 2005 as a result of the Company's acquisitions of the IBM i/p Series RAID business and Snap Appliance and an agreement entered into with IBM discussed above. Other intangible assets decreased by approximately $51.1 million in fiscal 2006 due to the sale of the Company's IBM i/p Series RAID Business, sale of a portion of its systems business and the Company's plan to divest the remainder of the systems business. Amortization of

F-19

other intangible assets was $13.8 million, $17.3 million and $22.1 million in fiscal 2006, 2005 and 2004, respectively.

The annual amortization expense of the other intangible assets as of March 31, 2006 is expected to be as follows:

	Estimated Amortization Expense
	Acquisition-related intangible assets		Intellectual property assets and warrants
	(in thousands)
Fiscal years:
2007	$	5,726	$	6,316
2008		2,533		1,691
2009		2,205		—
20010		—		—
2011 and thereafter		—		—

Total	$	10,464	$	8,007

Note 6. Convertible Notes

	March 31,
	2006		2005
	(in thousands)
³/4% Notes	$	225,000	$	225,000
3% Notes		10,637		35,190

Total	$	235,637	$	260,190

³/4% Notes: In December 2003, the Company issued $225.0 million in aggregate principal amount of ³/4% Notes due December 22, 2023. The issuance costs associated with the ³/4% Notes totaled $6.8 million and the net proceeds to the Company from the offering of the Notes were $218.2 million.

The ³/4% Notes are convertible at the option of the holders into shares of the Company's common stock, par value $0.001 per share, only under the following circumstances: (1) prior to December 22, 2021, on any date during a fiscal quarter if the closing sale price of the Company's common stock was more than 120% of the then current conversion price of the ³/4% Notes for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter, (2) on or after December 22, 2021, if the closing sale price of the Company's common stock was more than 120% of the then current conversion price of the ³/4% Notes, (3) if the Company elects to redeem the ³/4% Notes, (4) upon the occurrence of specified corporate transactions or significant distributions to holders of the Company's common stock occur or (5) subject to certain exceptions, for the five consecutive business day period following any five consecutive trading day period in which the average trading price of the ³/4% Notes was less than 98% of the average of the sale price of the Company's common stock during such five-day trading period multiplied by the ³/4% Notes then current conversion rate. Subject to the above conditions, each $1,000 principal amount of ³/4% Notes is convertible into approximately 85.4409 shares of the Company's common stock (equivalent to an initial conversion price of approximately $11.704 per share of common stock).

F-20

The Company may redeem some or all of the ³/4% Notes for cash on December 22, 2008 at a redemption price equal to 100.25% of the principal amount of the notes being redeemed, plus accrued interest to, but excluding, the redemption date. After December 22, 2008, the Company may redeem some or all of the ³/4% Notes for cash at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued interest to, but excluding, the redemption date.

Each holder of the ³/4% Notes may require the Company to purchase all or a portion of their ³/4% Notes on December 22, 2008 at a price equal to 100.25% of the ³/4% Notes to be purchased plus accrued and unpaid interest. In addition, each holder of the ³/4% Notes may require the Company to purchase all or a portion of their ³/4% Notes on December 22, 2013, on December 22, 2018 or upon the occurrence of a change of control (as defined in the Indenture governing the ³/4% Notes) at a price equal to the principal amount of ³/4% Notes being purchased plus any accrued and unpaid interest.

The Company will pay cash interest at an annual rate of ³/4% of the principal amount at issuance, payable semi-annually on June 22 and December 22 of each year, which interest payments commenced on June 22, 2004. Debt issuance costs of $6.8 million are being amortized to interest expense over 5 years. The ³/4% Notes rank senior in right of payment to the 3% Notes. The ³/4% Notes rank junior in right of payment of the 3% Notes and are subordinated to all other existing and future senior indebtedness of the Company.

In connection with the issuance of the ³/4% Notes, the Company purchased marketable securities totaling $7.9 million as security for the first ten scheduled interest payments due on the ³/4% Notes. The marketable securities, which consist of United States government securities, are reported at fair market value with unrealized gains and losses, net of income taxes, recorded in "Accumulated other comprehensive income, net of taxes" as a separate component of the stockholders' equity on the Consolidated Balance Sheets. At March 31, 2006, $1.7 million was classified as short-term marketable securities due within one year and $3.1 million was classified as long-term due within three years.

Convertible Bond Hedge and Warrant

Concurrent with the issuance of the ³/4% Notes, the Company entered into a convertible bond hedge transaction with an affiliate of one of the initial purchasers of the ³/4% Notes. Under the convertible bond hedge arrangement, the counterparty agreed to sell to the Company up to 19.2 million shares of the Company's common stock, which is the number of shares issuable upon conversion of the ³/4% Notes in full, at a price of $11.704 per share. The convertible bond hedge transaction may be settled at the Company's option, either in cash or net shares, and expires in December 2008. Settlement of the convertible bond hedge in net shares on the expiration date would result in the Company receiving a number of shares of its common stock with a value equal to the amount otherwise receivable on cash settlement. Should there be an early unwind of the convertible bond hedge transaction, the amount of cash or net shares potentially received by the Company will depend upon then existing overall market conditions, and on the Company's stock price, the volatility of the Company's stock and the amount of time remaining on the convertible bond hedge. The convertible bond hedge transaction cost of $64.1 million has been accounted for as an equity transaction in accordance with EITF No. 00-19.

During the fourth quarter of fiscal 2004, in conjunction with the issuance of the ³/4% Notes, the Company received $30.4 million from the issuance to an affiliate of one of the initial purchasers of the ³/4% Notes of a warrant to purchase up to 19.2 million shares of the Company's common stock at an exercise price of $18.56 per share. The warrant expires in December 2008. At expiration, the Company may, at its option, elect to settle the warrants on a net share basis or for cash. As of March 31, 2006, the warrant had

F-21

not been exercised and remained outstanding. The warrant was valued using the Black-Scholes valuation model using a volatility rate of 42%, risk-free interest rate of 3.6% and an expected life of 5 years. The value of the warrant of $30.4 million has been classified as equity because it meets all the equity classification criteria of EITF No. 00-19. The separate warrant and convertible bond hedge transactions have the potential of limiting the dilution associated with the conversion of the ³/4% Notes from approximately 19.2 million to as few as 12.1 million shares.

3% Notes: In March 2002, the Company issued $250 million in aggregate principal amount of 3% Notes for net proceeds of $241.9 million. The 3% Notes are due on March 5, 2007. The 3% Notes provide for semi-annual interest payments each March 5 and September 5, which interest payments commenced September 5, 2002. The holders of the 3% Notes are entitled to convert the notes into common stock at a conversion price of $15.31 per share through March 5, 2007. The 3% Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after March 9, 2005 at declining premiums to par. Debt issuance costs are amortized to interest expense ratably over the term of the 3% Notes. The Notes are subordinated to all other existing and future senior indebtedness of the Company.

In connection with the issuance of the 3% Notes, the Company purchased marketable securities totaling $21.4 million as security for the first six scheduled interest payments due on the 3% Notes. The marketable securities, which consist of United States government securities, are reported at fair market value with unrealized gains and losses, net of income taxes, recorded in "Accumulated other comprehensive income, net of taxes" as a separate component of the stockholders' equity on the Consolidated Balance Sheets. In fiscal 2004, the Company utilized a portion of the proceeds from the issuance of ³/4% Notes and repurchased $214.8 million in aggregate principal amount of the 3% Notes, resulting in a loss on extinguishment of debt of $5.7 million (including unamortized debt issuance costs of $5.0 million). Due to the partial repurchase of the 3% Notes, the restriction on $9.4 million of the restricted marketable securities lapsed. At March 31, 2006, there was no restriction on cash in connection with the remaining $10.6 million aggregate principal amount outstanding 3% Note balance.

In fiscal 2006, the Company repurchased $24.6 million in aggregate principal amount of its 3% Notes on the open market for an aggregate price of $24.3 million, resulting in a loss on extinguishment of debt of $0.1 million (including unamortized debt issuance costs of $0.3 million). The loss on extinguishment of debt has been included in "Interest and other income" in the Consolidated Statement of Operations.

Note 7. Stockholders' Equity

Employee Stock Purchase Plan: The Company has authorized 10,600,000 shares of common stock for issuance under the 1986 ESPP. Qualified employees may elect to have a certain percentage (not to exceed 10%) of their salary withheld pursuant to the ESPP. The salary withheld is then used to purchase shares of the Company's common stock at a price equal to 85% of the market value of the common stock at either the beginning of the offering period or at the end of each applicable six month purchase period, whichever is lower. During fiscal 2001, the Company amended the ESPP to extend the offering period from six months to 24 months, beginning in August 2000. Purchases are made every six months. During fiscal 2004, an additional 5,000,000 shares were added to the ESPP, making a total of 15,600,000 authorized shares under the 1986 ESPP. Under the ESPP, 1,624,000, 1,109,000 and 1,027,000 shares were issued during fiscal 2006, 2005 and 2004, respectively, representing approximately $4.5 million, $5.4 million and $5.3 million in employees' contributions, respectively.

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2004 Equity Incentive Plan: During the second quarter of fiscal 2005, the Company's Board of Directors and its stockholders approved the Company's 2004 Equity Incentive Plan and reserved for issuance thereunder 10,000,000 shares of the Company's common stock plus shares reserved but not issued under the Company's 1999 Stock Option Plan and 2000 Nonstatutory Stock Option Plan. The 2004 Equity Incentive Plan provides for granting of nonstatutory stock options, restricted stock, stock awards, restricted stock units and stock appreciation rights to employees, employee directors and consultants. Incentive stock options may also be granted to the Company's employees under the 2004 Equity Incentive Plan. As of March 31, 2006, the Company had 13,689,367 shares available for future issuance under the 2004 Equity Incentive Plan.

2000 Nonstatutory Stock Option Plan: During the third quarter of fiscal 2001, the Company's Board of Directors approved the Company's 2000 Nonstatutory Stock Option Plan and reserved for issuance thereunder 8,000,000 shares of common stock. The 2000 Nonstatutory Stock Option Plan provides for granting of stock options to non-executive officer employees of the Company at prices equal to at least 100% of the fair market value at the date of grant. Stock options granted under this plan are for periods not to exceed ten years and generally become fully vested and exercisable over a two to five-year period. Upon stockholder approval of the 2004 Equity Incentive Plan in August 2004, the 2000 Nonstatutory Stock Option Plan was terminated with respect to new option grants. There were no shares available for option grants under the 2000 Nonstatutory Stock Option Plan as of March 31, 2006.

1999 Stock Option Plan: During the second quarter of fiscal 2000, the Company's Board of Directors and its stockholders approved the Company's 1999 Stock Option Plan and reserved for issuance thereunder (a) 1,000,000 shares of common stock, plus (b) any shares of common stock reserved but ungranted under the Company's 1990 Stock Option Plan as of the date of stockholder approval, plus (c) any shares returned to the 1990 Stock Option Plan as a result of termination of options under the 1990 Stock Option Plan after the date of stockholder approval of the 1999 Stock Option Plan. The 1999 Stock Option Plan provided for granting of incentive and nonstatutory stock options to employees, consultants and directors of the Company. Options granted under this plan are for periods not to exceed ten years, and were granted at prices not less than 100% and 75% for incentive and nonstatutory stock options, respectively, of the fair market value on the date of grant. Generally, stock options become fully vested and exercisable over a four to five-year period. Upon stockholder approval of the 2004 Equity Incentive Plan in August 2004, the 1999 Stock Option Plan was terminated with respect to new option grants. There were no shares available for option grants under the 1999 Stock Option Plan at March 31, 2006.

1990 Stock Option Plan: The Company's 1990 Stock Option Plan allowed the Board of Directors to grant to employees, officers, and consultants incentive and nonstatutory options to purchase common stock or other stock rights at exercise prices not less than 50% of the fair market value of the underlying common stock on the date of grant. The expiration of options or other stock rights did not exceed ten years from the date of grant. The Company has issued all stock options under this plan at exercise prices of at least 100% of fair market value of the underlying common stock on the respective dates of grant. Generally, options vest and become exercisable over a four-year period. In March 1999, the Company amended the 1990 Stock Option Plan to permit non-employee directors of the Company to participate in this plan. Upon stockholder approval of the 1999 Stock Option Plan, the 1990 Stock Option Plan was terminated with respect to new option grants. There were no shares available for option grants under the 1990 Stock Option Plan at March 31, 2006.

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Assumed Stock Option Plans: The Company assumed the stock option plans and the outstanding stock options of certain acquired companies, which include Snap Appliance in fiscal 2005, Eurologic in fiscal 2004, Platys in fiscal 2002 and DPT in fiscal 1999. No further options may be granted under these assumed plans.

Option activity under the Company's stock option plans during fiscal years 2004, 2005 and 2006 was as follows:

			Options Outstanding
	Options Available		Shares		Weighted Average Exercise Price
Balance, March 31, 2003	6,447,410		19,100,657		$	11.69
Assumed	—		498,789			7.41
Granted	(4,530,400	)	4,530,400			7.89
Exercised	—		(895,199	)		2.51
Forfeited	—		(242,249	)		6.59
Cancelled	3,046,688		(3,046,688	)		12.33

Balance, March 31, 2004	4,963,698		19,945,710			11.09
Authorized	10,000,000		—			—
Assumed	—		1,232,489			1.50
Granted	(4,243,400	)	4,243,400			7.52
Restricted Stock Issued	(14,900	)	—			—
Exercised	—		(1,401,267	)		2.11
Forfeited	—		(194,640	)		7.98
Cancelled	3,385,795		(3,385,795	)		11.57

Balance, March 31, 2005	14,091,193		20,439,897			10.34
Granted	(7,808,670	)	7,808,670			3.70
Exercised	—		(1,529,707	)		3.20
Forfeited	—		(245,244	)		7.55
Cancelled	7,406,844		(7,406,844	)		9.15

Balance, March 31, 2006	13,689,367		19,066,772			8.69

Options exercisable at:
March 31, 2004			12,661,660		$	12.81
March 31, 2005			13,036,572			11.85
March 31, 2006			12,818,907			10.38

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The following table summarizes information about the employees' stock option plans as of March 31, 2006:

	Options Outstanding
	Options Outstanding				Options Exercisable
		Weighted Average Remaining Contractual Life			Options Exercisable
Range of Exercise Prices	Number Outstanding at 3/31/06	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at 3/31/06	Weighted Average Exercise Price
$0.18 - $0.18	52,152	4.87	$	0.18	52,152	$	0.18
$0.35 - $3.45	4,572,460	4.57		3.40	1,479,038		3.36
$3.50 - $7.03	4,182,817	4.72		5.21	2,629,508		5.12
$7.05 - $11.94	4,008,840	4.18		9.04	2,548,225		9.52
$12.20 - $3,473.67	6,250,503	2.73		14.73	6,109,984		14.79

	19,066,772	3.92		8.69	12,818,907		10.38

Stock Option Plans—Directors

The 2000 Director Stock Option Plan: During the second quarter of fiscal 2001, the Company's Board of Directors approved the Company's 2000 Director Stock Option Plan and reserved for issuance thereunder 1,000,000 shares of common stock. The 2000 Director Stock Option Plan provides for the automatic grant to non-employee directors of nonstatutory stock options to purchase common stock at the fair market value of the underlying common stock on the date of grant, which is generally the last day of each fiscal year except for the first grant to any newly elected director. Upon joining the Board of Directors, each new non-employee director receives an option to purchase 40,000 shares of the Company's common stock which vests over four years and expires ten years after the date of grant. On the last day of each fiscal year, each non-employee director receives an option to purchase 15,000 shares of the Company's common stock which vests over a one-year period and expires ten years after the date of grant. As of March 31, 2006, the Company had 233,750 shares available for future issuance under the 2000 Director Stock Option Plan.

The 1990 Directors' Stock Option Plan: The 1990 Directors' Stock Option Plan provides for the automatic grant to non-employee directors of non-statutory stock options to purchase common stock at the fair market value of the underlying common stock on the date of grant, which is generally the last day of each fiscal year except for the first grant to any newly elected director. Upon joining the Board of Directors, each new non-employee director received an option to purchase 40,000 shares of the Company's common stock which vests over four years and, prior to March 31, 1997, expired five years after the date of grant. Prior to March 31, 1997, each director received a grant at the end of each fiscal year for 10,000 shares, which vested quarterly and over a four-year period and expired five years after the date of grant. During fiscal 1997, the Company amended the 1990 Directors' Stock Option Plan such that all newly issued options expire ten years after the date of grant and all newly issued annual options vest over a one-year period. In fiscal 1999, the Company amended the 1990 Directors' Stock Option Plan to increase the annual grant to 15,000 options for the fiscal year ended March 31, 1999. Upon the approval of the 2000 Director Stock Option Plan, the 1990 Director Option Plan was terminated with respect to new grants. There were no shares available for option grants under the 1990 Directors' Stock Option Plan at March 31, 2006.

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Option activity under the directors' stock option plans during fiscal years 2004, 2005 and 2006 was as follows:

			Options Outstanding
	Options Available		Shares		Weighted Average Exercise Price
Balance, March 31, 2003	532,500		630,000		$	18.21
Granted	(160,000	)	160,000			8.74
Exercised	—		(3,750	)		6.11
Forfeited	—		(35,000	)		34.13
Cancelled	41,250		(41,250	)		9.68

Balance, March 31, 2004	413,750		710,000			15.85
Granted	(105,000	)	105,000			4.58
Exercised	—		(15,000	)		6.11
Cancelled	70,000		(70,000	)		11.00

Balance, March 31, 2005	378,750		730,000			14.89
Granted	(145,000	)	145,000			5.84
Exercised
Cancelled

Balance, March 31, 2006	233,750		875,000			13.39

Options exercisable at:
March 31, 2004			482,500		$	18.42
March 31, 2005			575,000			17.05
March 31, 2006			712,500			15.05

The following table summarizes information about the directors' stock option plans as of March 31, 2006:

	Options Outstanding
	Options Outstanding				Options Exercisable
		Weighted Average Remaining Contractual Life			Options Exercisable
Range of Exercise Prices	Number Outstanding at 3/31/06	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at 3/31/06	Weighted Average Exercise Price
$4.58 - $5.70	210,000	9.50	$	5.14	105,000	$	4.58
$6.11 - $8.67	215,000	7.25		7.12	157,500		7.19
$8.80 - $13.37	235,000	6.79		10.91	235,000		10.91
$16.25 - $41.44	175,000	4.13		26.10	175,000		26.10
$49.38 - $49.38	40,000	1.55		49.38	40,000		49.38

	875,000	6.78		13.39	712,500		15.05

Assumptions of Fair Value

Pro forma information regarding net income (loss) and net income (loss) per share is required to be determined as if the Company had accounted for the options granted pursuant to its ESPP, employees'

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stock option plans, and directors' stock option plans, collectively called "options," under the fair value method as required by SFAS No. 123. The pro forma information for fiscal 2006, 2005 and 2004 is reported in Note 1 "Summary of Significant Accounting Policies." The fair value of options granted in fiscal 2006, 2005 and 2004 as reported was estimated at the date of grant using the Black-Scholes valuation model with the following weighted average assumptions:

	ESPP						Employees' Stock Option Plans						Directors' Stock Option Plans
	2006		2005		2004		2006		2005		2004		2006		2005		2004
Expected life (in years)	1.2		1.2		1.4		2.5		2.3		2.7		2.6		1.0		1.4
Risk-free interest rate	3.8	%	2.6	%	1.5	%	4.1	%	3.1	%	1.8	%	4.6	%	3.4	%	1.3	%
Expected volatility	40	%	40	%	60	%	39	%	44	%	62	%	38	%	34	%	43	%
Dividend yield	—		—		—		—		—		—		—		—		—

The following table states the weighted average estimated fair value of its options granted or issued for all periods presented:

	2006		2005		2004
	(per share amounts)
ESPP	$	3.01	$	6.11	$	2.77
Employees' stock option plans	$	1.06	$	2.18	$	3.17
Directors' stock option plans	$	1.56	$	0.68	$	1.82

Rights Plan

The Company has reserved 250,000 shares of Series A Preferred Stock for issuance under the 1996 Rights Agreement, which was amended and restated on February 1, 2001. Under this plan, stockholders have received one preferred stock purchase right ("Right") for each outstanding share of the Company's common stock. The Rights trade automatically with shares of the Company's common stock. The Rights are not exercisable until ten days after a person or group announces the acquisition of 20% or more of the Company's outstanding common stock or the commencement of a tender offer which would result in ownership by a person or group of 20% or more of the then outstanding common stock. If one of these events occurs, stockholders, other than an acquiring person, would be entitled to exercise their rights and receive one-thousandth of a share of Series A Preferred Stock for each Right they hold at an exercise price of $180.00 per right.

The Company is entitled to redeem the Rights at $0.01 per Right anytime on or before the day following the occurrence of an acquisition or tender offer described in the preceding paragraph. This redemption period may be extended by the Company in some cases. If, prior to such redemption, the Company is acquired in a merger or other business combination, a party acquires 20% or more of the Company's common stock, a 20% stockholder engages in certain self-dealing transactions, or the Company sells 50% or more of its assets, then in lieu of receiving shares of Series A Preferred Stock for each Right held, stockholders, other than an acquiring person, would be entitled to exercise their Rights and receive from the surviving corporation, for an exercise price of $180.00 per right, common stock having a then current market value of $360.00.

The Series A Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of Series A Preferred Stock will be entitled to an aggregate dividend of 1,000 times the dividend declared per common stock. In the event of liquidation, the holders of the Series A Preferred Stock will be

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entitled to a preferential liquidation payment equal to 1,000 times the per share amount to be distributed to the holders of the common stock. Each share of Series A Preferred Stock will have 1,000 votes, voting together with the common stock. In the event of any merger, consolidation or other transaction in which the common stock is changed or exchanged, each share of Series A Preferred Stock will be entitled to receive 1,000 times the amount received per common stock. These rights are protected by customary anti-dilution provisions.

Shares Reserved for Future Issuance

As of March 31, 2006, the Company has reserved the following shares of authorized but unissued common stock:

ESPP		4,070,427
Employees' stock option plans		32,756,139
Directors' stock option plans		1,108,750
Outstanding warrants (Notes 4, 5 and 13)		19,874,203
Conversion of ³/4% Notes (Note 5)		19,224,203
Conversion of 3% Notes (Note 5)		950,721

Total		77,984,443

Note 8. Commitments and Contingencies

The Company leases certain office facilities, vehicles, and equipment under operating lease agreements that expire at various dates through fiscal 2012. As of March 31, 2006, future minimum lease payments and future sublease income under non-cancelable operating leases and subleases were as follows:

Fiscal Year:	Future Minimum Lease Payments		Future Sublease Income
	(in thousands)
2007	$	7,482	$	3,015
2008		5,897		2,323
2009		3,193		333
2010		2,059		—
2011		1,592		—
2012 and thereafter		831		—

Total	$	21,054	$	5,671

Net rent expense was approximately $3.5 million, $2.9 million and $2.6 million during fiscal 2006, 2005 and 2004, respectively.

The Company invests in technology companies through two venture capital funds, Pacven Walden Ventures V Funds and APV Technology Partners II, L.P. At March 31, 2006, the carrying value of such investments aggregated $2.9 million. The Company has also committed to provide additional funding of up to $0.2 million.

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The Company has been, or is, subject to IRS audits for its fiscal years 1994 through 2003. The fiscal 1994 through fiscal 1996 cycle, which is docketed in the United States Tax Court, was resolved in December 2001. The outcome did not have a material adverse effect on the Company's financial position or results of operations, as sufficient tax provisions had been made. The final Tax Court stipulation will be filed when the subsequent audit cycles are completed. Tax credits that were generated but not used in subsequent years may be carried back to the fiscal 1994 to 1996 audit cycle.

On December 15, 2000, the Company received a statutory notice of deficiency from the IRS with respect to its Federal income tax return for fiscal 1997. The Company filed a Petition with the United States Tax Court on March 14, 2001, contesting the asserted deficiencies. Settlement agreements have been filed with the United States Tax Court on all but one issue. The Company believes that the final outcome of all issues will not have a material adverse impact on its financial position or results of operations, as the Company believes that it has meritorious defenses against the asserted deficiencies and any proposed adjustments and that it has made sufficient tax provisions. However, the Company cannot predict with certainty how these matters will be resolved and whether it will be required to make additional payments.

In addition, the IRS is currently auditing the Company's Federal income tax returns for fiscal 1998 through fiscal 2003. In the third quarter of fiscal 2005, the Company resolved all issues for fiscal 1998 through fiscal 2001, other than the rollover impact of any potential resolution on the remaining fiscal 1997 issue and tax credits that were generated but not used in subsequent years that may be carried back. The Company believes that it has provided sufficient tax provisions for these years and the ultimate outcome of the IRS audits will not have a material adverse impact on its financial position or results of operations in future periods. However, the Company cannot predict with certainty how these matters will be resolved and whether the Company will be required to make additional tax payments.

The Company is a party to other litigation matters and claims, including those related to intellectual property, which are normal in the course of its operations, and while the results of such litigation matters and claims cannot be predicted with certainty, the Company believes that the final outcome of such matters will not have a material adverse impact on its financial position or results of operations. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, the Company's business, financial condition, results of operations and cash flows could be materially and adversely affected.

Note 9. Restructuring Charges

During fiscal years 2006, 2005 and 2004, the Company recorded restructuring charges of $10.4 million, $5.9 million and $4.3 million, respectively. All expenses, including adjustments, associated with the Company's restructuring plans are included in "Restructuring charges" in the Consolidated Statements of Operations and are not allocated to segments, but rather managed at the corporate level. The restructuring plans are discussed in detail below.

Fiscal 2006 Restructuring Plans

In the third and fourth quarters of fiscal 2006, management approved and initiated a plan to restructure the Company's operations by simplifying the Company's infrastructure. These restructuring plans eliminated certain duplicative resources in all functions of the organization worldwide, due in part, to the discontinued operations, the vacating of redundant facilities in order to reduce the Company's cost

F-29

structure, and the sale of the Company's Singapore manufacturing facility. This resulted in a restructuring charge of $7.4 million for the fourth quarter of fiscal 2006.

The following table sets forth an analysis of the components of the fiscal 2006 restructuring charge and the provision adjustment and payments made against the reserve through March 31, 2006:

	Severance And Benefits			Other Charges			Total
	(in thousands)
Restructuring provision	$	9,141		$	695		$	9,836
Cash paid		(7,956	)		(156	)		(8,112	)

Reserve balance at March 31, 2006	$	1,185		$	539		$	1,724

The Company anticipates that the remaining restructuring reserve balance of $1.7 million will be substantially paid out by the second quarter of fiscal 2008, primarily attributable to longer term lease obligations.

Fiscal 2005 Restructuring Plans

In fiscal 2005, the Company implemented restructuring plans to streamline the corporate organization, thereby reducing operating costs by consolidating duplicative resources in connection with the acquisition of Snap Appliance and the Vitesse strategic alliance and costs pertaining to estimated future obligations for non-cancelable lease payments for excess facilities in Germany and United Kingdom. This resulted in a restructuring charge of $5.8 million, of which $5.2 million related to the involuntary termination of employees in all functions of the organization and $0.6 million related to the estimated loss on the Company's facilities. During fiscal years 2006 and 2005, the Company recorded adjustments to the fiscal 2005 restructuring plan of $0.4 million and $0.2 million, respectively, related to the reduction of severance and benefits as actual results were lower than anticipated and a reduction of lease costs related to the estimated loss on the Company's facilities. As of March 31, 2006, the Company had utilized all of these charges and the plan is now complete.

Fiscal 2004 Restructuring Plans

In fiscal 2004, the Company's management implemented restructuring plans to consolidate primarily research and development resources, the involuntary termination of certain technical support, marketing and administrative personnel, the shutdown of the Company's Hudson, Wisconsin facility, and asset impairments associated with the identification of duplicative assets and facilities. As a result, the Company recorded a restructuring charge of $3.7 million, of which $3.3 million related to severance and benefits to 30 employees. The Company recorded an adjustment to the fiscal 2004 restructuring provision of $0.2 million in fiscal 2005 as a reduction of severance and benefits as actual results were lower than anticipated, offset by an adjustment of $0.6 million in fiscal 2004 related to the additional lease costs. As of March 31, 2006, the Company had utilized all of these charges and the plan is now complete.

Fiscal 2003 Restructuring Plan

In the fourth and second quarters of fiscal 2003, the Company announced restructuring programs (collectively called the fiscal 2003 restructuring provision) to reduce expenses and streamline operations and recorded a restructuring charge of $13.2 million. During fiscal years 2004 and 2003, the Company

F-30

recorded adjustments to the fiscal 2003 restructuring provision of $0.2 million and $0.1 million, respectively, related to the reduction of severance and benefits as actual results were lower than anticipated, offset by additional lease costs. As of March 31, 2004, the Company had substantially completed its execution of the fiscal 2003 restructuring provision. During fiscal 2006, the Company recorded additional adjustments to the fiscal 2003 restructuring provision of $0.2 million related to the additional lease costs. As of March 31, 2006, the remaining accrual balance of $0.1 million relates to the estimated loss related to facility in Florida through April 2008, the end of the lease term.

Fiscal 2002 Restructuring Plan

In the fourth and first quarters of fiscal 2002, the Company's management implemented restructuring plans (collectively called the fiscal 2002 restructuring provision) to reduce costs, improve operating efficiencies and tailor the Company's expenses to current revenues and recorded a restructuring charge of $10.1 million. During fiscal years 2006, 2004, 2003 and 2002, the Company recorded adjustments to the fiscal 2002 restructuring provision of $0.4 million, $0.2 million, $0.6 million and $0.4 million, respectively, related to the additional lease costs offset by a reduction of severance and benefits as actual results were lower than anticipated. As of March 31, 2006, the remaining accrual balance of $0.4 million relates to the estimated loss on a facility in Florida through the end of the lease term, which is April 2008.

Fiscal 2001 Restructuring Plan

In the fourth quarter of fiscal 2001, the Company's management implemented a restructuring plan (the fiscal 2001 restructuring provision) in response to the economic slowdown to reduce costs and improve operating efficiencies and recorded a restructuring charge of $9.9 million. During fiscal years 2003 and 2002, the Company recorded additional charges of $0.7 million and $0.3 million, respectively, related to additional lease costs and the write-off of certain manufacturing equipment that was being held for sale, which was offset by a reduction of severance and benefits as actual results were lower than anticipated. As of March 31, 2004, the Company substantially completed its execution of the 2001 restructuring provision. The remaining accrual balance relates to the estimated loss of a facility that the Company subleased in California through April 2008, the end of the lease term. The estimated loss represents the estimated future obligations for the non-cancelable lease payments, net of the estimated future sublease income. In fiscal years 2006 and 2005, the Company recorded additional adjustments of $0.2 million and $0.5 million, respectively, related to additional lease costs. As of March 31, 2006, the Company anticipates that the remaining restructuring reserve balance relating to lease obligations of $0.5 million will be substantially paid out by the first quarter of fiscal 2009.

The following table sets forth the activity in the accrued restructuring balances related to the fiscal years 2003, 2002 and 2001 restructuring plans for lease obligations at March 31, 2006:

	FY 2003 Restructuring Plan			FY 2002 Restructuring Plan			FY 2001 Restructuring Plan			Total
	(in thousands)
Reserve balance at March 31, 2005	$	56		$	271		$	966		$	1,293
Provision adjustment		154			411			238			803
Cash paid		(96	)		(290	)		(663	)		(1,049	)

Reserve balance at March 31, 2006		114			392			541			1,047

F-31

Note 10. Other Charges (Gains)

Other charges (gains) consist of asset impairment charges related to certain properties or assets and minority investments. Other charges (gains) also included charges associated with the Company's strategic alliances with ServerEngines LLP ("ServerEngines") and Vitesse. The Company recorded a gain on the sale of assets of $0.3 million in fiscal 2005 and asset impairment charges of $1.6 million and $6.0 million in fiscal years 2006 and 2004, respectively.

On December 23, 2005, the Company entered into a three-year contract manufacturing agreement with Sanmina-SCI whereby Sanmina-SCI, upon the closing of the transaction on January 9, 2006, assumed manufacturing operations of Adaptec products. In addition, the Company sold certain manufacturing assets, buildings and improvements and inventory located in Singapore to Sanmina-SCI for $26.6 million (net of closing costs of $0.6 million). In connection with this agreement, the Company recorded a loss on disposal of assets of $1.6 million that was recorded in fiscal 2006 in "Other charges (gains)" on the Consolidated Statements of Operations.

On March 16, 2005, the Company entered into a strategic alliance with ServerEngines, to develop and market the next generation IP storage products. Under the terms of the alliance, ServerEngines employed 33 of the Company's former engineering employees and licensed certain technology and acquired certain assets related to the Company's iSCSI and TCP/IP offload protocol engines. On January 26, 2005, the Company entered into a strategic alliance with Vitesse Semiconductor Corporation to develop and market the next generation Serial Attached SCSI products. Under the terms of the alliance, Vitesse employed 44 of the Company's former engineering employees and licensed certain Serial Attached SCSI technology and assets related to the Company's development of Serial Attached SCSI ROC products. As a result, the Company incurred charges in fiscal 2005 of $0.9 million and $1.6 million for severance, benefits, loss on the sale of property and equipment and legal fees associated with the ServerEngines and Vitesse alliances, respectively.

In fiscal 2004, the Company recorded an impairment charge of $5.0 million to reduce the carrying value of certain properties classified as assets held for sale to fair value less cost to sell. The Company decided to consolidate its properties in Milpitas, California to better align its business needs with existing operations and to provide more efficient use of its facilities. As a result, two owned buildings, including associated building improvements and property, plant and equipment, were classified as assets held for sale and were included in "Other current assets" in the Consolidated Balance Sheets at March 31, 2004 at their expected fair value less expected cost to sell. In October 2004, the Company completed the sale of these properties that were previously classified as held for sale. Net proceeds from the sale of the properties aggregated $9.6 million, which exceeded the Company's final revised fair value of $6.8 million. As a result, a gain on the sale of the properties of $2.8 million was recorded in fiscal 2005 as a credit to "Other charges (gains)" in the Consolidated Statements of Operations.

The Company holds minority investments in certain non-public companies. The Company regularly monitors these minority investments for impairment and records reductions in the carrying values when necessary. Circumstances that indicate an other-than-temporary decline include valuation ascribed to the issuing company in subsequent financing rounds, decreases in quoted market price and declines in operations of the issuer. The Company recorded an impairment charge of $1.0 million in fiscal 2004 related to a decline in the value of a minority investment deemed to be other-than-temporary.

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Note 11. Interest and Other Income

The components of interest and other income for all periods presented were as follows:

	Years Ended March 31,
	2006			2005			2004
	(in thousands)
Interest income	$	16,861		$	11,799		$	19,197
Gain on settlement with former president of DPT		—			—			49,256
Payment of license fee with NSE		—			(1,692	)		—
Realized loss on repatriation (Note 3)		—			(4,466	)		—
Gain (loss) on extinguishment of debt, net (Note 6)		(79	)		—			(6,466	)
Foreign currency transaction gains (losses)		(301	)		692			1,342
Interest on tax refunds		—			691			1,164
Other		1,140			1,345			1,936

Total	$	17,621		$	8,369		$	66,429

In June 2004, the Company, Nevada SCSI Enterprises, Inc. and Thomas A. Gafford (jointly, "NSE") entered into a license and release agreement, pursuant to which the Company paid NSE $1.3 million as a one-time, fully paid-up license fee to settle NSE's claims that some of the Company's products infringed certain patents. The license and release agreement expressly excluded any sales of products made by Eurologic prior to the Company's April 2003 acquisition of Eurologic. In November 2004, the Company exercised its option to secure a license and release with respect to such Eurologic sales by payment to NSE of a royalty fee of $0.4 million. The Company has filed a claim against the Eurologic acquisition Holdback for the $0.4 million royalty it paid with respect to Eurologic's pre-acquisition sales. The Eurologic shareholders are disputing the Company's right to withhold the $0.4 million from the Holdback.

In December 1999, the Company purchased Distributed Processing Technology Corporation ("DPT"). As part of the purchase agreement, $18.5 million of the purchase price was held back ("Holdback Amount") from former DPT stockholders for unknown liabilities that may have existed as of the acquisition date. The Holdback Amount was included in "Accrued liabilities" in the Consolidated Balance Sheet at March 31, 2003. Subsequent to the date of purchase, the Company determined that certain representations and warranties made by the DPT stockholders were incomplete or inaccurate, which caused the Company to lose revenues and incur additional expenses. This caused the Company to file court proceedings against Steven Goldman, the principal shareholder and former president of DPT, alleging causes of action for, amongst others, fraud, fraudulent inducement, and negligent misrepresentation. In May 2003, the Company entered into a written settlement and mutual general release agreement with Steven Goldman, on his own and on behalf of all the selling shareholders of DPT, pursuant to which it was agreed that the Company would retain the Holdback Amount and, additionally, Steven Goldman would pay the Company $31.0 million. The Company received the $31.0 million payment in May 2003 and recorded a gain of approximately $49.3 million in fiscal 2004. The cash received from the DPT settlement of $31.0 million was included in cash provided from operating activities in the Consolidated Statements of Cash Flows.

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Note 12. Income Taxes

The components of income (loss) from operations before provision for (benefit from) income taxes for all periods presented were as follows:

	Years Ended March 31,
	2006			2005			2004
	(in thousands)
Income (Loss) Before Taxes:
Domestic	$	(79,735	)	$	(73,898	)	$	22,676
Foreign		(33,353	)		3,902			24,735

	$	(113,088	)	$	(69,996	)	$	47,411

The components of the provision for (benefit from) income taxes for all periods presented were as follows:

	Years Ended March 31,
	2006			2005			2004
	(in thousands)
Federal:
Current	$	644		$	989		$	377
Deferred		313			42,651			(11,976	)

		957			43,640			(11,599	)

Foreign:
Current		(594	)		1,902			(8,086	)
Deferred		(313	)		(215	)		50

		(907	)		1,687			(8,036	)

State:
Current		1,558			(2,047	)		0
Deferred		0			8,614			(11,160	)

		1,558			6,567			(11,160	)

Provision for (benefit from) income taxes	$	1,608		$	51,894		$	(30,796	)

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Significant components of the Company's deferred tax assets and liabilities at March 31, 2006 and 2005 were as follows:

	March 31,
	2006			2005
	(in thousands)
Intangible technology	$	42,245		$	27,482
Research and development tax credits		15,768			12,362
Net operating loss carryover		17,742			12,106
Compensatory and other accruals		7,292			6,571
Capitalized research and development		5,177			3,932
Cost sharing buy-out		0			3,038
Fixed asset accrual		0			3,008
Restructuring charges		2,117			2,059
Foreign tax credits		1,960			1,912
Inventory reserves		1,195			1,838
Deferred revenue		1,653			943
Royalty accrual		0			781
Accrued returned materials		784			746
Uniform capitalization adjustment		373			554
Other, net		836			1,281

Gross deferred tax assets		97,142			78,613
Deferred tax liabilities:
Acquisition-related charges		(5,616	)		(11,081	)
Cumulative translation adjustment		0			(834	)

Gross deferred tax liability		(5,616	)		(11,915	)
Valuation allowance		(91,476	)		(67,167	)

Net deferred tax assets (liabilities)	$	50		$	(469	)

The Company continuously monitors the circumstances impacting the expected realization of its deferred tax assets on a jurisdiction by jurisdiction basis. At March 31, 2006, the Company's analysis of its deferred tax assets demonstrated that it was more likely than not that substantially all of its U.S. deferred tax assets would not be realized. Factors that led to this conclusion included, but were not limited to, the Company's past operating results, cumulative tax losses in the U.S., and uncertain future income on a jurisdiction by jurisdiction basis.

As of March 31, 2006 the Company had net operating loss carryforwards of $57.3 million for federal and $6.0 million for state purposes that expire in various years beginning in 2021 for federal and 2013 for state purposes. The Company also had research and development credits of $12.9 million for federal purposes that expire in various years beginning in 2019 and $2.8 million credits for state purposes that carry forward indefinitely until fully exhausted. Of the federal net operating loss carryforwards, $7.5 million were related to stock option deductions, the tax benefit of which will be credited to paid in capital when realized.

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The Company's effective tax rate differed from the federal statutory tax rate for all periods presented as follows:

	Years Ended March 31,
	2006		2005		2004
Federal statutory rate	(35.0	)%	(35.0	)%	35.0	%
State taxes, net of federal benefit	1.4	%	9.3	%	(10.7	)%
Foreign subsidiary income at other than the U.S tax rate	9.8	%	17.8	%	(26.4	)%
Change in valuation allowance	12.9	%	63.3	%	(45.6	)%
Reduction in tax reserves	0.6	%	(27.0	)%	—
OID Interest	(3.8	)%	(5.6	)%	—
Acquisition related impairment charges	20.1	%	27.2	%	(12.2	)%
Impact of repatriation of foreign earnings	(0.2	)%	25.1	%	—
Research and development credits	(3.0	)%	(4.0	)%	(4.9	)%
Other	(1.4	)%	3.0	%	(0.2	)%

Effective income tax rate	1.4	%	74.1	%	(65.0	)%

The Company's subsidiary in Singapore operated under a tax holiday through March 31, 2006. As the result of the Company's divestiture of its manufacturing operations in Singapore, the Company is in the process of terminating its tax holiday status and restructuring its foreign operations. The Company is currently making modification to its international tax structure to reflect its revised foreign operations. The Company does not expect these changes, in and of themselves, to cause its worldwide effective tax rate to differ materially.

In the fourth quarter of fiscal 2005, the Company repatriated $360.6 million of undistributed earnings from Singapore to the United States, resulting in a tax liability of $17.6 million. The one-time deduction is allowed to the extent that the repatriated amounts are used to fund a qualified Domestic Reinvestment Plan, as required by the Act. If the Company does not spend the repatriated funds in accordance with its reinvestment plan, the Company may incur additional tax liabilities. The Company has not provided for U.S. deferred income taxes or foreign withholding taxes on the remaining undistributed earnings of $257.2 million since these earnings are intended to be reinvested indefinitely. Although the Company does not have any current plans to repatriate the remaining undistributed earnings from its Singapore subsidiary to its United States parent company, if the Company were to do so, additional income taxes at the combined United States Federal and state statutory rate of approximately 40% could be incurred from the repatriation.

The Company's tax related liabilities were $46.7 million and $57.5 million at March 31, 2006 and 2005, respectively. Tax related liabilities are primarily composed of income, withholding and transfer taxes accrued by the Company in the taxing jurisdictions in which it operates around the world, including, but not limited to, the United States, Singapore, Ireland, United Kingdom, Japan and Germany. The amount of the liability was based on management's evaluation of the Company's tax exposures in light of the complicated nature of the business transactions entered into by the Company in a global business environment. In fiscal years 2006 and 2005, net tax related liabilities were released totaling $0 million and $26.4 million, respectively, as the result of favorable outcomes of certain U.S. tax controversies. The Company also continuously reviews its tax related liabilities to ensure that it is appropriate by considering tax controversy factors such as the period covered by the cause of action, the degree of probability of an unfavorable outcome, its ability to reasonably estimate the liability, the timing of the liability and how it will impact the Company's other tax attributes. At March 31, 2006, the Company believed that the tax

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related liability recorded on its Consolidated Balance Sheet was sufficient to cover all known tax exposures.

Note 13. Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share gives effect to all potentially dilutive common shares outstanding during the period, which include certain stock options and warrants, calculated using the treasury stock method, and convertible notes which are potentially dilutive at certain earnings levels, and are computed using the if-converted method.

A reconciliation of the numerator and denominator of the basic and diluted income (loss) per share computations for continuing operations, discontinued operations and net income (loss) were as follows:

	Years Ended March 31,
	2006			2005			2004
	(in thousands, except per share amounts)
Numerator:
Income (loss) from continuing operations—basic	$	(114,696	)	$	(121,890	)	$	78,207
Income (loss) from discontinued operations—basic		(33,736	)		(23,216	)		(15,300	)

Net income (loss)—basic	$	(148,432	)	$	(145,106	)	$	62,907

Adjustments:
Adjustment for interest expense on ³/4% Notes, net of taxes	$	—		$	—		$	469
Adjustment for interest expense on 3% Notes, net of taxes		—			—			4,477

Total Adjustments for interest expense on Convertible Notes, net of taxes	$	—		$	—		$	4,946
Adjusted Income (loss) from continuing operations—diluted	$	(114,696	)	$	(121,890	)	$	83,153
Adjusted Income (loss) from discontinued operations—diluted		(33,736	)		(23,216	)		(15,300	)

Adjusted Net income (loss)—diluted	$	(148,432	)	$	(145,106	)	$	67,853

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Denominator:
Weighted average shares outstanding—basic			113,405			110,798			108,656
Effect of dilutive securities:
Employee stock options and other			—			—			2,036
³/4% Notes			—			—			4,806
3% Notes			—			—			13,309

Weighted average shares and potentially dilutive common shares outstanding—diluted			113,405			110,798			128,807
Net income (loss) per share:
Basic
	Continuing operations	$	(1.01	)	$	(1.10	)	$	0.72
	Discontinued operations	$	(0.30	)	$	(0.21	)	$	(0.14	)
	Net income (loss)	$	(1.31	)	$	(1.31	)	$	0.58
Diluted
	Continuing operations	$	(1.01	)	$	(1.10	)	$	0.65
	Discontinued operations	$	(0.30	)	$	(0.21	)	$	(0.12	)
	Net income (loss)	$	(1.31	)	$	(1.31	)	$	0.53

Diluted loss per share from continuing operations, discontinued operations and net loss for fiscal years 2006 and 2005 was based only on the weighted-average number of shares outstanding during each of the periods, as the inclusion of any common stock equivalents would have been anti-dilutive. In addition, certain potential common shares were excluded from the diluted computation from continuing operations, discontinued operations and net income for fiscal 2004 because their inclusion would have been anti-dilutive. The items excluded for fiscal years 2006, 2005 and 2004 were as follows:

	Years Ended March 31,
	2006	2005	2004
	(in thousands)
Outstanding employee stock options	15,934	15,498	14,079
Warrants¹	19,874	19,874	19,374
³/4% Notes	19,224	19,224	—
3% Notes	950	2,298	—

(1): In connection with the issuance of its ³/4% Notes, the Company entered into a derivative financial instrument to repurchase up to 19,224,000 shares of its common stock, at the Company's option, at specified prices in the future to mitigate any potential dilution as a result of the conversion of the ³/4% Notes. See Note 6 for further details.

Note 14. IBM Distribution Agreement, ServeRAID Agreement and Patent Cross-License Agreement

In December 2004, the Company entered into a distribution agreement on its RAID controllers and connectivity products sold for IBM iSeries and pSeries servers. The agreement was made through an

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amendment to the Company's existing i/p Series RAID supply and intellectual property agreement entered into June 2004 (See Note 2). The distribution agreement was accounted for as a standalone transaction as it was not contemplated at the time the Company entered into the original IBM i/p Series RAID transaction.

Under an amended intellectual property agreement with IBM, the Company was required to make fixed and variable royalty-based payments to IBM. The fixed payments potentially due under the arrangement total $52.1 million, of which $25.0 million was paid in December 2004, the date the Company entered into the agreement, and the remainder was due quarterly, in varied installments, through December 2008. A portion of the $52.1 million in total payments was contingent upon IBM purchasing certain levels of the Company's products. Upon entering into the agreement, the Company recorded the full remaining amount payable to IBM as a liability in the Consolidated Balance Sheets as the Company considered payment of the full amount to be probable. At March 31, 2005, $11.6 million was recorded in "Accrued Liabilities" and $11.9 million was recorded in "Other Long-Term Liabilities" in the Consolidated Balance Sheets.

The fixed consideration for the distribution agreement of $52.1 million was recorded as an asset to "Prepaid expenses" and "Other long-term assets" in the Consolidated Balance Sheets at March 31, 2005 and the amortization was being included in "Net revenues" in the Consolidated Statements of Operations over a four-year period, reflecting the pattern in which the economic benefits of the assets expected to be realized. The royalty-based fee per unit was calculated using the average net sales price for units sold within the quarter and baseline royalty rates subject to certain adjustment factors. The amortization of the fixed consideration and the royalty-based payments were being recorded as a reduction to revenue in the period the units were sold. On September 30, 2005, the Company sold the IBM i/p Series RAID Business to IBM. As a result, the distribution agreement was cancelled as part of the sale and the forementioned assets and liabilities have been removed from the Consolidated Balance Sheet as of March 31, 2006.

In March 2002, the Company entered into a non-exclusive, perpetual technology licensing agreement and an exclusive three-year product supply agreement with IBM. The technology licensing agreement grants the Company the right to use IBM's ServeRAID technology for the Company's internal and external RAID products. Under the product supply agreement, the Company will supply RAID software, firmware and hardware to IBM for use in IBM's xSeries servers. The agreement does not contain minimum purchase commitments from IBM and the Company cannot be assured of the future revenue it will receive under this agreement. Either party may terminate the technology licensing agreement if the other party materially breaches its obligations under the agreement. The product supply agreement automatically terminates at the end of three years or earlier upon breach of a material contract obligation by the Company or upon the occurrence of any transaction within two years of the effective date of the agreement that results in: (i) a competitor of IBM beneficially owning at least 10% of the voting stock of the Company or any affiliate of the Company; (ii) a competitor of IBM becoming entitled to appoint a nominee to the board of directors of the Company; or (iii) a director, office holder or employee of a competitor of IBM becomes a director of the Company.

In consideration, the Company paid IBM a non-refundable fee of $26.0 million and issued IBM a warrant to purchase 150,000 shares of the Company's common stock at an exercise price $15.31 per share. The warrant has a term of five years from the date of issuance and is immediately exercisable. The warrant was valued at approximately $1.0 million using the Black-Scholes valuation model using a volatility rate of

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71.6%, a risk-free interest rate of 4.7% and an estimated life of five years. The Company allocated $12.0 million of the consideration paid to IBM to the supply agreement and allocated the remainder to the technology license fee. Fair values were determined based on discounted estimated future cash flows related to the Company's channel and OEM ServeRAID business. The cash flow periods used were five years and the discount rates used were 15% for the supply agreement asset and 20% for the technology license fee based upon the Company's estimate of their respective levels of risk. Amortization of the supply agreement and the technology license fee shall be included in "Net revenues" and "Costs of revenues," respectively, over a five-year period reflecting the pattern in which economic benefits of the assets are realized.

In May 2000, the Company entered into a patent cross-license agreement with IBM, which was subsequently amended in March 2002. Under the agreement, the Company obtained a release of past infringement claims made prior to January 1, 2000 and received the right to use certain IBM patents from January 1, 2000 through June 30, 2007. Additionally, the Company granted IBM a license to use all of the Company's patents for the same period. In consideration, the Company paid an aggregate patent fee of $13.3 million. The patent license fee is being amortized over the period from January 1, 2000 through June 30, 2007.

Note 15. Guarantees

Intellectual Property Indemnification Obligations

The Company has entered into agreements with customers and suppliers that include intellectual property indemnification obligations. These indemnification obligations generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. In each of these circumstances, payment by the Company is conditional on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party's claims. Further, the Company's obligations under these agreements may be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third parties for certain payments made by it under these agreements. It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company's obligations and the unique facts and circumstances involved in each particular agreement. Historically, the Company has not incurred significant costs to defend lawsuits or settle claims related to such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

Product Warranty

The Company provides an accrual for estimated future warranty costs based upon the historical relationship of warranty costs to sales. The estimated future warranty obligations related to product sales are recorded in the period in which the related revenue is recognized. The estimated future warranty obligations are affected by product failure rates, material usage and replacement costs incurred in correcting a product failure. If actual product failure rates, material usage or replacement costs differ from the Company's estimates, revisions to the estimated warranty obligations would be required; however the Company made no adjustments to pre-existing warranty accruals in fiscal 2006 and 2005.

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A reconciliation of the changes to the Company's warranty accrual for fiscal 2006 and 2005 was as follows:

	March 31,
	2006			2005
	(in thousands)
Balance at beginning of period	$	2,084		$	1,598
Warranties assumed		—			1,045
Warranties provided		5,028			5,846
Actual costs incurred		(5,061	)		(6,405	)
Warranties classified as current liabilities of discontinued operations (Note 2)		(232	)		—

Balance at end of period	$	1,819		$	2,084

Note 16. Segment, Geographic and Significant Customer Information

Segment Information

In the second quarter of fiscal 2006, the Company reorganized its internal organization structure related to its former OEM and Channel segments. Where previously the Company's former OEM and Channel segments each offered an integrated set of customer-focused products, the new organization is managed at the product level.

Following the reorganization, the Company operated in two segments: DPS and DSG. A description of the types of customers or products and services provided by each segment is as follows:

•: DPS provides storage products and currently sells all of its storage technologies in various form factors, such as board-level products, ASICs, RAID controllers, internal enclosures and stand-alone software. The Company sells these products directly to OEMs, ODMs that supply OEMs, system integrators, VARs and end users through its network of distribution and reseller channels.
•: DSG provides high-performance I/O connectivity and digital media products for personal computing platforms, including notebook and desktop PCs. The Company sells these products to retailers, OEMs and distributors.

The unallocated corporate income and expenses, which are in the "Other" category, include amortization of acquisition-related intangible assets, restructuring charges, goodwill impairment, other charges (gains), interest and other income, interest expense, all administrative expenses and certain research and development, selling and marketing expenses.

Summarized financial information on the Company's segments, under the new organizational structure, is shown in the following table. The segment financial data for fiscal years 2006, 2005 and 2004 has been restated to reflect this change. There were no inter-segment revenues for the periods shown below. The Company does not separately track all tangible assets or depreciation by segments nor are the

F-41

segments evaluated under these criteria. Segment financial information is summarized as follows for fiscal years 2006, 2005 and 2004:

	DPS		DSG			Other			Total
	(in thousands)
Fiscal 2006:
Net revenues	$	276,203	$	33,942		$	—		$	310,145
Segment income (loss)		60,015		(2,032	)		(171,071	)		(113,088	)
Fiscal 2005:
Net revenues	$	332,925	$	38,332		$	—		$	371,257
Segment income (loss)		72,450		4,788			(147,234	)		(69,996	)
Fiscal 2004:
Net revenues	$	352,314	$	43,375		$	—		$	395,688
Segment income (loss)		99,234		9,087			(60,910	)		47,411

The following table presents the details of unallocated corporate income and expenses for fiscal years 2006, 2005 and 2004:

	Years Ended March 31,
	2006			2005			2004
	(in thousands)
Unallocated corporate expenses, net	$	(82,767	)	$	(93,286	)	$	(103,625	)
Acquired in-process technology		—			—			(4,000	)
Restructuring charges		(10,430	)		(5,896	)		(4,313	)
Goodwill impairment		(90,602	)		(52,272	)		—
Other charges (gains)		(1,579	)		290			(5,977	)
Interest and other income		17,621			8,369			66,429
Interest expense		(3,314	)		(4,439	)		(9,424	)

Total	$	(171,071	)	$	(147,234	)	$	(60,910	)

The following table presents net revenues by countries based on the location of the selling entities:

	Years Ended March 31,
	2006			2005		2004
	(in thousands)
United States	$	105,338		$	130,407	$	149,086
Singapore		204,969			240,830		228,483
Other countries		(162	)		20		18,119

Total	$	310,145		$	371,257	$	395,688

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The following table presents net property and equipment by countries based on the location of the assets:

	March 31,
	2006		2005
	(in thousands)
United States	$	28,305	$	37,393
Singapore		723		16,284
Other countries		1,637		2,503

Total	$	30,665	$	56,180

Significant Customer Information

Note 17. Business Acquisitions

The acquisitions described below were previously accounted for as purchase transactions and, accordingly, the results of operations and financial position of the acquired businesses were included in the Company's financial statements as of the respective effective dates of the acquisitions. However, as a result of the sale of the IBM i/p Series RAID Business and the Company's plan to divest its systems business, the assets expected to be sold have been classified as Assets and Liabilities of Discontinued Operations on the Consolidated Balance Sheet at March 31, 2006 and the related results of operations have been reclassified to "Income (loss) from discontinued operations, net of taxes" on the Consolidated Statements of Operations, as discussed in Note 2. This primiarly related to the IBM i/p Series RAID Business, Snap Appliance and Eurologic acquisitions.

IBM i/p Series RAID: On June 29, 2004, the Company completed the acquisition of the IBM i/p Series RAID component business line consisting of certain purchased RAID data protection intellectual property, semiconductor designs and assets, and licensed from IBM related RAID intellectual property. The licensing agreement granted the Company the right to use IBM's RAID technology and embedded Power PC technology for the Company's internal and external RAID products to be sold to IBM and other customers. In conjunction with the acquisition, the Company also entered into a three-year exclusive product supply agreement under which the Company agreed to supply RAID software, firmware and hardware to IBM for use in IBM's iSeries and pSeries servers. The Company also entered into an agreement for IBM to provide silicon wafer manufacturing processing services to the Company for the term of the supply agreement at agreed upon rates.

The final purchase price was $49.3 million, which consisted of a cash payment to IBM of $47.5 million, warrants valued at $1.1 million, net of registration costs, and transaction costs of $0.7 million. This purchase price included a final adjustment of $0.2 million in the first quarter of fiscal 2006 to both goodwill and acquisition costs. In connection with the acquisition, the Company issued a warrant to IBM to

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purchase 250,000 shares of the Company's common stock at an exercise price of $8.13 per share. The warrant has a term of 5 years from the date of issuance and is immediately exercisable. The warrant was valued using the Black-Scholes valuation model using a volatility rate of 62%, a risk-free interest rate of 3.9% and an estimated life of 5 years. The transaction costs consisted primarily of legal, valuation and other fees.

The IBM i/p Series RAID business was accounted for as a purchase business combination with the allocation of the purchase price to the tangible and intangible assets acquired are summarized below (in thousands). The allocation was based on management's estimates of fair value, which included an independent appraisal.

Net property and equipment	$	635
Acquired in-process technology		3,000
Goodwill		18,749
Other intangible assets:
Supply agreement		7,600
Patents and core technology		18,700
Foundry agreement		600

		26,900

Net assets acquired (purchase price)	$	49,284

The values allocated to the supply agreement, patents and core technology and foundry agreement were being amortized over estimated useful lives of 3 to 5 years, reflecting the pattern in which the economic benefits of the assets were expected to be realized. The estimated weighted average useful life of other intangible assets, created as a result of the acquisition of the IBM i/p Series RAID business, were estimated to approximate 5 years. No residual value was estimated for the intangible assets. A portion of goodwill was not expected to be deductible for tax purposes.

Snap Appliance: On July 23, 2004, the Company completed the acquisition of Snap Appliance, a provider of NAS products, to expand its product offerings in the external storage market and to deliver cost-effective, scalable and easy-to-use DAS, NAS, Fibre Channel and IP-based SAN products from the workgroup to the data center. The final purchase price was $83.7 million, consisting of $76.7 million in cash and transaction fees and $7.0 million related to the fair value of assumed stock options to purchase 1.2 million shares of the Company's common stock. This purchase price included a final adjustment of $0.7 million in the first quarter of fiscal 2006 to both goodwill and acquisitions costs. The assumed stock options were valued using the Black-Scholes valuation model with the following assumptions: volatility rate of 58%; a risk-free interest rate of 2.6%; and an estimated life of 2.25 years.

Of the total assumed stock options, stock options to purchase approximately 0.7 million shares of the Company's common stock, with exercise prices ranging between $1.42 and $5.66 per share, were unvested (the "Snap Unvested Options"). The Snap Unvested Options have a ten-year term and vest primarily over four years from the date of grant. The intrinsic value of the Snap Unvested Options of $3.6 million was accounted for as deferred stock-based compensation and is being recognized as compensation expense over the related vesting periods.

F-44

The allocation of the Snap Appliance purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed is summarized below (in thousands). The allocation was based on management's estimates of fair value, which included an independent appraisal.

Cash	$	60
Accounts receivable		5,825
Inventory		3,316
Prepaid expenses		14,345
Property and equipment		1,379
Other long-term assets		148

Total assets acquired		25,073
Accounts payable		(4,264	)
Current liabilities		(13,848	)
Other long-term liabilities		(2,196	)

Total liabilities assumed		(20,308	)

Net tangible assets acquired	$	4,765

The allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed was as follows (in thousands):

Net tangible assets acquired	$	4,765
Acquired in-process technology		2,200
Deferred stock-based compensation		3,610
Deferred income tax liabilities		(11,640	)
Goodwill		56,325
Other intangible assets:
Core and existing technologies		19,000
Trade name		10,100

		29,100

Net assets acquired (purchase price)	$	84,360

The values allocated to the core and existing technologies and trade name created as a result of the acquisition of Snap Appliance were being amortized over an estimated weighted average useful life of seven years, reflecting the pattern in which the economic benefits of the assets are expected to be realized. No residual value was estimated for the intangible assets. Goodwill was not expected to be deductible for tax purposes.

In addition, a management incentive program was established to pay former employees of Snap Appliance cash payments totaling $13.8 million, which is being paid, contingent upon their employment with the Company, over a two-year period through the second quarter of fiscal 2007. Payments under the management incentive program will be expensed as employees meet their employment obligations or are recorded as part of the Snap Appliance acquisition-related restructuring for involuntarily terminations by the Company. Any amounts outstanding as of the completion of the sale of the systems business, which includes Snap Appliance, will be accelerated.

F-45

A portion of the Snap Appliance acquisition price totaling $5.4 million was held back, and in connection with the management incentive program, $1.3 million will be held back for a total of $6.7 million (the "Snap Appliance Holdback") for unknown liabilities that may have existed as of the acquisition date. The Snap Appliance Holdback was paid in the second quarter of fiscal 2006, except for funds necessary to provide for any pending claims. The Company has asserted claims against the holdback totaling $3.0 million.

Acquisition-Related Restructuring: During the first quarter of fiscal 2006, the Company finalized its Snap Appliance integration plan to eliminate certain duplicative resources, including severance and benefits in connection with the involuntary termination of approximately 24 employees, exiting duplicative facilities and disposing of duplicative assets. The acquisition-related restructuring liabilities were accounted for under EITF No. 95-3 and therefore were included in the purchase price allocation. The Company recorded a total liability of $6.7 million for these activities, of which the original estimate of $6.0 million was recorded in the second quarter of fiscal 2005 and adjustments were recorded in each subsequent quarter through the first quarter of fiscal 2006 totaling $0.7 million. Any further changes to the Company's finalized plan will be accounted for under SFAS No. 146 and will be recorded in "Discontinued operations, net of taxes" in the Consolidated Statements of Operations. In the third quarter of fiscal 2006, the Company recorded additional adjustments of $0.2 million due to additional lease costs related to the estimated loss of facilities that the Company subleased. As of March 31, 2006, the Company had utilized $4.4 million of these charges. The Company anticipates that the remaining restructuring reserve balance of $2.5 million will be paid out by the third quarter of fiscal 2012, primarily related to long-term facility leases.

The activity in the accrued restructuring reserve related to the Snap Appliance acquisition-related restructuring plan was as follows for fiscal 2006:

	Severance And Benefits			Other Charges			Total
	(in thousands)
Snap Appliance Acquisition-Related Restructuring Plan:
Restructuring provision	$	1,967		$	3,999		$	5,966
Adjustments		646			109			755
Cash paid		(2,111	)		(369	)		(2,480	)
Non-cash charges		(347	)		(838	)		(1,185	)

Reserve balance at March 31, 2005		155			2,901			3,056
Adjustments		(49	)		244			195
Cash paid		(60	)		(656	)		(716	)

Reserve balance at March 31, 2006	$	46		$	2,489		$	2,535

Eurologic: On April 2, 2003, the Company completed the acquisition of Eurologic, a provider of external and networked storage products. The Company acquired Eurologic to further enhance its direct-attached and fibre-attached server storage capabilities by allowing it to provide end-to-end block- and file-based networked storage products. As consideration for the acquisition of all of the outstanding capital stock of Eurologic, the Company paid $25.6 million in cash, subject to a Holdback as described below, and assumed stock options to purchase 0.5 million shares of the Company's common stock, with a fair value of $1.6 million. The Company also incurred $1.1 million in transaction fees, including legal, valuation and

F-46

accounting fees. The assumed stock options were valued using the Black-Scholes valuation model with the following assumptions: volatility rate ranging from 57% to 81%; a risk-free interest rate ranging from 1.1% to 2.5%; and an estimated life ranging from 0.08 to 4 years.

Holdback: As part of the Eurologic purchase agreement, $3.8 million of the cash payment was held back (the "Holdback") for unknown liabilities that may have existed as of the acquisition date. The Holdback, which was included as part of the purchase price, was included in "Accrued liabilities" in the Consolidated Balance Sheet as of March 31, 2005 and was to be paid to the former Eurologic stockholders 18 months after the acquisition closing date, except for funds necessary to provide for any pending claims. The Company paid $2.3 million of the Holdback as of March 31, 2005 and has asserted claims against the remaining amount for liabilities of which it became aware following the consummation of the transaction. The former Eurologic stockholders have disputed these claims and have requested release of the remaining Holdback.

Earn-out Payments: The Company also agreed to pay the stockholders of Eurologic contingent consideration of up to $10.0 million in cash if certain revenue levels were achieved by the acquired Eurologic business in the period from July 1, 2003 through June 30, 2004. The milestone to achieve the contingent consideration was not attained as of June 30, 2004. As a result, no additional payments were made to the former stockholders of Eurologic.

The allocation of the Eurologic purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed is summarized below (in thousands). The allocation was based on management's estimates of fair value, which included an independent appraisal.

Cash	$	3,305
Accounts receivable		10,624
Inventory		4,066
Other current assets		2,107
Property and equipment		2,835

Total assets acquired		22,937
Accounts payable		(7,292	)
Current liabilities		(8,365	)

Total liabilities assumed		(15,657	)

Net tangible assets acquired	$	7,280

F-47

The allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed is as follows (in thousands):

Net tangible assets acquired	$	7,280
Acquired in-process technology		3,649
Goodwill		9,413
Other intangible assets:
Core technology		5,046
Covenants-not-to-compete		148
Customer relationships		880
Trade name		1,476
Current backlog		395

		7,945

Net assets acquired	$	28,287

The other intangible assets are being amortized over periods which reflect the pattern in which the economic benefits of the assets are expected to be realized. The core technology and customer relationships are being amortized over an estimated useful life of four years, the trade name and covenants-not-to-compete are being amortized over two years and the current backlog was fully amortized in the first quarter of fiscal 2004. The estimated weighted average useful life of other intangible assets, created as a result of the acquisition of Eurologic, is approximately three years. No residual value is estimated for the other intangible assets.

Acquisition-Related Restructuring: During the fourth quarter of fiscal 2004, the Company finalized its plans to integrate the Eurologic operations. The integration plan included the involuntary termination or relocation of approximately 110 employees, exiting duplicative facilities and the transition of all manufacturing operations from Dublin, Ireland to the Company's manufacturing facility in Singapore. The consolidation of the manufacturing operations as well as involuntary employee terminations was completed in the fourth quarter of fiscal 2004. The acquisition-related restructuring liabilities were accounted for under EITF No. 95-3 and therefore were included in the purchase price allocation of the cost to acquire Eurologic. The Company recorded a liability of $3.3 million in fiscal 2004 for these activities. As of December 31, 2004, the Company utilized approximately all of these charges and the plan is materially complete.

ICP Vortex: On June 5, 2003, the Company completed the acquisition of ICP vortex. ICP vortex was a wholly-owned subsidiary of Intel Corporation and provided a broad range of hardware and software RAID data protection products, including SCSI, SATA and fibre channel products. The final purchase price was $14.5 million in cash, which included $0.3 million in transaction fees, consisting of legal, valuation and accounting fees. This purchase price included a final adjustment of $0.1 million in the first quarter of fiscal 2005 to both goodwill and acquisitions costs.

F-48

The allocation of the ICP vortex purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed is summarized below (in thousands). The allocation was based on management's estimate of fair value, which included an independent appraisal.

Cash	$	2,706
Accounts receivable		2,961
Inventory		2,015
Other current assets		3,087
Property and equipment		1,458

Total assets acquired		12,227
Accounts payable		(722	)
Current liabilities		(2,522	)
Long-term liabilities		(400	)

Total liabilities assumed		(3,644	)

Net tangible assets acquired	$	8,583

The allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed is as follows (in thousands):

Net tangible assets acquired	$	8,583
Goodwill		1,050
Other intangible assets:
Core technology		3,630
Customer relationships		410
Trade name		830
Royalties		60

		4,930

Net assets acquired (Purchase Price)	$	14,563

The other intangible assets are being amortized over periods which reflect the pattern in which the economic benefits of the assets are expected to be realized. The core technology and trade name are being amortized straight-line over an estimated useful life of three years, the customer relationships are being amortized straight-line over four years and the royalties were amortized through the end of the third quarter of 2004. The estimated weighted average useful life of other intangible assets, created as a result of the acquisition of ICP vortex, is approximately three years. No residual value is estimated for the other intangible assets.

During the first quarter of fiscal 2005, the Company finalized its plans to integrate the ICP vortex operations. The integration plan included the involuntary termination of 19 employees, the transfer of manufacturing operations to Singapore and the integration of certain duplicative resources. The acquisition-related restructuring liabilities were accounted for under EITF No. 95-3 and therefore were included in the purchase price allocation of the cost to acquire ICP vortex. In fiscal 2004, the Company recorded a liability of $0.4 million for severance and benefits, of which $0.3 million of these charges were

F-49

utilized and $0.1 million was recorded as a reduction to the restructuring liability with a corresponding decrease to goodwill in the first quarter of fiscal 2005.

Elipsan: On February 13, 2004, the Company completed the acquisition of Elipsan, a provider of networked storage infrastructure software. The Company acquired Elipsan's storage virtualization technology to enable the Company to make storage more cost-effective, easier to scale and to increase performance across multiple RAID subsystems. The final purchase price was $19.4 million in cash, which included $0.7 million in transaction fees, consisting of legal, valuation and accounting fees. This purchase price included a final adjustment of $0.8 million in fiscal 2005, primarily related to the reversal of the acquisition-related restructuring reserves of approximately $0.7 million.

Holdback: As part of the Elipsan purchase agreement, $2.0 million of the cash payment was held back ("Elipsan Holdback") for unknown liabilities that may have existed as of the acquisition date. The Elipsan Holdback, which was included as part of the purchase price, was included in "Accrued liabilities" in the Consolidated Balance Sheet as of March 31, 2005. The Elipsan Holdback of $2.0 million was paid in the second quarter of fiscal 2006.

The allocation of the Elipsan purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed is summarized below (in thousands). The allocation was based on management's estimates of fair value, which included an independent appraisal.

Accounts receivable	$	162
Other current assets		731
Property and equipment		105

Total assets acquired		998
Accounts payable		(171	)
Current liabilities		(1,497	)

Total liabilities assumed		(1,668	)

Net tangible liabilities acquired	$	(670	)

The allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed is as follows (in thousands):

Net tangible assets acquired	$	(670	)
Acquired in-process technology		4,000
Goodwill		3,479
Core technology		12,600

Net assets acquired (Purchase Price)	$	19,409

The core technology is being amortized straight-line over an estimated useful life of five years. No residual value has been estimated for the intangible asset.

Acquisition-Related Restructuring: During the fourth quarter of fiscal 2005, the Company finalized its plans to integrate the Elipsan operations. The plan included the integration of certain duplicative resources related to both severance and benefits in connection with the involuntary termination or

F-50

relocation of employees and, accordingly, the Company recorded a $0.8 million reserve as of March 31, 2004. In fiscal 2005, the Company recorded an adjustment of $0.7 million as a reduction to the liability with a corresponding decrease to goodwill as the Company intends to retain these employees. The acquisition-related restructuring liabilities were accounted for under EITF No. 95-3 and therefore were included in the purchase price allocation of the cost to acquire Elipsan. As of March 31, 2005, the Company made payments of approximately $25,000 under the plan. The Company anticipates that the remaining restructuring reserve balance of approximately $45,000 will be paid out by the second quarter of fiscal 2007.

In-process Technology

As part of the purchase agreements of Snap Appliance, the IBM i/p Series RAID business, Eurologic and Elipsan, certain amounts of the purchase prices were allocated to acquired in-process technology which were determined through established valuation techniques in the high-technology computer industry and written off in the second quarter of fiscal 2005, first quarter of fiscal 2005, first quarter of fiscal 2004 and fourth quarter of fiscal 2004, respectively, because technological feasibility had not been established and no alternative future uses existed. The values were determined by estimating the net cash flows and discounting the estimated net cash flows to their present values. A summary of the amounts written off were as follows:

	Acquired In-Process Technology
	(in thousands)
Snap Appliance¹	$	2,200
IBM i/p Series RAID business²		3,000
Eurologic³		3,649
Elipsan⁴		4,000

(1): The identified in-process projects were related to operating system enhancements and system functionality improvements. As the Company intends to divest the systems business the in-process technology expense was reclassified to income (loss) from discontinued operations, net of income taxes, on the Consolidated Statement of Operations.
(2): The in-process projects were related to designing semiconductors and related boards and enhancements to RAID and firmware code. As the Company sold the IBM i/p Series RAID Business the in-process technology expense was reclassified to income (loss) from discontinued operations, net of income taxes, on the Consolidated Statement of Operations.
(3): The Company acquired various external and networked storage products that enable organizations to install, manage and scale multiterabyte storage products. The identified projects focus on increasing performance while reducing the storage controller form factor. As the Company intends to divest the systems business the in-process technology expense was reclassified to income (loss) from discontinued operations, net of income taxes, on the Consolidated Statement of Operations
(4): The in-process projects were related to the development of software modules to add additional functionality to the existing storage virtualization software as well as address specific customer needs.

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The net cash flows from the identified projects were based on estimates of revenues, cost of revenues, research and development expenses, including costs to complete the projects, selling, marketing and administrative expenses, royalty expenses and income taxes from the projects. The Company believes the assumptions used in the valuations were reasonable at the time of the acquisitions. The estimated net revenues and gross margins were based on management's projections of the projects and were in line with industry averages. Estimated total net revenues from the projects of Snap Appliance, the IBM i/p Series RAID business, Eurologic and Elipsan were expected to grow through fiscal 2009, fiscal 2009, fiscal 2008 and fiscal 2007, respectively, and decline thereafter as other new products are expected to become available. Estimated operating expenses included research and development expenses and selling, marketing and administrative expenses based upon historical and expected direct expense levels and general industry metrics. Estimated research and development expenses included costs to bring the projects to technological feasibility and costs associated with activities undertaken to correct errors or keep products updated with current information (also referred to as "maintenance" research and development) after a product is available for general release to customers. These activities range from 0% to 5% of net revenues for the in-process technologies.

The effective tax rate used in the analysis of the in-process technologies reflects a combined historical industry specific average for the United States Federal and state statutory income tax rates. The cost of capital reflects the estimated time to complete the projects and the level of risk involved. The following discount rates were used in computing the present value of net cash flows for the acquired companies: approximately 24% for Snap Appliance, between 23% and 28% for the IBM i/p Series RAID business, approximately 27% for Eurologic and approximately 63% for Elipsan.

The percentage of completion was determined using costs incurred by Snap Appliance, the IBM i/p Series RAID business, Eurologic and Elipsan prior to their respective acquisition dates compared to the estimated remaining research and development to be completed to bring the projects to technological feasibility. The Company estimated, as of the respective acquisition dates for, Snap Appliance, the IBM i/p Series RAID business, Eurologic and Elipsan, that the projects were approximately 25% complete, 50% complete, 60% complete and 28% complete, respectively. All projects outstanding as of the acquisition dates for Snap Appliance, Eurologic and Elipsan were completed as of September 30, 2005, March 31, 2004 and December 31, 2004, respectively. All projects outstanding as of the acquisition date for the IBM i/p Series RAID business ceased as of September 30, 2005 with the sale of the business.

The pro forma financial information for fiscal 2006 has not been disclosed as the acquisitions of the IBM i/p Series RAID business and Snap Appliance were included as part of discontinued operations.

Platys: In connection with the Platys Communications, Inc. ("Platys") acquisition in August 2001, $15.0 million of the cash payment was held back (the "General Holdback") for unknown liabilities that may have existed as of the acquisition date. In fiscal 2003 and fiscal 2004, the Company paid $10.7 million and $3.6 million, respectively, of the General Holdback to the former Platys shareholders or for the settlement of certain claims on their behalf. The remaining $0.7 million of the General Holdback will be paid to the Platys shareholders by the second quarter of fiscal 2007.

In fiscal years 2005 and 2004, the Company recorded reductions of $0.4 million and $1.3 million, respectively, of deferred stock-based compensation related to cancellations of assumed Platys stock options that were unvested and repurchases of unvested Platys restricted stock. In fiscal years 2005 and 2004, the Consolidated Statement of Operations included stock-based compensation expense with respect to the

F-52

restricted stock and/or the unvested options of $2.0 million and $4.1 million, respectively. There was no deferred stock-based compensation expense nor reductions to deferred stock-based compensation related to cancellations of assumed Platys stock options in fiscal 2006.

Note 18. Supplemental Disclosure of Cash Flows

	Years Ended March 31,
	2006			2005			2004
	(in thousands)
Interest paid	$	3,301		$	4,308		$	9,810
Income taxes paid		15,856			2,679			1,430
Income tax refund received		64			964			23,405
Non-cash investing and financial activities:
Deferred stock-based compensation		—			3,598			—
Adjustment for deferred stock-based compensation		(444	)		(563	)		(1,323	)
Common stock issued for acquisitions		—			3,464			1,582
Unrealized gain (loss) on available-for-sale securities		(2,687	)		(2,732	)		(1,709	)
Restricted Stock		—			118			—

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Note 19. Comparative Quarterly Financial Data (unaudited)

The following table summarized the Company's quarterly financial data:

		Quarters
		First			Second			Third			Fourth			Year
		(in thousands, except per share amounts)
Fiscal 2006:
Net revenues		$	73,963		$	84,937		$	77,831		$	73,414		$	310,145
Gross profit			22,549			28,766			28,974			27,966			108,255
Loss from continuing operations			(11,914	)		(95,993	)		(2,614	)		(4,175	)		(114,696	)
Income (loss) from discontinued operations, net of taxes			(24,059	)		(9,813	)		(647	)		783			(33,736	)
Net loss			(35,973	)		(105,806	)		(3,261	)		(3,392	)		(148,432	)
Net loss per share:
Basic
	Continuing operations	$	(0.11	)	$	(0.85	)	$	(0.02	)	$	(0.04	)	$	(1.01	)
	Discontinued operations	$	(0.21	)	$	(0.09	)	$	(0.01	)	$	0.01		$	(0.30	)
	Net loss	$	(0.32	)	$	(0.94	)	$	(0.03	)	$	(0.03	)	$	(1.31	)
Diluted
	Continuing operations	$	(0.11	)	$	(0.85	)	$	(0.02	)	$	(0.04	)	$	(1.01	)
	Discontinued operations	$	(0.21	)	$	(0.09	)	$	(0.01	)	$	0.01		$	(0.30	)
	Net loss	$	(0.32	)	$	(0.94	)	$	(0.03	)	$	(0.03	)	$	(1.31	)
Shares used in computing net (income) loss per share:
Basic			112,445			112,965			113,531			114,678			113,405
Diluted			112,445			112,965			113,531			114,678			113,405
Fiscal 2005:
Net revenues		$	98,857		$	99,969		$	93,473		$	78,958		$	371,257
Gross profit			47,010			46,481			33,896			24,415			151,802
Income (loss) from continuing operations			2,093			12,470			16,965			(153,418	)		(121,890	)
Income (loss) from discontinued operations, net of taxes			(2,083	)		(20,533	)		5,524			(6,124	)		(23,216	)
Net income (loss)			10			(8,063	)		22,489			(159,542	)		(145,106	)
Net income (loss) per share:
Basic
	Continuing operations	$	0.02		$	0.11		$	0.15		$	(1.37	)	$	(1.10	)
	Discontinued operations	$	(0.02	)	$	(0.19	)	$	0.05		$	(0.05	)	$	(0.21	)
	Net loss	$	0.00		$	(0.07	)	$	0.20		$	(1.43	)	$	(1.31	)
Diluted
	Continuing operations	$	0.02		$	0.10		$	0.13		$	(1.37	)	$	(1.10	)
	Discontinued operations	$	(0.02	)	$	(0.15	)	$	0.04		$	(0.05	)	$	(0.21	)
	Net loss	$	0.00		$	(0.06	)	$	0.17		$	(1.43	)	$	(1.31	)
Shares used in computing net income (loss) per share:
Basic			109,840			110,312			111,136			111,905			110,798
Diluted			111,536			134,140			134,517			111,905			110,798

F-54

In the second quarter of fiscal 2006, the Company recorded an impairment charge of $90.6 million to write-off goodwill (Note 5), a gain of $12.1 million on the sale of the OEM block based systems business (Note 2) and a loss of $2.3 million on the disposal of the IBM i/p Series RAID buisness (Note 2). Also in fiscal 2006, the Company recorded a loss on disposal of assets of $1.6 million, (Note 10). In the fourth quarter of fiscal 2006, the Company recorded an impairment charge of $10.0 million related to its discontinued operations (Note 2). In the first quarter of fiscal 2005, the Company purchased the IBM i/p Series RAID business (Note 17) and made a payment of $1.3 million to NSE in the form of a license fee (Note 11). In the second quarter of fiscal 2005, the Company purchased Snap Appliance (Note 17). In the third quarter of fiscal 2005 the Company made acquisition related cash payments to former employees of Snap Appliance (Note 17), recorded a gain of $2.8 million on the sale of certain properties (Note 10), made a payment of $0.4 million to NSE in the form of a license fee (Note 11) and received a tax benefit from the settlements of disputes with the IRS (Note 12). In the fourth quarter of fiscal 2005, the Company recorded an impairment charge of $52.3 million to reduce goodwill related to its former Channel segment (Note 5), recorded charges of $0.9 million and $1.6 million for severance, benefits, loss on the sale of property and equipment and legal fees associated with the strategic alliances entered into with ServerEngines and Vitesse, respectively (Note 10), incurred $17.6 million in tax expense associated with the repatriation of $360.6 million in cash from its Singapore subsidiary and recorded a valuation allowance for deferred tax assets of $67.9 million (Note 12). The Company implemented restructuring plans in the fourth quarter of fiscal 2006, third quarter of fiscal 2006, first quarter of fiscal 2005, second quarter of fiscal 2005, third quarter of fiscal 2005 and fourth quarter of fiscal 2005. These actions affect the comparability of this data.

In the first quarter of fiscal 2006, there was a reclassification from previously reported amounts due to discontinued operations.

Note 20. Glossary

The following is a list of business related acronyms that are contained within this Annual Report on Form 10-K. They are listed in alphabetical order.

•: ASIC: Application Specific Integrated Circuit
•: ATA: Advanced Technology Attachment
•: CD: Compact Discs
•: DAS: Direct Attached Storage
•: DPS: Data Protection Solutions
•: DSG: Desktop Solutions Group
•: DVD: Digital Versatile Discs
•: EDR: Enterprise Data Replicator
•: ESPP: Employee Stock Purchase Plan
•: FC/IP: Fibre Channel over Internet Protocol
•: HBA: Host Bus Adapter

F-55

•: IC: Integrated Circuit
•: I/O: Input/Output
•: IP: Internet Protocol
•: IPsec: Internet Protocol Security
•: IRS: Internal Revenue Service
•: IDE: Integrated Drive Electronics
•: iSCSI: Internet SCSI
•: IT: Information Technology
•: NAS: Network Attached Storage
•: NIC: Network Interface Card
•: ODM: Original Design Manufacturers
•: OEM: Original Equipment Manufacturer
•: PC: Personal Computer
•: PCI: Peripheral Component Interconnect
•: RAID: Redundant Array of Independent Disks
•: ROC: Raid on Chip
•: SAN: Storage Area Networks
•: SAS: Serial Attached SCSI
•: SATA: Serial Advanced Technology Attachment
•: SCSI: Small Computer System Interface
•: SMI-S: Storage Management Initiative Specification
•: TCP/IP: Transmission Control Protocol/Internet Protocol
•: TOE: TCP/IP Offload Engine
•: Ultra DMA: Ultra Direct Memory Access
•: USB: Universal Serial Bus
•: VAR: Value Added Reseller
•: VHS: Video Home System
•: WAN: Wide Area Network

The following is a list of accounting rules and regulations and related regulatory bodies referred to within this Annual Report on Form 10-K. They are listed in alphabetical order.

•: APB: Accounting Principles Board

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•: APB Opinion No. 20: Accounting Changes
•: APB Opinion No. 25: Accounting for Stock Issued to Employees
•: ARB: Accounting Research Bulletin
•: EITF: Emerging Issues Task Force
•: EITF No. 95-3: Recognition of Liabilities in Connection with Purchase Business Combinations
•: EITF No. 96-18: Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services
•: EITF No. 00-19: Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's own Stock
•: EITF No. 04-08: Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share
•: FASB: Financial Accounting Standards Board
•: FIN: FASB Interpretation Number
•: FIN 44: Accounting for Certain Transactions Involving Stock Compensation
•: FIN 47: Accounting for Conditional Asset Retirement Obligations
•: FSP: FASB Staff Position
•: FSP 115-1 and FAS 124-1: The Menaing of Other-Than-Temporary Impairment and Its Application to Certain Investments
•: FSP 143-1: Accounting for Electronic Waste Obligations
•: SAB: Staff Accounting Bulletins
•: SAB 107: Share Based Payment
•: SEC: Securities Exchange Commission
•: SFAS: Statement of Financial Accounting Standards
•: SFAS No. 3: Reporting Accounting Changes in Interim Financial Statements
•: SFAS No. 48: Revenue Recognition When Right of Return Exists
•: SFAS No. 95: Statement of Cash Flows
•: SFAS No. 123: Accounting for Stock-Based Compensation
•: SFAS No. 123(R): Share Based Payment
•: SFAS No. 142: Goodwill and Other Intangible Assets
•: SFAS No. 143: Accounting for Asset Retirement Obligations
•: SFAS No. 144: Accounting for the Impairment or Disposal of Long-Lived Assets
•: SFAS No. 146: Accouting for Costs Associated with Exit or Disposal Activities

F-57

•: SFAS No. 148: Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS No. 123
•: SFAS No. 151: Inventory Costs—an amendment of ARB No. 43, Chapter 4
•: SFAS No. 154: Accounting Changes and error Corrections, a replacement of APB Opinion No. 20 and SFAS No. 3
•: SOP: Statement of Position
•: SOP No. 97-2: Software Revenue Recognition
•: SOP No. 98-9: Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions

F-58

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
of Adaptec, Inc.

We have completed integrated audits of Adaptec, Inc.'s 2006 and 2005 consolidated financial statements and of its internal control over financial reporting as of March 31, 2006, and an audit of its 2004 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Adaptec, Inc. and its subsidiaries at March 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management's assessment, included in management's Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of March 31, 2006 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for

F-59

external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

San Jose, California
June 13, 2006

F-60

INDEX TO EXHIBITS

			Incorporated by Reference
			Incorporated by Reference			Filed with this 10-K
Exhibit Number	Exhibit Description	Form	File Number	Exhibit	File Date	Filed with this 10-K
2.01	Tax Sharing Agreement between the Registrant and Roxio, Inc., dated May 5, 2001.	10-Q	000-15071	2.9	08/13/01
2.02	Agreement and Plan of Merger and Reorganization, dated July 2, 2001, by and among the Registrant, Pinehurst Acquisition Corporation and Platys Communications, Inc.	8-K	000-15071	2.1	09/07/01
2.03	Asset Purchase Agreement, dated September 30, 2005, by and between the Registrant and International Business Machines Corporation	8-K	000-15071	2.01	10/06/05
3.01	Certificate of Incorporation of Registrant filed with Delaware Secretary of State on November 19, 1997.	10-K	000-15071	3.1	06/26/98
3.02	Bylaws of Registrant, as amended on May 18, 2006.	8-K	000-15071	3.01	05/24/06
4.01	Indenture, dated as of March 5, 2002, by and between the Registrant and Wells Fargo Bank, National Association.	S-3	333-89666	4.04	06/03/02
4.02	Form of 3% Convertible Subordinated Note.	S-3	333-89666	4.05	06/03/02
4.03	Registration Rights Agreement, dated as of March 5, 2002, by and among the Registrant and Bear, Stearns & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC and Morgan Stanley & Co. Incorporated.	S-3	333-89666	4.06	06/03/02
4.04	Collateral Pledge and Security Agreement, dated as of March 5, 2002, by and among the Registrant, Wells Fargo Bank, National Association, as trustee and Wells Fargo Bank, National Association, as collateral agent.	S-3	333-89666	4.07	06/03/02
4.05	Stock Purchase Warrant, dated March 24, 2002, issued to International Business Machines Corporation.	S-3	333-86098	4.04	04/12/02
4.06	Indenture, dated as of December 22, 2003, by and between the Registrant and Wells Fargo Bank, National Association.	10-Q	000-15071	4.01	02/09/04
4.07	Form of ³/4% Convertible Senior Subordinated Note.	10-Q	000-15071	4.02	02/09/04
4.08	Registration Rights Agreement, dated as of December 22, 2003, by and among the Registrant, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC.	10-Q	000-15071	4.03	02/09/04

4.09

Collateral Pledge and Security Agreement, dated as of December 22, 2003, by and among the Registrant, Wells Fargo Bank, National Association, as trustee, and Wells Fargo Bank, National Association, as collateral agent.

10-Q

000-15071

4.04

02/09/04

4.10

Warrant Agreement, dated as of June 29, 2004, between the Registrant and International Business Machines Corporation

S-3

333-119266

4.03

09/02/04

4.11

Warrant Agreement, dated as of August 10, 2004, between the Registrant and International Business Machines Corporation

S-3

333-119266

4.04

09/02/04

4.12

Third Amended and Restated Rights Agreement dated February 1, 2001 between the Registrant and Mellon Investor Services LLC, as Rights Agent

8-A/A

000-15071

4.1

03/20/01

10.01

†

Registrant's Savings and Retirement Plan.

10-K

000-15071

(A)

10.02

†

Second Amendment to the Registrant's Savings and Retirement Plan.

10-K

000-15071

10.02

06/14/04

10.03

†

Third Amendment to the Registrant's Savings and Retirement Plan.

10-K

000-15071

10.03

06/14/05

10.04

†

Registrant's 1986 Employee Stock Purchase Plan (amended and restated June 1998, August 2000 and August 2003).

10-Q

000-15071

10.01

11/03/03

10.05

†

1990 Stock Plan, as amended.

SC TO-I

005-38119

99.(d)(1)

05/22/01

10.06

†

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.

10-K

000-15071

(B)

10.07

†

1999 Stock Plan.

SC TO-I

005-38119

99.(d)(2)

05/22/01

10.08

†

2000 Nonstatutory Stock Option Plan and Form of Stock Option Agreement.

SC TO-I

005-38119

99.(d)(3)

05/22/01

10.09

†

1990 Directors' Option Plan and forms of Stock Option Agreement, as amended.

10-K

000-15071

10.6

06/29/99

10.10

†

2000 Director Option Plan and Form of Agreement.

10-Q

000-15071

10.1

11/06/00

10.11

Option Agreement I between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd. dated October 23, 1995.

10-Q

000-15071

10.1

02/09/96

10.12

Option Agreement II between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd. dated October 23, 1995.

10-Q

000-15071

10.2

02/09/96

10.13		Modification to Amendment to Option Agreement I & II between Taiwan Semiconductor Manufacturing Co., Ltd. and Adaptec Manufacturing (S) Pte. Ltd.	10-K	000-15071	10.17	06/29/99
10.14	*	Amendment to Option Agreements I & II between Taiwan Semiconductor Manufacturing Co., Ltd. and Adaptec Manufacturing (S) Pte. Ltd.	10-K	000-15071	10.16	06/29/99
10.15	*	Amendment No. 3 to Option Agreement II between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd.	10-K	000-15071	10.15	06/27/00
10.16	*	Amendment No. 4 to Option Agreement II between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd.	10-K	000-15071	10.15	06/26/01
10.17	*	Amendment No. 5 to Option Agreement II between Adaptec Manufacturing (S) Pte. Ltd. and Taiwan Semiconductor Manufacturing Co., Ltd.	10-Q	000-15071	10.01	02/11/02
10.18	†	Form of Indemnification Agreement entered into between Registrant and its officers and directors.	10-K	000-15071	10.14	06/26/98
10.19		Industrial Lease Agreement between the Registrant, as Lessee, and Jurong Town Corporation, as Lessor.	10-K	000-15071	10.16	06/28/95
10.20		Amendment to the Industrial Lease Agreement between the Registrant, as Lessee, and Jurong Town Corporation, as Lessor.	10-K	000-15071	10.20	06/14/04
10.21		License Agreement between International Business Machines Corporation and the Registrant.	10-K	000-15071	10.14	06/27/00
10.22		Amendment to License Agreement between International Business Machines Corporation and the Registrant.	10-K	000-15071	10.21	06/24/02
10.23		Asset Purchase Agreement between International Business Machines Corporation and the Registrant.	10-K	000-15071	10.22	06/24/02
10.24	*	Dell Supplier Master Purchase Agreement, dated as of September 27, 2002, by and between Dell Products L.P. and the Registrant.	8-K	000-15071	99.1	01/24/03
10.25	†	Registrant's Incentive Plan	10-Q	000-15071	10.01	08/09/04
10.26	†	Amended Registrant's Incentive Plan	10-Q	000-15071	10.01	02/07/05
10.27		Base Agreement, dated as of March 24, 2002, by and between the Registrant and International Business Machines Corporation	10-Q	000-15071	10.03	08/09/04
10.28	†	2004 Equity Incentive Plan	S-8	333-119271	4.03	09/24/04

10.29	†	Form of Stock Option Agreement under the 2004 Equity Incentive Plan	10-Q	000-15071	10.02	11/10/04
10.30	†	Form of Restricted Stock Purchase Agreement under the 2004 Equity Incentive Plan	10-Q	000-15071	10.03	11/10/04
10.31	†	Form of Restricted Stock Unit Agreement under the 2004 Equity Incentive Plan	10-Q	000-15071	10.04	11/10/04
10.32	†	Registrant's Variable Incentive Plan	10-Q	000-15071	10.05	11/10/04
10.33	†	Eurologic Systems Group Limited 1998 Share Option Plan Rules (Amended as of 1 April 2003)	S-8	333-104685	4.03	04/23/03
10.34	†	Broadband Storage, Inc. 2001 Stock Option and Restricted Stock Purchase Plan	S-8	333-118090	4.03	08/10/04
10.35	†	Snap Appliance, Inc. 2002 Stock Option and Restricted Stock Purchase Plan	S-8	333-118090	4.04	08/10/04
10.36	†	Chairman of the Board Compensation Arrangement	10-K	000-15071	10.41	06/14/05
10.37	†	Stargate Solutions, Inc. 1999 Incentive Stock Plan	S-8	333-69116	4.03	09/07/01
10.38	†	Separation agreement and general release for Mr. Robert N. Stephens, effective as of July 8, 2005	8-K	000-15071	10.01	07/06/05
10.39	†	Employment Agreement of Subramanian "Sundi" Sundaresh, effective as of September 21, 2005	8-K	000-15071	10.01	09/27/05
10.40	†	Employment Agreement Addendum of Mr. Subramanian Sundaresh, effective as of November 14, 2005	8-K/A	000-15071	10.01	11/17/05
10.41	†	Employment Agreement of Marcus Lowe, effective as of September 21, 2005	8-K	000-15071	10.03	09/27/05
10.42	†	2005 Deferred Compensation Plan	10-Q	000-15071	10.01	11/07/05
10.43	**	Manufacturing Services and Supply Agreement by and between the Registrant and Sanmina-SCI Corporation	10-Q	000-15071	10.1	02/07/06
10.44	**	Asset Purchase and Sale Agreement, dated as of December 23, 2005, by and among Adaptec Manufacturing (s) Pte. Ltd., Sanmina-SCI Corporation and Sanmina-SCI Systems Singapore Pte. Ltd.	10-Q	000-15071	10.2	02/07/06
10.45	**	Amendment to Manufacturing Services and Supply Agreement by and between the Registrant and Sanmina-SCI Corporation	10-Q	000-15071	10.3	02/07/06
10.46	†	Employment Agreement of Mr. Christopher O'Meara, effective as of March 21, 2006	8-K	000-15071	10.01	03/27/06
10.47	†	Form of New Indemnification Agreement entered into between Registrant and its officers and directors	8-K	000-15071	99.1	04/11/06

10.48

Adaptec Incentive Plan, Fiscal 2007

8-K

000-15071

99.01

05/24/06

10.49

Asset Purchase and Sale Agreement, dated as of January 31, 2006, by and among Adaptec, Inc., Sanmina-SCI Corporation and Sanmina-SCI USA, Inc.

21.01

Subsidiaries of Registrant.

10-K

000-15071

21.01

06/14/05

23.01

Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP.

31.01

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(A): Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1987.
(B): Incorporated by reference to exhibits filed with Registrant's Annual Report on Form 10-K for the year ended March 31, 1993.
†: Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of said form.
*: Confidential treatment has been granted for portions of this agreement.
**: Confidential treatment has been requested for portions of this agreement.

QuickLinks

Table of Contents
FORWARD LOOKING STATEMENTS
PART I

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

Item 4A. Executive Officers of the Registrant

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

PART III

Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MARCH 31, 2006, 2005 AND 2004
SIGNATURES
ADAPTEC, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
ADAPTEC, INC. CONSOLIDATED BALANCE SHEETS
ADAPTEC, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
ADAPTEC, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADAPTEC, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
INDEX TO EXHIBITS
EX-10.49 2 a2171036zex-10_49.htm EXHIBIT 10.49
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Exhibit 10.49

[*]: Confidential Treatment Requested. Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.

ASSET PURCHASE AND SALE AGREEMENT

(Dated as of January 31, 2006)

by and among

SANMINA-SCI CORPORATION,

and

SANMINA -SCI USA, INC.

and

SANMINA-SCI SYSTEMS SINGAPORE PTE. LTD.

and

ADAPTEC, INC.

and

ADAPTEC MANUFACTURING (S) PTE. LTD

TABLE OF CONTENTS

		Page(s)
ARTICLE I	DEFINITIONS	1
	1.1 Certain Definitions	1
ARTICLE II	PURCHASE AND SALE OF ASSETS	8
	2.1 Purchase and Sale of Assets	8
	2.2 Assumption of Liabilities	10
	2.3 Closing	12
	2.4 Post-Closing Purchase Price Adjustments	13
	2.5 Prorations	15
	2.6 Taxes	15
	2.7 Exemptions	16
	2.8 Nontransferable Assets	16
	2.9 Taking of Necessary Action; Further Action	17
	2.10 Allocation of Purchase Price Consideration	17
	2.11 Earn-Out Consideration	17
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF SELLER	20
	3.1 Organization, Qualification, and Corporate Power	21
	3.2 Authorization	21
	3.3 No Conflicts	21
	3.4 Consents	21
	3.5 Business Unit Financial Data	21
	3.6 Legal Compliance	22
	3.7 Tax Matters	22
	3.8 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment	22
	3.9 Intellectual Property	23
	3.10 Contracts	25
	3.11 Insurance	26
	3.12 Litigation	26
	3.13 Restrictions on Business Activities	26
	3.14 Product Warranty	26
	3.15 Employees	26
	3.16 Employee Matters and Benefit Plans	26

	3.17 Labor Matters	27
	3.18 Environment, Health and Safety	27
	3.19 Real Estate Representations	28
	3.20 Fees	29
	3.21 Sufficiency of Purchased Assets	29
	3.22 Operations Permits	29
	3.23 Non-Governmental Certifications	29
	3.24 Customers	30
	3.25 Suppliers	30
	3.26 No Adverse Developments	30
	3.27 Inventories	30
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER	30
	4.1 Organization, Qualification, and Corporate Power	30
	4.2 Authorization	31
	4.3 No Conflicts	31
	4.4 Consents	31
	4.5 Payment of Purchase Price	31
ARTICLE V	PRE-CLOSING COVENANTS	32
	5.1 Operation of Business	32
	5.2 Access to Information	33
	5.3 Notice of Developments	34
	5.4 No Solicitation	34
	5.5 Reasonable Efforts	34
	5.6 Notices and Consents	34
	5.7 Employee Matters	35
ARTICLE VI	OTHER AGREEMENTS AND COVENANTS	36
	6.1 Confidentiality	36
	6.2 Additional Documents and Further Assurances	36
	6.3 Covenant Not to Compete	36
	6.4 Covenants Regarding Books and Records and Retained Materials	38
	6.5 Amendment to Singapore Transaction Inventory Put	39
ARTICLE VII	CONDITIONS TO THE CLOSING	39
	7.1 Conditions to Parent's and Buyer's Obligation to Close	39

	7.2 Conditions to Seller's Obligations to Close	41
ARTICLE VIII	SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS	42
	8.1 Representations, Warranties and Covenants	42
ARTICLE IX	INDEMNIFICATION	42
	9.1 Indemnification by Seller	42
	9.2 Indemnification by Buyer and Parent	43
	9.3 Notice and Opportunity to Defend	43
	9.4 Remedies	44
	9.5 Certain Limitations	44
ARTICLE X	TERMINATION	46
	10.1 Termination of the Agreement	46
	10.2 Effect of Termination	46
ARTICLE XI	MISCELLANEOUS	47
	11.1 Press Releases and Public Announcements	47
	11.2 No Third Party Beneficiaries	47
	11.3 Entire Agreement and Modification	47
	11.4 Amendment	47
	11.5 Waivers	47
	11.6 Successors and Assigns	47
	11.7 Counterparts	48
	11.8 Headings	48
	11.9 Notices	48
	11.10 Governing Law	48
	11.11 Severability	49
	11.12 Expenses	49
	11.13 Construction	49
	11.14 Seller Disclosure Letter	49
	11.15 Attorneys' Fees	49
	11.16 Further Assurances	49
	11.17 Time of Essence	49
	11.18 Consent to Jurisdiction	49
	11.19 Schedules and Exhibits	50
	11.20 Guarantee by Parent	50

iii

EXHIBITS

Exhibit A	—	Form of Buyer Supply Agreement
Exhibit B	—	Form of Lease Assumption Agreement
Exhibit C	—	Form of License Agreement
Exhibit D	—	Form of Transition Services Agreement

SCHEDULES

Schedule 1.1(k)		Business Designs
Schedule 1.1(l)		Business Intellectual Property
Schedule 1.1(m)		Business Software
Schedule 1.1(o)		Capitalized Fixed Assets
Schedule 1.1(v)		Employees
Schedule 1.1(cc)		Expensed Fixed Assets
Schedule 1.1(ee)		Finished Goods Inventory
Schedule 1.1(yy)		Qualified Products
Schedule 1.1(mmm)		Transferred Trademarks and Domain Names
Schedule 2.1(b)(iii)(A)		Tangible Property Leases (Seller as Lessor)
Schedule 2.1(b)(iii)(B)		Tangible Property Leases (Seller as Lessee)
Schedule 2.1(b)(iv)		Real Property Leases
Schedule 2.1(b)(vii)		Assigned Contracts
Schedule 2.1(b)(viii)		Assigned Permits
Schedule 2.1(b)(ix)		Prepaid Expenses
Schedule 2.1(c)(xv)		Excluded Assets
Schedule 2.2(b)(vii)		Outstanding Purchase Orders
Schedule 2.10		Purchase Price Allocation
Schedule 2.11(b)(ii)		Qualified Business Customers
Schedule 2.11(d)		Payment Schedule
Schedule 5.7(a)		Offered Employees
Schedule 5.7(b)		Employee Retention Bonus Reserve
Schedule 6.3(c)		Jupiter Products
Schedule 6.5		Singapore Business Products Inventories
Schedule 7.1(e)		Required Third-Party Notices and Consents
Schedule 7.1(f)(ii)		Conveyance Documents
Schedule 7.1(f)(v)		Liens
Schedule 7.1(j)		Requisite Transferred Employee Base

ASSET PURCHASE AND SALE AGREEMENT

THIS ASSET PURCHASE AND SALE AGREEMENT (this "Agreement") is made and entered into as of January 31, 2006, by and among Sanmina-SCI Corporation, a Delaware corporation ("Parent"), and Sanmina-SCI USA, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent ("Buyer") and Sanmina-SCI Systems Singapore Pte. Ltd., a wholly-owned subsidiary of Parent ("Sanmina-Singapore"), on the one hand, and on the other hand, Adaptec, Inc., a Delaware corporation ("Seller") and Adaptec Manufacturing (S) Pte. Ltd., a Singapore corporation and a wholly-owned subsidiary of Seller ("Adaptec-Singapore"). Parent, Buyer, Seller and Adaptec-Singapore are sometimes referred to herein individually as a "Party" and collectively as the "Parties."

RECITALS

A. Seller is engaged in the Business (as hereinafter defined) at the Facility (as hereinafter defined), which is located in Colorado Springs, Colorado.

B. Seller and Adaptec Singapore desire to sell to Buyer and Sanmina-Singapore, and Buyer and Sanmina-Singapore desire to purchase from Seller and Adaptec Singapore, on the terms and subject to the conditions set forth herein, the Purchased Assets of Seller described herein, and Seller desires Buyer to assume the Assumed Liabilities, which Buyer would agree to assume on the terms and subject to the conditions set forth herein.

C. Seller, Adaptec Singapore, Buyer and Sanmina-Singapore intend to amend and modify the Singapore Supply Agreement (as defined below) pursuant to Section 6.5 hereof.

C. The Board of Directors of each of Parent, Buyer, Sanmina-Singapore, Seller and Adaptec-Singapore believes it is in the best interests of its respective corporation and stockholders that the transactions contemplated hereby be consummated and, in furtherance thereof, has approved this Agreement and the transactions contemplated hereby.

D. Parent, Buyer, Sanmina-Singapore, Seller and Adaptec-Singapore desire to make certain representations, warranties, covenants and other agreements in connection with the transactions contemplated hereby.

NOW, THEREFORE, in consideration of the covenants and representations set forth herein, and for other good and valuable consideration, the parties agree as follows:

ARTICLE I

DEFINITIONS

1.1 Certain Definitions. As used in this Agreement, the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa). Certain other terms are defined in the text of this Agreement.

(a) "Actions or Proceeding" means any action, suit, proceeding or arbitration.

(b) "Affiliate" means any Person that directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by voting power, Contract or otherwise and, in any event and without limitation of the previous sentence, any Person owning ten percent (10%) or more of the voting securities of another Person shall be deemed to control that Person.

(d) "Assets" of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, owned by such Person, including without limitation, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory and goods.

(e) "Assumed Employment Liabilities" means, and is limited to, the Employment Liabilities with respect to the Transferred Employees for accrued vacation time that is accrued on the books and records of Seller as of the Closing Date for periods prior to the Closing Date and which has not been paid or satisfied by Seller by the Closing Date ("Accrued Vacation"), but, with respect to each Transferred Employee, not in excess of such Transferred Employee's Maximum Assumed Accrued Vacation (as defined below). For purposes of this definition, an individual Transferred Employee's "Maximum Assumed Accrued Vacation" is an amount equal to the lesser of (i) forty (40) hours of such Transferred Employee's Accrued Vacation or (ii) such Transferred Employee's actual Accrued Vacation as of the Closing Date.

(f) "Assumed Liabilities" shall have the meaning given to such term in Section 2.2(b).

(g) "Benefit Plan" means any Retirement Plan and any plan, program, policy, contract, agreement or other arrangement providing for compensation, loans (other than travel allowances and relocation packages), severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits, health, sickness, dental, vision, life, disability, sabbatical, or accidental death and dismemberment benefits, or other employee benefits or remuneration of any kind, whether written or unwritten, funded or unfunded, including, without limitation, each "employee benefit plan," within the meaning of Section 3(3) of ERISA, which is or has been maintained, contributed to, or required to be contributed to, by the Seller or its ERISA Affiliates for the benefit of any Transferred Employee, or with respect to which the Seller or its ERISA Affiliates have or may have any liability or obligation to any Transferred Employee.

(h) "Books and Records" of any Person means, with respect to a particular line of business conducted by such Person, all files, documents, instruments, papers, books and records relating to such line of business and its operations, condition (financial or other), results of operations and the Assets of such Person used in such line of business, including without limitation, statements of operations, budgets, reliability and cost data, pricing guidelines, ledgers, journals, deeds, title policies, copies of Contracts, copies of Permits, customer lists, operational data and plans and environmental studies and plans relating to such line of business.

(i) "Business" means Seller's operations to develop, design, supply, manufacture and market block-based storage solutions, which consist of the integration and development of RAID (redundant array of independent disks) controllers and external storage enclosures; provided that the Business does not include the business of developing, designing, supplying or manufacturing RAID controllers, the business of marketing RAID controllers as standalone products, or the business of developing or marketing software or other components of RAID controllers as standalone products.

(j) "Business Day" shall mean a day other than Saturday and Sunday or any day on which banks located in the State of New York or the State of California are authorized or obligated to close.

(k) "Business Designs" means the specifications, architecture, and design documents for the storage enclosure products listed in Schedule 1.1(k).

(l) "Business Intellectual Property" shall mean Intellectual Property owned by Seller and used primarily in the conduct of the Business in the manner conducted by Seller as of the date hereof and the Closing Date. The Business Intellectual Property includes the Seller Registered

Business Intellectual Property (as defined below) which is listed in Section 3.9(a)(i) of the Seller Disclosure Letter and the patents, patent applications and invention disclosures listed on Schedule 1.1(l).

(m) "Business Software" means the software listed in Schedule 1.1(m).

(n) "Buyer Supply Agreement" means that certain Storage System Product Supply Agreement substantially in the form set forth in Exhibit A hereto to be entered into by Buyer and Seller (and Parent, for the purposes of having Parent guarantee the performance of Buyer's obligations thereunder).

(o) "Capitalized Fixed Assets" means all items of plant, equipment, machinery, tools, furniture and furnishings and other tangible assets listed on Schedule 1.1(o), provided, however, that as defined herein, Capitalized Fixed Assets shall not include: (i) the Expensed Finished Assets, (ii) the Finished Goods Inventory, (iii) any of the Excluded Assets, (iv) the Facility, (v) any leasehold improvements or fixtures, any buildings or other structures, or (vi) any information technology systems or custom equipment.

(p) "Closing Date" means the date which is two (2) Business Days following the satisfaction or, if permitted pursuant to the terms of Article VII hereof, waiver of the conditions to Closing set forth in Article VII hereof, or at such other date as the parties hereto shall mutually agree.

(q) "Closing Net Asset Value" shall mean an amount equivalent to the Net Asset Value as set forth in the Closing Net Asset Value Statement.

(r) "Closing Net Asset Value Statement" shall have the meaning given to such term in Section 2.4(a).

(s) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

(t) "Contract" means any written or legally binding oral agreement, contract, understanding, license, instrument, note, guaranty, indemnity, representation, warranty, deed, assignment, power of attorney, certificate, purchase order, work order, insurance policy, benefit plan, commitment, covenant, assurance or undertaking of any nature.

(u) "Definitive Agreements" means, collectively, this Agreement and the Ancillary Agreements.

(v) "Employees" means the current employees (including without limitation, the Transferred Employees), of Seller or any Subsidiary of Seller listed in Schedule 1.1(v), each of whom is employed in connection with the Business.

(w) "Employee Retention Bonus Reserve" means a reserve to fund payment of certain bonuses (the "Employee Retention Bonuses") Buyer and Seller have agreed will be paid to certain of the Transferred Employees. The Transferred Employees eligible to receive Employee Retention Bonuses and the amount of the Employee Retention Bonus each such Transferred Employee is eligible to receive is set forth on Schedule 5.7(b) hereto. The Employee Retention Bonuses Reserve will equal the sum of such Employee Retention Bonuses.

(x) "Employment Agreement" shall mean each management, employment, severance, consulting, relocation, repatriation, expatriation, visa or work permit between Seller or any Subsidiary and any Employee.

(y) "Employment Liabilities" shall mean any and all claims, debts, liabilities, commitments and obligations, whether fixed, contingent or absolute, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, however arising, including all costs and

expenses relating thereto arising under law, rule, regulation, permit, action or proceeding before any governmental authority, order or consent decree or any award of any arbitrator of any kind payable to any Benefit Plan, Employment Agreement relating to an Employee and arising from such Employee's employment with Seller or any ERISA Affiliate prior to the Closing Date, including, without limitation, any Termination Liabilities.

(z) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

(aa) "ERISA Affiliate" shall mean each majority-owned subsidiary of Seller and any Person under common control with each Seller or any of Seller's majority-owned Subsidiaries within the meaning of Section 414(b), (c), (m) or (o) of the Code and the regulations issued thereunder.

(bb) "Excluded Liabilities" shall have the meaning given to such term in Section 2.2(c).

(cc) "Expensed Fixed Assets" means all items of computers and computer supplies, office materials and supplies and other tangible assets listed on Schedule 1.1(cc), provided, however, that as defined herein, Expensed Fixed Assets shall not include: (i) the Capitalized Fixed Assets, (ii) the Finished Goods Inventory, (iii) any of the Excluded Assets, (iv) the Facility and (v) any leasehold improvements or fixtures, any buildings or other structures, or (vi) any information technology systems or custom equipment.

(dd) The "Facility" means the office facility used in the operation of the Business and located at Suite 100 of the Research Park Five Building, 5385 Mark Dabling Boulevard, Colorado Springs, Colorado 80918.

(ee) "Finished Goods Inventory" means the items of finished goods inventory of the Business listed and described in Schedule 1.1(ee) and "Consigned Finished Goods Inventory" means any Finished Goods Inventory which is located at a consigned customer site as specified in Schedule 1.1(ee).

(ff) "Governmental Body" means any applicable: (i) nation, province, state, county, city, town, village, district, or other jurisdiction of any nature; (ii) federal, provincial, state, local, municipal, foreign, or other government; (iii) governmental or quasi governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); or (iv) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.

(gg) "Indebtedness" of any Person means all monetary obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases or (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person.

(hh) "Intellectual Property" means any or all of the following and all worldwide common law and statutory rights in, arising out of, or associated therewith: (i) United States and foreign patents and utility models and applications therefor and all reissues, divisions, reexaminations, renewals, extensions, provisionals, continuations and continuations in-part thereof ("Patents"); (ii) inventions (whether patentable or not), improvements, trade secrets, proprietary information, know-how, and any rights in technology, invention disclosures, technical data and customer lists, and all documentation relating to any of the foregoing; (iii) copyrights, copyright registrations and applications therefor, and all other rights corresponding thereto throughout the world; (iv) domain names, uniform resource locators ("URLs"), other names and locators associated with the Internet, and applications or registrations therefor ("Domain Names"); (v) industrial designs and any registrations and applications therefor; (vi) trade names, logos, common law trademarks and service marks, trademark and service mark registrations, related goodwill and applications therefor

throughout the world ("Trademarks"); (vii) all rights in databases and data collections; (viii) all moral and economic rights of authors and inventors, however denominated; and (ix) any similar or equivalent rights to any of the foregoing (as applicable).

(ii) "Intellectual Property Contracts" shall have the meaning given to such term in Section 3.9(a)(ii).

(jj) "Law" means any applicable law, statute, rule, regulation, ordinance, extension order, or other pronouncement having the effect of law of the United States, any foreign country or any U.S. or foreign state, county, city or other political subdivision or of any Governmental Body.

(kk) "Lease Assumption Agreement" shall mean that certain Assignment, Assumption and Consent to Assignment Agreement substantially in the form attached as Exhibit B hereto between Buyer and Parent and the lessor of the Facility, pursuant to which Buyer and Parent shall assume Seller's obligation under the Real Property Lease for the Facility.

(ll) "Liability" means any Indebtedness, obligation or other liability of a Person (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due).

(mm) "License Agreement" means that certain License Agreement substantially in the form attached as Exhibit C hereto between Seller and Buyer.

(nn) "Lien" means any mortgage, pledge, lien, charge, claim, security interest, adverse claims of ownership or use, restrictions on transfer, defect of title or other encumbrance of any sort, other than (a) mechanic's, materialmen's, and similar liens that arise by operation of law and relate to amounts not yet due and payable, and (b) customary liens for Taxes not yet due and payable.

(oo) "Material Adverse Effect" means with respect to (i) Parent or Buyer, any material adverse change in the business, operations, assets (including intangible assets), liabilities (contingent or otherwise), results of operations or financial performance, condition (financial or otherwise) of such Party, which is material to Parent and Buyer, taken as a whole, and (ii) with respect to Seller, any material adverse change in the business, operations, assets (including intangible assets), liabilities (contingent or otherwise), results of operations or financial performance or condition (financial or otherwise) of Seller which is material to the Business taken as a whole; provided, however, that in determining whether or not a Material Adverse Effect has occurred, any effect to the extent attributable to the following shall not be considered: (a) changes in laws, rules or regulations of general applicability or interpretations thereof by governmental entities, (b) changes affecting the computing and storage segments of the electronics industry, provided that such changes do not affect such Person in a substantially disproportionate manner than the effect of such changes on such industry segments as a whole; and (c) any effect resulting from the announcement of this Agreement in accordance with this Agreement.

(pp) "Multiemployer Plan" shall mean any "Pension Plan" which is a "multiemployer plan," as defined in Section 3(37) of ERISA.

(qq) "Net Asset Value" shall mean an amount equivalent to: (i) the sum of (A) the net book value of the Capitalized Fixed Assets on the books of Seller on the Closing Date, plus (B) the fair market value of the Expensed Fixed Assets on the books of Seller on the Closing Date, plus (C) for each unit of Finished Goods Inventory (other than Consigned Finished Goods Inventory) that does not incorporate a disk drive, an amount equal to [*] of the Bill of Material Cost (as defined below) for such unit of Finished Goods Inventory on the Closing Date plus (D) for each unit of Consigned Finished Goods Inventory that does not incorporate a disk drive, an amount equivalent to [*] of the Bill of Material Cost for such unit of Consigned Finished Goods Inventory on the Closing Date plus the actual historical freight costs incurred by Seller to ship such unit of

Consigned Finished Goods Inventory to the applicable customer's site, plus (E) for each unit of Finished Goods Inventory (other than Consigned Finished Goods Inventory) into which a disk drive is incorporated, an amount equal to the Baseline Material Costs (as defined in the Singapore Supply Agreement) for such unit of Finished Goods Inventory plus (1) [*] for all components of such unit other than disk drives and (2) [*] for disk drives in such unit, plus (F) for each unit of Consigned Finished Goods Inventory into which a disk drive is incorporated, an amount equal to the Baseline Material Costs (as defined in the Singapore Supply Agreement) for such unit plus (1) [*] for all components of such unit other than disk drives and (2) [*] for disk drives in such unit and (3) the actual historical freight costs incurred by Seller to ship such unit of Consigned Finished Goods Inventory to the applicable customer's site: minus (ii) the sum of (A) the amount of the Assumed Employment Liabilities plus (B) the amount of the Employee Retention Bonus Reserve. As used in this definition, the term "Bill of Material Cost" shall, with respect to a unit of Finished Goods Inventory, mean the actual cost to Seller of the materials and components incorporated into such unit.

(rr) "Order" means any writ, judgment, decree, injunction, administrative order, directive or similar order or directive of any Governmental Body (in each such case whether preliminary or final).

(ss) "Pension Plan" shall mean each Employee Plan which is an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA.

(tt) "Permit" shall mean a license, permit, authorization, registration, certificate, variance, approval, consent and franchise and similar right obtained from governments and any Governmental Body, and any pending applications relating to any of the foregoing.

(uu) "Person" means any individual, corporation (including any non profit corporation), company, general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, Governmental Body or other entity.

(vv) "Preliminary Net Asset Value" shall have the meaning given to such term in Section 2.3(c)

(ww) "Preliminary Net Asset Value Statement" shall have the meaning givento such term in Section 2.3(c).

(xx) "Purchase Price" means an amount equal to (i) the Preliminary Net Asset Value (as adjusted pursuant to Section 2.4) plus an amount equal to $8,450,000 (such sum, the "Closing Purchase Price"), plus (ii) the right to receive the Earn-Out Consideration pursuant to Section 2.11 hereof.

(yy) "Qualified Products" means the products listed on Schedule 1.1(yy).

(zz) "Registered Intellectual Property" means all United States, international and foreign: (i) patents, including applications therefor; (ii) registered trademarks, applications to register trademarks, including intent-to-use applications, or other registrations or applications related to trademarks; (iii) copyright registrations and applications to register copyrights; (iv) registered mask works and applications to register mask works; (v) domain name registrations; and (vi) any other Intellectual Property that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any private, state, government or other public or quasi-public legal authority at any time.

(aaa) "Representatives" means, with respect to a Person, that Person's officers, directors, employees, accountants, counsel, investment bankers, financial advisors, agents and other representatives.

(bbb) "Retained Manufacturing Materials" means all materials, technical information and documentation existing as of the Closing Date that are necessary to build, manufacture, test, operate, maintain or support the Qualified Products, as the Qualified Products were manufactured on the Closing Date.

(ccc) "Retained Software" means the software or firmware, in source code and executable (binary) code forms that is incorporated into the Qualified Products, as the Qualified Products were distributed or otherwise made commercially available by Seller prior to the Closing Date.

(ddd) "Retirement Benefit Rights" means any pension, lump sum, gratuity or any right or benefit of a financial nature or value, provided or generally intended to be provided to (or in respect of) an Employee upon termination of such Employee's employment, due to resignation, dismissal, retirement or on death, and excluding payments required to be made as compensation for breach of the employment relationship by the employer. Post-retirement health benefits are deemed to be "Retirement Benefit Rights"; provided, however, that benefits provided under an arrangement the sole purpose of which is to provide benefits upon injury or death by accident occurring while an individual is a service provider to the Seller or its ERISA Affiliates are not Retirement Benefit Rights.

(eee) "Retirement Plan" means a written arrangement for the provision of Retirement Benefit Rights to Employees (and, if applicable, beneficiaries thereof).

(fff) "Seller Contract" means any Contract: (a) to which Seller or any Subsidiary of Seller is a party; (b) by which Seller or any Subsidiary of Seller or any of its assets is or may become bound or under which Seller or any Subsidiary of Seller has, or may become subject to, any obligation; or (c) under which Seller or any Subsidiary of Seller has or may acquire any right or interest.

(ggg) "Seller Registered Intellectual Property" shall mean all of the Business Intellectual Property that is Registered Intellectual Property.

(hhh) "Seller's Retained Environmental Liabilities" means any liability, obligation, judgment, penalty, fine, cost or expense, (including reasonable attorneys' fees and environmental consultant costs) of any kind or nature, or the duty to indemnify, defend or reimburse any Person with respect to: (i) the presence on or before the Closing Date of any Hazardous Material in the soil, groundwater, surface water, air or building materials of the Facility as of the Closing Date ("Pre-Existing Contamination"); (ii) the migration at any time prior to or after the Closing Date of Pre-Existing Contamination to any other real property, or the soil, groundwater, surface water, air or building materials thereof; (iii) the exposure of any Person to Pre-Existing Contamination or to Hazardous Materials in the course of or as a consequence of any activities of the Business at the Facility prior to the Closing, without regard to whether any health effect of the exposure has been manifested as of the Closing Date; (iv) the violation of any Environmental Laws by the Seller or its agents, employees, predecessors in interest, contractors, invitees or licensees prior to the Closing Date or in connection with Seller's operation of the Business prior to the Closing Date; and (v) any actions or proceedings brought or threatened by any third party with respect to any of the foregoing that existed as of the Closing Date. The foregoing notwithstanding, the Liabilities of the type described above in this paragraph shall not be considered to be Seller's Retained Environmental Liabilities to the extent that it arises from the negligence of Parent, Buyer or any of their Subsidiaries or Affiliates.

(iii) "Singapore Supply Agreement" means that certain Manufacturing Services and Supply Agreement dated as of January 9, 2006 between Seller and Parent.

(jjj) "Singapore Transaction" means the purchase and sale of certain assets of Adaptec Singapore pursuant to an Asset Purchase and Sale Agreement dated as of December 23, 2005 (the "Singapore APA") among Adaptec Singapore, Parent and Sanmina-Singapore.

(kkk) "Standard Form Agreement" means the standard form of the following Contracts currently used by Seller or any Subsidiary of Seller in connection with the Business: (i) development agreement; (ii) distributor or reseller agreement; (iii) employee agreement containing any assignment or license of Intellectual Property or Intellectual Property rights or any confidentiality provision; (iv) consulting or independent contractor agreement containing any assignment or license of Intellectual Property or Intellectual Property rights or any confidentiality provision; (v) confidentiality or nondisclosure agreement; or (vi) purchase orders and sales orders in the ordinary course of business.

(lll) "Subsidiary" of a Person means any corporation, partnership, joint venture, association and other entity controlled by such Person directly or indirectly through one or more intermediaries where, for purposes of this definition, "control" means ownership of outstanding stock or other voting securities of an entity possessing more than fifty percent (50%) of the voting power of all outstanding voting securities of such entity.

(mmm) "Transferred Trademarks and Domain Names" means the trademarks and domain names owned by Seller and used by Seller in the conduct of the Business and set forth on Schedule 1.1(mmm).

(nnn) "Transferred Employee" means any Employee currently providing services to Seller who will become an employee of Buyer upon the Closing as a result of consummation of the Transactions.

(ooo) "Transactions" means the transactions which are the subject matter of (i) this Agreement for the sale and acquisition of the Purchased Assets and the assumption of the Assumed Liabilities of the business and (ii) the Ancillary Agreements.

(ppp) "Transition Services Agreement" means that certain Transition Services Agreement substantially in the form attached as Exhibit D hereto among Parent, Buyer and Seller.

ARTICLE II

PURCHASE AND SALE OF ASSETS

2.1 Purchase and Sale of Assets.

(a) Purchase and Sale. Upon the terms and subject to the conditions set forth herein, at the Closing (as defined in Section 2.3(a) hereof), (i) Buyer and Sanmina-Singapore shall purchase from Seller and Adaptec-Singapore, and Seller and Adaptec-Singapore shall irrevocably sell, convey, transfer, assign and deliver to Buyer and Sanmina-Singapore, the Purchased Assets (as defined in Section 2.1(b) hereof), free and clear of all Liens (other than Permitted Liens). All references in this Agreement to payments or amounts of cash refer to, and are stated in, U.S. Dollars.

(b) Definition of Purchased Assets. For all purposes of and under this Agreement, the term "Purchased Assets" shall mean, refer to and include, all of Seller's and Adaptec-Singapore's right, title and interest in and to all of the following tangible and intangible assets, properties and rights to the extent owned by and used for or held for use by Seller and/or Adaptec-Singapore at the Closing (but specifically excluding the Excluded Assets (as defined in Section 2.1(c) hereof)):

(i) the Capitalized Fixed Assets, the Expensed Fixed Assets, the Finished Goods Inventory (including the Consigned Finished Goods Inventory) and the Inventories (collectively, the "Tangible Personal Property");

(ii) the Business Designs and all Business Intellectual Property associated therewith and the Business Software and all Business Intellectual Property associated therewith;

(iii) all rights of Seller in, to or under (A) the leases or subleases of tangible personal property listed in Schedule 2.1(b)(iii)(A) as to which Seller is the lessor or sublessor, and (B) the leases of tangible personal property described in Schedule 2.1(b)(iii)(B) as to which a Seller is the lessee or sublessee, together with any options to purchase the underlying property (the leases and subleases described in subclauses (A) and (B) hereof, the "Personal Property Leases");

(iv) all rights of Seller in, to our under the lease or leases of real property listed in Schedule 2.1(b)(iv) as to which Seller is the lessee or sublessee, excluding any right to the any return or refund of any security deposit provided to the landlord under any such Real Property Lease (the "Real Property Leases");

(v) the Transferred Trademarks and Domain Names;

(vi) all Books and Records of Seller solely relating to the Purchased Assets or necessary for the conduct of the Business at the Closing, other than Books and Records of Seller concerning trade secrets or other confidential information of Seller, privileged information or information subject to attorney work-product protection or records and files of Employees relating to any time periods prior to the Closing or relating to any other human resource matters (the "Business Records"), subject to Seller's right to retain copies of all Business Records as provided in Section 6.4 hereof;

(vii) all rights under the Contracts to which Seller is a party that are set forth on Schedule 2.1(b)(vii), other than the Excluded Agreements (the "Assigned Contracts");

(viii) all Permits (including applications therefor) held by Seller and used the conduct of the Business and set forth on Schedule 2.1(b)(viii), in each case to the extent transferable (the "Assigned Permits");

(ix) all prepaid expenses listed in Schedule 2.1(b)(ix) (the "Prepaid Expenses"); and

(x) the goodwill associated exclusively with the Business.

(c) Definition of Excluded Assets. Notwithstanding anything to the contrary set forth in this Section 2.1 or elsewhere in this Agreement, the term "Excluded Assets" shall mean (and the term "Purchased Assets" shall not mean, refer to or include) any assets or properties of Seller that are not expressly defined herein as "Purchased Assets," including, but not limited to, the following, to the extent owned, used or held for use by Seller as of the Closing:

(i) Cash, cash equivalents, investments in cash, securities or otherwise, and all bank accounts or similar deposit accounts, and all Seller brokerage or securities accounts of any kind owned or held by Seller or any of its Subsidiaries or Affiliates;

(ii) all refunds of Taxes (or rights thereto) with respect to Taxes paid or accrued by Seller and not reimbursed or paid by Buyer;

(iii) all claims, actions, deposits, prepayments, refunds, causes of action, choses in action, rights of recovery, rights of set off, and rights of recoupment of any kind or nature (including any such item relating to Taxes) to the extent attributable to the Excluded Agreements, Retained Contracts, Excluded Assets or the Excluded Liabilities;

(iv) all rights of Seller under this Agreement and any Ancillary Agreement to which Seller is a party or under any agreement, certificate, instrument, or other document executed and delivered by Seller in connection with the Transactions or any written side agreement between Seller and Buyer entered into on or after the date hereof relating to the Transactions;

(v) all Books and Records of Seller which are not Business Records, including, without limitation, those that relate to the Taxes, Excluded Agreements, Retained Contracts or Excluded Assets and all Books and Records relating to the Employees or any other employees of Seller or to any human resource matters; provided, however, that Seller agrees that, for purposes reasonably related to Buyer's conduct of the Business, Seller shall provide Buyer with copies of (at Buyer's expense), or reasonable access to, such books and records to the extent that any such books and records relate to the Business, the Purchased Assets or Assumed Liabilities and do not contain trade secrets or other confidential information of Seller, privileged information, information subject to attorney work-product protection or records and files of or relating to any employees relating to any time periods prior to the Closing or relating to any other human resource matters;

(vi) all accounts receivable and all notes, bonds and other evidences of Indebtedness of and rights to receive payments arising out of any sales occurring in the conduct of the Business or otherwise prior to the Closing Date, and all security agreements related thereto, including any rights with respect to any third party collection procedures or any other Actions or Proceedings which have been commenced in connection therewith;

(vii) all insurance policies, and refunds paid or payable in connection with the cancellation or discontinuance of any such insurance policies following the Closing related to or connected with the Business or the Purchased Assets prior to the Closing Date;

(viii) all Contracts to which any Seller is a party other than Assigned Contracts ("Retained Contracts") and any and all rights of Seller under such Retained Contracts;

(ix) all Intellectual Property of Seller and its Affiliates and Subsidiaries, other than (A) the Business Intellectual Property, including the Business Intellectual Property embodied in and/or related to the Business Designs and the Business Software, and (B) the Transferred Trademarks and Domain Names;

(x) all tangible personal property of Seller other than the Tangible Personal Property;

(xi) all real property of Seller;

(xii) all Permits of Seller other than the Assigned Permits;

(xiii) all prepaid expenses of Seller other than the Prepaid Expenses;

(xiv) all security deposits of Seller (including but not limited to any right to the any return or refund of any security deposit provided to the landlord under any Real Property Lease or any Personal Property Lease); and

(xv) the assets, property and rights set forth in Schedule 2.1(c)(xv).

2.2 Assumption of Liabilities.

(a) Assumption. Upon the terms and subject to the conditions set forth herein, at the Closing, Buyer shall assume from Seller (and in the case of Section 2.2(b)(vi), Adaptec Singapore), and Seller shall irrevocably convey, transfer and assign to Buyer, all of the Assumed Liabilities (as defined in Section 2.2(b) hereof). Buyer shall not assume any liabilities of Seller or Adaptec Singapore pursuant hereto, other than the Assumed Liabilities. Parent hereby agrees to guarantee to Seller the Buyer's timely payment, performance and satisfaction in full of all Assumed Liabilities.

(b) Definition of Assumed Liabilities. For all purposes of and under this Agreement, the term "Assumed Liabilities" shall mean, refer to and include the following liabilities of Seller (or,

as provided in clause (vi) below, of Adaptec Singapore) (but specifically excluding the Excluded Liabilities (as defined in Section 2.2(c) hereof)):

(i) all Liabilities under Permits of Seller arising after the Closing Date;

(ii) all Liabilities related to the Purchased Assets or the operation of the Business (including, but not limited to, all Liabilities under the Personal Property Leases, the Real Property Leases and the Assigned Contracts) to the extent arising from or related to any facts or circumstances occurring after the Closing Date and including but not limited to any Liabilities arising from (A) the conduct of the Business after the Closing or (B) the manufacture, use or sale of any Qualified Product or component thereof (or any derivative or modification or modified version of any Qualified Product or component thereof) after the Closing;

(iii) all Liabilities relating to Transferred Employees for any action or omission of Buyer, Parent or their Affiliates (including without limitation all Employment Liabilities accruing or arising after the date of hire of such Transferred Employees by Buyer, Parent or either of their Affiliates) or other event that, in each such case, occurs after the date of hire of such Transferred Employees by Buyer, Parent or their Affiliates;

(iv) all Assumed Employment Liabilities;

(v) the obligations, duties and Liabilities of Adaptec Singapore under Section 6.3 of the Singapore APA to repurchase and pay for those "Repurchased Assets" that are related to the Business; provided, however that this clause (v) shall not affect the obligations of Adaptec Singapore or Adaptec under Section 6.3 of the Singapore APA with respect to any other business unit of Adaptec;

(vi) all outstanding purchase orders of the Business outstanding at the Closing Date that are listed in Schedule 2.2(b)(vii) (the "Purchase Orders"); and

(vii) all Transfer Taxes (as defined in Section 2.6) that would be payable by Seller or Adaptec Singapore but which Buyer and Parent have agreed to pay pursuant to Section 2.6 hereof.

(c) Definition of Excluded Liabilities. Notwithstanding anything to the contrary set forth in this Section 2.2 or elsewhere in this Agreement, the term "Assumed Liabilities" shall not mean, refer to or include the following (collectively, "Excluded Liabilities"):

(i) all Liabilities relating to any Contracts to which Seller is a party that are not assumed by Buyer (the "Excluded Agreements");

(ii) any and all Liabilities or obligations of Seller arising from the breach by Seller of any term, covenant or provisions of any of the Assigned Contracts prior to the Closing Date;

(iii) subject to Buyer's and Parent's obligations under Section 2.6, all Liabilities for Taxes, prepaid expenses or Taxes attributable to the ownership or operation of the Purchased Assets for any taxable period (or portion of any period) ending on or prior to the Closing Date and, including, without limitation, all liabilities for Taxes attributable to the Transactions, except as provided for in Section 2.6 hereof;

(iv) all Liabilities to stockholders of Seller or any Affiliate of Seller in their capacity as such;

(v) all Liabilities of Seller under the Definitive Agreements or any other certificate, instrument or other agreement entered into in connection with the Transactions (including liabilities for Seller's breach thereof);

(vi) all Employment Liabilities other than the Assumed Employment Liabilities;

(vii) Seller's Retained Environmental Liabilities;

(viii) all Liabilities for legal, accounting, audit and investment banking fees, brokerage commissions, and any other expenses incurred by Seller in connection with the Transactions;

(ix) all Liabilities for or related to Indebtedness of Seller, on its own behalf or on behalf of other Persons, to banks, financial institutions or other Persons with respect to borrowed money, and including any accrued interest payable in respect thereof;

(x) all Liabilities that are attributable to any of the Excluded Assets and not otherwise specified to be Assumed Liabilities hereunder;

(xi) all Liabilities of Seller arising on or before the Closing Date in connection with the provision of products or services to customers of the Business, including all warranty liabilities;

(xii) all Liabilities of any Seller with respect to accounts payable, other than obligations of Seller under Assigned Contracts or the Purchase Orders;

(xiii) all Liabilities of Seller for injury to or death of persons (including, without limitation, workers' compensation claims) or damages to or destruction of properties or assets, arising from the sale or distribution of products distributed by Seller, or business services provided by Seller, on or before the Closing Date, whether or not any such liability arises before or after the Closing Date, including, without limitation, liability for consequential and punitive damages in connection with the foregoing;

(xiv) any and all Liabilities, commitments and obligations of Seller resulting from any litigation, claim, dispute, arbitration, investigation, other proceeding or threat thereof, and all other Liabilities, commitments and obligations of Seller or its Affiliates arising in connection with all actions, suits, claims, disputes, arbitrations, investigations, proceedings or threat thereof pending on the Closing Date or arising after the Closing with respect to events occurring before the Closing, including, without limitation, the Artesyn matter and the Fujitsu Siemens matter as described in the Seller Disclosure Letter;

(xv) all Liabilities of Seller arising out of or in any way related to the infringement of Intellectual Property rights of third parties arising out of the conduct of the Business by the Seller before the Closing Date, including, without limitation, liabilities associated with the Crossroads matter described in the Seller Disclosure Letter and liability for trebled, consequential and punitive damages in connection with any of the foregoing; and

(xiv) all Liabilities of Seller or Adaptec-Singapore other than Assumed Liabilities.

2.3 Closing.

(a) Closing Time. The consummation of the purchase and sale of the Purchased Assets and the assumption of the Assumed Liabilities (the "Closing") shall take place at such place as Buyer and Seller mutually agree, at 10:00 A.M. local time, on the Closing Date unless otherwise mutually agreed by Buyer and Seller. The Closing shall be deemed to be effective as of 12:01 A.M., Pacific standard time, on the Closing Date (the "Closing Time").

(b) Cooperation. As soon as practicable following the date hereof and at all times until the purchase by Buyer of all of the Purchased Assets and the assumption of the Assumed Liabilities, Buyer and Seller shall cooperate in good faith to formulate and effect a plan and closing schedule for the transfer of the Purchased Assets and the assumption of the Assumed Liabilities to or by Buyer pursuant to this Agreement.

(c) Preliminary Net Asset Value Statement. At least five (5) Business Days prior to the Closing Date, Seller shall furnish to Buyer an unaudited statement indicating the preliminary determination of the Net Asset Value as of such date (the "Preliminary Net Asset Value Statement," and the amount of the Net Asset Value as determined and set forth in such Preliminary Net Asset Value Statement is referred to herein as the "Preliminary Net Asset Value"). Buyer shall have been given full access to the relevant records and working papers used by Seller to prepare the Preliminary Net Asset Value Statement. The Preliminary Net Asset Value Statement shall be reasonably acceptable to Buyer; provided, however, that the Preliminary Net Asset Value Statement shall be deemed to be reasonably acceptable to Buyer if prepared in accordance with normal and customary business practices for determining net book value.

(d) Closing Payment. At the Closing, on the terms and subject to the conditions set forth in this Agreement, as payment for the transfer of the Purchased Assets by Seller to Buyer, Buyer shall pay to Seller, in cash, an amount equal to the sum of (i) the Preliminary Net Asset Value plus (ii) the sum of $8,450,000.00 (such payment, the "Closing Payment"). The Closing Payment shall be paid by Buyer to Seller at the Closing by wire transfer of immediately available funds in United States dollars to such account or accounts as Seller may direct by written notice delivered to Buyer by Seller at least two (2) Business Days prior to the Closing Date.

(e) Ancillary Agreements. At the Closing, and simultaneously with the payment in full to Seller of the Closing Payment pursuant to Section 2.3(d), (i) Seller and Adaptec Singapore shall assign and transfer to Buyer good and valid title in and to the Purchased Assets (free and clear of all Liens, other than Permitted Liens) by delivery of (A) a General Assignment and Bill of Sale in form and substance reasonably acceptable to Buyer, Sanmina-Singapore, Adaptec-Singapore and Seller (the "General Assignment"), duly executed by Buyer and Seller; and (B) such other instruments of conveyance, assignment and transfer as Buyer and Sanmina-Singapore shall reasonably request, in form and substance reasonably acceptable to Buyer, Sanmina-Singapore, Adaptec-Singapore and Seller, as shall be effective to vest in Sanmina-Singapore good and valid title to the Business Designs, the Business Software, the Business Intellectual Property and the Tangible Personal Property, consisting of Finished Good Inventories, owned by Adaptec-Singapore, and to vest in Buyer good and valid title to all of the other Purchased Assets (the General Assignment and the other instruments being collectively referred to herein as the "Assignment Instruments"), (ii) Buyer and Seller (and where applicable, Parent and Sanmina-Singapore) shall duly execute and deliver the Buyer Supply Agreement, the License Agreement, and the Transition Services Agreement; and (iii) Buyer shall assume from Seller the due payment, performance and discharge of the Assumed Liabilities by delivery of (A) an Assumption Agreement in form and substance reasonably acceptable to Seller and Buyer (the "Assumption Agreement"), duly executed by Buyer, (B) the Lease Assumption Agreement in form and substance reasonably acceptable by Buyer and Seller and the lessor of the Facility and (C) such other instruments of assumption as Seller shall reasonably request, in form and substance reasonably acceptable to Seller and Buyer, as shall be effective to cause Buyer to assume the Assumed Liabilities as and to the extent provided in Section 2.2(b) (the Assumption Agreement, the Lease Assumption Agreement and such other instruments referred to in clause (ii)(C) being collectively referred to herein as the "Assumption Instruments"). At the Closing, there shall also be delivered to Seller and Buyer the certificates and other contracts, documents and instruments required to be delivered pursuant to Article VII hereof. As used herein, the "Ancillary Agreements" mean, collectively, the Assignment Instruments, the Buyer Supply Agreement, the License Agreement, the Transition Services Agreement and the Assumption Instruments.

2.4 Post-Closing Purchase Price Adjustments.

(a) Preparation of Closing Net Asset Value Statement. As soon as reasonably practicable after the Closing Date (within thirty (30) days after the Closing Date if commercially reasonable, but in

any event, no later than forty (40) days after the Closing Date), Seller shall prepare and deliver to Buyer, at Seller's expense, an unaudited statement indicating the Net Asset Value as of the Closing Date (the "Closing Net Asset Value Statement"). Buyer shall reasonably cooperate with Seller to enable the preparation of the Closing Net Asset Value Statement.

(b) Verification. As soon as reasonably practicable after the Closing Date (but not later than thirty (30) days after receipt of the Closing Net Asset Value Statement), Buyer shall verify: (i) that the Tangible Personal Property stated in the Preliminary Net Asset Value Statement and the statement of the Preliminary Net Asset Value therein accurately reflect the Tangible Personal Property delivered to Buyer as part of the Purchased Assets at the Closing and (ii) that the Net Asset Value is accurately reflected on the Closing Net Asset Value Statement (the "Verification"). Seller shall reasonably cooperate with Buyer in order to enable Buyer to perform the Verification.

(c) Review. Buyer shall be given full access, during regular business hours, to the relevant records and working papers used by Seller to prepare the Closing Net Asset Value Statement. If as a result of the Verification, Buyer in good faith believes that any changes are required to be made to the amount of the Closing Net Asset Value as set forth in the Closing Net Asset Value Statement (including but not limited to changes based on differences between the amount of the Closing Net Asset Value Statement and the results of the Verification) (a "Material Uncertainty"), Buyer shall, within the later of sixty-one (61) days following the Closing Date or thirty (30) days following the receipt by it of the Closing Net Asset Value Statement (the "Dispute Period"), give written notice to Seller (a "Dispute Notice") of any such proposed change or Material Uncertainty, describing the change or Material Uncertainty and the basis for the change or Material Uncertainty in reasonable detail. The Closing Net Asset Value Statement shall be binding and conclusive upon, and deemed accepted by, Buyer unless Buyer shall have timely delivered a Dispute Notice to Seller during the Dispute Period.

(d) Disputes. Disputes between Buyer and Seller relating to the Closing Net Asset Value Statement that cannot be resolved by them within thirty (30) days after receipt by Seller of a Dispute Notice in respect of the Closing Net Asset Value Statement shall be referred to an independent accounting firm reasonably agreed upon by Buyer and Seller for arbitration (the "Independent Accountant") with respect to the Dispute Notice. The Independent Accountant will be instructed to select, in its discretion, the individuals within its organization who will have primary responsibility for this matter and to reach a determination of the Net Asset Value as of the Closing Date within forty-five (45) days from the date of referral. The Independent Accountant's determinations hereunder shall be limited to determining the Net Asset Value as of the Closing Date and the Independent Accountant will not have authority to alter or vary this Agreement. The expenses of the Independent Accountant shall be paid one-half by Seller and one-half by Parent. The Closing Net Asset Value Statement, as it may be adjusted by the Independent Accountant in accordance with this Section 2.4(d) in determining the Net Asset Value as of the Closing Date, shall be final and binding on the Parties and the statement of the Net Asset Value as of the Closing Date as determined in good faith by the Independent Accountant shall be deemed to be the Closing Net Asset Value. It is understood and agreed that the decision of the Independent Accountant shall not be subject to judicial review by any court or tribunal under any circumstances whatsoever and the Parties hereby expressly waive any right to appeal or otherwise seek judicial review of any decision of the Independent Accountant under this Section 2.4(d).

(e) Final Closing Net Asset Value Statement. The Closing Net Asset Value Statement shall become final with respect to all or any portion thereof, and binding upon Buyer and Seller upon the earlier of (i) the failure by Buyer to object to all or any portion thereof by giving Seller a Dispute Notice within the Dispute Period, (ii) an agreement between Buyer and Seller with respect thereto, or (iii) the decision by the Independent Accountant with respect to any disputed matters

pursuant to Section 2.4(d) and such Independent Accountant's determination in good faith of the Closing Net Asset Value pursuant to Section 2.4(d). The Net Asset Value as of the Closing Date, as set forth in the Closing Net Asset Value Statement, as finally determined under this Section 2.4, shall be referred to herein as the "Final Closing Net Asset Value."

(f) Adjustment to the Closing Net Asset Value. The Preliminary Net Asset Value Amount paid at the Closing shall be subject to adjustment pursuant to the following provisions of this Section 2.4(f): (i) if the Final Closing Net Asset Value is less than the Preliminary Net Asset Value, then the amount by which the Preliminary Net Asset Value exceeds the Final Closing Net Asset Value shall be payable from Seller to Buyer in cash in immediately available funds pursuant to Section 2.4(g); and (ii) if the Final Closing Net Asset Value is greater than the Preliminary Net Asset Value, then the amount by which the Final Closing Net Asset Value exceeds the Preliminary Net Asset Value shall be payable by Buyer to Seller in cash in immediately available funds pursuant to Section 2.4(g).

(g) Payments of Adjustment Amount. As soon as practicable (but not more than five (5) Business Days) after all or any portion of the Closing Net Asset Value shall become final and binding pursuant to Section 2.4(e) hereof, Buyer or Seller, as the case may be, shall make the payment contemplated by Section 2.4(f) in respect of all or such portion of such Closing Net Asset Value that has become final and binding.

2.5 Prorations. The following prorations relating to the Purchased Assets and the ownership and conduct of the Business shall be made as of the Closing Date for any such obligations which are billed or accrue, with respect to any time period that begins prior to the Closing Date and ends after the Closing Date, with Seller liable to the extent such items relate to any such time period up to and including the Closing Time, and Buyer liable to the extent such items relate to periods beginning immediately after the Closing Time:

(a) municipal rates, assessments and bonds on or with respect to the Purchased Assets;

(b) rents, additional rents, operating expense pass throughs, and other items payable by Seller (other than taxes) under any real property leases and personal property leases; and

(c) the amount of rents, issues and profits from each of any Personal Property and charges for sewer, water, telephone, electricity and other utilities relating to any real property subject to any real property leases assumed by Buyer hereunder.

Except as otherwise agreed by the parties, the net amount of all such pro rations will be settled and paid on the applicable Closing Date.

2.6 Taxes.

(a) Transfer Taxes. Buyer and Parent shall bear, and shall indemnify and hold Seller and Adaptec-Singapore harmless from, any and all sales, use, value-added, gross receipts, excise, registration, stamp duty or other similar taxes or governmental fees arising out of the transfer of the Purchased Assets to Buyer and Sanmina-Singapore pursuant hereto ("Transfer Taxes"). To the extent permitted by applicable law, Parent, Buyer, Adaptec-Singapore and Seller shall cooperate in legitimately minimizing Transfer Taxes.

(b) Straddle Period Taxes. In the case of any real or personal property taxes or any similar ad valorem taxes attributable to the Purchased Assets for which Taxes cover a period commencing before the Closing and ending thereafter (a "Straddle Period Tax"), any such Straddle Period Taxes shall be prorated between Buyer and Seller (as a group) on a per diem basis. The Party required by law to file a Tax Return with respect to Straddle Period Taxes shall do so within the time period prescribed by law.

(c) Tax Returns. To the extent relevant to the Business or the Purchased Assets, each Party shall (i) provide the other with such assistance as may reasonably be required in connection with the preparation of any Tax Return and the conduct of any audit or other examination by any Governmental Body or in connection with judicial or administrative proceedings relating to any liability for Taxes and (ii) retain and provide the other with all records or other information that may be relevant to the preparation of any Tax Returns, or the conduct of any audit or examination, or other proceeding related to Taxes.

2.7 Exemptions. Parent, Buyer, Seller and Adaptec-Singapore shall utilize, to the fullest extent reasonably permitted by applicable law, any and all exemptions from tax for any occasional sale or similar exemption that may apply to the Transactions to legitimately eliminate or minimize any Taxes.

2.8 Nontransferable Assets.

(a) To the extent that any Purchased Asset or Assumed Liability to be sold, conveyed, assigned, transferred, delivered or assumed to or by Buyer pursuant hereto, or any claim, right or benefit arising thereunder or resulting therefrom, is not capable of being sold, conveyed, assigned, transferred or delivered without the approval, consent or waiver of the issuer thereof or the other party thereto, or any third person (including a Governmental Body) or if such sale, conveyance, assignment, transfer or delivery or attempted sale, conveyance, assignment, transfer or delivery would constitute a breach or trigger a termination right thereof or a violation of any law, decree or Order, except as expressly otherwise provided herein, this Agreement shall not constitute a sale, conveyance, assignment, transfer or delivery thereof, or an attempted sale, conveyance, assignment, transfer or delivery thereof absent such approvals, consents or waivers. If any such approval, consent or waiver shall not be obtained, or if an attempted assignment of any such Purchased Asset or the assumption of any Assumed Liability by Buyer would be ineffective so that Buyer would not in fact receive all such Purchased Assets or assume all such Assumed Liabilities pursuant hereto, then Seller, Buyer, Parent and Adaptec-Singapore shall cooperate in a mutually agreeable arrangement and use reasonably diligent efforts to provide Buyer (to the extent permitted by applicable Law and not in breach or violation of the terms of any agreement binding on such Parties) with the benefits and assume the obligations of such Purchased Assets and Assumed Liabilities in accordance with this Agreement; provided however, that in no event shall Seller be required to (i) make a cash payment to a third party (other than as required under any agreement with such third party) or to Buyer or Parent in connection with its obligations under this Section 2.8; or (ii) sublicense or provide any software or Intellectual Property licensed or otherwise provided by a third party. Buyer and Parent agree to reasonably cooperate with Seller and Adaptec-Singapore supply relevant information to such party or parties or such third-party as contemplated by this Section 2.8.

(b) Notwithstanding the provisions of Section 2.8(a), with respect to the OEM Agreement between Fujitsu Siemens Computers GmbH ("Fujitsu Siemens") and Eurologic Systems Ltd. Dated March 21, 2002 (the "FS Agreement"), the parties hereby agree that, until such time as the FS Agreement is duly and validly assigned to Parent or its Affiliates, Parent and its Affiliates will supply to Seller, pursuant to the terms and conditions of the Buyer Supply Agreement, the products set forth on Schedule A-1 of the Buyer Supply Agreement that are ordered by Fujitsu Siemens pursuant to the FS Agreement.

(c) Notwithstanding the provisions of Section 2.8(a), with respect to the contract between Seller and NWE Technology, Inc. dated May 10, 2004 (the "Foxconn Agreement"), the parties hereby agree that, until such time as the Foxconn Agreement is duly and validly assigned to Parent or its Affiliates, Seller and its Affiliates will, pursuant to a letter agreement to be entered into prior to the Closing, permit Parent and its Affiliates to purchase components under the Foxconn

Agreement under the same terms and conditions, including pricing, as are available to Seller and its Affiliates under such Foxconn Agreement.

2.9 Taking of Necessary Action; Further Action. From time to time after the Closing Date, at the reasonable request of any Party hereto and at the expense of such Party, the Parties hereto (and, to the extent applicable, Seller and Adaptec-Singapore) shall execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation and take such action as a Party may reasonably determine is necessary to transfer, convey and assign to Buyer, and to confirm Buyer's title to, obligation under or interest in the Purchased Assets pursuant to this Agreement or the assumption of the Assumed Liabilities, to put Buyer in actual possession and operating control of such Purchased Assets as contemplated by this Agreement and to assist Buyer in exercising all rights with respect thereto.

2.10 Allocation of Purchase Price Consideration. The sum of the Purchase Price and the Assumed Liabilities (except to the extent that such Assumed Liabilities are not required to be capitalized for income tax purposes) shall be allocated among the Purchased Assets and the covenant not to compete in Section 6.3 hereof as of the Closing Date in accordance with Schedule 2.10. Any subsequent adjustments to the sum of the Purchase Price and Assumed Liabilities (except to the extent that such Assumed Liabilities are not required to be capitalized for income tax purposes) shall be reflected by Buyer in the allocation hereunder in a manner consistent with Section 1060 of the Code and the regulations thereunder. For all Tax purposes, Buyer, Seller and Adaptec-Singapore agree to report the transactions contemplated in this Agreement in a manner consistent with the terms of this Agreement, including the allocation under Schedule 2.10, as agreed to by Buyer, Seller and Adaptec-Singapore, and that none of them will take any position inconsistent therewith in any Tax Return, in any refund claim, in any litigation, or otherwise.

2.11 Earn-Out Consideration.

(a) Amount of Earn-Out Consideration. Subject to the terms and conditions of this Section 2.11, Parent shall pay to Seller Earn-Out Consideration as follows: (i) an aggregate amount equal to [*] multiplied by the Business Revenue from sales to Qualified Business Customers and an aggregate amount equal to [*] multiplied by the Business Revenue from sales to Other Business Customers earned during each Measurement Period or fraction thereof until the First Earn-out Cap (as defined below) is reached; (ii) after the First Earn-out Cap is reached, an aggregate amount equal to [*] multiplied by the Business Revenue from sales to Qualified Business Customers and an aggregate amount equal to [*] multiplied by the Business Revenue from sales to Other Business Customers earned during each Measurement Period or fraction thereof until the Second Earn-out Cap (as defined below) is reached. The "First Earn-out Cap" shall be reached at such time as aggregate Earn-Out Consideration equals $[*]. The "Second Earn-out Cap" shall be reached at such time as aggregate Earn-Out Consideration equals $[*] (including the $[*] under the First Earn-out Cap). Notwithstanding the foregoing, in the event that the aggregate Earn-Out Consideration that would be payable to Seller for the First Measurement Period under the preceding provisions of this paragraph without regard to this sentence (the "Unadjusted Period 1 Earn-Out Consideration") is less than $[*], then an amount equal to $[*] minus such Unadjusted Period 1 Earn-Out Consideration (such amount, the "Period 1 Shortfall") shall be paid to Seller as Earn-Out Consideration in addition to the Unadjusted Period 1 Earn-Out Consideration, such that the aggregate Earn-Out Consideration for the First Measurement Period shall equal $[*]. Notwithstanding the foregoing, in the event that the aggregate Earn-Out Consideration for the Second Measurement Period that would be payable to Seller under the preceding provisions of this paragraph without regard to this sentence (the "Unadjusted Period 2 Earn-Out Consideration") is less than $[*], then an amount equal to $[*] minus such Unadjusted Period 2 Earn-Out Consideration (such amount, the "Period 2 Shortfall") shall be paid to Seller as Earn-Out Consideration such that the aggregate Earn-Out Consideration for the Second Measurement

Period shall equal $[*]. In the event any Period 1 Shortfall is paid to Seller and the Unadjusted Period 2 Earn-Out Consideration for the Second Measurement Period exceeds $[*], then the Unadjusted Period 2 Earn-Out Consideration shall be reduced by an amount equal to the lesser of (i) the amount of the Period 1 Shortfall actually paid to Seller or (ii) the amount by which the Unadjusted Period 2 Earn-Out Consideration exceeds $[*]. The amount of the Earn-Out Consideration for the Third Measurement Period shall be reduced, but not below zero, by the amount of any previously unrecouped Period 1 Shortfall and any Period 2 Shortfall actually paid to Seller.

(b) Earn-Out Definitions.

(i) "Business Revenue" means revenue recorded by Parent in accordance with U.S. generally accepted accounting principles ("GAAP") as consistently applied by Parent in the preparation of its annual and quarterly financial statements with respect to sales of Business Products to Business Customers during a Measurement Period. For the avoidance of doubt, but subject to the provisions of this Section 2.11(b)(i), Business Revenue shall not include any revenue recorded by Parent from products or services that are not Business Products. In the event that one or more units of a Business Product is/are sold in combination (bundled) with one or more units of one or more other products or services that are not Business Products for a single price, then for purposes of this Section 2.11, the amount of revenue from such sale that shall be Business Revenue will be the product obtained by multiplying (1) the total GAAP revenue from such sale multiplied by (2) a fraction (x) whose numerator is the amount obtained by multiplying each unit of a Business Product included in such sale by Buyer's then-effective per unit list price for such Business Product and adding together each of the products resulting from such multiplication (the "Aggregate Business Products List Price") and (y) whose denominator is the sum of (i) the Aggregate Business Products List Price plus (ii) the amount obtained by multiplying each unit of a non-Business Product included in such sale by, as applicable, Buyer's then-effective per unit list price for such non-Business Product or (if such non-Business product is not a Buyer product, the manufacturer's then-effective per unit list price for such non-Business Product) and adding together each of the products resulting from such multiplication. The following example illustrates the operation of this Section 2.11(b)(i). Assume that Buyer sells for a single price of $[*]: (i) one (1) unit of a Business Product with a then-effective per unit list price of $[*]; (ii) one (1) unit of another Business Product with a then-effective per unit list price of $[*]; and (iii) two (2) units of a product that is not a Business Product which has a then-effective per unit list price of $[*]. In this case the Business Revenue derived from such sale would be $[*], which is the amount obtained by multiplying $[*] by a fraction whose numerator is $[*] ($[*] + $[*]) and whose denominator is $[*] ($[*] + $[*] + $[*]). If Business Products are sold in combination (bundled) with other services that are not Business Products for a single price, then a similar methodology to that described in the third sentences of this subsection 2.11(b)(i) shall be used to compute the amount of revenue from such transaction that is Business Revenue. Notwithstanding the foregoing, Business Revenue shall not include revenue recorded by Parent arising from the sale of disk drives and drive carriers to Adaptec, its Affiliates or any successor to or acquirer of any business unit of Adaptec or its Affiliates.

(ii) "Qualified Business Customers" means the customers of the Business set forth on Schedule 2.11(b)(ii). "Other Business Customers" shall mean customers for Business Products that are not Qualified Business Customers. "Business Customers" shall mean Qualified Business Customers and Other Business Customers, collectively.

(iii) "Business Products" means: (a) the Qualified Products listed on Schedule 1.1(yy), which shall include only those types of products manufactured or sold by the Business and delivered to Business Customers prior to the Closing Date; (b) the ENZO family of products

being transferred by Seller to Buyer pursuant to this Agreement, to the extent such products are being marketed or sold or are under development by Seller as of the Closing Date and are subsequently marketed or sold, (c) any version, release, modification or enhanced or modified version of a product described in clause (a) or clause (b) of this subsection (iii) that ships as a "general availability" product at any time on or before April 1, 2006; or (d) any new version or revision of a product described in clause (a), (b) or (c) above, provided that the product changes incorporated into such new version or revision include only minor product enhancements or revisions that do not change the function of the product (i.e. the product still provides either JBOD or RBOD functions while not incorporating significant additional new functions) and do not require significant changes to the form or design of enclosures. For purposes of clarification, significant changes to the form or design of an enclosure or significant changes in product function (e.g. incorporation of server functions into a product) shall not be deemed to be minor product enhancements or revisions that do not change the function of the product, and products undergoing such changes shall thereafter no longer be considered Business Products for purposes hereof.

(iv) "Measurement Period" has the meaning given to it in Section 2.11(d).

(c) Determination of Contingent Consideration; Dispute Resolution. Prior to paying a payment of Earn-Out Consideration to Seller under this Section 2.11, Parent shall deliver to Seller, by no later than fifteen (15) days prior to the applicable Earn-Out Consideration Payment Date, a schedule setting forth the computation of the Earn-Out Consideration payable with respect to the Measurement Period in respect of which such payment of Earn-Out Consideration is due and a copy of the financial information used in making such computation (such schedule being hereinafter after referred to as an "Earn-Out Payment Notice." Parent and Buyer shall provide Seller and Seller's independent accountant with reasonable access to the officers, employees, contacts, books and records of Parent and Buyer as Seller or Seller's independent accountant may reasonably request in order to verify any amounts or information set forth or required to be set forth in the Earn-Out Payment Notice. Subject to the provisions of Section 2.11(g) below, Parent's computation of any payment under this Section 2.11(c) shall be conclusive and binding upon the parties hereto unless, within sixty (60) days following Seller's receipt of the applicable Earn-Out Payment Notice, Seller give Parent a written notice (an "Earn-Out Dispute Notice") that it disagrees with Parent's computation of the Earn-Out Consideration due to Seller as set forth in the Earn-Out Payment Notice. Such Earn-Out Dispute Notice shall include a schedule setting forth Seller's computation of the Earn-Out Consideration payable to Seller together with a copy of any information, other than that previously provided by Parent, used in making such computation. If Parent disagrees with Seller's computation contained in the Earn-Out Dispute Notice, the parties shall attempt in good faith to reach a resolution of such disagreement. If such disagreement is not resolved within thirty (30) days after delivery of Seller's Earn-Out Dispute Notice to Parent, then independent accountants agreed to by Parent and Seller shall be directed to compute the amount of the Earn-Out Consideration payable to Seller as promptly as practicable and such computation shall be binding upon the parties hereto, subject to the provisions of Section 2.11(g). The expenses of such independent accountants in connection with the calculation of the Earn-Out Consideration payable to Seller shall be borne equally by Parent and Seller (which amount to be paid by Seller shall be subtracted from the Earn-Out Consideration otherwise payable to Seller).

(d) Payment Schedule. Parent will pay to Seller the Earn-Out Consideration, if any, on such date (each, an "Earn-Out Consideration Payment Date") within thirty (30) days following the publication by Parent of Parent's results of operations for Parent's fiscal quarter ending on the ending date of each applicable "Measurement Period" as set forth below:

(i) The First Measurement Period will begin on the Closing Date and end on the Parent fiscal quarter end nearest December 31, 2006 (the "First Measurement Period");

(ii) The Second Measurement Period will begin on the day following the end of the First Measurement Period and end on the Parent fiscal quarter end nearest December 31, 2007 (the "Second Measurement Period"); and

(iii) The Third Measurement Period will begin on the day following the end of the Second Measurement Period and end on the Parent fiscal quarter end nearest December 31, 2008 (the "Third Measurement Period").

All payments of Earn-Out Consideration shall be paid to Seller by wire transfer of immediately available United States funds to the account set forth in Schedule 2.11(d) of this Agreement, until Seller gives written notice to Parent that payment should be made to a different account.

(e) Sale of the Business. If Parent or Buyer shall (i) sell the Business or the Purchased Assets or otherwise dispose of assets and properties necessary to enable them to actively engage in the sale, marketing and distribution of Business Products or (ii) be merged or consolidated with or into another entity, then Parent and Buyer shall, as a condition of such sale, merger or consolidation, cause the purchaser or surviving entity or such surviving entity's parent entity, if applicable (the "Business Buyer") to assume all of Parent or Buyer's obligations under this Agreement (a transaction described in either clause (i) or clause (ii) of this Section 2.11(e) being referred to herein as a "Sale of the Business").

(f) Audit Rights. Parent agrees to allow an independent accountant selected by Seller (the "Accountant") to audit Parent's books and records during Purchaser's normal business hours, at times reasonably agreed upon by Purchaser and Seller, and not more often than once per calendar year in order to determine the accuracy of the payments and reports made to Seller under this Section 2.11. The Accountant will be chosen by Seller and approved by Purchaser, whose approval shall not be unreasonably withheld or delayed. If the audit reveals that one or more of Parent's payments of Earn-Out Consideration or reports under this Section 2.11 are incorrect and that additional amounts of Earn-Out Consideration are due and payable to Seller hereunder, then Parent will promptly pay to Seller in full all such additional Earn-Out Consideration. If the additional amount of Earn-Out Consideration due to Seller in respect of a particular time period being audited exceeds ten percent (10%) of the amount of Earn-Out Consideration actually reported and paid to Seller by Parent during such time period, then in addition to promptly paying such late payments, Parent will promptly pay to Seller all reasonable costs and expenses of the audit, which otherwise shall be borne by Seller. The Accountant will be instructed to keep all non-public information regarding the audit confidential, except to the extent necessary to permit Seller to enforce this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLER

Subject to such exceptions as are specifically disclosed in the disclosure letter supplied by Seller to Parent, Sanmina-Singapore and Buyer (the "Seller Disclosure Letter") and the provisions of Section 11.4, Seller hereby represents and warrants to Parent and Buyer that the statements contained in this Article III are true and correct as of the date of this Agreement; provided, that the representations and warranties contained in this Article III that are made as of a specified date are only represented as being true and correct as of such date, and provided, further that, as used in this Article III, the "knowledge" of Seller refers to and means the actual knowledge of (i) any executive officer of Seller as of the date of this Agreement or (ii) any Employee of Seller who is responsible for managing any principal function of the Business. The names of such persons, and their titles and principal employment responsibilities, shall be set forth in the preamble to the Seller Disclosure Letter.

3.1 Organization, Qualification, and Corporate Power. Seller is a corporation duly organized validly existing and in good standing under the laws of Delaware. Seller has all necessary corporate power and authority to enter into this Agreement and all other agreements and instruments executed and delivered by Seller pursuant to this Agreement, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. Seller is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the ownership or use of the Purchased Assets or the operation of the Business makes such licensing or qualification necessary, except to the extent that the failure to be so licensed or qualified would not (i) adversely affect the ability of Seller to carry out its obligations under, and to consummate the transactions contemplated by, this Agreement and any Ancillary Agreement to which Seller is a party and (ii) result in a Material Adverse Effect on the Business or the Purchased Assets.

3.2 Authorization. The execution and delivery of this Agreement by Seller and the execution and delivery by Seller of each Ancillary Agreement to which Seller is a party, the performance by Seller of its obligations hereunder and its obligations under any Ancillary Agreement to which it is a party and the consummation by Seller of the transactions contemplated to be consummated by this Agreement and by any Ancillary Agreement to which it is a party have been duly authorized by all requisite corporate action on the part of Seller and no other corporate proceedings on the part of Seller are necessary to authorize Seller to enter into this Agreement or any of the Ancillary Agreements to which it is a party, or to consummate the transactions contemplated to be consummated by such Seller under this Agreement and under any Ancillary Agreement to which Seller is a party. This Agreement and the Ancillary Agreements to which Seller is a party have been duly and validly executed by Seller and, assuming the due authorization, execution and delivery thereof by Parent and Buyer, constitute the valid and legally binding obligations of Seller, enforceable against Seller in accordance with their respective terms and conditions, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

3.3 No Conflicts. Neither the execution and the delivery of this Agreement and the Ancillary Agreements by Seller nor the consummation of the Transactions will (A) violate any material constitution, Law, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Seller is subject, (B) violate or conflict with any provision of the charter documents, bylaws or other organizational documents of Seller or (C) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice or consent under, any Assigned Contract or Assigned Permit (or result in the imposition of any Lien upon any of the Purchased Assets).

3.4 Consents. Except as set forth in Section 3.4 of the Seller Disclosure Letter, no consent, waiver, approval, order, license, permit, certificates, filing or authorization of, or registration, declaration or filing with, any Governmental Body or any third party is required by or with respect to any Seller in connection with the execution and delivery of this Agreement or the consummation of the Transactions.

3.5 Business Unit Financial Data. Seller has delivered to Buyer (i) the unaudited pro forma statement of revenues and expenses of the Business for the year ended March 31, 2005, (ii) the unaudited pro forma statement of revenues and expenses of the Business for the six months ended September 30, 2005; and (iii) the unaudited list of fixed assets of the Business as of September 30, 2005 (the financial information referred to in clauses "(i)," "(ii)" and "(iii)" of this sentence being collectively referred to as the "Business Unit Financial Data"). The revenues, direct expenses and fixed assets included in the Business Unit Financial Data was derived from Seller's books and records related to the Business and does not contain all line items required by GAAP. The Business Unit Financial Data does not contain footnotes and does not reflect any year-end or other audit adjustments. The

Business Unit Financial Data has been prepared with due care in accordance with the Seller's books and records related to the Business. The Business Unit Financial Data presents fairly in all material respects the revenues, direct expenses and fixed assets of the Business for the relevant periods referred to above.

3.6 Legal Compliance. The Business as being conducted by Seller has been and at the Closing will be in material compliance with all applicable Laws (including without limitation rules, regulations, codes, plans, injunctions, judgments, orders, extension orders, decrees, rulings, and charges thereunder). No Action or Proceeding, or to the knowledge of Seller, investigation, charge, complaint, claim, demand, notice or inquiry is pending, or to the knowledge of Seller, is threatened against Seller by any Governmental Body alleging any failure to so comply in any material respect. Seller has all material Permits that are necessary to operate the Business and hold the Purchased Assets as of the Closing.

3.7 Tax Matters. For purposes of this Agreement, (i) "Tax" or, collectively, "Taxes," means (i) any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts; (ii) any liability for the payment of any amounts of the type described in clause (i) as a result of being or ceasing to be a member of an affiliated, consolidated, combined or unitary group for any period (including, without limitation, any liability under Treas. Reg. Section 1.1502-6 or any comparable provision of foreign, state or local law); and (iii) any liability for the payment of any amounts of the type described in clause (i) or (ii) as a result of any express or implied obligation to indemnify any other person or as a result of any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor or transferor entity.

(a) Except to the extent not relevant to the Purchased Assets or the Business, Seller has timely filed all returns, estimates, information statements and reports with respect to any material Taxes ("Tax Returns") that it was required to file. All such Tax Returns are correct and complete in all material respects and have been completed in accordance with applicable law. All Taxes owed by Seller (whether or not shown on any Tax Return) were paid in full when due.

(b) Seller has timely withheld or paid with respect to its Employees or other third parties and timely paid over any withheld amounts to the appropriate Taxing authority all U.S. federal, state income taxes, Federal Insurance Contribution Act, Federal Unemployment Tax Act and any other Taxes required to be withheld or paid by Seller.

3.8 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment.

(a) All current leases that are used solely for the conduct of the Business and that are included in the Purchased Assets are in full force and effect and are valid and effective in accordance with their respective terms, and there is not, under any of such leases, any existing material default or event of default (or event which with notice or lapse of time, or both, would constitute a material default) on the part of Seller and, to the knowledge of Seller, on the part of any other party thereto.

(b) Seller has good and valid title to, or, in the case of leased properties and assets valid leasehold interests in, all of the Purchased Assets, free and clear of any Liens, except (i) as reflected in the Seller Disclosure Letter, (ii) Liens arising with respect to zoning or environmental restrictions, licenses, reservations, covenants, building restrictions and other similar charges, restrictions or encumbrances on the use of real property which do not materially interfere with the ordinary use or occupancy of the real property subject thereto or with the ordinary conduct of the Business; and (iii) such imperfections of title and encumbrances, if any, which do not detract from

the value in any material respect or interfere with the present use of, in any material respect, assets subject thereto (the "Permitted Liens"). Seller is a party to and enjoys the right to the benefits of, all Assigned Contracts.

(c) Seller has caused the Purchased Assets to be maintained in accordance with good business practice in all material respects, and all of the Purchased Assets that are in the form of Tangible Personal Property are in good operating condition and repair (normal wear and tear excepted) in all material respects and are suitable for the purposes for which they are currently used.

(d) Seller has the complete power and right to sell, assign, transfer, convey and deliver the Purchased Assets to Buyer pursuant to this Agreement. Following the consummation of the Transactions and the execution of the instruments of transfer contemplated by this Agreement and the Ancillary Agreements, Buyer will own with good and valid title to, or otherwise acquire the interests of Seller in, the Purchased Assets, free and clear of any Liens, other than the Permitted Liens.

3.9 Intellectual Property.

(a) Business Intellectual Property.

(i) Registered Intellectual Property. Section 3.9(a)(i) of the Seller Disclosure Letter contains a complete and accurate list of the Seller Registered Intellectual Property that are used primarily in the conduct of the Business, and any proceedings or actions currently pending before any court, tribunal (including the United States Patent and Trademark Office or equivalent authority anywhere in the world) related to such Seller Registered Intellectual Property. Such disclosures also set forth any actions that must be taken within 150 days after the Closing Date for the purposes of obtaining, maintaining, perfecting or preserving or renewing any Seller Registered Intellectual Property, including the payment of any registration, maintenance or renewal fees or the filing of any responses to office actions, documents, applications or certificates.

(ii) Intellectual Property Contracts. Section 3.9(a)(ii) of the Seller Disclosure Letter contains a complete and accurate list of the Assigned Contracts to which Seller is a party: (A) under which Business Intellectual Property is licensed by Seller to any third party (other than licenses or support and maintenance agreements entered into in the ordinary course of business and in substantially the form set forth in Section 3.9(a)(ii) of the Seller Disclosure Letter), or (B) pursuant to which a third party has licensed to Seller any Intellectual Property used in the conduct of the Business ("Intellectual Property Contracts").

(iii) Intellectual Property Indemnities. Section 3.9(a)(iii) of the Seller Disclosure Letter contains a complete and accurate list of all Assigned Contracts whereby Seller or any of its direct or indirect Subsidiaries has agreed to, or assumed, any obligation or duty to indemnify, reimburse, hold harmless, defend or otherwise assume or incur any obligation or liability with respect to the infringement or misappropriation of any Intellectual Property rights that are used in the conduct of the Business.

(b) Validity. Each item of U.S. Seller Registered Intellectual Property is valid and subsisting, all necessary registration, maintenance and renewal fees currently due in connection with such U.S. Seller Registered Intellectual Property have been made and all necessary documents, recordations and certificates in connection with such U.S. Seller Registered Intellectual Property required to be filed to avoid forfeiture or loss of the right to obtain registration of such U.S. Seller Registered Intellectual Property with the relevant patent, copyright, trademark or other authorities in the United States have been filed, for the purposes of prosecuting and maintaining the rights in such Seller Registered Intellectual Property that accrue upon or as a result of such registration. Seller

has no knowledge of any information, materials, facts, or circumstances, including any information or fact that would constitute prior art that would render any Seller Registered Intellectual Property, as used in the conduct of the Business, invalid or unenforceable, or would materially and adversely affect any pending application for any such Seller Registered Intellectual Property, and Seller has not knowingly misrepresented, or knowingly failed to disclose, any facts or circumstances in any application to register any such Seller Registered Intellectual Property with the relevant patent, copyright, trademark or other authorities in the United States that would constitute fraud or a misrepresentation under applicable law with respect to such application or that would otherwise materially and adversely affect the validity or enforceability of any such Seller Registered Intellectual Property.

(i) No Business Intellectual Property is subject to any pending proceeding or outstanding decree, Order, judgment, or stipulation or Contract restricting in any material manner, the use, transfer, or licensing thereof by Seller, or which may materially affect the validity, use or enforceability of such Business Intellectual Property.

(ii) Except for the Assigned Contracts and except to the extent payment is required in connection with the recordation of the transfer of Seller Registered Intellectual Property, all Business Intellectual Property will be fully transferable, alienable or licensable by Buyer or Parent without restriction and without payment of any kind to any person.

(iii) Seller owns, and has good and exclusive title to, each item of Business Intellectual Property free and clear of any Lien, other than Permitted Liens and other than the licenses described in Section 3.9(a)(ii).

(iv) No person other than Seller has ownership rights or license rights granted by Seller to improvements made by or for Seller in any Business Intellectual Property.

(v) Seller has not (i) transferred ownership of, or granted any exclusive license of, or exclusive right to use, or authorized the retention of any exclusive rights to use or joint ownership of, Business Intellectual Property to any other Person, or (ii) knowingly permitted Seller's rights in any Business Intellectual Property to lapse or enter the public domain, except to the extent such failure would not materially and adversely affect the Business.

(d) Non-Infringement.

(i) The operation of the Business as it currently is conducted by Seller does not, and will not, infringe or misappropriate any Intellectual Property of any third party or constitute unfair competition or trade practices under the laws of any applicable jurisdiction. Seller has not received written notice from any third party alleging any such infringement, misappropriation, unfair competition or trade practices.

(ii) All Business Intellectual Property was developed solely by either (i) employees of Seller or a Subsidiary of Seller acting within the scope of their employment or (ii) by third parties who have validly and irrevocably assigned all of their rights, including all Intellectual Property rights therein, to Seller or its Subsidiaries.

(e) Intellectual Property Contracts.

(i) All Intellectual Property Contracts are in full force and effect.

(ii) Seller is not in material breach of any of the Intellectual Property Contracts, and, to Seller's knowledge, no other party to any Intellectual Property Contract has materially breached such Intellectual Property Contract or failed to perform its obligations thereunder.

(f) Sufficiency of Intellectual Property Rights. Buyer agrees and acknowledges that it will need to obtain the Intellectual Property rights from third parties (and not from Seller), as described in Section 3.9(f) of the Seller Disclosure Letter, in order to continue the conduct of the Business after the Closing ("Third Party Rights"). The Third Party Rights and the Purchased Assets will be sufficient for the Buyer to operate the Business following the Closing in substantially the same manner in which the Business was operated by Seller during the one (1) year period immediately prior to the Closing Date.

(g) Government Rights. No government funding, facilities of a university, college, other educational institution or research center or funding from third parties was used in the development of any Business Intellectual Property. To the knowledge of Seller no current or former employee, consultant or independent contractor of Seller, who was involved in, or who contributed to, the creation or development of any Business Intellectual Property, has performed services for the government, university, college, or other educational institution or research center during a period of time during which such employee, consultant or independent contractor was also performing services for Seller.

(h) Third-Party Infringement. To the knowledge of Seller: (i) no Person has infringed or misappropriated, or is infringing or misappropriating, any Business Intellectual Property, and (ii) no Person has infringed or misappropriated, or is infringing or misappropriating, any Business Intellectual Property in a manner that would materially adversely affect the Business.

(i) Trade Secret Protection. Seller has taken reasonable steps to protect its rights in Seller's confidential information and trade secrets used solely in the conduct of the Business, and any trade secrets or confidential information of third parties provided to Seller under an obligation of confidentiality, and, without limiting the foregoing, Seller has required each employee and contractor performing work primarily as part of the conduct of the Business to execute a proprietary information/confidentiality agreement in substantially the form set forth in Section 3.9(i) of the Seller Disclosure Letter and all current and former employees and contractors of Seller who are performing or have performed work primarily as part of the conduct of the Business have executed such an agreement or an alternative form of agreement containing substantially similar provisions.

3.10 Contracts. Section 3.10 of the Seller Disclosure Letter identifies each of the following Seller Contracts relating to the Business or the Purchased Assets: (i) each such Seller Contract with any current customer who has purchased, is entitled to receive, or otherwise has been provided with any Business Product (other than any Seller Contract that is currently in effect and does not materially deviate from the corresponding Standard Form Agreement); (ii) each such Seller Contract that is currently in effect and relates to maintenance or similar services with respect to any Business Product (other than any Seller Contract that is currently in effect and does not materially deviate from the corresponding Standard Form Agreement); (iii) each partnership, joint venture or similar Contract to which Seller is a party; (iv) each such Seller Contract relating to the acquisition by Seller or any Subsidiary of Seller of the rights to, or the manufacture or distribution of, any Business Product; and (v) each Seller Contract relating to the acquisition, transfer, use, development, sharing or license of any services, Intellectual Property or Intellectual Property right that is used in the development or provision of any Business Product (other than: (A) software license agreements for any third-party software that is generally available to the public on standard terms at a cost of less than $5,000; and (B) nondisclosure agreements entered into by Seller or any Subsidiary of Seller in the ordinary course of business) (collectively, the "Business Contracts"). Seller has made available to Parent a correct and complete copy of each written Business Contract, each written modification, amendment or additional terms to each Business Contract, a written summary setting forth the terms and conditions of any oral modification, amendment or additional terms to the Business Contracts, and a written summary setting forth the terms and conditions of each oral Business Contract. With respect to each Business Contract:

(A) the Business Contract, with respect to Seller and, to Seller's knowledge, all other parties thereto, is legal, valid, binding, enforceable, and in full force and effect in all material respects; (B) neither Seller nor, to Seller's knowledge, any other party is in breach or default, and no event has occurred, which with notice or lapse of time would constitute a breach or default, or permit termination, a material modification, or acceleration, under the Business Contract; and (C) Seller has not received written notice that any party has repudiated any provision of the Business Contract. Following the Closing, Buyer will be permitted to exercise all of Seller's rights under such Assigned Contracts to the same extent Seller would have been able to had the Transactions not occurred.

3.11 Insurance. Seller has in effect, with respect to the Business and the Purchased Assets, such property, casualty, general liability and other insurance policies as are usual and customary for businesses in similar industries and markets and of similar size and scope. Such insurance will remain in effect through the Closing.

3.12 Litigation. Section 3.12 of the Seller Disclosure Letter sets forth each instance in which the Business or the Purchased Assets (i) is subject to any outstanding injunction, judgment, order, decree or ruling, or (ii) is or has been, or, to the knowledge of Seller is threatened, to be made a party, to any action, suit, proceeding, hearing, mediation, arbitration, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any mediator or arbitrator.

3.13 Restrictions on Business Activities. Except as set forth in Section 3.13 of the Seller Disclosure Letter and such restrictions, if any, contained in the Assigned Contracts, there is no agreement (not to compete or otherwise), commitment, judgment, injunction, order or decree to which Seller is a party or which is otherwise binding upon Seller which has the effect of prohibiting or restricting, in any material respect, Buyer's operation of the Business after the Closing Date or any acquisition of property (tangible or intangible) by Buyer in the operation of the Business after the Closing Date as currently conducted.

3.14 Product Warranty. The technologies or products licensed, sold, leased, and delivered and all services provided by Seller solely in the conduct of the Business have conformed in all material respects with all applicable specifications for such products, all applicable contractual commitments made to customers with respect to the sale of products and services, and all express and implied warranties. To the knowledge of Seller, Seller has no liability for replacement or modification thereof or other damages including, without limitation injury to Persons or property in connection therewith.

3.15 Employees. Section 3.15 of the Seller Disclosure Letter contains a complete and accurate list of all current Employees as of the date hereof, showing for each such Employee: (i) employee's name, position held, annual base salary, target incentive cash compensation; (ii) net credited service date; (iii) vacation eligibility for calendar year 2005; (iv) visa status; (v) leave status (including type of leave, expected return date for non-disability related leaves and expiration dates for disability leaves); and (vi) the name of any union, collective bargaining agreement or other similar labor agreement covering such Employee. All of the Employees are located in the State of Colorado, U.S.A. or in the locations set forth in Section 3.15 of the Seller Disclosure Schedule.

3.16 Employee Matters and Benefit Plans.

(a) Benefit Plan Compliance. (i) Seller and each of its ERISA Affiliates have performed in all material respects all obligations required to be performed by them under, are not in default or violation of, and have no knowledge of any default or violation by any other party to each Benefit Plan that would reasonably likely to result in a Material Adverse Effect on the Business after the Closing Date, and each Benefit Plan has been established and maintained in all material respects in accordance with its terms and in material compliance with all applicable Laws, including but not

limited to ERISA and the Code, except as would not be reasonably likely to result in a Material Adverse Effect on the Business after the Closing Date.

(b) No Pension Plans. With respect to current Employees, neither Seller nor any ERISA Affiliate has ever maintained, established, sponsored, participated in, or contributed to, any (i) Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code, or (ii) Multiemployer Plan.

(c) No Continuation Coverage. No Benefit Plan provides, or reflects or represents any Liability to provide retiree health to any Employee for any reason, except as may be required by COBRA or other applicable statute, and neither Seller nor any of its ERISA Affiliates has represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) or any other individual that such Employee(s) or other individual would be provided with retiree health, except to the extent required by statute.

3.17 Labor Matters. No Transferred Employee has advised any officer of Seller in writing that he or she plans to terminate employment with Seller or within the twelve (12) months after the date of the Closing. Seller is not a party to any special collective bargaining agreement and no collective bargaining agreement is being negotiated with respect to the Business. There is no material unfair labor practice, charge or complaint pending against Seller with respect to the Business, nor is there any material labor strike, work stoppage, grievance or other labor dispute pending or, to the knowledge of Seller, threatened in writing against Seller with respect to the Business. Seller is in compliance in all material respects with (i) all applicable Laws respecting employment and wage and hours, and with all terms and conditions of employment, agreements with third parties, codes of conduct, visas, work permits, in each case, with respect to the Transferred Employees; and (ii) is not liable for any payment to any Governmental Body, any trust or other fund governed by or maintained by or on behalf of any Governmental Body, with respect to unemployment compensation benefits, social security or other similar, legally mandated benefits or obligations for the Transferred Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending, or to the knowledge of Seller threatened claims or actions against the Seller under any employment policy or disability policy with respect to the Transferred Employees. Except as set forth on Section 3.17 of the Seller Disclosure Letter, no event has occurred for which any material liability may be incurred by Seller in relation to the Transferred Employees for breach of any contract of services or for services or for any other liability accruing from the termination of employment or for services whether under Law or otherwise.

3.18 Environment, Health and Safety. For purposes of this Agreement, the following terms shall have the meanings ascribed to them below:

(a) Definitions.

(i) "Hazardous Material" is any material, chemical, substance or waste that has been designated by any Governmental Body to be radioactive, toxic, hazardous or otherwise a danger to health, reproduction or the environment or the disposal, treatment, transfer, storage or manufacture of which is regulated in any manner by a Governmental Body.

(ii) "Environmental Laws" are all applicable laws, rules, regulations, orders, treaties, statutes, and codes promulgated by any Governmental Body which prohibit, regulate or control any Hazardous Material or any Hazardous Material Activity, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, the Resource Recovery and Conservation Act of 1976, the Federal Water Pollution Control Act, the Clean Air Act, the Hazardous Materials Transportation Act, the Occupational Safety and Health Act, the Clean Water Act, comparable laws, rules, regulations, ordinances, orders, treaties, statutes, and codes of other Governmental Bodies, the regulations

promulgated to any of the foregoing, and all amendments and modifications of any of the foregoing.

(iii) "Hazardous Materials Activity" is the transportation, transfer, recycling, storage, use, treatment, manufacture, removal, remediation, release (or threat of release), exposure of others to, sale, or distribution of any Hazardous Material or any product containing a Hazardous Material.

(iv) "Environmental Permit" is any approval, permit, license or consent required to be obtained from any private person or any Governmental Body with respect to a Hazardous Materials Activity which is or was conducted by the Seller.

(b) Condition of Property. As of the Closing, except in compliance with Environmental Laws or in a manner that could not reasonably be expected to result in material liability to Seller, no Hazardous Materials are present, as a result of actions of Seller with respect to the operation of the Business, or, to the knowledge of Seller, as a result of any actions of any third party or otherwise, on the Facility. Except in compliance with Environmental Laws or in a manner that could not reasonably to result in a material liability to Seller, there are, to the knowledge of Seller, no underground storage tanks, asbestos which is friable or likely to become friable or PCBs present on the Facility.

(c) Hazardous Materials Activities. Seller has conducted all Hazardous Material Activities relating to the Business in compliance in all material respects with all applicable Environmental Laws. To the knowledge of Seller, the Hazardous Materials Activities of Seller prior to the Closing relating to the Business have not resulted in the exposure of any person to a Hazardous Material in a manner which has caused an adverse health effect to any such person.

(d) Permits. Seller holds all Environmental Permits which are in all material respects necessary for the conduct of the Business as currently being conducted by Seller.

(e) Environmental Litigation. No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to the knowledge of Seller, threatened, concerning or relating to any Environmental Permit or any Hazardous Materials Activity of Seller relating to the Business or the Facility.

(f) Reports and Records. Seller has made available to Buyer or made available for inspection by Buyer or its agents, representatives or employees all material records in Seller's possession concerning the Hazardous Materials Activities of Seller relating to the Business and all environmental audits and environmental assessments of the Facility conducted at the request of, or otherwise in the possession of, Seller. Seller has complied, in all material respects, with all environmental disclosure obligations imposed on Seller by applicable law with respect to the Transactions.

3.19 Real Estate Representations.

(a) Section 3.19 of the Seller Disclosure Letter sets forth a list of the real property currently leased or subleased by or from Seller, or otherwise occupied by Seller, primarily in connection with the Business including the name of the lessor, master lessor, lessee and/or sublessee, as the case may be, and the date of the lease or sublease (collectively, "Leases") and each amendment thereto and with respect to any current Lease, the aggregate annual rental and/or other fees payable under any such Lease (the "Leased Real Property"). Each of the Leases that is included in the Purchased Assets is in full force and effect and is valid and effective in accordance with its terms in all material respects.

(b) Except as otherwise described in Section 3.19(b) of the Seller Disclosure Letter: (i) to the knowledge of Seller, there are no structural, electrical, mechanical, plumbing, roof, paving or other

defects in any improvements located at the Facility as would, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the use, development, occupancy or operation of the Facility in the operation of the Business as currently conducted; (ii) to the knowledge of Seller, there are no natural or artificial conditions affecting the Facility or any other facts or conditions that would reasonably likely have a Material Adverse Effect on Seller's ability to occupy the Facility or to operate the Business in the Facility as currently conducted by Seller; (iii) Seller has not received any written notice from any insurance company of any defects or inadequacies in the Facility or any part thereof that would reasonably be expected to have a Material Adverse Effect on the insurability of such property or the premiums for the insurance thereof, nor has any written notice been given by any insurer of the Facility requesting the performance of any repairs, alterations or other work with respect to the Facility with which compliance has not been made, except for the failure to make such repairs, alterations or other work that would not reasonably likely have a Material Adverse Effect on the insurability of the Facility; (iv) other than Seller, there are no parties in possession of any portion of the Facility leased by Seller, whether as subtenants, trespassers or otherwise, that would materially interfere with the use of the Facility; (v) there are no service, operating or management agreements or arrangements regarding the Facility to which Seller is a party that cannot be terminated on thirty (30) days' notice without material penalty or surcharge; and (vi) to the knowledge of Seller, there currently exists water, sewer, gas or electrical, telephone and telecommunication lines and surface drainage systems serving the Facility that are sufficient to service the operations of the Facility when fully occupied and operational. Except as set forth in the "Work Letter" attached to the lease for the Facility, there are no tenant improvements to the Facility, and the improvements set forth in the Work Letter are the property of the landlord and restoration of the Facility to its state prior to these improvements is not required upon termination of the lease for the Facility.

(c) To Seller's knowledge, no condemnation, environmental, zoning, land-use or other regulatory proceedings or rule making procedures have been instituted or planned to be instituted with respect to the Facility prior to expiration of the term of Seller's current lease for the Facility, nor has Seller received written notice of any proceedings to impose any new taxes or operating restrictions upon the Facility.

3.20 Fees. Except as set forth in Section 3.20 of the Seller Disclosure Letter, Seller has no liability or obligation to pay any brokerage or finders' fees or agents' commissions or any similar charges with respect to the Transactions.

3.21 Sufficiency of Purchased Assets. Except as set forth on Section 3.21 of the Seller Disclosure Letter, other than the Employees, and subject to Seller's performance of its obligations under the Ancillary Agreements, the Purchased Assets collectively constitute, and will collectively constitute as of the Closing Date, all of the Assets necessary to operate the Business, as currently conducted by Seller.

3.22 Operations Permits. Section 3.22 of the Seller Disclosure Schedule sets forth each Permit held by Seller as of the date hereof and that relates, directly or indirectly, and whether or not exclusively related, to the Business (collectively, the "Business Permits").

(a) Seller is not in material default (or with the giving of notice or lapse of time, or both, would be in material default) under, or violation in any material respect of, any Business Permit.

(b) To the knowledge of Seller, the Assigned Permits are sufficient to enable Buyer to conduct the Business as currently conducted by Seller in compliance in all material respects with all applicable Laws.

3.23 Non-Governmental Certifications. Section 3.23 of the Seller Disclosure Letter contains a complete and accurate list of all customer, supplier and other non-governmental entities that have issued certifications or quality assurance criteria regarding the Qualified Products.

3.24 Customers. Listed in Section 3.24 of the Seller Disclosure Letter are the names and addresses of each of the ten (10) most significant customers (by revenue) of the Business for the twelve-month period ended September 30, 2005 and the amount for which each such customer was invoiced during such period with respect to the Business. Seller has not received any written notice that any such significant customer has ceased, or will cease, to use the products, equipment, goods or services of the Business or has substantially reduced, or will substantially reduce, the use of such products, equipment, goods or services of the Business.

3.25 Suppliers. Listed in Section 3.25 of the Seller Disclosure Letter are the names and addresses of each of the ten (10) most significant suppliers of raw materials, supplies, merchandise and other goods for the Business for the twelve-month period ended September 30, 2005 and the amount for which each such supplier invoiced Seller during such period with respect to the Business. Seller has not received any written notice that any such supplier will not sell raw materials, supplies, merchandise and other goods to Buyer at any time after the Closing Date on terms and conditions substantially similar to those imposed on current sales to the Business, subject only to general price increases and existing agreements with such suppliers.

3.26 No Adverse Developments. Since September 30, 2005, there has not been any effect in or change to the Purchased Assets or the Business that has had, or is reasonably likely to have or result in, a Material Adverse Effect on the Purchased Assets or the Business.

3.27 Inventories. The Finished Goods Inventory is useable and saleable in the ordinary course of the Business as currently conducted. The Finished Goods Inventory does not consist of items that are obsolete or damaged. Seller is not under any obligation or liability with respect to accepting returns of items of Consigned Finished Goods Inventory in the possession of its customers other than in the ordinary course of the Business consistent with past practice. All of the Finished Goods Inventory, including the Consigned Finished Goods Inventory, are located at the location(s) set forth on Schedule 1.1(ee).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER

Subject to such exceptions as are specifically disclosed in the disclosure letter supplied by the Parent to Seller (the "Parent Disclosure Letter"), each of Parent and Buyer, jointly and severally, hereby represents and warrants to Seller that the statements contained in this Article IV are true and correct as of the date of this Agreement; provided, that the representations and warranties contained in this Article IV that are made as of a specified date are only represented as being true and correct as of such date.

4.1 Organization, Qualification, and Corporate Power. Parent is a corporation duly organized, validly existing, and in good standing under the laws of Delaware. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of Delaware and is a wholly-owned Subsidiary of Parent. Sanmina-Singapore is a corporation duly organized and validly existing under the laws of the Republic of Singapore and is an indirect, wholly-owned subsidiary of Parent. Each of Parent, Buyer and Sanmina-Singapore has all necessary corporate power and authority to enter into this Agreement, each of the Ancillary Agreements to which it is a party and all other agreements and instruments executed and delivered by it pursuant to this Agreement, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. Each of Parent, Buyer and Sanmina-Singapore is duly authorized to conduct its business and is in good standing under the laws of each other jurisdiction where such qualification is required and in which the failure to so qualify is reasonably likely to (i) in the aggregate have a Material Adverse Effect on Parent or Buyer, taken as a whole, or (ii) adversely affect the ability of Parent or Buyer to execute and

deliver this Agreement and the Ancillary Agreements, to consummate the Transactions or to carry out its respective obligations under this Agreement or any Ancillary Agreement to which it is a party.

4.2 Authorization. Each of Parent, Buyer and Sanmina-Singapore has full power and authority to enter into, execute and deliver this Agreement and each of the Ancillary Agreements to which it is a party, and to consummate the Transactions and to perform its obligations hereunder and thereunder, and the execution and delivery of this Agreement and the Ancillary Agreements by each of Parent, Buyer and Sanmina-Singapore, the performance by each of Parent, Buyer and Sanmina-Singapore of its obligations hereunder and thereunder and the consummation by each of Parent, Buyer and Sanmina-Singapore of the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of each of Parent, Buyer and Sanmina-Singapore and no other proceedings on the part of either Parent, Buyer or Sanmina-Singapore are necessary to authorize the execution, delivery and performance by Parent, Buyer and Sanmina-Singapore of this Agreement and the Ancillary Agreements. This Agreement and the Ancillary Agreements to which either Parent, Sanmina-Singapore and/or Buyer is a party constitute the valid and legally binding obligations of each of Parent, Sanmina-Singapore or Buyer, enforceable against each of Parent, Sanmina-Singapore or Buyer in accordance with their respective terms and conditions, except as such enforceability may be limited by principles of public policy and subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

4.3 No Conflicts. Neither the execution and the delivery of this Agreement and the Ancillary Agreements by Parent, Buyer and Sanmina-Singapore nor the consummation of the Transactions, nor the conduct of the Business by Parent and/or Buyer following the Closing will (A) violate any material constitution, Law, injunction, judgment, order, decree, ruling, charge, or other restriction of any Governmental Body, or court to which Parent or Buyer is subject, (B) violate or conflict with any provision of the charters, bylaws or organizational documents of Parent or Buyer, or (C) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under, any agreement, contract, lease, license, instrument, or other arrangement to which Parent or Buyer is a party or by which either is bound or to which any of their assets is subject, other than any of the foregoing which would not in the aggregate (i) have a Material Adverse Effect on Parent, Buyer or Sanmina-Singapore, taken as a whole, or (ii) adversely affect the ability of Parent, Buyer or Sanmina-Singapore to execute and deliver this Agreement and the Ancillary Agreements, to consummate the Transactions or to perform their respective obligations hereunder and thereunder.

4.4 Consents. No consent, waiver, approval, order, license, permit, certificates, filing or authorization of, or registration, declaration or filing with, any Governmental Body or any third party, including a party to any agreement with Parent, Buyer or Sanmina-Singapore, is required by or with respect to Parent, Buyer or Sanmina-Singapore in connection with the execution and delivery of this Agreement or any of the Ancillary Agreements or the consummation of the Transactions, except for (i) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, (ii) any applicable filings required under applicable antitrust laws, and (iv) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings in which the failure of which to obtain would not in the aggregate (i) have a Material Adverse Effect on Parent, Buyer or Sanmina-Singapore, or (ii) affect the ability of Parent, Buyer or Sanmina-Singapore to execute and deliver this Agreement and the Ancillary Agreements to which each is a party, to consummate the Transactions or to perform their respective obligations under this Agreement or any such Ancillary Agreement.

4.5 Payment of Purchase Price. As of the Closing Date, Buyer will have sufficient funds to pay the Closing Purchase Price and the Earn-Out Consideration.

ARTICLE V

PRE-CLOSING COVENANTS

With respect to the period between the execution of this Agreement and the earlier of the termination of this Agreement in accordance with its terms and the Closing (the "Pre-Closing Period"):

5.1 Operation of Business.

(a) Seller agrees that, during the Pre-Closing Period, except as contemplated by this Agreement, any Ancillary Agreement or the Transactions, or as otherwise consented to or approved in advance by Parent or Buyer, Seller shall:

(i) use all commercially reasonable efforts to (i) preserve intact the present business organization, reputation, contractual and other arrangements of the Business then under the control of Seller, (ii) keep available (subject to dismissals and retirements and resignations in the ordinary course of business consistent with past practice) the services of the present Employees of the Business, (iii) maintain the Purchased Assets in good working order and condition, ordinary wear and tear excepted, (iv) maintain the goodwill of customers, suppliers and distributors of the Business and other Persons with whom Seller otherwise has significant business relationships in connection with the Business, and (v) continue all current sales, service, marketing, promotional, product development and other activities relating to the Business substantially consistent with Seller's past practices during the twelve (12) month period immediately preceding the date of this Agreement;

(ii) except to the extent required by applicable Law and consistent with past practice, (i) cause the Books and Records of the Business to be maintained in the usual, regular and ordinary manner, and (ii) not permit any change in any pricing, investment, accounting, financial reporting, inventory, credit, allowance or Tax practice, policy or election of Seller that would materially and adversely affect the Business, the Purchased Assets or materially increase the Assumed Liabilities;

(iii) use all commercially reasonable efforts to continue in full force and effect all material insurance policies (or comparable insurance policies) insuring the Business and the Purchased Assets; and

(iv) comply in all material respects with all Laws and Orders applicable to the Business, and promptly following receipt thereof deliver to Buyer copies of any written notice received from any Governmental Body or other Person alleging any violation of any such Law or Order.

(b) Seller agrees that, during the Pre-Closing Period, except as contemplated by this Agreement, the Ancillary Agreements or the Transactions or as otherwise consented to or approved in advance by Parent or Buyer, Seller shall not:

(i) make any representation or promise, oral or written, to any Employee of the Business concerning any employee benefit plan of Parent or Buyer, except for statements as to the rights or accrued benefits of any Employee of the Business under the terms of any employee benefit plan or agreements or as otherwise required by Law;

(ii) make any increase in the salary, wages or other compensation (cash, equity or otherwise) of any Employee whose annual salary is or, after giving effect to such change, would be the equivalent of $50,000 or more, and in the aggregate in excess of $100,000;

(iii) establish or materially modify any (i) targets, goals, pools or similar provisions in respect of any fiscal year under any Benefit Plan, any employment-related contract or other

compensation arrangement with or for Employees or (ii) salary ranges, increase guidelines or similar provisions in respect of any Benefit Plan, any employment-related contract or other compensation arrangement with or for Employees, except, in each case, in the ordinary course of business consistent with past practice;

(iv) terminate the employment of any Transferred Employee, except for cause and in such case to provide notice to Parent or Buyer prior to any such termination to the extent reasonably feasible in the circumstances; or

(v) enter into any Contract to do or engage in any of the foregoing items set forth in this Section 5.1(b).

(c) Seller agrees that, during the Pre-Closing Period, except as permitted by this Agreement, the Ancillary Agreements or the Transactions or as otherwise consented to or approved in advance by Parent or Buyer, Seller shall not:

(i) acquire, lease, license or dispose of or agree to acquire lease, license or dispose of any assets that would constitute Purchased Assets hereunder, other than in the ordinary course of business consistent with past practice, or create or incur any material Lien, other than a Permitted Lien, on any assets that would constitute Purchased Assets hereunder;

(ii) enter into, amend, modify, terminate (partially or completely), grant any waiver under or give any consent with respect to any Assigned Contract or any Assumed License or Permit, in each case other than in the ordinary course of business consistent with past practice;

(iii) violate, breach or default in any material respect under, or take or fail to take any action that (with or without notice or lapse of time or both) would constitute a material violation or breach of, or material default under, any term or provision of any Assigned Contract or Assigned Permit;

(iv) make any material changes in the conduct of the Business, except as specifically contemplated or permitted by this Agreement, any Ancillary Agreement or the Transactions;

(v) enter into any Contract with any Person related to any merger, consolidation or other business combination that would interfere with or adversely affect the Business or the ability of Seller to consummate the transactions (including but not limited to the purchase and sale of the Purchased Assets) contemplated hereby and pursuant to the Ancillary Agreements, unless such Person agrees in writing that such merger, consolidation or other business combination is subject to the terms and conditions of this Agreement and the Ancillary Agreements; or

(vi) enter into any Contract to do or engage in any of the foregoing items set forth in this Section 5.1(c).

5.2 Access to Information. Subject to Parent's and Buyer's compliance with the provisions of Section 6.1, Seller shall permit Buyer and its representatives during the Pre-Closing Period to have reasonable access during normal business hours, upon reasonable advance notice, to the Books and Records of the Business, the Employees and the Purchased Assets then under the control of Seller (including the testing and investigation of the Facility as Buyer reasonably deems necessary prior to the Closing) for the purposes of, among other things, identifying and verifying the value of the Purchased Assets to be purchased at the Closing provided, however, that such access shall be conducted by Buyer and its representatives in such a manner as not to interfere unreasonably with the businesses or operations of Seller or the Business and as is not in violation of Seller's lease for the Facility.

5.3 Notice of Developments. During the Pre-Closing Period, Seller shall give prompt notice to Buyer of (i) the occurrence or non occurrence of any event of which Seller has knowledge, the occurrence or non occurrence of which is reasonably likely to cause any representation or warranty of Seller contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Closing and (ii) any failure of Seller to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 5.3 shall not limit or otherwise affect any remedies available to the Party receiving such notice. No disclosure by either party pursuant to this Section 5.3 shall be deemed to amend or supplement the representations and warranties of such parties made hereunder or prevent or cure any misrepresentations, breach of warranty or breach of covenant without the written consent of the other parties hereto.

5.4 No Solicitation. During the Pre-Closing Period, neither Seller nor any Subsidiary of Seller shall (nor shall it permit its Representatives to) directly or indirectly take any of the following actions with any Person other than Parent, Buyer and their designees: (a) solicit, initiate, consider, encourage or accept any proposals or offers from, or conduct discussions with or engage in negotiations with, any Person relating to any possible Acquisition Proposal with Seller or any of its Subsidiaries (whether such Subsidiaries are in existence on the date hereof or are hereafter organized); (b) provide information with respect to Seller to any Person, other than Parent or Buyer, relating to, or otherwise cooperate with, facilitate or encourage any effort or attempt by any such Person with regard to, any possible Acquisition Proposal with Seller or any Subsidiary of Seller (whether such Subsidiary is in existence on the date hereof or is hereafter organized), except as required by Law; (c) enter into a contract or agreement (whether oral or written) with any Person, other than Parent or Buyer, providing for an Acquisition Proposal with Seller or any Subsidiary of Seller (whether such Subsidiary is in existence on the date hereof or is hereafter organized); or (d) make or authorize any statement, recommendation or solicitation in support of any possible Acquisition Proposal with Seller or any Subsidiary of Seller (whether such Subsidiary is in existence on the date hereof or is hereafter organized) other than by Parent or Buyer. Seller shall, and shall cause its Representatives to, immediately cease and cause to be terminated any such contacts or negotiations with any Person relating to any Acquisition Proposal. As used in this Section 5.4, "Acquisition Proposal" shall mean a proposal or offer for (i) a merger, consolidation or other business combination involving an acquisition of the Business or the Purchased Assets or (ii) any extraordinary business transaction involving or otherwise relating to the Business or Purchased Assets; provided however, that the term "Acquisition Proposal" shall not include any proposal or offer for any business combination or similar transaction involving Seller or any of its Subsidiaries or any assets of Seller or any of its Subsidiaries (other than the Purchased Assets) that does not disturb, interfere with or adversely effect Parent's or Buyer's rights under this Agreement and the Ancillary Agreements, the availability of the Purchased Assets for purchase and delivery to Parent and Buyer as provided in this Agreement or Seller's ability to perform and comply with its obligations under this Agreement or any of the Ancillary Agreements.

5.5 Reasonable Efforts. During the Pre-Closing Period, each of the Parties will use their reasonable efforts to take all action and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in Article VII below).

5.6 Notices and Consents. During the Pre-Closing Period, Seller will give any notices to third parties and use reasonable commercial efforts to obtain any third party consents that are listed in Schedule 7.1(e) to the Seller Disclosure Letter. During the Pre-Closing Period, except as may be otherwise agreed by the Parties, each of the Parties will give any notices to, make any filings with, and use its commercially reasonable efforts to obtain any authorizations, consents, and approvals of, Governmental Bodies in connection with the matters identified in Sections 3.3 and 3.4 of Seller

Disclosure Letter or as otherwise reasonably required in connection with the transactions contemplated by this Agreement.

5.7 Employee Matters.

(a) Offers of Employment. Prior to the Closing, Buyer shall offer employment, contingent on the Closing, to each of the Employees identified by Buyer on Schedule 5.7(a) (such Schedule 5.7(a) may be updated by Buyer at any time prior to the date three (3) days prior to the Closing) and who are still employed by Seller or a Subsidiary of Seller on the day immediately preceding the Closing Date, such employment to commence on the Closing Date on terms that will provide such Employees salaries not less than their current base salaries with Seller and that will include customary medical insurance, health and other benefits customarily provided by Parent to its employees generally on a non-discriminatory basis. With respect to certain Employees identified on Schedule 5.7(a), such offer of employment will include vacation eligibility on the terms identified for such Employee on Schedule 5.7(a), rather than on Buyer's standard terms for similarly situated personnel. Seller shall, and shall cause its officers, to cooperate with Parent and Buyer in connection with their good faith efforts to hire the Employees listed on Schedule 5.7(a), including, without limitation, allowing representatives of Parent and Buyer reasonable access during normal business hours to meet with and distribute to such Employees such forms and other documents relating to their proposed employment with Parent or Buyer, provided such access does not unreasonably interfere with Seller's conduct of the Business. Immediately prior to the Closing Date, Seller shall transfer or terminate all Employees employed at the Facility who have not been identified on Schedule 5.7(a) or otherwise hired by Parent or Buyer. Seller shall be solely liable for all (i) Employment Liabilities and other Liabilities, if any, of Seller to any and all Employees who do not accept employment with Buyer and (iii) all Liabilities for severance and other costs, including without limitation, employment-related Liabilities and other obligations related to transfers and terminations of Employees who are not listed on Schedule 5.7(a) or have not otherwise been hired by Parent or Buyer (the "Termination Liabilities"); provided, however, that Buyer shall be liable for the Termination Liabilities with respect to Transferred Employees but only to the extent such Termination Liabilities are not Assumed Employment Liabilities.

(b) Buyer and Seller shall use commercially reasonable efforts to achieve an orderly transfer of the Transferred Employees to the employment of Parent or Buyer effective upon the Closing as contemplated by this Agreement. Upon satisfaction of the conditions to the payment of the Employee Retention Bonuses, Buyer shall pay to the eligible Transferred Employees, as set forth on Schedule 5.7(b), their respective Employee Retention Bonuses.

(c) Prior to Closing, Seller and its Subsidiaries shall not take any actions: (i) to offer alternate employment within the Seller's or any of its Subsidiaries' operations to any Employees listed on Schedule 5.7(a), except as otherwise agreed to by Parent or Buyer, or (ii) to actively and willfully discourage or prevent any Employee listed on Schedule 5.7(a) from becoming an employee of Parent or Buyer on or after the Closing Date.

ARTICLE VI

OTHER AGREEMENTS AND COVENANTS

6.1 Confidentiality. All Book and Records of Seller, and other confidential and/or proprietary information of a party to this Agreement are hereinafter referred to as "Confidential Information." A party who owns and discloses its Confidential Information is referred to below as a "Disclosing Party" and a party who receives or is given access to a Disclosing Party's Confidential Information is referred to below as a "Receiving Party." Each party hereto agrees that all Confidential Information of another party that is disclosed to such party in the course of negotiating the Transactions contemplated by this Agreement or conducting due diligence in connection herewith will be held in confidence, and will not be used or disclosed by the Receiving Party except for the purposes relating to or permitted by this Agreement for which such Confidential Information was disclosed, and in the event of termination of this Agreement prior to completion of the Transactions, will be promptly destroyed by the Receiving Party or returned to the Disclosing Party, upon the Disclosing Party's written request. It is agreed that Confidential Information will not include information that: (i) was rightfully known to such Receiving Party before receipt of such information from the Disclosing Party; (ii) is or becomes generally known to the public through no breach of this Section or any act or omission on the part of the Receiving Party; (iii) was or is disclosed by a third party having the legal right to disclose such information with no obligation of confidence to the Disclosing Party, or is required to be disclosed as a result of court order or similar process; or (iv) is independently developed by the Receiving Party without use of any of the Disclosing Party's Confidential Information (as evidenced by a contemporaneous writing).

6.2 Additional Documents and Further Assurances. Each Party hereto, at the reasonable request of another Party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be reasonably necessary or desirable for effecting completely the consummation of the Transactions (provided that the foregoing will not require any Party to make any payment of consideration to any other Person).

6.3 Covenant Not to Compete.

(a) Covenant. Subject to the provisions of Section 6.3(f) below, in partial consideration of the payment of the Purchase Price, Seller covenants and agrees that, if the sale and purchase of the Purchased Assets hereunder is consummated and closed, then during the Restricted Period (as defined below), Seller and its Subsidiaries shall not, directly or indirectly, (i) engage in, carry on, manage, operate, perform or control the management or operation of any Restricted Business (as defined below) in any portion of the territory (the "Restricted Territory") consisting of the world, or (ii) own any equity interest in any Person that, as a principal part of its business, is engaged in, carries on, manages, operates, performs or controls the management or operations of any Restricted Business in the Restricted Territory, provided however, that the covenant set forth in clause (a)(ii) above will not prohibit Seller from (i) owning up to 10% of the outstanding voting securities of a publicly-held or privately-held company as long as no employee or other representative of Seller serves in a managerial or advisory capacity with respect to such company or (ii) investing in venture capital or other investment funds having investments in companies engaged in the Restricted Business as long as Seller does not exercise any managerial or operational control over or provide services to any such portfolio company engaged in the Restricted Business.

(b) Restricted Period. Subject to the provisions of Section 6.3(f) below, as used herein, the term "Restricted Period" means that period of time beginning immediately after the completion of the Closing on the Closing Date and ending on that date which is the earliest to occur of: (i) four (4) years after the Closing Date; or (ii) the failure by Buyer to pay Seller in full any Earn-Out Consideration (including but not limited to the Period 1 Shortfall or the Period 2 Shortfall) when

such payment is due to Seller hereunder, which failure remains uncured within ten (10) business days after notice after notice of default on such payment is received by Parent or Buyer.

(c) Restricted Business; OEM Customer. For purposes of this Section 6.3, the term "Restricted Business" means each of the following: (i) the design, manufacture, distribution or sale of Business Products or products substantially similar to Business Products to Qualified Business Customers or OEM Customers (as defined below), and (ii) the design, manufacture, distribution or sale of Business Products or external storage system products to Qualified Business Customers or OEM Customers. For purposes of this Section 6.3, the term "OEM Customers" means companies (i) that are engaged in the design, development, manufacture and sale or distribution of electronics systems and products under such companies' brand names and (ii) that purchase Business Products or external storage system products directly from Parent or its Affiliates. Notwithstanding the foregoing, none of the following activities (whether considered separately or collectively) shall constitute a Restricted Business for purposes hereof and accordingly Seller and its Affiliates, successors and assigns shall be entitled to engage in each of the following activities at any time without any breach or violation of Section 6.3 of this Agreement: (i) the development, marketing, sale and distribution of products substantially similar to or having the same or substantially similar functionality as Business Products by Seller or its Affiliates to customers under any Seller-owned brand; (ii) the development, marketing, sale and distribution of Seller's Jupiter family of products as set forth on Schedule 6.3(c) (the "Jupiter Products") to International Business Machines Corporation and its Affiliates; (iii) the performance of the FS Agreement as contemplated by Section 2.8(b) of this Agreement until such time as the FS Agreement is duly and validly assigned to Parent or its Affiliates; and (iv) the development, marketing, sale and distribution of storage software or software for RAID controllers or other similar products not involving (x) the development of external system storage hardware products or (y) the development, marketing, sale or distribution of JBODs or RBODs.

(d) Other. Parent and Seller acknowledge and agree that compliance with the covenants contained in this Section 6.3 is necessary to protect Parent and Buyer and that a breach of any such covenant would result in irreparable and continuing damage for which there would be no adequate remedy at Law. Seller agrees that in the event of any breach of such covenant, Parent or Buyer shall be entitled to seek a preliminary and permanent injunctive relief and to such other and further relief as is proper under the circumstances without the posting of any bond by Parent or Buyer. Seller agrees that these covenants shall be deemed to be a series of separate covenants not to compete for each year within the applicable periods of non-competition and separate covenants not to compete for each state within the United States and each country in the world. If any court of competent jurisdiction determines any of the foregoing covenants to be unenforceable with respect to the term thereof or the scope of the subject matter or geography covered thereby, then such covenant shall nonetheless be enforceable by such court against Seller or other relevant Person upon such shorter term or within such lesser scope as may be determined by the court to be reasonable and enforceable. In the event Seller or any of its Subsidiaries is in violation of the aforementioned restrictive covenants, then the time limitation thereof shall be extended for a period of time during which such breach or breaches shall occur, unless a court of competent jurisdiction renders a final non-appealable judgment to the effect that such extension is illegal or unenforceable.

(e) Non-Solicitation. Subject to the provisions of Section 6.3(g) below, Seller further covenants and agrees that, without the prior written consent of the Parent, Seller and its Subsidiaries will not, (i) for a period of one (1) year following the Closing Date hire as an employee officer, agent, consultant or advisor of Seller, or in any other capacity whatsoever, any Transferred Employee engaged in the operation of the Business whose employment has not been terminated by Parent, Buyer or an Affiliate of Parent and (ii) for a period of two (2) years

following the Closing Date, solicit for employment as an employee, officer, agent, consultant or advisor of Seller, or in any other capacity whatsoever, any Transferred Employee engaged in the operation of the Business whose employment has not been terminated by Parent, Buyer or an Affiliate of Parent. As used herein, "solicit" means to affirmatively contact or communicate in any manner whatsoever, including, but not limited to, contacts or communications by or through intermediaries, agents, contractors, representatives, or other parties, provided that nothing herein shall be construed to prohibit Seller or any of its Subsidiaries from (i) placing advertisements for employment, requests for inquiry about employment or the availability of employment that are generally available or accessible by significant segments of the public, such as, without limitation, in any newspaper, trade magazine, other periodical, website or publication, or (ii) responding to any unsolicited inquiry by any Transferred Employee concerning employment.

(f) Effect of Change of Control. Except as provided below in this Section 6.3(f), this Section 6.3 shall be binding upon any successor to or assignee of all or substantially all the assets of business of Seller, and Seller will cause any such successor or assignee to acknowledge and agree to be bound by this Section 6.3 for the benefit of Parent and Buyer as a condition precedent to making such entity its successor or assignee to all or substantially all of Seller's assets or business; provided, however that: (i) if Seller consummates a Seller Change of Control (as defined below) in which the acquiring entity, or any of its Affiliates, is, immediately prior to such Seller Change of Control transaction, engaged in the Restricted Business then this Section 6.3 shall not thereafter be binding on such acquiring entity or its Affiliates (with respect to their Restricted Business activities); (ii) if Seller consummates a Seller Change of Control in which the acquiring entity is, immediately prior to such Seller Change of Control transaction, not engaged in any aspect of the Restricted Business, then this Section 6.3 shall not prevent, prohibit or restrict such acquiring entity or its Affiliates from engaging in any aspect of the Restricted Business except that the acquiring entity and its Affiliates may not make any use of Business Intellectual Property in connection with their conduct of any Restricted Business activities for so long as the covenant set forth in this Section 6.3 remains in effect on Seller; and (iv) if the Restricted Period has not previously terminated in accordance with the provisions of this Section 6.3(b), the Restricted Period and this Section 6.3 shall each terminate in its entirety upon the consummation of any Seller Change of Control following the third (3^rd) anniversary of the Closing Date or upon such third (3^rd) anniversary of the Closing Date, in the event a Seller Change of Control is consummated on or prior thereto. As used herein, the term "Seller Change of Control" of Seller shall mean: (i) the sale or other disposition of all or substantially all of Seller's assets; (ii) the issuance of voting securities of Seller to a single acquiror or a group of affiliated acquirors in a single transaction or series of related transactions, if the voting securities so issued represent fifty percent (50%) or more of the voting power of all Seller's then outstanding securities as of immediately after their issuance; or (iii) the consummation of any consolidation, merger, tender offer or similar transaction involving Seller or a subsidiary of Seller (each such transaction, a "reorganization") which results in the stockholders of Seller immediately prior to such reorganization owning, immediately after consummation of such reorganization, either (A) voting securities of Seller or the surviving entity of such reorganization or such surviving entity's parent entity which represent fifty percent (50%)) or less of the voting securities of Seller, or such surviving entity or such surviving entity's parent entity that are outstanding immediately after consummation of such reorganization or (B) fifty percent (50%) or less of the voting power of all voting securities of Seller or such surviving entity or such surviving entity's parent entity that are outstanding immediately after consummation of such reorganization.

6.4 Covenants Regarding Books and Records and Retained Materials.

(a) In order to facilitate the resolution of any claims made by or against or incurred by a Party after the Closing or for any other reasonable purpose, for a period of three (3) years

following the Closing Date, each Party shall (i) retain all books and records relevant to the Transactions, that are in such party's possession immediately prior to the Closing (except that Seller need not retain any records that are transferred to Buyer or Parent pursuant to this Agreement) and which relate to the Business for periods prior to the Closing and (in the case of Seller) which shall not otherwise have been delivered to Parent or Buyer and (ii) upon reasonable notice, afford the officers, employees and authorized agents and representatives of the other Party, reasonable access (including the right to make photocopies at such other Party's expense), during normal business hours, to such books and records. Parent and Buyer also agree with Seller that Seller shall be entitled to possess and retain copies of all Business Records for Seller's internal use (including preparation of financial statements and tax returns), provided that no use of such records that would violate this Agreement or any Ancillary Agreement may be made.

(b) Seller shall retain the Retained Manufacturing Materials and Retained Software as contemplated by, and for use pursuant to, Section 3.3 of the Buyer Supply Agreement.

6.5 Amendment to Singapore Transaction Inventory Put. The inventory put provisions of Section 6.2 of the Singapore APA are hereby modified to with respect to the inventories purchased by Sanmina-Singapore pursuant to the Singapore APA that are used in manufacturing Business Products (the "Singapore Business Products Inventories") (which Singapore Business Product Inventories shall be identified on a Schedule 6.5 to be prepared by the Parties in connection with the post-closing purchase price adjustment process provided for in the Singapore APA) as follows:

(a) The First Exercise Period and Put Right associated therewith shall not be applicable to the Singapore Business Products Inventories.

(b) The Second Exercise Period with respect to the Singapore Business Products Inventories shall commence on the twelve (12) month anniversary of the closing date under the Singapore APA and continue for a period of thirty (30) days thereafter.

(c) Prior to exercising a Put Right during the Second Exercise Period with respect to any of the Singapore Business Products Inventories, Sanmina-Singapore shall have, with respect to the Singapore Business Products Inventories proposed to be included in such exercise of a Put Right, used commercially reasonable efforts to reduce its exposure with respect to such Singapore Business Products Inventories including attempting to use such material elsewhere within its or Parent's operations and taking such other actions as Parent and Buyer would customarily take in the ordinary course of business to reduce exposure related to excess and obsolete material.

All other provisions of Section 6.2 of the Singapore APA shall remain in full force and effect, and the exercise of a Put Right by Sanmina-Singapore with respect to the Singapore Business Products Inventories shall be governed by Section 6.2 of the Singapore APA as amended hereby. All parties hereto that are parties to the Singapore APA are agreeing to the provisions of this Section 6.5 with the intent that this Section 6.5 serve as an amendment to the Singapore APA on the terms set forth above.

ARTICLE VII

CONDITIONS TO THE CLOSING

7.1 Conditions to Parent's and Buyer's Obligation to Close. The obligations of Parent and Buyer hereunder are subject to the fulfillment or satisfaction on, and as of the Closing, of each of the following conditions (any one or more of which may be waived by Parent, but only in a writing signed by Parent):

(a) Representations and Warranties. The representations and warranties of Seller set forth in Article III that are qualified as to materiality or Material Adverse Effect, or in Sections 3.1, 3.2 or 3.3 shall be true and correct, and those that are not so qualified shall be true and correct in all

material respects, in each case as of the date of this Agreement, and as of the Closing with the same force and effect as if made on and as of the Closing (except to the extent expressly made as of a particular date, in which case as of such date).

(b) Covenants. Seller shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by Seller on or prior to the Closing.

(c) No Actions. No action, suit, or proceeding shall be threatened or pending before any court or quasi- judicial or administrative agency of any non-U.S. or any U.S. federal, state or local jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would, if successful, (A) prevent consummation of any of the transactions contemplated by this Agreement, or (B) result in a Material Adverse Effect on the Business or the Purchased Assets.

(d) Closing Certificate. Seller shall have delivered to Parent an officer's certificate to the effect that each of the conditions specified above in Section 7.1(a) through 7.1(c) (inclusive) is satisfied in all respects.

(e) Third Party Consents. All consents (or waivers in lieu thereof) to the performance by Parent, Buyer and Seller of their respective obligations under this Agreement and the Ancillary Agreements or to the consummation of the Transactions listed in Schedule 7.1(e) to the Seller Disclosure Letter (i) shall have been obtained, (ii) shall be in form and substance reasonably satisfactory to Parent, and (iii) shall be in full force and effect.

(f) Delivery of Documents. Seller will have executed and delivered to Buyer and Sanmina-Singapore the following documents:

(i) each of the Ancillary Agreements to which Seller is a party, executed by Seller;

(ii) all documents listed on Schedule 7.1(f)(ii) that are reasonably necessary to effect the transfer of the Purchased Assets and the Assumed Liabilities;

(iii) the Business Records of Seller;

(iv) assignment instruments with regard to the Assigned Contracts and the Assigned Permits, to the extent required and not included among the Ancillary Agreements; and

(v) consents from all Persons to discharge any Lien (other than Permitted Liens) existing as of the Closing on the Purchased Assets, the Business or the Facility and set forth in Schedule 7.1(f)(v) to the Seller Disclosure Letter.

(g) Board of Directors. Buyer shall have received a certified copy of the resolutions of the board of directors of Seller (executed by an officer of Seller) approving this Agreement, the sale and transfer of the Purchased Assets to Buyer pursuant to this Agreement and the Ancillary Agreements.

(h) Preliminary Net Asset Value Statement. Seller shall have executed and delivered to Buyer the Preliminary Net Asset Value Statement.

(i) Governmental Authorizations. The Parties shall have received all necessary material authorizations, consents and approvals of Governmental Bodies.

(j) Employees. Parent shall have received an executed offer letter (including Parent or Buyer's standard form of employee proprietary information and inventions agreement), effective as of the Closing Date, from the Requisite Transferred Employee base (as defined below) and none of such Employees shall have notified the Parent, Buyer or Seller of such Employee's intention not to continue his or her employment with the Parent or Buyer after the Closing or questioned the

validity of any of such letters or agreement. The "Requisite Transferred Employee Base shall mean (i) all Tier 1 Transferred Employees, (ii) at least 5 of 6 Tier II Transferred Employees and (iii) at least 14 of 18 Tier III Transferred Employees. The classification of the Transferred Employees into tiers I, II and III is as set forth on Schedule 7.1(j).

7.2 Conditions to Seller's Obligations to Close. The obligations of Seller hereunder are subject to the fulfillment or satisfaction on, and as of the Closing, of each of the following conditions (any one or more of which may be waived by Seller, but only in a writing signed by Seller):

(a) Representations and Warranties. The representations and warranties of Parent and Buyer set forth in Article IV that are qualified as to materiality or Material Adverse Effect, or in Sections 4.1, 4.2 or 4.3 shall be true and correct, and those that are not so qualified shall be true and correct in all material respects, in each case as of the date of this Agreement, and as of the Closing with the same force and effect as if made on and as of the Closing (except to the extent expressly made as of a particular date, in which case as of such date).

(b) Covenants. Parent and Buyer shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing.

(c) No Actions. No action, suit, or proceeding shall be threatened or pending before any court or quasi-judicial or administrative agency of any non-U.S. or any U.S. federal, state or local jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would, if successful, (A) prevent consummation of any of the Transactions, or (B) result in a Material Adverse Effect on the Business or the Purchased Assets.

(d) Closing Certificate. Parent shall have delivered to Seller an officer's certificate to the effect that each of the conditions specified above in Section 7.2(a) through 7.2(c) (inclusive) is satisfied in all respects.

(e) Third Party Consents. All consents (or waivers in lieu thereof) to the performance by Parent, Buyer and Seller of their respective obligations under this Agreement and the Ancillary Agreements or to the consummation of the Transactions listed in Schedule 7.1(e) to the Seller Disclosure Letter (i) shall have been obtained, (ii) shall be in form and substance reasonably satisfactory to Seller, and (iii) shall be in full force and effect.

(f) Delivery of Documents. Parent and Buyer will have executed and delivered to Seller the following documents:

(i) each of the Ancillary Agreements to which Buyer or Parent is a party, as applicable; and

(ii) assumption instruments with regard to the Assigned Contracts and the Assumed Permits to the extent not included in the Ancillary Agreements.

(g) Board of Directors. Seller shall have received a certified copy of the resolutions of each of the board of directors of Buyer and Parent executed by an officer of Buyer or Parent, as applicable, approving this Agreement, the purchase of the Purchased Assets by Buyer, and the Ancillary Agreements.

(h) Governmental Authorizations. The Parties shall have received all necessary material authorizations, consents and approvals of Governmental Bodies.

ARTICLE VIII

SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS

8.1 Representations, Warranties and Covenants. The covenants contained in this Agreement shall survive the Closing Date in accordance with their terms. The representations and warranties contained in this Agreement and the Ancillary Agreements shall survive the Closing Date for a period of twelve (12) months after the Closing Date (such date upon which they expire being referred to herein as the "Survival Date") and shall thereafter expire; provided, however, that notwithstanding the foregoing the representations and warranties of Seller contained in Section 3.7 (Tax Matters) and Section 3.17 (Environment, Health and Safety) shall survive the Closing Date for a period of twenty-four (24) months after the Closing Date. Buyer's or Parent's (or any Buyer Indemnitee's) right to make a claim for indemnification under Section 9.1, and Seller's (or any Seller Indemnitee's) right to make a claim for indemnification under Section 9.2, shall expire with respect to any such claims which are not made on or prior to the date, if any, on which the survival period for such representation or warranty expires. In addition to the foregoing provisions, any claims under Article IX must be asserted in writing with reasonable particularity by the party making such claim, including identifying the basis and material factual circumstances of the claim and estimate of the potential Damages sought to be recovered thereby.

ARTICLE IX

INDEMNIFICATION

9.1 Indemnification by Seller. Subject to this Article IX, Seller agrees to defend, indemnify and hold harmless Parent and Buyer and their respective successors, assigns and Affiliates (individually, a "Buyer Indemnitee", and collectively, the "Buyer Indemnitees") from and against and in respect of any and all losses, damages, deficiencies, liabilities, assessments, judgments, costs and expenses, including attorneys' fees (both those incurred in connection with the defense or prosecution of the indemnifiable claim and those incurred in connection with the enforcement of this provision) net of insurance proceeds received by the Buyer Indemnitee with respect thereto (collectively, "Damages") suffered or incurred by any Buyer Indemnitee which is caused by, resulting from or arising out of:

(a) any breach of any representation, warranty or covenant of Seller contained in this Agreement or in any Ancillary Agreement, or other agreement, certificate, instrument or other document entered into or delivered by Seller at the Closing in connection herewith (it being understood and agreed that solely for purposes of determining the amount of Damages for purposes of the indemnification obligations set forth in this Article IX, all qualifications as to "materiality," and all "Material Adverse Effect" and "knowledge" qualifications, contained in such representations and warranties shall be disregarded and have no force or effect);

(b) Claims that the manufacturing, marketing, distribution, sale or use of any of the Business Products by Buyer or its Affiliates from and after the Closing Date infringe any Intellectual Property Rights of third parties to the extent such alleged infringement is caused by a design or product configuration that existed as of the Closing Date, including, without limitation, liability for trebled, consequential and punitive damages in connection with the foregoing;

(d) Taxes of Seller, other than Taxes related to the transactions contemplated hereby which Buyer has agreed to pay pursuant to Section 2.6;

(e) Liabilities of Seller, whether arising before or after the Closing, arising from or relating to the ownership of the Purchased Assets or the conduct of the Business prior to the Closing Date (other than the Assumed Liabilities);

(f) any and all Damages suffered or incurred by Buyer Indemnitee by reason of or in connection with any claim or cause of action of any third party to the extent arising out the operation of the Business prior to the Closing (other than any of the Assumed Liabilities);

Subject to the limitations set forth in Section 9.5 and elsewhere in this Article IX, to the extent that Seller's undertakings set forth in this Section 9.1 may be unenforceable, Seller shall contribute the maximum amount that it is permitted to contribute under applicable Law to the payment and satisfaction of all Damages incurred by Buyer Indemnitee.

9.2 Indemnification by Buyer and Parent. Subject to this Article IX, the Buyer and Parent each joint and severally agrees to defend, indemnify and hold harmless the Seller and its respective successors, assigns and Affiliates (individually, a "Seller Indemnitee", and collectively, the "Seller Indemnitees") from and against and in respect of any and all Damages suffered or incurred by any Seller Indemnitee which is caused by, resulting from or arising out of:

(a) any breach of any representation, warranty or covenant of Buyer or Parent contained in this Agreement, or in any Ancillary Agreement, or other agreement, certificate, instrument or other document entered into or delivered by any Buyer at the Closing in connection herewith (it being understood and agreed that solely for purposes of determining the amount of Damages for purposes of the indemnification obligations set forth in this Article IX, all qualifications as to "materiality," and all "Material Adverse Effect" and "knowledge" qualifications, contained in such representations and warranties shall be disregarded and have no force or effect); and

(b) any Assumed Liabilities;

(d) Taxes of Buyer and of Seller and Adaptec-Singapore to the extent provided in Section 2.6;

(e) Liabilities (other than Excluded Liabilities) of Buyer or Parent arising from or relating to the ownership of the Purchased Assets, actions or inactions of Buyer or Parent or the conduct of the Business on or after the Closing; and

(f) any and all Damages suffered or incurred by a Seller Indemnitee by reason of or in connection with any claim or cause of action of any third party to the extent arising out of the operation of the Business on or after the Closing (except any of the foregoing that constitute or relate to Excluded Liabilities).

Subject to the limitations set forth in Section 9.5 and elsewhere in this Article IX, to the extent that Buyer's or Parent's undertakings set forth in this Section 9.2 may be unenforceable, Buyer and/or Parent shall contribute the maximum amount that it is permitted to contribute under applicable Law to the payment and satisfaction of all Damages incurred by Seller Indemnitees.

9.3 Notice and Opportunity to Defend. If any action, proceeding, claim, liability, demand or assessment shall be asserted against any Buyer Indemnitee or any Seller Indemnitee (the "Indemnitee") in respect of which such Indemnitee proposes to demand indemnification, such Indemnitee shall notify the party obligated to provide indemnification pursuant to Section 9.1 or Section 9.2 (the "Indemnifying Party") thereof within a reasonably prompt period of time after assertion thereof; provided, however, that the failure to so notify the Indemnifying Party shall only affect the Indemnitee's right to indemnification hereunder to the extent that the Indemnifying Party's interests are actually and materially prejudiced thereby. Subject to rights of or duties to any insurer or other third Person having

liability therefor, the Indemnifying Party shall have the right, within ten (10) days after receipt of such notice, to assume the control of the defense, compromise or settlement of any such action, suit, proceeding, claim, liability, demand or assessment, and to retain counsel in connection therewith; provided, however, that if the Indemnifying Party shall exercise its right to assume such control:

(a) the Indemnitee may, in its sole discretion and at its own expense, employ separate counsel to represent it in any such matter, and in such event counsel selected by the Indemnifying Party shall be required to cooperate with such counsel of the Indemnitee in such defense, compromise or settlement for the purpose of informing and sharing information with such Indemnitee;

(b) for any subject matter, the Indemnitee will, at its own expense, make available to the Indemnifying Party those employees of the Indemnitee or any Affiliate of the Indemnitee whose assistance, testimony or presence is necessary to assist the Indemnifying Party in evaluating and in defending any such action, suit, proceeding, claim, liability, demand or assessment; provided, however, that any such access shall be conducted in such a manner as not to interfere unreasonably with the business activities of the Indemnitee and its Affiliates;

(c) the Indemnifying Party shall not compromise or settle any such action, suit, proceeding, claim, liability or assessment without the consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed;

(d) in the event that any action, suit, proceeding, claim, liability or assessment (or the compromise or settlement thereof) involves a claim by a Buyer Indemnitee for (i) injunctive relief that affects or would reasonably be expected to affect the Business in any material respect, or (ii) a claim for damages (or a claim that results, or would reasonably be expected to result in damages) in excess of limitations set forth in Section 9.5(c), Parent shall have the right to control the defense and settlement thereof, at its sole cost and expense (subject to the limitations set forth in Article IX; provided, however, that Parent shall not compromise or settle any such action, suit, proceeding, claim, liability or assessment without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed.

9.4 Remedies. Except for the right to seek to specifically enforce the covenants hereunder, and except as specifically provided in this Agreement (including, without limitation, the immediately succeeding sentence), following the Closing Date, in the absence of fraud or intentional misrepresentation (a "Fraud Claim"), the sole and exclusive remedy of both Buyer and Seller with respect to any breach of any representation or warranty contained in this Agreement, in any Ancillary Agreement or in any agreement, certificate, instrument or other document entered into in connection herewith at the Closing or any covenant or agreement in this Agreement, shall be restricted to the indemnification rights set forth in this Article IX. Nothing contained in this Article IX or elsewhere in this Agreement shall limit the liability of a Party under this Agreement if this Agreement is terminated in accordance with Article X hereof due to a material breach of this Agreement by such Party.

9.5 Certain Limitations. The liability of the Seller, Parent or the Buyer, as applicable, for claims under this Agreement shall be limited by the following:

(a) No Claims for Breaches of Representations and Warranties After Survival Date. At any time after the applicable Survival Date for a representation and warranty, (i) the Seller shall have no further obligations under this Article IX for breaches of such representations and warranties of the Seller, except for Damages with respect to which the Buyer Indemnitee has timely given the Seller written notice prior to such Survival Date in accordance with Sections 8.1 and 9.3 and (ii) the Buyer and Parent shall have no further obligations under this Article IX for breaches of such representations and warranties of the Buyer or Parent, except for Damages with respect to

which the Seller Indemnitee has given the Buyer or Parent written notice prior to such Survival Date in accordance with Sections 8.1 and 9.3.

(b) Seller Indemnification Threshold. Notwithstanding anything to the contrary herein, except with respect to Fraud Claims, any claim by a Buyer Indemnitee against Seller pursuant to Section 9.1(a) shall be payable by Seller only in the event that the accumulated amount of Damages in respect of Seller's obligations to indemnify the Buyer Indemnitees under this Agreement shall exceed $100,000 in the aggregate (the "Seller Indemnification Threshold"); provided, however, that at such time as the aggregate amount of Damages in respect of the indemnity obligations of Seller shall exceed the Seller Indemnification Threshold, Seller shall thereafter be liable for all Damages suffered or incurred by the Buyer Indemnitees in excess of such initial $100,000 of Damages.

(c) Limitation on Seller Indemnification Liability. Notwithstanding anything to the contrary herein, in the absence of fraud or willful breach of this Agreement except with respect to Fraud Claims (for which there shall be no limitation), (i) in no event shall the maximum aggregate liability of Seller in respect of any claims by the Buyer Indemnitees against Seller pursuant to Section 9.1(a) for Damages suffered or incurred by any Buyer Indemnitees exceed $1,800,000 and (ii) in no event shall the maximum aggregate liability of Seller in respect of any claims by the Buyer Indemnitees against Seller pursuant to Section 9.1(b) for Damages suffered or incurred by any Buyer Indemnitees exceed $1,800,000. The foregoing liability maximums shall represent separate liability limitations.

(d) Mitigation of Damages. Parent and Buyer covenant that they will use commercially reasonable efforts to mitigate potential liability for intellectual property infringement claims indemnifiable pursuant to Section 9.1(b). Seller shall not be liable to indemnify Buyer Indemnitees for Damages pursuant to Section 9.1(b) to the extent that such Damages are caused by the failure of Parent or Buyer to comply with this Section 9.5(d). This Section shall not limit any obligation arising under applicable law that any Parent Indemnitee or Buyer Indemnitee may otherwise have to mitigate Damages with respect to matters for which such Indemnitee is entitled to indemnification hereunder.

(e) Exceptions. Notwithstanding anything to the contrary herein, the limitations contained in this Section 9.5 shall not apply to claims for indemnification by Buyer Indemnitees against Seller pursuant to Sections 9.1(c), 9.1(d), 9.1(e) and 9.1(f). Except for Fraud Claims, Buyer's or Parent's (or any Buyer Indemnitee's) right to make a claim for indemnification under Sections 9.1(c), 9.1(d), 9.1(e), and 9.1(f) shall expire with respect to such claims which are not made on or prior to the date five (5) years following the Closing Date. Notwithstanding anything to the contrary herein, the limitations contained in this Section 9.5 shall not apply to claims for indemnification by Seller Indemnitees against Parent or Buyer pursuant to Sections 9.2(b), 9.2(c), 9.1(d), 9.2(e) and 9.1(f). Except for Fraud Claims, Seller's (or any Seller Indemnitee's) right to make a claim for indemnification under Sections 9.2(b), 9.2(c), 9.2(d), 9.2(e) and 9.2(f) shall expire with respect to such claims which are not made on or prior to the date five (5) years following the Closing Date.

(f) No Double Recovery. A party who is entitled to indemnification under this Article IX may make only a single recovery for Damages suffered or incurred by such party for which such party is entitled to indemnification under this Article IX.

ARTICLE X

TERMINATION

10.1 Termination of the Agreement. The Parties may terminate this Agreement as provided below:

(a) Parent and Seller may terminate this Agreement as to all Parties by mutual written consent at any time prior to the Closing;

(b) Parent or Seller may terminate this Agreement by written notice if: (i) the Closing has not occurred by February 15, 2006; provided, however, that the right to terminate this Agreement under this Section 10.1(b) shall not be available to any Party whose action or failure to act has been a principal cause of or resulted in the failure of the Closing to occur on or before such date and such action or failure to act constitutes a material breach of this Agreement;

(c) Parent or Seller may terminate this Agreement by written notice to the other if: (i) there shall be a final nonappealable order of a court of competent jurisdiction in effect preventing consummation of the transactions contemplated by this Agreement or (ii) there shall be any Law or Order enacted, promulgated or issued or deemed applicable to the transactions contemplated by this Agreement by any Governmental Body that would make consummation of the transactions contemplated by this Agreement illegal;

(d) Parent or Seller may terminate this Agreement by written notice if there shall be any action taken, or any Law or Order enacted, promulgated or issued or deemed applicable to the transactions contemplated by this Agreement by any Governmental Body, which would (i) prohibit Parent's or Buyer's ownership or operation of all or a material portion of the Business or the Purchased Assets or (ii) compel Parent or Buyer to dispose of or hold separate all or a material portion of the business or assets of Parent or Seller as a result of the transactions contemplated by this Agreement;

(e) Parent may terminate this Agreement by written notice if it is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Seller and such material breach has not been cured within thirty (30) calendar days after written notice to Seller; provided, however, that, no cure period shall be required for a breach which by its nature cannot be cured;

(f) Seller may terminate this Agreement by written notice if it is not in material breach of its obligations under this Agreement and there has been a material breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Parent or Buyer and such material breach has not been cured within thirty (30) calendar days after written notice to Parent; provided, however, that no cure period shall be required for a breach which by its nature cannot be cured; and

(g) Parent may terminate this Agreement by written notice delivered to Seller if an event having a Material Adverse Effect on, or that would reasonably be expected to have a Material Adverse Effect on, the Business or on the Purchased Assets shall have occurred after the date of this Agreement.

10.2 Effect of Termination. If any Party terminates this Agreement in accordance with the provisions of Section 10.1 above, then effective upon such termination all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party; provided that each Party shall remain liable for any material breaches of this Agreement by such Party that occurred

prior to the termination of this Agreement; and provided, further, that the provisions contained in Section 6.1 (confidentiality) and Article XI (miscellaneous) shall survive termination.

ARTICLE XI

MISCELLANEOUS

11.1 Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the other Party; provided, however, that (a) either Seller or Parent may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly traded securities (in which case Seller or Parent, as applicable, will use its reasonable efforts to advise the other Parties prior to making the disclosure) and (b) Seller may correspond with third parties in writings in form and substance reasonably satisfactory to Parent with respect to obtaining consents from such parties pursuant to Sections 5.6 or 7.1(f).

11.2 No Third Party Beneficiaries. Except as provided in Article IX with respect to indemnification of Seller Indemnitees and Buyer Indemnitees, this Agreement shall not confer any rights or remedies upon any Person other than the Parties, and their respective successors and permitted assigns, other than as specifically set forth herein.

11.3 Entire Agreement and Modification. This Agreement and the Ancillary Agreements (including the exhibits and schedules hereto and thereto) constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede any prior understandings, agreements, warranties or representations by or among the Parties, written or oral, to the extent they relate in any way to the subject matter hereof. The express terms in this Agreement and the Ancillary Agreement control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof and thereof.

11.4 Amendment. This Agreement may be amended by the Parties hereto at any time by execution of an instrument in writing signed by Parent and Seller.

11.5 Waivers. The rights and remedies of the Parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any Party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (i) no claim or right of a party hereto arising out of this Agreement, any Ancillary Agreement or the other documents referred to in this Agreement can be waived or renounced except by a writing to that effect signed by such party; (ii) no waiver that may be given by a Party will be applicable except in the specific instance for which it is given; and (iii) no notice to or demand on one Party will be deemed to be a waiver of any obligation of such Party or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement.

11.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties; provided, however, that so long as Parent remains liable for all obligations of Parent, Buyer or any of their respective Affiliates under this Agreement and each Ancillary Agreement, Parent may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder.

11.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.

11.8 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

11.9 Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) upon delivery, if delivered by hand, (b) three Business Days after the Business Day of deposit with Federal Express or similar overnight courier, freight prepaid or (c) one Business Day after the Business Day of facsimile transmission, if delivered by facsimile transmission with copy by Federal Express or similar overnight courier, freight prepaid, and shall be addressed to the intended recipient as set forth below:

If to Parent, Buyer or Sanmina-Singapore:

Sanmina-SCI Corporation
2700 North First Street
San Jose, CA 95134
Attention: Robin Walker, Senior Vice President, Corporate Development
Steven Jackman, Vice President and Corporate Counsel
Telephone No.: (408) 964-3500
Facsimile No.: (408) 964-3636

With copy to:

Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Christopher D. Mitchell, Esq.
Facsimile No: (650) 493-6811

If to Seller or Adaptec-Singapore:

Adaptec, Inc.
691 South Milpitas Boulevard
Milpitas, CA, 95035
Attention: Marshall Mohr, Chief Financial Officer
Facsimile No: (408) 957-1682

With copy to:

Fenwick & West LLP
801 California Street
Mountain View, CA, 94041
Attention: Dennis DeBroeck, Esq.
Facsimile No.: (650) 938-5200

Any Party may change the address to which notices, requests, demands, claims, and other communications to such Party hereunder are to be delivered by giving the other Parties ten (10) days' advance written notice to the other Parties pursuant to the provisions above.

11.10 Governing Law. This Agreement shall be governed in all respects solely by the substantive internal laws of the State of California, without regard to conflicts of laws or the choice of law principles of any jurisdiction, including the State of California, and without the need of any Party to establish the reasonableness of the relationship between the laws of the State of California and the

subject matter of this Agreement, and all questions concerning the validity and construction hereof shall be determined in accordance with the laws of the State of California.

11.11 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

11.12 Expenses. Subject to the provisions of this Agreement, each Party will bear its own costs and expenses (including legal and accounting fees and expenses) incurred in connection with this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby.

11.13 Construction.

(a) The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation.

(b) Unless the context requires otherwise, all words used in this Agreement in the singular number shall extend to and include the plural, all words in the plural number shall extend to and include the singular, and all words in any gender shall extend to and include all genders.

11.14 Seller Disclosure Letter.

(a) The disclosures in Seller Disclosure Letter, and those in any supplement thereto, must relate only to (i) the representations and warranties in the section of the Agreement to which they expressly relate and (ii) any other representation or warranties in this Agreement to the extent it is reasonably apparent from the text of any such disclosure that such disclosure relates to, modifies or qualifies such other representations and warranties.

(b) Except to the extent otherwise expressly provided in the text of the Seller Disclosure Letter, statements contained within the Seller Disclosure Letter shall be deemed to be representations and warranties under this Agreement.

11.15 Attorneys' Fees. If any legal proceeding or other action relating to this Agreement is brought or otherwise initiated, the prevailing Party shall be entitled to recover reasonable attorneys' fees, costs and disbursements (in addition to any other relief to which the prevailing Party may be entitled).

11.16 Further Assurances. The Parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other Party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.

11.17 Time of Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

11.18 Consent to Jurisdiction. Subject to Section 11.2 above, the competent court in Santa Clara County, California (the "Competent Court") (and not any other court in any state or country) shall have exclusive jurisdiction in connection with this Agreement. Subject to Section 11.2 above, each Party hereby irrevocably submits to the exclusive jurisdiction of the Competent Court in any action or proceeding arising out of or relating to this Agreement and irrevocably waives any objection such

person may now or hereafter have as to the venue of any such suit, action or proceeding brought in the Competent Court or that the Competent Court is an inconvenient forum.

11.19 Schedules and Exhibits. The Schedules and Exhibits described herein and attached hereto constitute an inseparable part of this Agreement and are incorporated into this Agreement for all purposes as if fully set forth herein. Any disclosure made in any Schedule to this Agreement which may be applicable to another Schedule to this Agreement shall be deemed to be made with respect to such other Schedule only if a specific cross reference is made thereto or if it is readily apparent that such disclosure should apply to such other Schedule.

11.20 Guarantee by Parent. As a material inducement and consideration for Seller to enter into this Agreement, Parent hereby agrees to unconditionally and promptly guarantee, pay and perform all obligations and duties (including but not limited to financial and non-financial obligations and duties) of Buyer under this Agreement to the extent the same are not paid or performed when required to be paid or performed under this Agreement.

[Remainder of Page Intentionally Left Blank]

[Signature page follows]

IN WITNESS WHEREOF, the Parties hereto have executed this Asset Purchase and Sale Agreement on of the date first above written.

Parent:		SANMINA-SCI CORPORATION
		By:
		Name:
		Title:
Buyer:		SANMINA-SCI SYSTEMS SINGAPORE PTE. LTD.
		By:
		Name:
		Title:
Sanmina-Singapore		SANMINA-SCI USA, INC.
		By:
		Name:
		Title:
Seller:		ADAPTEC, INC.
		By:
		Name:
		Title:
Adaptec-Singapore		ADAPTEC MANUFACTURING (S) PTE. LTD.
		By:
		Name:
		Title:

[Signature Page to Asset Purchase Agreement]

[*]: Confidential Treatment Requested. Certain portions of this document have been omitted pursuant to a request for confidential treatment and, where applicable, have been marked with an asterisk to denote where omissions have been made. The confidential material has been filed separately with the Securities and Exchange Commission.

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Exhibit 10.49

ASSET PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
EXHIBITS
ASSET PURCHASE AND SALE AGREEMENT
RECITALS
ARTICLE I DEFINITIONS
ARTICLE II PURCHASE AND SALE OF ASSETS
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
ARTICLE V PRE-CLOSING COVENANTS
ARTICLE VI OTHER AGREEMENTS AND COVENANTS
ARTICLE VII CONDITIONS TO THE CLOSING
ARTICLE VIII SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
ARTICLE IX INDEMNIFICATION
ARTICLE X TERMINATION
ARTICLE XI MISCELLANEOUS
EX-23.01 3 a2171036zex-23_01.htm EXHIBIT 23.01
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Exhibit 23.01

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-34360, 333-86098, 333-89666, 333-113557 and 333-119266 and Form S-8 (Nos. 333-120316, 333-119271, 333-118090, 333-104685, 333-69116, 333-52512, 333-95673, 333-92173, 333-58183, 333-77321, 333-66151, 333-02889, 333-00779, 033-43591 and 333-14241) of Adaptec, Inc. of our report dated June 13, 2006, relating to the financial statements, financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
June 13, 2006

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Exhibit 23.01

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-31.01 4 a2171036zex-31_01.htm EXHIBIT 31.01
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Exhibit 31.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Subramanian Sundaresh, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Adaptec, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a): designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c): evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d): disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a): all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: June 13, 2006

/s/ SUBRAMANIAN SUNDARESH

Subramanian Sundaresh
Chief Executive Officer

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Exhibit 31.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EX-31.02 5 a2171036zex-31_02.htm EXHIBIT 31.02
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Exhibit 31.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher O'Meara, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Adaptec, Inc.;

2.

3.

4.

a): designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b): designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c): evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d): disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

a): all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: June 13, 2006

/s/ CHRISTOPHER O'MEARA

Christopher O'Meara
Chief Financial Officer

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Exhibit 31.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EX-32.01 6 a2171036zex-32_01.htm EXHIBIT 32.01
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Exhibit 32.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Subramanian Sundaresh, certify to the best of my knowledge based upon a review of the Annual Report on Form 10-K of Adaptec, Inc. for the fiscal year ended March 31, 2006 (the "Form 10-K"), that the Form 10-K fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Adaptec, Inc. for the periods covered by the Form 10-K.

Date: June 13, 2006
		By:		/s/ SUBRAMANIAN SUNDARESH Subramanian Sundaresh Chief Executive Officer

I, Christopher O'Meara, certify to the best of my knowledge based upon a review of the Form 10-K, that the Form 10-K fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Adaptec, Inc. for the periods covered by the Form 10-K.

Date: June 13, 2006
		By:		/s/ CHRISTOPHER O'MEARA Christopher O'Meara Chief Financial Officer

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Exhibit 32.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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