(1) Audit Committee member

(2) Compensation Committee member

(3) Governance and Nominating Committee member

Subramanian "Sundi" Sundaresh has served as director since 2005 and 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.

Mary L. Dotz has served as our Chief Financial Officer since March 31, 2008.  Prior to joining Adaptec, Ms. Dotz served as Chief Financial Officer for Beceem Communications Inc., a provider of chipsets for the WIMAX market, from October 2005 to March 2008.  Previously, Ms. Dotz served as Senior Vice President and Chief Financial Officer of Pinnacle Systems, Inc., a supplier of digital video products, from January 2005 until the acquisition of Pinnacle by Avid Technology, Inc. in August 2005. Prior to that, Ms. Dotz held various finance positions at NVIDIA Corporation, a fabless semiconductor company, from October 2000 to January 2005, including Vice President Finance and Corporate Controller, and Interim Chief Financial Officer from April 2002 to September 2002.

Marcus D. Lowe has served as our Vice President of Emerging Business Unit and Corporate Development since April 2006 and Vice President and General Manager from July 2005 to March 2006. 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.

Jon S. Castor has served as one of our directors since 2006. Mr. Castor has been a private investor since June 2004. From January 2004 to June 2004, Mr. Castor was an Executive Advisor to the Chief Executive Officer of Zoran Corporation, a provider of digital solutions for applications in the digital entertainment and digital imaging markets, and from August 2003 to December 2003, he was Senior Vice President and General Manager of Zoran's DTV Division. From October 2002 to August 2003, Mr. Castor was the Senior Vice President and General Manager of the TeraLogic Group at Oak Technology Inc., a developer of integrated circuits and software for digital televisions and printers, which was acquired by Zoran. In 1996, Mr. Castor co-founded TeraLogic, Inc., a developer of digital television integrated circuits, software and systems, where he served in several capacities, including as its Chief Executive Officer and director from November 2000 to October 2002, when it was acquired by Oak Technology.

Jack L. Howard has served as one of our directors since 2007. He co-founded Steel Partners II, L.P. ("Steel Partners"), a private investment partnership, in 1993. He is the President of Steel Partners LLC ("Partners LLC"), a global investment management firm. He has been associated with Partners LLC and its affiliates since December 2003. Mr. Howard has served as the Chief Operating Officer of SP Acquisition Holdings, Inc. ("SP Acquisition"), a company formed for the purpose of acquiring one or more businesses or assets, since June 2007 and has served as its Secretary since February 2007. He also served as a director of SP Acquisition from February 2007 to June 2007 and as its Vice-Chairman from February 2007 to August 2007. Mr. Howard has served as Chairman of the Board of WebFinancial Corporation, which through its operating subsidiaries operates niche banking markets, since June 2005. He served as Chairman of the Board and Chief Executive Officer of Gateway Industries, Inc., a provider of database development and website design and development services, from February 2004 to April 2007 and as Vice President from December 2001 to April 2007. Mr. Howard currently serves as a director of WHX Corporation, CoSine Communications, Inc., and NOVT Corporation.

Joseph S. Kennedy has served as one of our directors since 2001. Mr. Kennedy has been a private investor since May 2008. From June 2003 until May 2008, Mr. Kennedy served as President and Chief Executive Officer of Omneon, Inc., a developer of video media servers for the broadcast industry. From June 1999 until March 2002, he served as President, Chief Executive Officer and Chairman of the Board of Pluris Inc., a developer of Internet routers. Mr. Kennedy was the founder and Chief Executive Officer of Rapid City Communications from February 1996 until that company was acquired by Bay Networks in June 1997, after which time he served as President and General Manager of Bay Networks' switching products division until June 1998.

Robert J. Loarie has served as one of our directors since 1981. Mr. Loarie retired as an Advisory Director of Morgan Stanley & Co., a diversified investment firm in October 2007, and he has been a private investor since that time. He also served as Managing Director for Morgan Stanley & Co from December 1997 until March 2003, and as a principal of that firm from August 1992 until November 1997. Mr. Loarie also has served as a general partner or managing member of several venture capital investment partnerships or limited liability companies affiliated with Morgan Stanley since August 1992.

D. Scott Mercer has served as director since 2003 and as Chairman of the Board of Directors since September 2006. He has served as Chief Executive Officer of Conexant Systems, Inc., a fabless semiconductor company supplying the imaging, PC media and DSL markets, since April 2008. He was a private investor from January 2005 through May 2005 and also from December 2005 through March 2008. Mr. Mercer served as our Interim Chief Executive Officer from May 2005 through November 2005. Mr. Mercer served as a Senior Vice President and Advisor to the Chief Executive Officer of Western Digital Corporation, a supplier of disk drives to the personal computer and consumer electronics industries, from February 2004 through December 2004. Prior to that, Mr. Mercer was a Senior Vice President and the Chief Financial Officer of Western Digital Corporation from October 2001 through January 2004. From June 2000 to September 2001, Mr. Mercer served as Vice President and Chief Financial Officer of Teralogic, Inc., a supplier of semiconductors and software to the digital television industry. From June 1996 through May 2000, Mr. Mercer held various senior operating and financial positions with Dell, Inc., a provider of products and services enabling customers to build their information-technology and Internet infrastructures. Mr. Mercer is also a director of Conexant Systems, Inc., Palm, Inc., and SMART Modular Technologies, Inc.

John Mutch has served as one of our directors since 2007. Since December 2005, Mr. Mutch has been the founder and managing partner of MV Advisors, LLC, a strategic block investment firm that provides focused investment and strategic guidance to small and mid-cap technology companies. Prior to founding MV Advisors, Mr. Mutch was the President and CEO of Peregrine Systems, an enterprise software provider. In March 2003, Mr. Mutch was appointed to the Peregrine Board of Directors by the U.S. Bankruptcy Court and assisted the company in its bankruptcy work out. Mr. Mutch became President and CEO of Peregrine in August 2003 until its sale to Hewlett Packard in December of 2005. Previously, Mr. Mutch served as President and CEO of HNC Software, an enterprise analytics software provider that was sold to Fair Isaac in August 2002. Mr. Mutch also spent seven years at Microsoft Corporation in a variety of executive sales and marketing positions.

John J. Quicke has served as one of our directors since 2007. Mr. Quicke is a Managing Director and operating partner of Partners LLC. He has been associated with Partners LLC and its affiliates since September 2005. Mr. Quicke served as Chairman of the Board of NOVT from April 2006 to January 2008 and served as President and Chief Executive Officer of NOVT from April 2006 to November 2006. He has served as a director of WHX since July 2005, as a Vice President since October 2005 and as President and Chief Executive Officer of its Bairnco Corporation subsidiary since April 2007. Mr. Quicke currently serves as a director of Angelica Corporation, a provider of healthcare linen management services. Mr. Quicke served as a director, President and Chief Operating Officer of Sequa Corporation, a diversified industrial company, from 1993 to March 2004, and Vice Chairman and Executive Officer of Sequa from March 2004 to March 2005. As Vice Chairman and Executive Officer of Sequa, he was responsible for the Automotive, Metal Coating, Specialty Chemicals, Industrial Machinery and Other Product operating segments of the company. From March 2005 to August 2005, Mr. Quicke occasionally served as consultant to Steel Partners and explored other business opportunities.

Douglas E. Van Houweling has served as one of our directors since 2002. Mr. Houweling has served as the President and Chief Executive Officer of the University Corporation for Advanced Internet Development (UCAID), the formal organization supporting Internet2, since November 1997. Dr. Van Houweling also serves as a professor in the School of Information at the University of Michigan. Before undertaking his responsibilities at UCAID, Dr. Van Houweling was Dean for Academic Outreach and Vice Provost for Information and Technology at the University of Michigan.

Section 16 of the Securities Exchange Act requires our directors and certain of our officers, and persons who own more than 10% of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership with the SEC. SEC regulations also require these persons to furnish us with a copy of all Section 16(a) forms they file. Based solely on our review of the copies of the forms furnished to us and written representations from our officers who are required to file Section 16(a) forms and our directors, we believe that all Section 16(a) filing requirements were met during fiscal 2007.

We maintain a Code of Business Conduct, Ethics, and Compliance, which incorporates our code of ethics, that is applicable to all employees, including all officers, and our independent directors 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, or SEC, 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 the Code of Business Conduct, Ethics, and Compliance is published on the Company's web site at wwwXXX. The Company 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.

We have an Audit Committee of our Board of Directors, the current members of which are John Mutch (Chair), Jon S. Castor and Joseph S. Kennedy, each of whom are "independent" as defined by the rules of The NASDAQ Stock Market. Our Board of Directors has determined none of our Audit Committee members qualify as an "audit committee financial expert," as defined under Item 407(d)(5) of Regulation S-K, although each member of the Audit Committee is financially literate, as required by NASDAQ listing standards. We believe that our Audit Committee is able to perform its required functions and responsibilities without having an audit committee financial expert due to the fact that each member of our Audit Committee meets the NASDAQ financial sophistication requirement of having past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual's financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities; NASDAQ rules only require that one member of our Audit Committee meet this financial sophistication requirement. However, despite the financial sophistication of each member of our Audit Committee, we are currently seeking a new member of the Audit Committee that qualifies as an "audit committee financial expert." The Audit Committee assists the full Board of Directors in its general oversight of our financial reporting, internal controls and audit functions, and is directly responsible for the appointment, compensation and retention of our independent registered public accounting firm, which reports to the Audit Committee.

During fiscal 2008, we did not make any material changes to the procedures by which our security holders may recommend nominees to our Board of Directors.

This section discusses our executive compensation philosophy, decisions and practices for fiscal 2008. It places in perspective the earnings of our "named officers" listed in the Summary Compensation Table on page 56.

Our pay programs are designed to attract, retain and motivate a qualified workforce to achieve our financial and strategic objectives. Our compensation program strives to: pay for performance by rewarding each employee for team results and his or her individual contribution to our success and provide managers with guidelines to make fair and equitable compensation decisions.

We believe that the most effective compensation program is one that is designed to reward the achievement of our financial and strategic goals, and which aligns executives' interests with those of our stockholders.

The compensation programs for our executive officers have three principal elements: a base salary which is developed in part by referencing the 50^th percentile of the market, cash incentive bonuses linked to achievement of financial and corporate goals and equity-based incentive compensation. In addition, we provide our executive officers a variety of benefits that in most cases are available generally to all of our salaried employees. We view the components of compensation as related but distinct. We believe that an executive's compensation package should be fair and reasonable when taken as a whole.

The compensation philosophy of the Compensation Committee of the Board of Directors (the "Committee") is to keep cash compensation at a competitive level while providing the opportunity to be significantly rewarded through equity if Adaptec and our stock price perform well over time. We also believe that, for most technology companies, stock-based compensation is generally the primary motivator in attracting executives rather than base salary or cash bonuses.

We believe that our executive officers should have a larger portion of their equity incentive awards at risk as compared with our other employees. We also believe, over the long term, that executive officers should have a greater percentage of their equity compensation in the form of stock options and performance-contingent stock rather than time-based restricted stock, as stock options and performance-contingent stock have greater risk associated with them than time-based restricted stock.

Fiscal Year 2008. Adaptec experienced various challenges in fiscal 2008 that required us to modify and focus our executive compensation programs toward retaining key employees in an unstable and unpredictable operating environment. In designing appropriate compensation programs, we had multiple factors to consider: (1) a shrinking revenue base resulting from a loss of key customers and a broader decline in one of our core business segments; (2) strategic acquisition and restructuring initiatives; (3) a potential proxy contest, settlement of which resulted in three new investor representatives joining the Board; (4) significant turnover (voluntary and involuntary) among both the executive ranks and among the broader employee population; and (5) aggressive cost cutting initiatives.

Because of these special circumstances, we implemented changes to executive compensation in fiscal 2008. Our benchmarking of compensation included companies having lower revenues than those with which we had compared ourselves in prior years. Because we needed to emphasize retention, we also provided special cash retention incentives based on service for executives other than our Chief Executive Officer, a retention program with performance-contingent incentives for our Chief Executive Officer, and all equity awards during the fiscal year were made in the form of time-based restricted stock awards ("RSAs") rather than a combination of RSAs and stock options. We continue to believe that, over the long term, executive officers should have a greater percentage of their equity compensation in the form of stock options and performance-contingent stock rather than time-based RSAs, and we do not view cash retention incentives as a long-term element of executive compensation. However, in light of the circumstances we faced in fiscal 2008, we believe the changes we made to our executive compensation programs were necessary.

In addition, as we have done since the second half of fiscal 2006, we established bonus targets based on minimization of losses, which the Board and management believed to be unavoidable in fiscal 2008, even though our objective is to be in a position to require net profits to fund our bonus pool.

Role of the Compensation Committee  

The current members of the Committee are Jon S. Castor, who is the Chair of the Committee, Robert J. Loarie, and John J. Quicke. Mr. Castor and Mr. Loarie served on the Committee for all of fiscal 2008. Mr. Quicke joined the Committee in December 2007 upon his election to our Board of Directors at our 2007 Annual Meeting of Stockholders.

The Committee ensures that our executive compensation and benefits program is consistent with our compensation philosophy and our corporate governance guidelines and is empowered to determine executive officers' total compensation, and, subject to the approval of the Board, to determine our Chief Executive Officer's total compensation.

The Committee reviews our overall compensation strategy at least annually to ensure that it promotes stockholder interests, supports our strategic and tactical objectives and provides for appropriate rewards and incentives for our executive officers. The Committee's most recent overall compensation review occurred in February and April 2008.

Typically, Committee meetings are attended by, for all or a portion of each meeting, not only the Committee members but also our Chief Executive Officer, our Vice President Human Resources, an independent compensation consultant from Compensia, Inc. and legal counsel from Fenwick West LLP.

Mr. Subramanian Sundaresh, our Chief Executive Officer, annually reviews the performance of each of our other executive officers. Mr. Sundaresh rates the performance of his direct staff and the Committee rates the performance of Mr. Sundaresh in consultation with the other non-executive Directors. Each executive officer also completes a self assessment of his/her performance. The conclusions reached by Mr. Sundaresh and his recommendations based on these reviews, including with respect to continued employment, salary adjustments, incentive awards and equity award amounts, are presented to the Committee. The Committee thoughtfully considers the Chief Executive Officer's recommendations when exercising its own judgment in making compensation decisions and awards to our executive officers who report to the Chief Executive Officer.

In fiscal 2008, we engaged Radford Surveys + Consulting, a business unit of AON Consulting ("Radford"), to provide comprehensive compensation data. Radford conducts a number of compensation surveys for the technology industry. The surveys compare practices among other high technology companies and cover base salary, cash incentives, stock equity incentive grants and total cash as a percentage of total direct compensation.

Radford provides quarterly summaries of industry trends to our Vice President, Human Resources, which enables Human Resources to remain current on total compensation trends and which is shared with the Committee. Our Vice President, Human Resources also reviews different surveys consisting of: the Radford Total Company Results survey comprised of data from approximately 170 technology companies with $200 million to $1 billion in annual revenues, the Radford Total Company Results survey comprised of data from approximately 140 technology companies with $50 million to $200 million in annual revenues, and the Radford Stock by Level report which explains stock practices in over 500 technology companies primarily located in the San Francisco Bay Area. The Committee also considers other reference points in reviewing compensation data. For example, we used a Custom Select Company Results survey provided by Radford that compares compensation information for a peer group of high technology companies or their divisions, identified by Adaptec executives and approved by the Committee. This peer group of companies, with similar revenues, are primarily in the storage, computer peripherals, and semiconductor components businesses with which we compete for executive and technical employees. The list of peer companies is as follows:

Acer America                         Emulex              Packeteer                      Synaptics
   (Subsidiary of Acer Inc.)

Commvault Systems                    Foundry Networks    PMC-Sierra                     Wind River Systms

Datalogic Scanning                   Informatica         Silicon Image                  Xyratex International
   (Subsidiary o fDatalogic S.p.A.)

Dolby Laboratories                   Interwoven          Silicon Storage Technology     Zantaz

Dot Hill System                      Iomega              Sonic Wall

In positions outside of engineering and product management, we seek executive talent within the broader technology industry. Relevant survey positions and data that match the skills of our officers are analyzed and presented to the Committee. As noted above, in fiscal 2008, the Committee also began to compare our executives' compensation with compensation at companies having lower revenues than the companies with which we had compared ourselves in prior years. The companies which participate in the surveys may differ from year to year because companies may elect to join or no longer participate in the survey on an annual basis and the companies' revenue size may differ making them no longer a match to our criteria.

The Committee has the authority to engage the services of outside advisors. The Committee used the services of Compensia, Inc. as an independent advisor to assist the Committee in its review of fiscal 2008 compensation for executive officers and other elements of Adaptec's executive pay program. In fiscal 2008, Compensia completed a comprehensive review of our Board of Directors' compensation, an analysis of severance and retention practices, and a discussion document on performance-based equity compensation. Compensia provides no services to management.

In designing our compensation programs, the Committee considers the financial accounting and tax consequences to Adaptec as well as the tax consequences to employees. We account for equity compensation paid to our employees under SFAS 123R, which requires us to estimate and record an expense over the service period of the award. The SFAS 123R cost of our equity awards is considered by management as part of our equity grant recommendations to the Committee.

Section 162(m) of the Internal Revenue Code places a limit of $1 million on the amount of compensation that we may deduct for income tax purposes in any one year with respect to our Chief Executive officer and certain other of our most highly compensated executive officers. This limitation does not apply to compensation that is considered "performance based" under applicable tax rules. Our executive stock options are intended to qualify as "performance-based," so that compensation attributable to those options is fully tax deductible. Time-based RSAs that we awarded in fiscal 2008 and prior years, do not meet the requirements of Section 162(m) as performance based. Therefore, the fair market value of the shares that vest during a particular year will be counted along with other non-performance-based compensation in that year in determining whether the $1 million limit for non-performance-based compensation is exceeded. Although we also provide cash compensation to executives in forms that do not meet the requirements for "performance-based" compensation, such as base salary and annual incentive pay, we have no individuals who received non-performance based cash compensation in excess of the Section 162(m) tax deduction limit in fiscal year 2008, excluding the receipt by Mr. Sundaresh of his prior deferrals upon the termination of our nonqualified deferred compensation plan as described below in "Nonqualified Deferred Compensation."

Fiscal Year 2008 Executive Compensation Program

In fiscal 2008, we set base salaries for our executive officers after considering the survey information discussed above under "Survey Analysis," with emphasis on the companies with lower revenues. Based on the results of these surveys and the input from Compensia, the Committee determines whether our executive officers are paid competitively. We believe the officers should be paid competitively, not above or below the market data unless their experience or responsibilities warrant either a higher or lower placement compared to market. With the exception of Mary L. Dotz, our Chief Financial Officer who was hired on March 31, 2008, in fiscal 2008 our executives were paid at slightly above the 50^th percentile of those in Radford Total Company Results survey of technology companies with revenues of less than $200 million and slightly below the 50^th percentile for the Radford Total Company Results survey for companies with revenues of $200 million to $1 billion. As a result, executives did not receive increases in base salary for fiscal 2008, with the exception of Messrs. Goyal and Terlizzi.

For fiscal 2008, the base salary for Mr. Sundaresh, our Chief Executive Officer, was $450,000, the base salary for Mr. Christopher G. O'Meara, our former Chief Financial Officer, was $325,000; the base salary for Mr. Marcus D. Lowe, our Vice President, Emerging Business Unit and Corporate Development was $260,000. Messrs. Sundaresh, O'Meara, and Lowe did not receive an increase in their base salaries for fiscal 2008 based on their market position. Effective April 1, 2007 (the first day of fiscal 2008), the base salary of Mr. Manoj Goyal, our former Vice President and General Manager of Data Protection Solutions, increased from $240,000 to $255,000, and the base salary of Mr. Stephen Terlizzi, our former Vice President and General Manager of the Storage Solutions Group, increased from $220,000 to $230,000.

Mary L. Dotz, our Chief Financial Officer, joined Adaptec on March 31, 2008 with a negotiated base salary of $265,000.

In fiscal 2008, the Committee was focused on retaining executives due to uncertainty created by the potential proxy contest, the high percentage of employee turnover, and potential business transactions we are considering. The Committee asked Compensia for guidance and recommendations in determining the appropriate retention program for our executive officers and, in April 2007, reviewed a special report prepared by Compensia explaining retention practices. The Committee believes that stability in the executive team is critical in order to retain the executive officers and meet our financial and corporate goals. Accordingly, a performance-contingent program was put in place for our Chief Executive Officer, and a service-based retention award was developed for the other executive officers with an amount equal to two months of base salary payable at the end of November, 2007 and a an amount equal to four months of base salary payable in April 2008.

The design provided for the larger payment later in the fiscal year after key company actions were to be completed to reinforce the retention theme. Mr. O'Meara received $162,500; Mr. Lowe received $130,000; Mr. Goyal received $127,500; and Mr. Terlizzi received $115,000 under this program. The Committee made a decision not to offer the time-based retention incentive to Mr. Sundaresh to ensure that he focused the executive team on achieving specific goals; instead, the Committee created a performance-contingent retention program for him. The Committee identified three critical individual goals to improve our revenue potential, and lower our operating expenses and ehance the strategic direction of our company. Each goal was valued at two months of base salary. The Committee determined that Mr. Sundaresh satisfied 100% of the first goal by signing an agreement with an ASIC partner by September 30, 2007, 50% of the second goal by eliminating infrastructure costs in IT and Facilities, and 0% of the third goal, as a proposed corporate transaction was not completed. This resulted in an aggregate 50% achievement of his performance goals, equaling a payment of $112,500, or three months of his base salary. The combination of these programs was believed sufficient to retain our Chief Executive Officer and our other executives.

The special programs implemented in fiscal 2008 have run their course and, as of the date of this report, there are no special retention programs in place.

In fiscal 2008, we paid bonuses to our executive officers pursuant to our Adaptec Incentive Plan (the "AIP"), with individuals eligible to receive payments from the AIP twice per year, following the close of the second and fourth fiscal quarters. The funding of the bonus pool under the AIP for each of the two six-month bonus periods was conditioned upon two major components: specific financial results and non-financial corporate goals that were approved by the Committee. The financial results component was based upon Adaptec achieving a minimum threshold for operating profit before income taxes ("OPBT") for each six-month bonus period. The corporate goals related to matters such as business partnerships, inventory management, growth in key revenue areas, improving gross margin and other business process improvements. There was also a 60% minimum achievement threshold required to fund the bonus pool for the portion of the bonus attributable to non-financial corporate goals. The Committee determined the weight of each goal and the percentage of achievement. Achievement of goals was measured at the beginning of the third fiscal quarter for the first half cash bonuses and at the beginning of the first fiscal quarter of the following fiscal year for the second half cash bonuses. The non-financial corporate goals accounted for 25% of the funding of the AIP pool and the financial corporate goals accounted for 75% of the funding pool.

We used the same Radford survey data discussed above to determine cash bonus incentive targets as a percentage of base salary. Our executive officers could achieve 0% to 200% of their target incentive based upon our Company's performance and their individual performance. Actual achievement levels with respect to the financial and non-financial corporate goals established the bonus pool funding; then Mr. Sundaresh and the Committee evaluated the individual performance of the officers and determined what amount each would receive on a discretionary basis. For fiscal 2008, the target bonus payments for our named executive officers were as follows: 85% of Mr. Sundaresh's base salary; 60% of Mr. O'Meara's base salary; and 50% of each of Messrs. Lowe, Goyal, and Terlizzi's base salary. Thus, for example, Mr. Sundaresh could have received an actual bonus of between 0 and 170% of his base salary for the fiscal year, divided over two six-month periods, with 85% of his base salary, or $382,500, being the annual target bonus. Ms. Dotz was not eligible for a payment, as she was not employed by us until the last day of fiscal 2008.

For the first six months of fiscal 2008, we did not achieve the 60% threshold for our non-financial corporate goals. The non-financial corporate goals and the specific criteria for determining whether they were met are confidential commercial information. The Committee established these goals as stretch goals and believed that, taken as a whole, they were achievable but difficult. With respect to the financial goals for the first six months of fiscal 2008, the cutoff threshold amount, below which no payment would be made, for achieving the OPBT goal was an OPBT loss of $25 million, and the target OPBT goal was a loss of no more than $21 million and no less than $20 million. As noted above, these goals reflected the fact that we anticipated an OPBT loss, and the Committee, while preferring to only reward profitability, believed it to be important to our success to nonetheless provide an incentive to the executives to minimize or control losses. Actual OPBT was a loss of $19.9 million. Even though we achieved the OPBT target, management recommended, and the Committee approved, a cap of 85% of the financial goals component in light of our overall results. The foregoing resulted in the Committee approving a funding budget of 64% of the AIP target. The calculation is (0% x 25% corporate goals) + (85% x 75% financial goals) = 64% attainment of target funding.

For the second six months of fiscal 2008, we exceeded the 60% threshold for our non-financial corporate goals. These goals, and the specific criteria for determining whether they were met, also represent confidential commercial information. The Committee established these goals as stretch goals and believed that, taken as a whole, they were achievable but difficult. With respect to our financial objectives for the period, the cutoff threshold was an OPBT loss of $9 million and the target OPBT goal was a loss of less than $4 million. Actual OPBT was a loss of $8.1 million, representing a 25% achievement level. The foregoing resulted in the Committee approving a budget of 35.6% of the AIP target. The calculation is (67.5% x 25% corporate goals) + (25% x 75% financial goals) = 35.6% attainment of target funding.

In total for fiscal 2008, Messrs. Sundaresh, O'Meara, Lowe, Goyal, and Terlizzi received less than their targets based on Adaptec's and their individual performance. Mr. Sundaresh received a total cash incentive of 42% of his base salary; Mr. O'Meara received 18% of his base salary; and Messrs. Lowe and Goyal received 22% of their base salaries; and Mr. Terlizzi received 13% of his base salary.

                        Annual             Annual
                      Target % of      Achieved % of
                      Base Salary       Base Salary           Total Award  
                      -----------      --------------         -----------
Sundaresh                     85 %                42 %       $   190,575

O'Meara                       60 %                18 %       $    60,000

Lowe                          50 %                22 %       $    56,000

Goyal                         50 %                22 %       $    55,000

Terlizzi                      50 %                13 %       $     29500

We generally use stock options and restricted stock awards to ensure that our executive officers have a continuing stake in our long-term success and to align their interests with the interests of our stockholders. As noted above, in fiscal 2008, we utilized only restricted stock awards in order to provide the necessary incentives, increase retention and minimize potential dilution and compensation expense. We review the Radford surveys noted above to determine the 50^th percentile for equity awards. We evaluated the value of awards to determine a recommended range for each of our executive officers. We also reviewed the executive officers' current holdings of unvested equity and the extent to which those holdings provided adequate retention incentive, and noted that stock options awarded in prior years to our executives had exercise prices that exceeded the market price of our common stock in fiscal 2008. Because the Committee did not believe, based on the advice of its advisors, that stock options with exercise prices in excess of our stock price provided adequate incentive to retain executives in a declining market for Adaptec and the industry, the Committee agreed, in fiscal 2008, to utilize only restricted stock awards and to issue such awards with a shorter, two -year vesting schedule. In fiscal 2008, Messrs. Sundaresh, O'Meara, Lowe, Goyal, and Terlizzi received 200,000 RSAs, 75,000 RSAs, 70,000 RSAs, 100,000 RSAs, and 70,000 RSAs, respectively. The awards were determined by calculating the value of proposed awards in comparison to the 50^th percentile of equity grants noted in the Radford surveys above. The value of the awards made in fiscal 2008 to each of Mr. Sundaresh and the other named executive officers (other than Mr. Terlizzi) was less than the value of the awards made in fiscal 2007. Mr. Terlizzi was not a named executive officer in fiscal 2007. Fifty percent of the restricted stock awards vest on the first anniversary of the grant date and the other 50% vest on the second anniversary of the grant date. Messrs. O'Meara, Goyal, and Terlizzi did not vest in any of the RSAs because they left Adaptec before the first vesting date. As noted above, we do not plan to continue this strategy indefinitely. We have not determined equity awards for fiscal 2009.

Ms. Dotz received a new hire stock award consisting of an option to purchase 125,000 shares of Adaptec stock and 50,000 shares of restricted stock. The option vests 25% on the one-year anniversary of her hire date and quarterly thereafter, at 6.25%, and will be fully vested at the end of four years. The restricted stock award vests 50% on her one-year anniversary and 50% on her second-year anniversary with Adaptec. The grant was determined based on the Radford surveys noted above and the value of unvested equity held by other executives.

The table on page 57 describes the option grants and restricted stock awards made to the executive officers during the fiscal year.

All equity-based awards have been reflected in our consolidated financial statements, based upon the applicable FAS 123R accounting guidance. We do not have any program, plan or practice that requires us to grant equity-based awards to our executive officers on specified dates and we have not made grants of such awards that were timed to precede or follow the release or withholding of material non-public information. Our practice has been to grant equity-based awards at regularly scheduled Committee meetings. The exercise prices are determined based on the closing price of our common stock on the date that the grants are approved.

Our executive officers are eligible for the same health and welfare programs and benefits as the rest of Adaptec's employees. In addition, all vice president level and more senior employees, including our executive officers, receive a car allowance valued at $650 per month, and are eligible for an annual executive physical. In addition, executive officers receive reimbursement for personal financial and tax advice up to $2,500 per year, reimbursement for health club initiation fees of up to $300 plus 50% of the club's monthly dues, up to $55.00 per month, and survivor benefit management services up to a maximum cost of $3,000. Beginning in fiscal 2009, the health club benefit has been eliminated.

We have entered into employment agreements with each of our executive officers which provide that if such officer is terminated other than for "cause" (which includes violation of material duties, refusal to perform his/her duties in good faith, breach of his/her employment agreement or employee proprietary information agreement, poor performance of duties, arrest for a felony or certain other crimes, substance abuse, violation of law or Adaptec policy, prolonged absence from duties or death), he or she is entitled to receive (1) his or her unpaid base salary and unused vacation benefits he or she has accrued prior to the date of his of her termination; (2) a one-time payment equal to 12 months of base salary for Messrs. Sundaresh and O'Meara, and nine months of base salary for Messrs. Lowe, Goyal and Terlizzi and Ms. Dotz, plus an additional week of base salary for each year of service beyond three years of service; (3) outplacement services in an amount not to exceed $10,000 or, for Ms. Dotz, $5,000; and (4) coverage for the executive officer and his or her dependents under Adaptec's health, vision and dental insurance plans pursuant to COBRA for a 12-month period for Messrs. Sundaresh and O'Meara, and a nine-month period for Messrs. Lowe, Goyal and Terlizzi and Ms. Dotz following the termination of employment. The Committee selected these amounts at the time these executives were hired by us (or promoted to an executive position) based on prior practice within Adaptec, information gathered from outplacement companies and, for agreements entered into after the Committee retained Compensia in January 2007, severance data provided by Compensia.

We have terminated the employment of Messrs. Terlizzi, O'Meara and Goyal, and they have received the severance payments set forth in the "Payments Upon Termination or Change In Control" table pursuant to the agreements described above.

The change of control arrangements of our executive officers, also set forth in their employment agreements, are as follows:

If within one year of a change of control (1) there is a material reduction of the annual base and target incentive compensation specified in his or her employment agreement to which he or she does not consent, (2) there is a failure of Adaptec's successor after a change of control to assume his or her employment agreement, (3) his or her employment is terminated without cause by Adaptec's successor, (4) there is a substantial change in his or her position or responsibility or (5) his or her position relocates to more than 25 additional commute miles (one way) and he or she elects to be terminated, then he or she will receive, upon signing a separation agreement and general release: (a) a one-time payment equal to his or her then-current annual base pay (one and one-half times annual base pay in the case of Mr. Sundaresh and nine months of base pay for Ms. Dotz), (b) his or her then-current targeted bonus payout, (c) COBRA benefits for one year (nine months in the case of Ms. Dotz), (d) outplacement services not to exceed $10,000 ($5,000 in the case of Ms. Dotz), and (e) accelerated vesting of his or her stock options and restricted stock awards as provided for under the 2004 Equity Incentive Plan.

Under our 1990 Stock Plan, 1999 Stock Plan and our 2004 Equity Incentive Plan, in the event of a Change in Control, any awards outstanding upon the date of such Change in Control will have vesting accelerated as of the date of such Change in Control as to an additional 25% of the unvested shares subject to such awards. We no longer make awards under our 1990 and 1999 Stock Plans. Future awards under our 2004 Equity Incentive Plan will not provide for such acceleration. If within 12 months following a Change in Control, an employee is terminated by the successor employer for any reason, such employee's awards outstanding upon such Change in Control that are not yet exercisable and vested on such date shall become 100% vested and exercisable.

The Committee has decided to eliminate the "single trigger" acceleration of vesting upon a change in control described above. This change will apply to awards made after May 30, 2008. With this change, we believe our future executive severance and change of control practices are generally in line with those in place at other technology companies. We believe these change of control arrangements, the value of which are contingent on the value obtained in a change of control transaction, effectively create incentives for our executive team to build stockholder value and to obtain the highest value possible should we be acquired in the future, despite the risk of losing employment and potentially not having the opportunity to otherwise vest in equity awards which comprise a significant component of each executive's compensation. These arrangements are intended to attract and retain qualified executives that could have other job alternatives that may appear to them to be less risky absent these arrangements, particularly given the significant level of acquisition activity in the technology sector. Except for the acceleration of a portion of the grants to our executive officers, as described above, our change of control arrangements for our executive officers are "double trigger," meaning that acceleration of vesting is not awarded upon a change of control unless the executive's employment is terminated involuntarily (other than for cause) within 12 months following the transaction. We believe this structure strikes a balance between the necessary executive recruitment and retention effects described above, and the needs of potential acquiring companies, who often place significant value on retaining an executive team.

The Adaptec Deferred Compensation Plan was terminated in fiscal 2008 resulting in a Plan payment of $683,963.63 to Mr. Sundaresh based on earnings he deferred from 1994 through 1998 during his prior employment with Adaptec.

                                                                                                     Change in
                                                                                                      Pension
                                                                                                       Value
                                                                                           Non-       and Non-
                                                                                          Equity      qualifed
                                                                                         Incentive    Deferred      All
                                                                                           Plan       Compen-      Other
                                                                   Stock      Option      Compen-      sation     Compen-
Name and                         Fiscal                 Bonus      Awards     awards      sation      Earings      sation
Principal Position                Year   Salary ($)    ($)(1)      ($)(2)     ($)(2)      ($)(3)        ($)        ($)(4)        Total ($) 
-----------------------------    ------ ----------- ----------- ---------- ----------- ----------- ------------ ----------    -------------
Subramanian "Sundi" Sundaresh     2008  $  450,000          --   $369,966  $  228,098  $  303,075  $    29,927  $  26,976     $  1,408,042
   Chief Executive Officer        2007  $  450,000          --   $ 90,981  $  163,336  $  180,000  $    32,455  $  27,004     $    943,776
   and President

Christopher G. O'Meara       (5)  2008  $  325,000  $  162,500   $164,805  $  256,251  $   60,000           --  $ 380,184  (6)$  1,348,740
     Former Vice President        2007  $  325,000          --   $ 42,480  $  167,978  $  101,000           --  $  12,789     $    649,247
     and Chief Financial Office


Mary L. Dotz                 (7)  2008  $    1,020          --         --          --          --           --  $      49     $      1,069
     Vice President               2007          --          --         --          --          --           --         --               --
     and Chief Financial Officer


Marcus D. Lowe                    2008  $  260,000  $  130,000   $131,474  $   80,740  $   56,000           --  $  22,738     $    680,952
     Vice President               2007  $  260,000          --   $ 32,753  $   89,889  $   67,000           --  $  17,939     $    467,581
     and General Manager


Manoj Goyal                  (8)  2008  $  255,000  $  127,500   $123,671  $  121,766  $   55,000  $       407  $  25,419     $    708,763
     Former Vice President   (9)  2007  $  215,000  $   50,000   $ 10,958  $   54,365  $   53,300  $       575  $  18,500     $    402,698
     and General Manager of
     Data Protection Solution

Stephen Terlizzi             (10) 2008  $  198,846  $  115,000   $ 59,979  $   37,673  $   29,500           --  $ 195,084 (11)$    636,082
     Former Vice President        2007  $   97,308          --         --  $   10,379          --           --  $   9,217  (4)$    116,904
     and General Manager
     of the Storage and
     Solutions Group

                                                                                   All Other      All Other
                                                                                    Stock       Option Awards:    Exercise
                                               Estimated Future Payouts under       Awards:       Number of         or Base        Grant Date
                                               Non-Equity Incentive Plan         Number Shares   Securities          Price         Fair Value
                                                        Awards (1)                 Shares of     Underlying        of Option      of Stock and
                                          ---------    ---------    -----------  Stock or Units    Options           Awards       Option Awards
         Name              Grant Date     Threshold ($)Target ($)   Maximum ($)       (#)           (#) (2)          ($/Sh)            (3)     
----------------------    ------------  -----------  -----------  -------------  -------------  --------------  --------------  ---------------
Subramanian "Sundi"        08/23/2007           --           --             --             --         200,000   $        3.50   $      699,800
   Sundaresh                  --                --   $  382,500   $    765,000             --              --              --               --
----------------------    ------------  -----------    ---------    -----------  -------------  --------------  --------------  ---------------
Christopher G. O'Meara     08/23/2007           --           --             --             --          75,000   $        3.50   $      262,425
----------------------    ------------  -----------  -----------  -------------  -------------  --------------  --------------  ---------------
Mary L. Dotz (4)              --                --           --             --             --          70,000              --   $      244,930

                              --                --   $  130,000   $    260,000             --              --              --               --
----------------------    ------------    ---------  -----------  -------------  -------------  --------------  --------------  ---------------
Manoj Goyal                08/23/2007           --           --             --             --         100,000              --   $      349,900
----------------------    ------------  -----------  -----------  -------------  -------------  --------------  --------------  ---------------
Stephen Terlizzi           08/23/2007           --           --             --             --              --              --   $      244,930

  The following table provides information with respect to each unexercised stock option and unvested restricted stock award held by the named executive officers as of March 31, 2008.

                                                               Option Awards                                 Stock Awards
                                     ------------------------------------------------------------  ----------------------------------
                                      Number of      Number of                                                            Market Value
                                     Securities      Securities                                       Number of            of Shares or
                                     Underlying      Underlying                                       Shares or            Units of
                                     Unexercised    Unexercised            Option       Option     Units of Stock         Stock That
                                      Options         Options             Exercise    Expiration    That Have Not          Have not
                    Name             Exercisable  (#) Unexercisable       Price ($)      Date          Vested             Vested($) (1)
         --------------------------  -----------  ----------------      -----------  ------------  ---------------      -------------
         Subramanian "Sundi" Sundares   164,999           135,001 (2)   $     3.65    05/23/2012           25,000 (3)   $     73,500
                                        100,000                --       $     3.45    09/19/2010           25,000 (4)   $     73,500
                                         87,500            62,500 (5)   $     4.24    06/14/2013          200,000 (6)   $    588,000
                                         62,500            87,500 (7)   $     4.48    11/13/2013               --                 --
                                     414,999           285,001                                         250,000       $    735,000
                                                                                                                                     
         Christopher G. O'Meara (8)     149,999           150,001       $     6.03    07/01/2008           10,000       $     29,400
                                         35,000            25,000       $     4.24    07/01/2008           15,000       $     44,100
                                         33,333            46,667       $     4.48    07/01/2008           75,000       $    220,500
                                     218,332           221,668                                         100,000       $    294,000
                                                                                                                                     
         Mary L. Dotz                        --           125,000 (9)   $     2.94    03/31/2015           50,000 (10)  $    147,000

         Marcus D. Lowe                  50,000            50,000 (11)  $     4.17    07/11/2012            9,000 (12)  $     26,460
                                         80,000                --       $     3.45    09/19/2010            9,000 (13)  $     26,460
                                         29,165            20,835 (14)  $     4.24    06/14/2013           70,000 (15)  $    205,800
                                         20,833            29,167 (16)  $     4.48    11/13/2013               --                 --
                                     179,998           100,002                                          88,000       $    258,720
                                                                                                                                     
         Manoj Goyal (8)                 59,062            75,938       $     5.47    07/21/2008            9,000       $     26,460
                                         20,833            29,167       $     4.48    07/21/2008          100,000       $    294,000
                                      79,895           105,105                                         109,000       $    320,460
                                                                                                                                     
         Stephen Terlizzi (8)            23,437                --       $     4.65    05/01/2008               --                 --
                                      23,437                --                                              --                 --
                                                                                                                                     
         

(1) Includes the following shares that may be acquired upon exercise of stock options granted under our stock option plans within 60 days after May 21, 2008, and the following restricted shares that have been awarded but have not yet released as of May 21, 2008.

                                                       Number of
                                                       Restricted
       Name                Number of Options             Stock
-------------------        ------------------        ---------------
Jon S. Castor                         28,750                  6,250

Joseph S. Kennedy                    127,500                  6,250

Robert J. Loarie                     132,500                  6,250

D. Scott Mercer                      147,500                  6,250

Douglas E. Van Houweling             127,500                  6,250

John Mutch                                --                 16,250

Jack L. Howard                            --                     --

John J. Quicke                            --                     --

Subramanian "Sundi" Sundare          454,999                250,000

Marcus D. Lowe                       198,332                 88,000

Mary L. Dotz                              --                 50,000

Directors and executive            1,217,081                435,500
   officers as a group

(2) Includes 53,854 shares held in the name of a trust for the benefit of Mr. Loarie and his family.

(3) Steel Partners II, L.P. ("Steel Partners") has sole voting and dispositive power over all of the shares. Steel Partners, L.L.C. is the general partner of Steel Partners. The sole executive officer and managing member of Steel Partners, L.L.C. is Warren G. Lichtenstein, who is Chairman of the Board, Chief Executive Officer and Secretary. By virtue of his positions with Steel Partners, L.L.C. and Steel Partners, Mr. Lichtenstein has the power to vote and dispose of all of the shares. Steel Partners' address is 590 Madison Avenue, 32nd Floor, New York, New York 10022. As of June 11, 2008, Steel Partners owned 19,653,450 shares.

(4) Dimensional Fund Advisors, L.P. ("Dimensional") reported that it has sole voting power and dispositive power with respect to all of the shares. Dimensional furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager to certain other commingled group trusts and separate accounts (these investment companies, trusts and accounts are collectively referred to as the "Funds"). All of the shares are owned of record by the Funds. Dimensional's address is 1299 Ocean Avenue, Santa Monica, California 90401. All information regarding Dimensional is based solely upon Amendment No. 1 to its Schedule 13G/A filed by it with the SEC on February 6, 2008.

(5) Renaissance Technologies LLC ("Renaissance") reported that both it and James H. Simons, who controls Renaissance, have sole voting power and dispositive power with respect to all of the shares. Renaissance's address is 800 Third Avenue, New York, New York 10022. All information regarding Renaissance is based solely upon the Schedule 13G filed by it with the SEC on February 13, 2008.

(6) Donald Smith & Co., Inc. ("Donald Smith") reported that it has sole voting power with respect to 7,489,414 shares and sole dispositive power with respect to all of the shares. All of the shares are owned of record by advisory clients of Donald Smith. Donald Smith's address is 152 West 57^th Street, New York, New York 10019. All information regarding Dimensional is based solely upon the Schedule 13G filed by it with the SEC on February 8, 2008.

(7) Barclays Global Investors, N.A. reported that it had sole voting power with respect to 2,261,112 shares and sole dispositive power with respect to 2,714,101 shares, Barclays Global Fund Advisors had sole voting power with respect to 2,749,501 shares and sole dispositive power with respect to 3,740,602 shares and that Barclays Global Investors, Ltd. had sole dispositive power with respect to 123,940 shares. The address of each of Barclays Global Investors, N.A. and Barclays Global Fund Advisors is 45 Fremont Street, San Francisco, California 94105. The address of Barclays Global Investors, Ltd. is Murray House, 1 Royal Mint Court, London, England EC3N 4HH. All information regarding these entities is based solely upon the Schedule 13G filed by them with the SEC on February 5, 2008.

The following table sets forth information as of March 31, 2008 regarding equity awards under our 2004 Equity Incentive Plan; Snap Appliance, Inc. 2002 Stock Option and Restricted Stock Purchase Plan; Broadband Storage, Inc. 2001 Stock Option and Restricted Stock Purchase Plan; 2000 Non-statutory Stock Option Plan; 1999 Stock Plan; 1990 Stock Plan; Distributed Processing Technology Corp. Omnibus Stock Option Plan; Stargate Solutions, Inc. 1999 Incentive Stock Plan; Eurologic Systems Group Limited 1998 Share Option Plan; 2006 Director Option Plan; 2000 Director Option Plan; 1990 Directors' Option Plan, and any amendments to such plans:

                                           Equity Compensation Plan Information Table
                                ------------------------------------------------------------
                                       (a)                (b)                 (c)
                                -----------------  ------------------  ------------------
                                   Number of                               Number of
                                Securities to be    Weighted-avarage       Securities
                                   Issued upon          Exercise       Remaining Available
                                   Exercise of         Price of        for Future Issuance
                                   Outstnading        Outstanding         under Equity
                                    Options,            Options,       Compensation Plan
                                    Warrants           Warrants            Warrants
        Plan Category              and Rights          and Rights          and Rights
                                                                                         
------------------------------  -----------------  ------------------  ------------------
Equity compensation plans             11,022,110                5.39          21,538,679 (1)
apprived by security holders

Equity compensation plans not            113,378                3.07                  --
approved by security holders (2)
------------------------------  -----------------                      ------------------
Total                                 11,135,488                5.36          21,538,679
                                =================                      ==================

1. Of these shares, 20,041,179 shares are available for issuance under our 2004 Equity Incentive Plan, which permits the grant of stock options, stock appreciation rights, restricted stock, stock awards and restricted stock units, and 1,497,500 shares remain available for issuance under the Adaptec, Inc. 2006 Director Plan. Of the shares available for issuance under the 2006 Director Plan, a maximum of 600,000 shares in the aggregate may be issued as restricted stock or restricted stock units.
2. Includes options to purchase 1,232,491 shares of our common stock issued under the Snap Appliance and Broadband Storage stock option plans that we assumed in connection with the acquisition of Snap Appliance in July 2004, after giving effect to the exchange ratio for such acquisition. Of these options to purchase 1,232,491 shares, options to purchase 34,091 shares of our common stock were outstanding at March 31, 2008, having a weighted average exercise price of $1.9163. Also includes options to purchase 1,130,525 shares of our common stock issued under the Distributed Processing Technology stock option plan that we assumed in connection with the acquisition of that company in December 1999, after giving effect to the exchange ratio for such acquisition. Of these options to purchase 1,130,525 shares, options to purchase 39,024 shares of our common stock were outstanding at March 31, 2008, having a weighted average exercise price of $5.2764 per share. Also includes options to purchase 2,336,037 shares of our common stock issued under the Stargate Solutions stock option plan that we assumed in connection with the acquisition of Platys Communications in August 2001, after giving effect to the exchange ratio for such acquisition. Of these options to purchase 2,336,037 shares, options to purchase 29,727 shares of our common stock were outstanding at March 31, 2008, having a weighted average exercise price of $0.1977 per share. Also includes options to purchase 498,789 shares of our common stock issued under the Eurologic stock option plan that we assumed in April 2003 in connection with the acquisition of Eurologic Systems Group Ltd., after giving effect to the exchange ratio for such acquisition. Of these options to purchase 498,789 shares, options to purchase 10,536 shares of our common stock were outstanding at March 31, 2008, having a weighted average exercise price of $6.7043 per share. No further awards will be made under any of the assumed stock option plans described above.

Any related party transactions, excluding compensation (whether cash, equity or otherwise), which is delegated to the Compensation Committee, involving one of our directors or executive officers, must be reviewed and approved by the Audit Committee or another independent body of the Board of Directors. Any member of the Audit Committee who is a related party with respect to a transaction under review may not participate in the deliberations or vote on the approval or ratification of the transaction. However, such a director may be counted in determining the presence of a quorum at a meeting of the committee that considers the transaction. Related parties include any of our directors or executive officers, certain of our stockholders and their immediate family members. To identify any related party transactions, each year, we submit and require our directors and officers to complete director and officer questionnaires identifying any transactions with us in which the executive officer or director or their family members has an interest. In addition, the Nominating and Governance Committee of our Board of Directors determines, on an annual basis, which members of our Board of Directors meet the definition of independent director as defined in the rules of The NASDAQ Stock Market and reviews and discusses any relationships with a director that would potentially interfere with his or her exercise of independent judgment in carrying out the responsibilities of a director.

Settlement Agreement with Steel Partners

On October 26, 2007, we entered into a Settlement Agreement (the "Settlement Agreement") with Steel Partners, L.L.C. and Steel Partners II, L.P. (collectively, "Steel Partners") to end the election contest that was to occur at our 2007 Annual Meeting of Stockholders (the "Annual Meeting"). Steel Partners, our largest stockholder, beneficially owned approximately 16.239% of our common stock as of June 11, 2008.

Pursuant to the Settlement Agreement, we agreed:

• To increase the size of our Board of Directors from eight to nine members prior to the Annual Meeting;
• That Judith M. O'Brien and Charles J. Robel would not stand for re-election at the Annual Meeting;
• To nominate, recommend, support and solicit proxies for each of Jack L. Howard, John J. Quicke and John Mutch (collectively, the "Steel Partners Nominees") for election to our Board of Directors at the Annual Meeting;
• Following the election of the Steel Partners Nominees to our Board of Directors at the Annual Meeting, to appoint John Mutch to our Audit Committee, John J. Quicke to our Compensation Committee and Jack L. Howard to our Nominating and Governance Committee;
• In the event of a vacancy of a Steel Partners Nominee prior to our 2008 Annual Meeting of Stockholders, to allow Steel Partners to designate another person to our Board of Directors to fill the vacancy;
• To appoint a Steel Partners Nominee to any committee of our Board of Directors, if established in the future
• That during the period from the date of the Annual Meeting to the date of our 2008 Annual Meeting of Stockholders, the size of our Board of Directors will not exceed nine members;
• That during the period from October 26, 2007 to immediately following the Annual Meeting, we would not enter into any binding agreement or arrangement related to any acquisition or purchase of assets or a business that constitutes 20% or more of our net revenues, net income or assets, or 20% or more of any class or series of our securities, unless either (1) the binding agreement or arrangement requires us to obtain the approval of our stockholders to complete the transaction or (2) Steel Partners provides its prior written approval of such transaction;
• That following the Annual Meeting, we and the Steel Partners Nominees would review our business, financial condition, results of operations and outlook and will use commercially reasonable efforts to develop a set of mutually agreeable goals for improving our performance. After we agree upon these goals, we and the Steel Partners Nominees would use commercially reasonable efforts to engage as soon as reasonably practicable, but no later than 60 days after developing the mutually agreed upon goals, a third-party consultant to assist us in making recommendations to achieve these goals; and
• To reimburse Steel Partners up to $50,000 for expenses that it incurred in connection with its activities relating to the Annual Meeting, including the Settlement Agreement.

Pursuant to the Settlement Agreement, Steel Partners agreed:

• To be present at the Annual Meeting and to vote all of the shares of our common stock that it beneficially owned at the Annual Meeting in favor of the election of each of our incumbent directors; and
• To refrain from taking certain actions during the period beginning on October 26, 2007 and ending immediately following the Annual Meeting, including: taking certain actions with respect to tender or exchange offers, business combination transactions and election contests; selling the shares of our common stock that it beneficially owned; and seeking to amend our certificate of incorporation or bylaws.

In December 2007, we held our 2007 Annual Meeting of Stockholders, at which our stockholders elected nine directors to our Board of Directors, including each of the Steel Partners Nominees. Mr. Quicke is an Operating Partner of Steel Partners, Ltd., a management advisory company that provides management advisory services to Steel Partners II, L.P. and its affiliates, and Mr. Howard is Vice Chairman of Steel Partners, Ltd. Steel represented to us in the Settlement Agreement that Mr. Howard and Mr. Quicke may be deemed to be affiliates of Steel under the rules of the Securities Exchange Act of 1934, but that Mr. Mutch was not an affiliate of Steel. Mr. Quicke was appointed to our Compensation Committee, Mr. Howard was appointed to our Nominating and Governance Committee and Mr. Mutch was appointed to our Audit Committee. We have compensated each of the Steel Partners Nominees with equity awards or equity based awards as described in Item 11 under the caption "Director Compensation."

The Settlement Agreement terminated immediately following the Annual Meeting, except as to specific provisions as set forth in the Settlement Agreement.

Our Certificate of Incorporation and Bylaws contain provisions that limit the liability of our directors and provide for indemnification of our officers and directors to the full extent permitted under Delaware law. Under our Certificate of Incorporation, and as permitted under the Delaware General Corporation Law, directors are not liable to us or our stockholders for monetary damages arising from a breach of their fiduciary duty of care as directors, including such conduct during a merger or tender offer. In addition, we have entered into separate indemnification agreements with our directors and officers that could require us to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. Such provisions do not, however, affect liability for any breach of a director's duty of loyalty to us or our stockholders, liability for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, liability for transactions in which the director derived an improper personal benefit or liability for the payment of a dividend in violation of Delaware law. Such limitation of liability also does not limit a director's liability for violation of, or otherwise relieve us or our directors from the necessity of complying with, federal or state securities laws or affect the availability of equitable remedies such as injunctive relief or rescission.

Other than as set forth in this section and the compensation arrangements set forth in Item 11 of this Form 10- K, since April 1, 2007 there has not been, nor is there currently proposed, any transaction in which we were or will be a participant and in which the amount involved exceeded $120,000 and in which any executive officer, director, 5% beneficial owner of our common stock or member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.

Our Chief Executive Officer, Subramanian "Sundi" Sundaresh, is a member of our Board of Directors. Each of our non-employee directors, Jon S. Castor, Joseph S. Kennedy, D. Scott Mercer, John Mutch, John J. Quicke, Jack L. Howard and Douglas E. Van Houweling, qualifies as "independent" in accordance with the rules of The NASDAQ Stock Market. The NASDAQ independence definition includes a series of objective tests, including that a director may not be our employee and that the director has not engaged in various types of business dealings with us. In addition, as further required by the NASDAQ rules, our Board of Directors has made a subjective determination as to each independent director that no relationship exists which, in the opinion of the Board of Directors, would interfere with the exercise of such director's independent judgment in carrying out the responsibilities of a director.

The following table presents information regarding the fees estimated and billed by PricewaterhouseCoopers LLP and affiliated entities (collectively, "PricewaterhouseCoopers") for our 2008 and 2007 fiscal years.

                                 for the Year Ended March 31,
                               --------------------------------
     Nature of Services             2008             2007      
-----------------------------  ---------------  ---------------
Audit Fees                   $      1,692,000 $      1,570,000

Audit-Related Fees                    182,000               --

Tax Fees                              153,000          164,000

All Other Fees                             --               --
-----------------------------  ---------------  ---------------
Total Fees                   $      2,027,000 $      1,734,000 
                               ===============  ===============

Audit-Related Fees. This category includes professional services rendered by Pricewaterhouse Coopers that were related to due diligence on a potential acquisition.

All Other Fees. We did not incur any Other Fees during these periods.

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

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, 2008 and March 31, 2007 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2008 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedule listed in the index 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.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A.  Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included 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.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the Consolidated Financial Statements, effective April 1, 2006, the Company changed the manner in which it accounts for stock-based compensation.

As discussed in Note 13 to the Consolidated Financial Statements, effective April 1, 2007, the Company changed the manner in which it accounts for uncertain tax positions.

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 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, 2008

                                                                              Years Ended March 31,
                                                                  ----------------------------------------
                                                                      2008          2007          2006
                                                                  ------------  ------------  ------------
                                                                  (in thousands, except per share amounts)
Net revenues                                                     $    167,400  $    255,208  $    344,142
Cost of revenues                                                      104,927       173,974       230,249
                                                                  ------------  ------------  ------------
    Gross profit                                                       62,473        81,234       113,893
                                                                  ------------  ------------  ------------
Operating expenses:
    Research and development                                           39,804        56,573        68,179
    Selling, marketing and administrative                              57,351        61,325        72,376
    Amortization of acquisition-related intangible assets               2,893         5,996         9,234
    Restructuring charges                                               6,273         3,711        10,430
    Goodwill impairment                                                    --            --        90,602
    Other charges (gains)                                              (3,371)       14,700        11,603
                                                                  ------------  ------------  ------------
        Total operating expenses                                      102,950       142,305       262,424
                                                                  ------------  ------------  ------------
Loss from continuing operations                                       (40,477)      (61,071)     (148,531)
Interest and other income                                              31,335        25,618        17,621
Interest expense                                                       (3,646)       (3,405)       (3,314)
                                                                  ------------  ------------  ------------
Loss from continuing operations before income taxes                   (12,788)      (38,858)     (134,224)
Provision for (benefit from) income taxes                              (2,694)      (63,704)        1,608
                                                                  ------------  ------------  ------------
Income (loss) from continuing operations, net of taxes                (10,094)       24,846      (135,832)
                                                                  ------------  ------------  ------------
Discontinued operations, net of taxes:
    Loss from discontinued operations, net of taxes                        --          (546)      (22,410)
    Income from disposal of discontinued operations, net of taxes         479         6,543         9,810
                                                                  ------------  ------------  ------------
        Income (loss) from discontinued operations, net of taxes          479         5,997       (12,600)
                                                                  ------------  ------------  ------------
Net income (loss)                                                $     (9,615) $     30,843  $   (148,432)
                                                                  ============  ============  ============

Income (loss) per share:
    Basic:
        Continuing operations                                    $      (0.09) $       0.21  $      (1.20)
        Discontinued operations                                  $       0.00  $       0.05  $      (0.11)
        Net income (loss)                                        $      (0.08) $       0.26  $      (1.31)
    Diluted:
        Continuing operations                                    $      (0.09) $       0.20  $      (1.20)
        Discontinued operations                                  $       0.00  $       0.04  $      (0.11)
        Net income (loss)                                        $      (0.08) $       0.25  $      (1.31)

Shares used in computing income (loss) per share:
    Basic                                                             118,613       116,602       113,405
    Diluted                                                           118,613       136,690       113,405

                                                                         March 31,
                                                                   ------------------------
                                                                      2008         2007
                                                                   -----------  -----------
                                                                   (in thousands, except
                                                                     per share amounts)
Assets                                                                                                         
Current assets:
    Cash and cash equivalents                                     $   239,911  $    95,922
    Marketable securities                                             386,305      476,501
    Restricted marketable securities                                    1,670        1,660
    Accounts receivable, net of allowance for doubtful accounts
        of $258 in 2008 and $519 in 2007                               23,204       34,127
    Inventories                                                         9,926       28,717
    Prepaid expenses                                                    1,344        1,403
    Other current assets                                               19,063       30,429
    Assets held for sale                                                   --       12,509
                                                                   -----------  -----------
        Total current assets                                          681,423      681,268
Property and equipment, net                                            13,284       15,852
Restricted marketable securities, less current portion                     --        1,584
Other intangible assets, net                                               --        7,011
Other long-term assets                                                  5,380        9,687
                                                                   -----------  -----------
Total assets                                                      $   700,087  $   715,402
                                                                   ===========  ===========                    
Liabilities and Stockholders' Equity                                                                           
Current liabilities:
    Accounts payable                                              $    12,311  $    28,101
    Accrued and other liabilities                                      19,128       37,134
    3/4% Convertible Senior Subordinated Notes ("3/4% Notes")         225,321           --
                                                                   -----------  -----------
        Total current liabilities                                     256,760       65,235

3/4% Notes, less current portion                                           --      225,000
Other long-term liabilities                                             9,335        3,009
Deferred income taxes                                                   9,896           --
                                                                   -----------  -----------
        Total liabilities                                             275,991      293,244
                                                                   -----------  -----------
Commitments and contingencies (Note 9)

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, 120,920 as of
        March 31, 2008 and 118,856 as of March 31, 2007                   121          119
    Additional paid-in capital                                        199,289      190,236
    Accumulated other comprehensive income, net of taxes                6,993        3,178
    Retained earnings                                                 217,693      228,625
                                                                   -----------  -----------
        Total stockholders' equity                                    424,096      422,158
                                                                   -----------  -----------
Total liabilities and stockholders' equity                        $   700,087  $   715,402
                                                                   ===========  ===========

                                                                                       Years Ended March 31,
                                                                               -------------------------------
                                                                                 2008       2007       2006
                                                                               ---------  ---------  ---------
                                                                                          (in thousands)
Cash Flows From Operating Activities:                                                                         
Net income (loss)                                                             $  (9,615) $  30,843  $(148,432)
Less: Income (loss) from discontinued operations, net of taxes                      479      5,997    (12,600)
                                                                               ---------  ---------  ---------
Income (loss) from continuing operations, net of taxes                          (10,094)    24,846   (135,832)
Adjustments to reconcile income (loss) from continuing operations, net of taxes,
    to net cash provided by (used for) operating activities:
    Stock-based compensation                                                      6,628      8,473      1,653
    Inventory-related charges                                                     6,916     12,942     10,671
    Depreciation and amortization                                                 8,254     17,326     25,887
    Impairment of goodwill and intangible assets                                  2,545     13,203    100,626
    Loss (gain) on sale of long-lived assets                                     (6,215)        --      1,579
    Non-cash effect of tax settlement                                                --    (60,221)        --
    Loss on extinguishment of debt                                                   --         --         80
    Other non-cash items                                                            115      1,688      1,267
Changes in assets and liabilities:
    Accounts receivable                                                          10,920     12,745     22,289
    Inventories                                                                  10,104     (8,622)     8,003
    Prepaid expenses and other current assets                                     6,515     18,794     (5,354)
    Other assets                                                                  2,497    (12,038)      (419)
    Accounts payable                                                            (15,878)   (11,442)   (21,366)
    Other liabilities                                                            (4,259)   (10,125)   (22,245)
                                                                               ---------  ---------  ---------
Net Cash Provided by (Used in) Operating Activities of Continuing Operations     18,048      7,569    (13,161)
Net Cash Provided by Operating Activities of Discontinued Operations              4,746      7,239      6,051
                                                                               ---------  ---------  ---------
Net Cash Provided by (Used in) Operating Activities                              22,794     14,808     (7,110)
                                                                               ---------  ---------  ---------
Cash Flows From Investing Activities:                                                                         
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                                          19,881         --      2,684
Purchases of property and equipment                                              (1,578)    (3,733)    (7,058)
Purchases of marketable securities                                             (181,295)  (301,524)  (596,866)
Sales of marketable securities                                                  175,603    209,116    217,186
Maturities of marketable securities                                             100,777     46,846     37,090
Maturities of restricted marketable securities                                    1,688      1,688      1,688
Payment of holdbacks in connection with acquisitions of Platys and Eurologic         --     (1,507)        --
                                                                               ---------  ---------  ---------
Net Cash Provided by (Used in) Investing Activities of Continuing Operations    115,076    (49,114)  (285,660)
Net Cash Used in Investing Activities of Discontinued Operations                     --         --     (1,655)
                                                                               ---------  ---------  ---------
Net Cash Provided by (Used in) Investing Activities                             115,076    (49,114)  (287,315)
                                                                               ---------  ---------  ---------
Cash Flows From Financing Activities:                                                                         
Repurchases and redemption on long-term debt                                         --    (10,637)   (24,309)
Proceeds from the issuance of common stock                                        3,179      7,438      9,388
                                                                               ---------  ---------  ---------
Net Cash Provided by (Used  in) Financing Activities                              3,179     (3,199)   (14,921)
                                                                               ---------  ---------  ---------
Effect of Foreign Currency Translation on Cash and Cash Equivalents               2,940      2,054       (869)
                                                                               ---------  ---------  ---------
Net Increase (Decrease) in Cash and Cash Equivalents                            143,989    (35,451)  (310,215)
Cash and Cash Equivalents at Beginning of Year                                   95,922    131,373    441,588
                                                                               ---------  ---------  ---------
Cash and Cash Equivalents at End of Year                                      $ 239,911  $  95,922  $ 131,373
                                                                               =========  =========  =========

                                                                                              Additional
                                                 Common Stock       Additional   Deferred       Other
                                              --------------------   Paid-in   Stock-based   Comprehensive Retained
                                               Shares     Amount     Capital   Compensation  Income (Loss) Earnings     Total
                                              ---------  ---------  ---------  ------------  ------------  ---------  ---------
                                                                               (in thousands)                                  
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 losses 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
Components of comprehensive income:
    Net income                                      --         --         --            --            --     30,843     30,843
    Unrealized gains on available-for-sale
        investments, net of taxes                   --         --         --            --         3,792         --      3,792
    Foreign currency translation
        adjustment, net of taxes                    --         --         --            --         2,167         --      2,167
                                                                                                                      ---------
        Total comprehensive income, net of taxes                                                                        36,802

Sale of common stock under employee
    stock purchase and option plans              2,334          4      7,434            --            --         --      7,438
Net issuance of restricted shares                1,055         --        843            --            --         --        843
Adjustment to stock-based compensation              --         --       (319)          319            --         --         --
Stock-based compensation                            --         --      7,630            --            --         --      7,630
                                              ---------  ---------  ---------  ------------  ------------  ---------  ---------
Balance, March 31, 2007                        118,856        119    190,236            --         3,178    228,625    422,158
Cumulative effect adjustment, net of taxes
    related to the adoption of FIN 48               --         --         --            --            --     (1,317)    (1,317)
                                              ---------  ---------  ---------  ------------  ------------  ---------  ---------
    Adjusted balance                           118,856        119    190,236            --         3,178    227,308    420,841
Components of comprehensive loss:
    Net loss                                        --         --         --            --            --     (9,615)    (9,615)
    Unrealized gains on available-for-sale
        investments, net of taxes                   --         --         --            --         1,861         --      1,861
    Foreign currency translation
        adjustment, net of taxes                    --         --         --            --         1,954         --      1,954
                                                                                                                      ---------
        Total comprehensive loss, net of taxes                                                                          (5,800)

Sale of common stock under employee
    stock purchase and option plans              1,035          3      3,176            --            --         --      3,179
Net issuance of restricted shares                1,187         --         --            --            --         --         --
Net settlement of restricted shares               (158)        (1)      (751)           --            --         --       (752)
Stock-based compensation                            --         --      6,628            --            --         --      6,628
                                              ---------  ---------  ---------  ------------  ------------  ---------  ---------
Balance, March 31, 2008                        120,920  $     121  $ 199,289  $         --  $      6,993  $ 217,693  $ 424,096
                                              =========  =========  =========  ============  ============  =========  =========

See accompanying Notes to the Consolidated Financial Statements.

Adaptec, Inc. ("Adaptec" or the "Company") provides storage solutions that reliably move, manage, store and protect critical data and digital content. The Company delivers software and hardware components that provide reliable storage connectivity and advanced data protection to leading OEMs and through distribution channel partners. The Company's software and hardware products range from HBAs, RAID controllers, host RAID software, Adaptec RAID Code software, Advanced Data Protection software, Storage Management software, Snapshot software and other solutions that span SCSI, SAS, SATA, and iSCSI interface technologies. The Company's Snap Servers offer NAS solutions for both fixed capacity and modular expandability. 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.

The Company's consolidated financial statements include the accounts of Adaptec and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Key acronyms used in the Company's industry and accounting rules and regulations referred to within the Notes to the Consolidated Financial Statements are listed in alphabetical order in Note 21 to the Consolidated Financial Statements.

In accordance with accounting principles generally accepted in the United States of America, management utilizes certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, sales returns and allowances, warranty reserves, inventory reserves, stock-based compensation expense, goodwill and purchased intangible asset valuations, strategic investments, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, self-insurance, restructuring costs, litigation and other loss contingencies. The actual results the Company experiences may differ materially and adversely from its original estimates.

Certain reclassifications have been made to prior period reported amounts to conform to the current year presentation relating to discontinued operations as discussed further in Note 2 to the Consolidated Financial Statements. Unless otherwise indicated, the Notes to the Consolidated Financial Statements relate to the discussion of the Company's continuing operations.

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.

The Company did not enter into forward exchange or other derivative foreign currency contracts during the fiscal years ended March 31, 2008, 2007 and 2006. The Company does not hold or issue foreign exchange contracts for trading or speculative purposes. In connection with the issuance of its 3/4% Notes due 2023, 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 7 to the Consolidated Financial Statements).

For certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these items. Investments in available-for-sale securities are carried at fair value based on quoted market prices or estimated based on quoted market prices for financial instruments with similar characteristics.

The related cost basis and the estimated fair value for the Company's 3/4% Notes at March 31, 2008 was $225.0 million and $216.0 million, respectively. The related cost basis and the estimated fair value for the Company's 3/4% Notes at March 31, 2007 was $225.0 million, and $204.8 million, respectively. The Company's convertible debt is recorded at the carrying values, not the estimated fair values.

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 the indenture related to the 3/4% Notes (see Note 7 to the Consolidated Financial Statements for further discussion).

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 relating to sales 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.

Three customers accounted for 17%, 16% and 16% of gross accounts receivable at March 31, 2008. Four customers accounted for 23%, 22%, 11% and 11% of gross accounts receivable at March 31, 2007. In fiscal 2008, IBM and Ingram Micro accounted for 34% and 11% of the Company's total net revenues, respectively. In fiscal 2007, IBM and Dell accounted for 34% and 13% of total net revenues, respectively. In fiscal 2006, IBM and Dell accounted for 28% and 15% of total net 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 manufacturing agreement with Sanmina-SCI is scheduled to expire in the third quarter of fiscal 2009.

The industry in which the Company operates 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 marketable securities, will be adequate to support its operating and capital investment activities for the next twelve months.

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, net, 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 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 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, net, 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.

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 Company's operating 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. 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 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. For details regarding impairment charges taken in fiscal 2008, 2007 and 2006 refer to Note 5 to the Consolidated Financial Statements.

The Company has employee and director stock compensation plans which are more fully described in Note 8 to the Consolidated Financial Statements. Beginning in fiscal 2007, the Company accounts for stock-based compensation in accordance with SFAS No. 123(R) using the modified prospective transition method. Under SFAS No. 123(R), the Company measures and recognizes compensation expense for all stock-based awards made to its employees and directors, including employee stock options, employee stock purchase plans, and other stock-based awards, based on estimated fair values. In addition, the Company also adopted the alternative transition method provided in FSP FAS No. 123(R)-3 for calculating the effects of share-based compensation pursuant to SFAS No. 123(R), which included a simplified method to establish the beginning balance of the additional paid in capital pool related to the tax effects of employee stock-based compensation, which is available to absorb tax deficiencies recognized subsequent to the adoption of SFAS No. 123(R). Prior to fiscal 2007, the Company accounted for stock-based compensation in accordance with APB Opinion No. 25 as interpreted by FIN 44, and complied with the disclosure provisions of SFAS No. 148, an amendment of SFAS No. 123. Under APB Opinion No. 25, compensation expense was 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.  In addition, the Company also accounted for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and EITF No. 96-18, which required that such equity instruments be recorded at their fair value on the measurement date, which is typically the date of grant. Disclosures related to the Company's adoption of SFAS No. 123(R) and disclosure provision of SFAS No. 148 are discussed further in Note 8 to the Consolidated Financial Statements.

The Company considers many different criteria for evaluating revenue recognition on sales transactions, including guidance and related interpretations from SAB No. 104, EITF No. 00- 21, SOP No. 97-2, and SFAS No 48, as well as other related accounting literature. The application of the appropriate accounting principle to the Company's revenue is dependent upon specific transactions or combination of transactions. As described below, significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of revenue for any period if management had made different judgments or utilized different estimates.

The Company recognizes revenue from its product sales, including sales to OEMs, distributors and retailers, when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured. These criteria are usually met upon shipment from the Company, provided that the risk of loss has transferred to the customer, customer acceptance has been obtained or acceptance provisions have lapsed, or the Company has established a historical pattern that acceptance by the customer has been fulfilled. The Company's sales are based on customer purchase orders, and to a lesser extent, contractual agreements, which provides that evidence of an arrangement exists.

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 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 probable, 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 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.

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, 2008, 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.

On April 1, 2007, the Company adopted FIN 48, which accounts for income taxes using a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed "more-likely-than-not" to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the Company's financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50 percent likelihood of being realized upon ultimate settlement. Prior to the adoption of FIN 48, the Company's policy was to classify accruals for uncertain positions as a current liability unless it was highly probable that there would not be a payment or settlement for such identified risks for a period of at least a year. Upon adoption of FIN 48, the Company revised its policy in conformity with the liability classification requirements of FIN 48.  At March 31, 2008, the Company had recorded $4.4 million in other long-term liabilities for uncertain tax positions related to FIN 48 and the Company continues to recognize interest and/or penalties related to uncertain tax positions as income tax expense in its Consolidated Statement of Operations. Due to the complexity and uncertainty associated with the Company's tax contingencies, the Company cannot make a reasonably reliable estimate of the period in which cash settlement will be made for the Company's liabilities associated with uncertain tax positions.

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. 

In February 2006, the FASB issued SFAS No. 155, which permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective for all hybrid financial instruments held, obtained or issued by the Company for fiscal years beginning with the Company's fiscal 2008. The adoption of SFAS No. 155 did not have a material impact on the Company's results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, which defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the FASB issued FSP FAS No. 157-1 and FSP FAS No. 157-2. FSP FAS No. 157-1 excludes SFAS No. 13, as well as other accounting pronouncements that address fair value measurements on lease classification or measurement under SFAS No. 13 from the scope of SFAS No. 157. FSP FAS No. 157-2 delays the effective date of SFAS No. 157 for all nonrecurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008. Both FSP FAS No. 157-1 and FSP FAS No. 157-2 are effective upon the Company's initial adoption of SFAS No. 157, which is effective beginning with the Company's fiscal 2009, and interim periods within that fiscal year. The Company is evaluating the financial impact that SFAS No. 157 will have and expects that the financial impact, if any, will not be material on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, which permits companies to choose to measure certain financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007, which will be the Company's fiscal year 2009. The Company is evaluating the financial impact that SFAS No. 159 will have and expects that the financial impact, if any, will not be material on its consolidated financial statements.

In June 2007, the FASB ratified EITF No. 07-3, which requires nonrefundable advance research and development payments for goods and services to be deferred and capitalized and subsequently expensed when the research and development activities are performed, subject to an assessment of recoverability. EITF No. 07-3 is effective for new contractual arrangements entered into beginning with the Company's fiscal 2009, and interim periods within that fiscal year. The Company does not believe EITF No. 07-3 will have a material effect on its results of operations and financial position.

In December 2007, the FASB ratified EITF No. 07-1, which defines collaborative arrangements and establishes reporting and disclosure requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties.  EITF No. 07-1 is effective beginning with the Company's fiscal 2009. The Company expects that the financial impact, if any, of the adoption of EITF No. 07-1 will not be material on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141(R), which establishes the principles and requirements for how an acquirer in a business combination (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS No. 141(R) is effective beginning with the Company's fiscal 2010. The impact of the adoption of SFAS No. 141(R) on the Company's results of operations and financial position will depend on the nature and extent of business combinations that it completes, if any, in or after fiscal 2010.

In December 2007, the SEC issued SAB 110 to amend the SEC's views discussed in SAB 107 regarding the use of the "simplified" method in developing an estimate of expected term of "plain vanilla" share options in accordance with SFAS No. 123(R). SAB 110 allows a company, under certain circumstances, to continue to use the "simplified" method beyond December 31, 2007. SAB 110 is effective beginning with the Company's fiscal 2009. As discussed in Note 8 to the Consolidated Financial Statements, the Company has utilized the weighted average for estimating the expected term of its stock option grants.

In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51." SFAS No. 160 changes the accounting and reporting for minority interests such that minority interests will be recharacterized as non-controlling interests and will be required to be reported as a component of equity, and requires that purchases or sales of equity interests that do not result in a change in control be accounted for as equity transactions and, upon a loss of control, requires the interest sold, as well as any interest retained, to be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, which will be the Company's fiscal year 2009. The Company is evaluating the financial impact that SFAS No. 160 will have and expects that the financial impact, if any, will not be material on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities." SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 for derivative instruments and hedging activities. SFAS No. 161 is effective for the Company's fiscal years beginning after November 15, 2008, with early adoption permitted. The Company is evaluating the effect the implementation will have on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, "Determining the Useful Life of Intangible Assets." FSP 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is evaluating the effect the implementation will have on its consolidated financial statements.

On May 9, 2008, the FASB issued FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)." FSP APB 14-1 requires issuers of convertible debt that may be settled wholly or partly in cash when converted to account for the debt and equity components separately. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 and must be applied retrospectively to all periods presented. The Company is evaluating the effect the implementation will have on its consolidated financial statements.

The Company recorded a net gain from discontinued operations of $0.5 million for fiscal 2008, which related to the reduction of accrued liabilities associated with the sale of the IBM i/p Series RAID business and related royalties.

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 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 paid royalties to the Company for the sale of its board-level products on a quarterly basis through March 31, 2007, which were recognized as contingent consideration in discontinued operations when earned. In fiscal years 2007 and 2006, the Company received royalties, net of taxes, of $7.4 million and $4.6 million, respectively, which the Company recorded in "Income (loss) from disposal of discontinued operations, net of taxes," in the Consolidated Statements of Operations. In addition, in fiscal 2007, the Company recorded an additional estimated loss; net of taxes, of $0.8 million related to its facility associated with the IBM i/p Series RAID business in "Income (loss) from disposal of discontinued operations, net of taxes" in its Consolidated Statements of Operations. To the extent that the Company is unable to sublease this facility by the end of the lease term, which is June 2010, the Company may continue to record additional losses in discontinued operations in the future. Through March 31, 2008, the Company had recognized a cumulative gain of $4.8 million on the disposal of the IBM i/p Series RAID business.      

Net revenues and the components of 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:

                                                                             Year Ended
                                                                             March 31, 2006
                                                                             ----------
                                                                             (in thousands)         
Net revenues                                                                $   19,734
                                                                             ==========
Loss from discontinued operations before income taxes                       $  (14,551)
Benefit from income taxes                                                         (360)
                                                                             ----------
Loss from discontinued operations, net of taxes                             $  (14,191)
                                                                             ==========

On September 29, 2005, the Company decided to divest its systems business, including 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 for the three-year period ended March 31, 2006 and began pursuing a sale of the systems business.

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 portion of its systems business for $14.5 million, of which the final payment of $2.5 million was received in February 2008. 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. As of March 31, 2008, the Company believes that it is unlikely that revenue levels to earn this contingent consideration will be achieved. 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. In the fourth quarter of fiscal 2007, Sanmina-SCI exercised its put option to return any inventory not used within one year of the close of the transaction, which resulted in the Company charging $0.4 million to "Income (loss) from discontinued operations, net of taxes" in its Consolidated Statements of Operations.

In the fourth quarter of fiscal 2006, the Company recorded asset impairment charges of $10.0 million related to certain acquisition-related intangible assets (see Note 5 to the Consolidated Financial Statements) for the Snap Server portion of its systems business that was previously held for sale at March 31, 2006, to adjust the carrying value of these assets to fair value, which was aligned to the offers being negotiated.

The Company received offers from prospective buyers for the Snap Server portion of its systems business; however, management concluded that the potential value from retaining the operations outweighed the offers received for the business. As a result, on July 6, 2006, the Company decided to retain the Snap Server portion of the systems business and terminated its ongoing efforts to sell this business. This resulted in the reclassification of the financial statements and related disclosures for all periods presented to reflect the Snap Server portion of its systems business as continuing operations effective in the first quarter of fiscal 2007. In addition, the Company recorded asset impairment charges of $13.2 million related to certain acquisition-related intangible assets (see Note 5 to the Consolidated Financial Statements) and $0.7 million for legal and consulting fees incurred in connection with its efforts that had been undertaken to sell the Snap Server portion of its systems business, which was recorded in "Other charges (gains)" in the Consolidated Statements of Operations in fiscal 2007.

Net revenues and the components of income (loss) related to the OEM block-based portion of the Company's systems business included in the discontinued operations, were as follows:

                                                                   Years Ended March 31,
                                                                -----------------------
                                                                  2007 (1)      2006
                                                                 ----------  ----------
                                                                           (in thousands)           
Net revenues                                                    $    2,036  $   31,723
                                                                 ==========  ==========
Loss from discontinued operations before provision
    for income taxes                                            $     (529) $   (8,219)
Provision for income taxes                                              17          --
                                                                 ----------  ----------
Loss from discontinued operations, net of taxes                 $     (546) $   (8,219)
                                                                 ==========  ==========

________________________

(1) The Company generated net revenues from one customer that remained with the Company after the divestiture of the OEM block-based systems business.

                                                                   Gross       Gross      Estimated
                                                                 Unrealized  Unrealized     Fair
                                                       Cost        Gains       Losses       Value
                                                    -----------  ----------  ----------  -----------
                                                                     (in thousands)
Available-for-Sale Marketable Securities:                                                           
    Short-term deposits                            $    60,979  $       --  $       --       60,979
    Corporate obligations                              110,543         720        (573)     110,690
    United States government securities                116,920       1,790          (5)     118,705
    Other debt securities                              156,746       1,886         (39)     158,593
                                                    -----------  ----------  ----------  -----------
Total available-for-sale securities                    445,188       4,396        (617)     448,967
Less: amounts classified as cash equivalents            60,992          --          --       60,992
                                                    -----------  ----------  ----------  -----------
Total                                              $   384,196  $    4,396  $     (617)     387,975
                                                    ===========  ==========  ==========  ===========

                                                                   Gross       Gross      Estimated
                                                                 Unrealized  Unrealized     Fair
                                                       Cost        Gains       Losses       Value
                                                    -----------  ----------  ----------  -----------
                                                                     (in thousands)
Available-for-Sale Marketable Securities:                                                           
    Short-term deposits                            $    13,370  $       --  $       --       13,370
    Corporate obligations                              170,269          88        (409)     169,948
    United States government securities                102,061         138        (349)     101,850
    Other debt securities                              215,233       1,459        (308)     216,384
                                                    -----------  ----------  ----------  -----------
Total available-for-sale securities                    500,933       1,685      (1,066)     501,552
Less: amounts classified as cash equivalents            21,807          --          --       21,807
                                                    -----------  ----------  ----------  -----------
Total                                              $   479,126  $    1,685  $   (1,066)     479,745
                                                    ===========  ==========  ==========  ===========

                             Less than 12 Months     12 Months or Greater          Total
                           ----------------------  ----------------------  --------------------
                                         Gross                   Gross                  Gross
                              Fair     Unrealized     Fair     Unrealized    Fair     Unrealized
                             Value       Losses      Value       Losses      Value     Losses
                           ----------  ----------  ----------  ----------  ---------  ---------
                                                       (in thousands)                          
Corporate obligations     $   37,588  $     (554) $    2,031  $      (19) $  39,619  $    (573)
United States
government securities          1,912          (5)         --          --      1,912         (5)
Other debt securities          8,844         (39)         --          --      8,844        (39)
                           ----------  ----------  ----------  ----------  ---------  ---------
                          $   48,344  $     (598) $    2,031  $      (19) $  50,375  $    (617)
                           ==========  ==========  ==========  ==========  =========  =========

                                                                     Estimated
                                                      Cost          Fair Value
                                               ------------------  --------------
                                                           (in thousands)        
Mature in one year or less                    $          234,170  $      235,011
Mature after one year through three years                207,468         210,323
Mature after three years                                   3,550           3,633
                                               ------------------  --------------
                                              $          445,188  $      448,967
                                               ==================  ==============

The components of net inventories at March 31, 2008 and 2007 were as follows:

                                                                         March 31,
                                                                   ------------------------
                                                                      2008         2007
                                                                   -----------  -----------
                                                                       (in thousands)                          
Raw materials                                                     $       107  $       390
Work-in-process                                                           760        3,536
Finished goods                                                          9,059       24,791
                                                                   -----------  -----------
    Inventories                                                   $     9,926  $    28,717
                                                                   ===========  ===========

The components of property and equipment, net, at March 31, 2008 and 2007 were as follows:

                                                                                            March 31,
                                                                                -------------------------------
                                                                      Life         2008                2007
                                                                   -----------  -----------         -----------
                                                                                           (in thousands)      
Land                                                                       --  $     2,855  $            2,855
Buildings and improvements                                          5-40 years      13,108              13,090
Machinery and equipment                                              3-5 years      33,401              47,627
Furniture and fixtures                                               3-7 years      27,787              43,467
                                                       Lower of useful life or
Leasehold improvements                                           life of lease       3,166               5,181
                                                                                -----------         -----------
                                                                                    80,317             112,220
Accumulated depreciation and amortization                                          (67,033)            (96,368)
                                                                                -----------         -----------
    Property and equipment, net                                                $    13,284  $           15,852
                                                                                ===========         ===========

Depreciation and amortization expense was $3.6 million and $5.2 million in fiscal years 2008 and 2007, respectively. The Company retired assets in fiscal 2008 and the associated cost and accumulated depreciation amounts were written off in the fiscal year of the disposition.

The components of accrued and other liabilities at March 31, 2008 and 2007 were as follows:

                                                                         March 31,
                                                                   ------------------------
                                                                      2008         2007
                                                                   -----------  -----------
                                                                       (in thousands)                          
Tax related                                                       $       597  $     9,590
Acquisition related                                                     2,587        2,123
Accrued compensation and related taxes                                  5,439        7,672
Deferred margin                                                         1,829        5,265
Other                                                                   8,676       12,484
                                                                   -----------  -----------
    Accrued and other liabilities                                 $    19,128  $    37,134
                                                                   ===========  ===========

The components of accumulated other comprehensive income, net of taxes, at March 31, 2008 and 2007 were as follows:

                                                                         March 31,
                                                                   ------------------------
                                                                      2008         2007
                                                                   -----------  -----------
                                                                       (in thousands)                          
Unrealized gain on marketable securities, net of tax
    of $1,365 in fiscal 2008 and $- in fiscal 2007                $     2,420  $       559
Foreign currency translation, net of tax of $1,287 in
    fiscal 2008 and $- in fiscal 2007                                   4,573        2,619
                                                                   -----------  -----------
    Accumulated other comprehensive income, net of taxes          $     6,993  $     3,178
                                                                   ===========  ===========

In connection with the reorganization of the Company's segments in fiscal 2006, 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 fiscal 2006. Factors that led to this conclusion included, but were not limited to, 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 in fiscal 2007 and the decision to sell the systems business; continued losses associated with sales of systems to IBM; and general market conditions.

The components of other intangible assets, net, at March 31, 2008 and 2007 were as follows:

                                                        March 31, 2008                      March 31, 2007
                                            ----------------------------------  ----------------------------------
                                              Gross                    Net        Gross                    Net
                                             Carrying   Accumulated  Carrying    Carrying   Accumulated  Carrying
                                              Amount    Amortization  Amount      Amount    Amortization  Amount
                                            ----------  ----------  ----------  ----------  ----------  ----------
                                                                   (in thousands)                                 
Acquisition-related intangible assets:
    Patents, core and existing technologies$   43,545  $  (43,545) $       --  $   43,545  $  (38,539) $    5,006
    Customer relationships                      1,047      (1,047)         --       1,047      (1,034)         13
    Trade names                                10,774     (10,774)         --      10,774     (10,474)        300
                                            ----------  ----------  ----------  ----------  ----------  ----------
        Subtotal                               55,366     (55,366)         --      55,366     (50,047)      5,319
Intellectual property assets and warrants      40,242     (40,242)         --      40,242     (38,550)      1,692
                                            ----------  ----------  ----------  ----------  ----------  ----------
   Other intangible assets, net            $   95,608  $  (95,608) $       --  $   95,608  $  (88,597) $    7,011
                                            ==========  ==========  ==========  ==========  ==========  ==========

Intellectual property assets consist of a patent license fee, a technology license fee and an amount allocated to a product supply agreement (see Note 16 to the Consolidated Financial Statements). Amortization of other intangible assets, net was $7.0 million, $12.3 million and $15.8 million in fiscal years 2008, 2007 and 2006, respectively.

The Company regularly performs reviews to determine if facts or circumstances are present, either internal or external, which would indicate that the carrying values of its long-lived assets are impaired. If an asset is determined to be impaired, the loss is measured based on the difference between the asset's fair value and its carrying value. The estimate of fair value of the assets is based on discounting estimated future cash flows using a discount rate commensurate with the risks inherent in the Company's current business model. The estimation of the impairment involves numerous assumptions that require judgment by the Company, including, but not limited to, future use of the assets for the Company's operations versus sale or disposal of the assets and future selling prices for the Company's products.

In the fourth quarter of fiscal 2006, the Company recorded asset impairment charges of $10.0 million related to certain acquisition-related intangible assets for the Snap Server portion of its systems business that was previously held for sale at March 31, 2006 to adjust the carrying value of these assets to fair value, which was aligned to the offers made by potential purchasers. During the first quarter of fiscal 2007, as a result of the decision to retain and operate the Snap Server portion of the systems business, the Company performed an impairment analysis that indicated that the carrying amount of the long-lived assets exceeded their estimated fair value. This was due in part to the limited cash flows of the business and a number of uncertainties, which included the significant research and development expenditures necessary to grow the revenue of the Snap Server portion of the systems business and the significant uncertainties associated with achieving such growth in revenue. This resulted in an impairment charge of $13.2 million, which was recorded in "Other charges (gains)" in the Consolidated Statements of Operations in fiscal 2007, of which $5.6 million, $3.1 million and $4.5 million related to the Company's acquisition-related intangible assets for existing technology, core technology, and trade name, respectively.

During the fourth quarter of fiscal 2008, the Company recorded an impairment of $2.4 million to write down the SSG intangible assets related to the Elipsan and Snap Appliance acquisitions to zero due to a revision in the Company's forecasts that resulted in expected negative long-term cash flows for these assets for the first time.

In fiscal 2007, 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, three owned buildings, including associated building improvements and property, plant and equipment, have been classified as assets held for sale and were included in "Assets held for sale" in the Consolidated Balance Sheets at March 31, 2007 at the Company's carrying value of $12.5 million, which was lower than the fair value less cost to sell.

In May 2007, the Company completed the sale of the three buildings with proceeds aggregating to $19.0 million, which exceeded the Company's carrying value of $12.3 million. Net of selling costs, the Company recorded a gain on the sale of the properties of $6.7 million in fiscal 2008 to "Other charges (gains)" in the Consolidated Statements of Operations.

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).

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. As the Company expects all of the holders of the 3/4% Notes to exercise their put option in December 2008, the Company reclassified the 3/4% Notes from long-term liabilities to current liabilities, which is reflected in the Consolidated Balance Sheet at March 31, 2008. 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 pays 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 five years. The 3/4% Notes are subordinated to all existing and future senior indebtedness of the Company.

(1) 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, 2008, the Company had $1.7 million classified as restricted marketable securities due within one year, consisting of United States government securities that served as such collateral.

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, 2008, the warrant had 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 were due on March 5, 2007 and have been repaid.

In fiscal 2007, the Company redeemed the outstanding $10.6 million balance of its 3% Notes at par value. 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 Statements of Operations.

The Company grants stock options and other stock-based awards to employees, directors and consultants under two equity incentive plans, the 2004 Equity Incentive Plan and the 2006 Director Plan. In addition, the Company has outstanding options issued under equity incentive plans that have terminated and equity plans that it assumed in connection with previous acquisitions. The Company also enabled eligible employees to participate in its 1986 Employee Stock Purchase Plan, which expired in April 2006. These plans are described in further detail below.

Employee Stock Purchase Plan:    The Company authorized 15,600,000 shares of common stock for issuance under the 1986 ESPP, which expired in April 2006. Under the ESPP, eligible employees were able to authorize payroll deductions of up to 10% of their salary to purchase shares of the Company's common stock at the lower of 85% of the market value of the common stock at the beginning of the 24 month offering period or at the end of each applicable six month purchase period. In fiscal 2008, the Company issued 0.4 million shares under the ESPP in connection with offering periods that remained in effect subsequent to the expiration of the plan. As of March 31, 2008, no shares remained available to be issued; therefore, there was no unamortized stock-based compensation expense related to shares issuable under the ESPP.

Equity Incentive Plans, including the 2004 Equity Incentive Plan, the 2000 Non-statutory Stock Option Plan, 1999 Stock Option Plan and 1990 Stock Option:   In August 2004, 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 2000 Non-statutory Stock Option Plan, 1999 Stock Option Plan and 1990 Stock Option Plan. The 2004 Equity Incentive Plan provides for the granting of incentive stock options, non-statutory stock options, restricted stock, stock awards, restricted stock units and stock appreciation rights to employees, employee directors and consultants. Stock options are subject to terms and conditions as determined by the Compensation Committee of the Company's Board of Directors. 25% of the shares subject to stock options for new hires generally vest and become exercisable one year from the date of grant and the balance of the shares then vest quarterly thereafter for the next three years. Stock options expire seven years from the date of grant. As of March 31, 2008, the Company had an aggregate of 28.5 million shares of its common stock reserved for issuance under its 2004 Equity Incentive Plan, of which 10.2 million shares are subject to outstanding options and restricted stock awards and 20.0 million shares are available for future grants of options and other stock awards. 

Director Stock Option Plans, including the 2006 Director Stock Option Plan, 2000 Director Stock Option Plan and 1990 Directors' Stock Option Plan:   In September 2006, the Company's Board of Directors and its stockholders approved the Company's 2006 Director Plan and reserved for issuance thereunder 1,200,000 shares of the Company's common stock plus shares reserved but not issued under the Company's 2000 Director Stock Option Plan and the 1990 Directors' Stock Option Plan. The 2006 Director Plan provides for the granting of non-qualified stock options, restricted stock, restricted stock units and stock appreciation rights to non-employee directors. Although grants made under the 2006 Director Plan are discretionary, the Company expects that (1) new non-employee directors will receive an option to purchase 32,500 shares of the Company's common stock, in which 25% of the shares subject to these stock options will vest and become exercisable one year from the date of grant and the balance of the shares will vest quarterly thereafter for the next three years, (2) existing non-employee directors will receive an option to purchase 12,500 shares of the Company's common stock on May 31st of each year, with such option vesting quarterly over one year, (3) a new non-employee director will receive 16,250 shares of restricted stock, in which one-third of the shares will vest one year from the date of grant and quarterly thereafter for the next two years for the balance of the shares for initial grants and (4) existing non-employee directors will receive 6,250 shares of restricted stock on May 31st of each year, which will fully vest one year after the date of grant. Stock options expire ten years from the date of grant. As of March 31, 2008, the Company had an aggregate of 2.1 million shares of its common stock reserved for issuance under its 2006 Director Plan, of which 0.6 million shares are subject to outstanding options and restricted stock awards and 1.5 million shares are available for future grants. During the third quarter of fiscal 2008, the Company entered into an agreement with Steel Partners II, L.P. (the "Settlement Agreement") which included ending the election contest that was to occur at the Company's 2007 Annual Meeting of Stockholders (the "Annual Meeting"). Steel beneficially owned approximately 15% of the Company's common stock as of December 31, 2007. See Note 17 - Settlement with Steel Partners, L.L.C. and Steel Partners II, L.P. to the Consolidated Financial Statements for further discussion.

Assumed Stock Option Plans: The Company has assumed the stock option plans and the outstanding stock options of certain acquired companies, which include Snap Appliance, Inc. in fiscal 2005, Eurologic Systems Group Limited in fiscal 2004, Platys Communications, Inc. in fiscal 2002 and Distributed Processing Technology Corporation in fiscal 1999. No further options may be granted under these assumed plans. However, options that were outstanding under these plans will continue to be governed by their existing terms and may be exercised for shares of the Company's common stock at any time prior to the expiration of the option term. As of March 31, 2008, the Company had 0.1 million shares of common stock reserved that are subject to outstanding options under these assumed plans.

On April 1, 2006, the Company adopted the provisions of SFAS No. 123(R) using the modified prospective transition method, which requires the Company to measure and recognize compensation expense for all stock-based awards made to its employees and directors, including employee stock options, employee stock purchase plans, and other stock-based awards, based on estimated fair values. Accordingly, the Consolidated Statements of Operations for fiscal years 2008 and 2007 reflect the impact of adopting SFAS No. 123(R). Under the modified prospective transition method prior periods are not revised for comparative purposes.

Stock-based compensation expense recognized in fiscal years 2008 and 2007 includes (a) stock-based award payments granted prior to, but not yet vested as of April 1, 2006 based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, as adjusted for estimated forfeitures and (b) stock-based award payments granted subsequent to April 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). The Company recognized the stock-based compensation costs for all stock-based awards using a straight-line amortization method over the respective requisite service period of the awards and adjusted it for estimated forfeitures.

The Company has elected to adopt the alternative transition method provided in FASB Staff Position 123(R)-3 for calculating the tax effects of stock-based compensation pursuant to SFAS No. 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid in capital pool available to absorb tax deficiencies recognized subsequent to the adoption of SFAS No. 123(R). Tax deficiencies arise when actual tax benefits realized upon the exercise of stock options are less than the tax benefit recorded in the financial statements.

The following table summarizes the impact of the adoption of SFAS No. 123(R) on stock-based compensation expense included in the Consolidated Statements of Operations for fiscal years 2008 and 2007:

                                                                                Years Ended March 31,
                                                            ------------------------------------------
                                                                    2008                  2007
                                                            --------------------  --------------------
                                                                                 (in thousands)                 
Stock-based compensation expense by caption:
    Cost of revenues                                       $                380  $                576
    Research and development                                              2,577                 3,753
    Selling, marketing and administrative                                 3,671                 4,144
                                                            --------------------  --------------------
        Stock-based compensation expense effect on income
            from continuing operations, net of taxes       $              6,628  $              8,473
                                                            ====================  ====================
Stock-based compensation expense by type of award:
    Stock options                                          $              2,272  $              6,271
    Restricted stock awards and restricted stock units                    4,740                 1,359
    Employee stock purchase plan (1)                                       (384)                  843
                                                            --------------------  --------------------
        Stock-based compensation expense effect on income
            from continuing operations, net of taxes       $              6,628  $              8,473
                                                            ====================  ====================

__________________________

(1) The Company recorded a reduction to expense for the employee stock purchase plan in fiscal 2008 based on (a) the actual purchases that occurred on August 14, 2007 and February 14, 2008 and (b) the fact that no new offering period exists, as the 1986 ESPP expired in April 2006.

Stock-based compensation expense in the above table does not reflect any significant income taxes, which is consistent with the Company's treatment of income or loss from its United States operations. As a result of adopting SFAS No. 123(R) on April 1, 2006, the Company's net income (loss) for fiscal years 2008 and 2007 was lower by $6.6 million and $8.5 million, respectively, than if the Company had continued to account for share-based compensation under APB Opinion No. 25. The basic and diluted net loss per share for fiscal 2008 was $0.06 and $0.05 lower, respectively, than if the Company had continued to account for share-based compensation under APB Opinion No. 25. The basic and diluted net income per share for fiscal 2007 was $0.07 and $0.06 lower, respectively, than if the Company had continued to account for share-based compensation under APB Opinion No. 25. In addition, prior to adopting SFAS No. 123(R), the Company presented the tax benefits of stock option exercises as operating cash flows in the Consolidated Statements of Cash Flows; however, in accordance with SFAS No. 123(R), the tax benefits of stock option exercises are now classified as financing cash flows with a corresponding deduction from operating cash flows. For fiscal years 2008 and 2007, there was no income tax benefit realized for the tax deductions from option exercises of the share-based payment arrangements; therefore, no amounts were reclassified from operating to financing cash flows. In addition, there was no stock-based compensation costs capitalized as part of an asset in fiscal years 2008, 2007 and 2006.

Prior to April 1, 2006, the Company accounted for stock-based compensation in accordance with APB Opinion No. 25 as interpreted by FIN 44, and complied with the disclosure provisions of SFAS No. 148, an amendment of SFAS No. 123. Under APB Opinion No. 25, compensation expense was 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 employee stock purchase plan was deemed non-compensatory under APB Opinion No. 25; therefore, no compensation cost was recorded in relation to the discount offered to employees for purchases made under the employee stock purchase plan. Under SFAS No. 123, compensation costs related to shares issued under ESPP offerings, restricted stock awards and assumed unvested acquisition-related stock options, determined to be the fair market value of the shares at the date of grant, have been recognized as compensation expense ratably over the respective vesting period. The following table illustrates the effect on net loss and net loss per share as if the Company had applied the fair value recognition provisions:

                                                                Year Ended
                                                               March 31, 2006
                                                            --------------------
                                                            (in thousands, except
                                                             per share amounts)                       
Net loss, as reported                                      $           (148,432)
Add: Stock-based compensation expense previously
    determined under intrinsic value method, net of taxes                 1,653
Deduct: Stockbased compensation expense determined
    under fair value based method, net of taxes                         (12,826)
                                                            --------------------
Pro forma net loss                                         $           (159,605)
                                                            ====================
Basic net loss per share:
As reported                                                $              (1.31)
Pro forma                                                  $              (1.41)
Diluted net loss per share:
As reported                                                $              (1.31)
Pro forma                                                  $              (1.41)

  Upon adoption of SFAS No. 123(R), the Company selected the Black-Scholes option pricing model as the most appropriate model for determining the estimated fair value for stock-based awards. The use of the Black-Scholes model requires the use of extensive actual exercise behavior data and the use of a number of complex assumptions including expected volatility, risk-free interest rate, expected term, and expected dividends.

Beginning April 1, 2006, the Company's policy is to estimate the volatility of its stock using historical volatility as well as the implied volatility in market-traded options on its common stock in accordance with guidance in SFAS No. 123(R) and SAB 107. Management determined that a blend of implied volatility and historical volatility would be more reflective of market conditions and a better indicator of expected volatility than using purely historical volatility. Given the lack of market data since April 1, 2006 relating to traded options in the Company's common stock, only historical volitility has been used in the Company's FAS No. 123(R) fair value calculations. The Company will continue to monitor these and other relevant factors used to measure expected volatility for future option grants. Prior to the adoption of SFAS No. 123(R), the Company used its historical common stock price volatility in accordance with SFAS No. 123 for purposes of pro forma information disclosed in the notes to its consolidated financial statements for prior periods.

The risk-free interest rate assumption is based upon observed interest rates using the implied yield currently available on U.S. Treasury zero-coupon issues that is appropriate for the term of the Company's stock options. The dividend yield assumption is based on the Company's history and expectation of dividend payouts. The Company has historically not paid dividends and has no foreseeable plans to issue dividends as it is the Company's current policy to reinvest earnings for its business.

The expected term of stock options represents the weighted-average period that the stock options are expected to remain outstanding. The Company derived the expected term assumption based on its historical settlement experience, while giving consideration to options that have life cycles less than the contractual terms and vesting schedules in accordance with guidance in SFAS No. 123(R) and SAB 107. Prior to the adoption of SFAS No. 123(R), the Company used its historical settlement experience to derive the expected term for purposes of pro forma information under SFAS No. 123, as disclosed in the notes to its consolidated financial statements for the related periods.

 The fair value of the Company's outstanding stock options and other stock-based awards was estimated using the following weighted-average assumptions:

                                                  Years Ended March 31,
                                    ----------------------------------------------
                                         2008            2007            2006
                                    --------------  --------------  --------------  
Equity Incentive Plans:
    Expected life (in years)                  4.3             4.1             2.6
    Risk-free interest rates                  3.02%           4.8 %           4.1 %
    Expected volatility                        37 %            44 %            39 %
    Dividend yield                             --              --              --
    Weighted average fair value    $         3.03  $         2.63  $         1.07

ESPP:
    Expected life (in years)                   n/a       1.00-1.25            1.2
    Risk-free interest rates                   n/a     5.07 - 5.11%           3.8 %
    Expected volatility                        n/a             44 %            40 %
    Dividend yield                             n/a             --              --
    Weighted average fair value                n/a $         1.11  $         3.01

The guidance in SFAS No. 123(R) is relatively new and the application of these principles may be subject to further interpretation and guidance. There are significant variations among allowable valuation models, and there is a possibility that the Company may adopt a different valuation model or refine the inputs and assumptions under its current valuation model in the future resulting in a lack of consistency in future periods. The Company's current or future valuation model and the inputs and assumptions it makes may also lack comparability to other companies that use different models, inputs, or assumptions, and the resulting differences in comparability could be material.

Equity Incentive Plans: A summary of option activity under all of the Company's equity incentive plans as of March 31, 2008 and changes during fiscal years 2006, 2007 and 2008 is presented below:

                                                                       Weighted
                                                                       Average
                                                       Weighted       Remaining
                                                       Average       Contractual      Aggregate
                                                       Exercise         Term          Intrinsic
                                        Shares          Price          (Years)          Value
                                    --------------  --------------  --------------  --------------
                                    (in thousands, except exercise price and contractual terms)   

Outstanding at March 31, 2005              21,170  $        10.49
    Granted                                 7,954  $         3.74
    Exercised                              (1,530) $         3.20
    Forfeited and cancelled                (7,652) $         9.09
                                    --------------
Outstanding at March 31, 2006              19,942            8.90
    Granted                                 2,637  $         4.41
    Exercised                              (1,244) $         3.52
    Forfeited and cancelled                (8,343) $        11.07
                                    --------------
Outstanding at March 31, 2007              12,992  $         7.11
    Granted                                   544  $         3.51
    Exercised                                (605) $         3.29
    Forfeited and cancelled                (3,952) $         8.18
                                    --------------
Outstanding at March 31, 2008               8,979  $         6.67            3.41  $       128
                                    ==============  ==============  ==============  ==============

Options vested and expected to
    vest at March 31, 2008               8,593.00  $         6.78            3.30  $       128
                                    ==============  ==============  ==============  ==============

Options exercisable at
    March 31, 2006                         13,531  $        10.62
                                    ==============  ==============
    March 31, 2007                          9,501  $         7.84
                                    ==============  ==============
    March 31, 2008                          7,118  $         7.25            2.82  $       126
                                    ==============  ==============  ==============  ==============

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the price of the Company's common stock on The NASDAQ Global Market for the 0.2 million shares subject to options that were in-the-money at March 31, 2008. During fiscal years 2008, 2007 and 2006, the aggregate intrinsic value of options exercised under the Company's equity incentive plans was $0.04 million, $1.2 million and $3.5 million, respectively, determined as of the date of option exercise. The following table summarizes information about the Company's options outstanding and exercisable equity incentive plans as of March 31, 2008:

                            Options Outstanding                  Options Exercisable
                     ----------------------------------------- ----------------------------
                                      Weighted
                                      Average       Weighted                     Weighted
                         Number      Remaining      Average        Number        Average
Range of              Outstanding   Contractual     Exercise    Outstanding      Exercise
Exercise Prices        at 3/31/08       Life         Price       at 3/31/08       Price
-------------------- -------------- ------------  ------------ --------------  ------------
                       (in thousands, except exercise price and contractual life)          
$0.18 - $3.28                  301         7.24  $       2.63             66  $       1.04
$3.31 - $3.45                1,835         2.54          3.45          1,804          3.45
$3.50 - $3.98                  942         4.19          3.81            538          3.84
$4.01 - $4.40                  905         5.46          4.21            503          4.21
$4.42 - $4.51                  905         4.50          4.49            524          4.49
$4.52 - $6.30                1,159         4.39          5.78            828          5.81
$6.42 - $8.80                  918         2.58          7.73            889          7.74
$8.82 - $12.50                 973         1.84         11.25            925         11.35
$12.66 - $15.97                905         1.22         15.10            905         15.10
$16.25 - $16.25                136         3.08         21.66            136         21.66
                     --------------                            --------------
                             8,979         3.41  $       6.67          7,118  $       7.25
                     ==============                            ==============

As of March 31, 2008, the total unamortized stock-based compensation expense related to non-vested stock options, net of estimated forfeitures, was $2.6 million, and this expense is expected to be recognized over a remaining weighted- average period of 2.17 years. Compensation expenses for all stock-based awards granted are recognized using the straight-line amortization method.

Restricted Stock Awards and Restricted Stock Units: Restricted stock awards and restricted stock units were granted under the Company's 2004 Equity Incentive Plan and 2006 Director Plan. The restricted stock units are converted into shares of the Company's common stock upon vesting, while the Company's right to repurchase shares of restricted stock lapses upon vesting. As of March 31, 2008, there were 1.7 million shares of service-based restricted stock awards and 0.2 million restricted stock units outstanding, all of which are subject to forfeiture if employment terminates prior to the release of restrictions. Under the 2004 Equity Incentive Plan, restrictions generally lapse either (1) 50% one year from the date of grant and the remainder at the second anniversary or (2) 100% one year from the date of grant. Under the 2006 Director Plan, restrictions generally lapse (1) one year from the date of grant for existing non-employee directors or (2) one year from the date of grant with respect to one-third of the shares and quarterly thereafter for the next two years for the balance of the shares for initial grants to new non-employee directors. The cost of these awards, determined to be the fair market value of the shares at the date of grant, is expensed ratably over the period the restrictions lapse.

A summary of activity for restricted stock awards and restricted stock units as of March 31, 2008 and changes during fiscal years 2008, 2007 and 2006 is as follows:

                                                                       Weighted
                                                                       Average
                                                                      Grant-Date
                                                                         Fair
                                                        Shares          Value
                                                    --------------  --------------
                                                    (in thousands, except weighted
                                                    average grant-date fair value)  

Nonvested stock at March 31, 2005                              15  $         7.92
    Awarded                                                    --              --
    Released                                                  (12)           7.94
    Forfeited and cancelled                                    (3)           7.85
                                                    --------------
Nonvested stock at March 31, 2006                              --  $           --
    Awarded                                                 1,287            4.36
    Released                                                   --              --
    Forfeited and cancelled                                  (108)           4.30
                                                    --------------
Nonvested stock at March 31, 2007                           1,179  $         4.37
    Awarded                                                 1,949            3.47
    Released                                                 (544)           4.37
    Forfeited and cancelled                                  (599)           3.88
                                                    --------------
Nonvested stock at March 31, 2008                           1,985  $         3.64
                                                    ==============

All restricted stock awards were awarded at the par value of $0.001 per share. As of March 31, 2008, the total unrecognized compensation expense related to non-vested restricted stock awards and restricted stock units that are expected to vest, net of estimated forfeitures, was $3.3 million. This expense is expected to be recognized over a remaining weighted-average period of 0.75 years.

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, 2008, future minimum lease payments and future sublease income under non-cancelable operating leases and subleases were as follows:

                                                                     Future
                                                                     Minimum      Future
                                                                      Lease      Sublease
                                                                    Payments      Income
                                                                   -----------  -----------
                                                                       (in thousands)                          
2009                                                              $     5,012  $       532
2010                                                                    4,135          151
2011                                                                    2,398           29
2012                                                                    1,331           --
2013 and thereafter                                                        --           --
                                                                   -----------  -----------
Total                                                             $    12,876  $       712
                                                                   ===========  ===========

Net rent expense was approximately $3.6 million, $2.5 million and $3.5 million during fiscal years 2008, 2007 and 2006, respectively.

The Company was previously subject to IRS audits for its fiscal years 1994 through 2003. During the third quarter of fiscal 2007, the Company reached resolution with the United States taxing authorities on all outstanding audit issues relating to those fiscal years. However, the Company's tax provision continues to reflect judgment and estimation regarding components of the settlement such as interest calculations and the application of the settlements to state and local taxing jurisdictions. Although the Company believes its tax estimates are reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in its consolidated financial statements and may cause a higher effective tax rate that could materially affect its income tax provision, results of operations or cash flows in the period or periods for which such determination is made. The IRS is currently auditing the Company's Federal income tax returns for the fiscal 2004 through 2006 audit cycle. 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 it 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.

In connection with the Company's acquisitions of Snap Appliance, Eurologic, Elipsan Limited ("Elipsan"), and Platys Communications, Inc. ("Platys"), portions of the purchase price and other future payments totaling $6.7 million, $3.8 million, $2.0 million and $15.0 million, respectively, were held back (the "Holdbacks") for unknown liabilities that may have existed as of the acquisition dates. As of March 31, 2008, the Company asserted claims against the Eurologic Holdback totaling $1.5 million. In fiscal 2007, the Company resolved all outstanding claims against the Snap Appliance Holdback and the Platys Holdback. The Elipsan Holdback of $2.0 million and a portion of the Snap Appliance Holdback were paid in fiscal 2006.

During fiscal years 2008, 2007 and 2006, the Company recorded restructuring charges of $6.3 million, $3.7 million and $10.4 million, respectively. Of the $6.3 million recorded in fiscal 2008, $6.7 million related to restructuring charges for plans implemented in fiscal 2008 and $(0.4) million in adjustments related to prior fiscal years restructuring plans, as actual results were lower than anticipated. 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.

In the first quarter of fiscal 2008, management approved and initiated a plan to restructure the Company's operations to reduce the Company's operating expenses due to a declining revenue base by eliminating duplicative resources in all functions of the organization worldwide, resulting in a restructuring charge of $1.5 million related to severance and benefits for employee reductions.

In the second quarter of fiscal 2008, the Company initiated additional actions in an effort to better align its cost structure with its anticipated OEM revenue stream and to improve the Company's results of operations and cash flows. The total cost the Company incurred for this restructuring plan was $5.2 million, of which it recorded approximately $3.5 million in the second quarter of fiscal 2008, $0.9 million in the third quarter of fiscal 2008 and $0.8 million in the fourth quarter of fiscal 2008.

Of the $6.7 million of plans implemented and recorded in fiscal 2008, $5.4 million related to severance and benefits for employee reductions primarily related to the Company's OEM engineering resources and related support and service organizations worldwide and $1.3 million related to vacating redundant facilities and contract termination costs.

The following table sets forth the activity in the accrued restructuring balances related to the restructuring plans implemented in fiscal year 2008:

                                                                   Severance
                                                                      And          Other
                                                                    Benefits      Charges        Total
                                                                  ------------  ------------  ------------
                                                                                (in thousands)            
Restructuring charge                                             $      5,375  $      1,289  $      6,664
Non-cash utilization                                                       --          (151)         (151)
Cash paid                                                              (5,354)         (210)       (5,564)
                                                                  ------------  ------------  ------------
Accrual balance at March 31, 2008                                $         21  $        928  $        949
                                                                  ============  ============  ============

The Company anticipates that the remaining restructuring accrual balance of $0.9 million, relating primarily to long-term leases, will be paid out through the first quarter of fiscal 2011. The remaining restructuring accrual balance is reflected in "Accrued and other liabilities" and "Other long-term liabilities" in the Consolidated Balance Sheets.

In the first and second quarters of fiscal 2007, management approved and initiated plans to restructure the Company's operations by simplifying its infrastructure. These restructuring plans eliminated certain duplicative assets and resources in all functions of the organization worldwide due to consolidating certain processes in order to reduce its cost structure, which resulted in a charge of $3.9 million in fiscal 2007. In addition, the Company recorded minimal provision adjustments related to asset impairments, which were partially offset by a reduction for benefits as actual results were lower than anticipated. During fiscal 2008, the Company recorded adjustments to the fiscal 2007 restructuring plan accrual of $(0.2) million related to the reduction for benefits, as actual results were lower than anticipated. As of March 31, 2008, the Company had utilized all of these charges and the plans are now complete.

In the third and fourth quarters of fiscal 2006, management approved and initiated plans 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 structure, and the sale of the Company's Singapore manufacturing facility. This resulted in a restructuring charge of $9.8 million in fiscal 2006 and minimal provision adjustments in fiscal 2007, as actual results for severance and benefits were lower than anticipated. In fiscal 2008, the Company recorded adjustments to the fiscal 2006 restructuring plan accrual of $(0.1) million, as actual results for severance and benefits and vacating redundant facilities were lower than anticipated. As of March 31, 2008, the Company had utilized all of these charges and the plans are now complete.

In each quarter of 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 strategic alliance with Vitesse Semiconductor Corporation ("Vitesse") and costs pertaining to estimated future obligations for non-cancelable lease payments for excess facilities in Germany and United Kingdom. During fiscal 2006, the Company recorded adjustments to the fiscal 2005 restructuring plans of $(0.4) million related to the reduction for 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 plans are now complete.

In fiscal years 2003, 2002 and 2001, the Company's management implemented restructuring plans to reduce expenses, streamline operations and improve operating efficiencies. The Company has substantially completed its execution of these plans. The remaining accrual balance related to the estimated loss on facilities that the Company subleased in Florida and 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. During fiscal years 2008, 2007 and 2006, the Company recorded adjustments to these plans for $(0.1) million, $(0.2) million and $0.8 million, respectively.

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, 2008, 2007 and fiscal 2006:

                                        FY 2003         FY 2002         FY 2001
                                     Restructuring   Restructuring   Restructuring
                                          Plan            Plan            Plan         Total
                                     --------------  --------------  --------------  ---------
                                                             (in thousands)                   
Accrual balance at March 31, 2005   $           56  $          271  $          966  $   1,293
Provision adjustment                           154             411             238        803
Cash paid                                      (96)           (290)           (663)    (1,049)
                                     --------------  --------------  --------------  ---------
Accrual balance at March 31, 2006   $          114  $          392  $          541  $   1,047
Provision adjustment                             8            (107)           (115)      (214)
Cash paid                                      (94)           (199)           (234)      (527)
                                     --------------  --------------  --------------  ---------
Accrual balance at March 31, 2007               28              86             192        306
Provision adjustment                            --              --             (70)       (70)
Cash paid                                       (5)            (14)           (103)      (122)
                                     --------------  --------------  --------------  ---------
Accrual balance at March 31, 2008   $           23  $           72  $           19  $     114
                                     ==============  ==============  ==============  =========

The Company anticipates that the remaining restructuring accrual balance for fiscal years 2003, 2002 and 2001 restructuring plans of $0.1 million at March 31, 2008 will be substantially paid out by the first quarter of fiscal 2009. The remaining restructuring accrual balance is reflected in "Accrued and other liabilities" in the Consolidated Balance Sheets.

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 of $6.7 million were accounted for under EITF No. 95-3 and therefore were included in the purchase price allocation. Any further changes to the Company's finalized plan will be accounted for under SFAS No. 146 and will be recorded in "Restructuring charges" 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 estimated loss related to the facilities that the Company subleased. As of March 31, 2008, the Company had utilized $5.2 million of these charges. The Company anticipates that the remaining restructuring accrual balance of $1.7 million will be paid out by the third quarter of fiscal 2012, related to long- term lease obligations.

The following table sets forth the activity in the accrued restructuring balance related to the Snap Appliance acquisition-related restructuring plan for fiscal 2008, 2007 and 2006:

                                                                   Severance
                                                                      And          Other
                                                                    Benefits      Charges        Total
                                                                  ------------  ------------  ------------
                                                                                (in thousands)            
Accrual balance at March 31, 2005                                $        155  $      2,901  $      3,056
Provision adjustment                                                      (49)          244           195
Cash paid                                                                 (60)         (656)         (716)
                                                                  ------------  ------------  ------------
Accrual balance at March 31, 2006                                $         46  $      2,489  $      2,535
Cash paid                                                                 (46)         (368)         (414)
                                                                  ------------  ------------  ------------
Accrual balance at March 31, 2007                                          --         2,121         2,121
Cash paid                                                                  --          (385)         (385)
                                                                  ------------  ------------  ------------
Accrual balance at March 31, 2008                                $         --  $      1,736  $      1,736
                                                                  ============  ============  ============

The Company recorded a gain of $6.7 million related to the sale of certain properties in fiscal 2008, which was recorded in "Other charges (gains)" in the Consolidated Statements of Operations. In the fourth quarter of fiscal 2008, the Company recorded an impairment charge of $2.4 million to write-off the remaining SSG intangible assets related to the Elipsan and Snap Appliance acquisitions. During fiscal 2008, the Company recorded a charge of $0.8 million related to third-party service costs associated with an acquisition that it did not complete.

Fiscal 2007 Other Charges (Gains)

The Company recorded asset impairment charges of $13.2 million related to certain acquisition-related intangible assets and $0.7 million for legal and consulting fees incurred in connection with its efforts that had been undertaken to sell the Snap Server portion of its systems business, which was recorded in "Other charges (gains)" in the Consolidated Statements of Operations in fiscal 2007.

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 the impairment is deemed to be other- than-temporary. Circumstances that indicate an other-than-temporary decline include the length of time and the extent to which the market value has been lower than cost. The Company recorded an impairment charge of $0.9 million in fiscal 2007 related to a decline in the value of a minority investment deemed to be other-than-temporary.

The Company recorded asset impairment charges of $10.0 million related to certain acquisition-related intangible assets. 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)" in the Consolidated Statements of Operations.

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

                                                                              Years Ended March 31,
                                                                  ----------------------------------------
                                                                      2008          2007          2006
                                                                  ------------  ------------  ------------
                                                                                (in thousands)            
Interest income                                                  $     28,662  $     24,362  $     16,861
Loss on extinguishment of debt, net                                        --            --           (79)
Foreign currency transaction gains (losses)                             2,550           963          (301)
Other                                                                     123           293         1,140
                                                                  ------------  ------------  ------------
Total                                                            $     31,335  $     25,618  $     17,621
                                                                  ============  ============  ============

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

                                                                              Years Ended March 31,
                                                                  ----------------------------------------
                                                                      2008          2007          2006
                                                                  ------------  ------------  ------------
                                                                                (in thousands)            
Loss from continuing operations before taxes:
    Domestic                                                     $     (6,488) $    (25,693) $   (100,872)
    Foreign                                                            (6,300)      (13,165)      (33,352)
                                                                  ------------  ------------  ------------
                                                                 $    (12,788) $    (38,858) $   (134,224)
                                                                  ============  ============  ============

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

                                                                              Years Ended March 31,
                                                                  ----------------------------------------
                                                                      2008          2007          2006
                                                                  ------------  ------------  ------------
                                                                                (in thousands)            
Federal:
    Current                                                      $       (897) $    (51,610) $        644
    Deferred                                                           (2,348)           --           313
                                                                  ------------  ------------  ------------
                                                                       (3,245)      (51,610)          957
                                                                  ------------  ------------  ------------
Foreign:
    Current                                                               190        (4,206)         (594)
    Deferred                                                            1,001           (79)         (313)
                                                                  ------------  ------------  ------------
                                                                        1,191        (4,285)         (907)
                                                                  ------------  ------------  ------------
State:
    Current                                                              (339)       (7,809)        1,558
    Deferred                                                             (301)           --            --
                                                                  ------------  ------------  ------------
                                                                         (640)       (7,809)        1,558
                                                                  ------------  ------------  ------------
Provision for (benefit from) income taxes                        $     (2,694) $    (63,704) $      1,608
                                                                  ============  ============  ============

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

                                                                              Years Ended March 31,
                                                                  ----------------------------------------
                                                                      2008          2007          2006
                                                                  ------------  ------------  ------------
Federal statutory rate                                                  (35.0)%       (35.0)%       (35.0)%
State taxes, net of federal benefit                                       0.7 %        (1.1)%         1.2 %
Foreign subsidiary income at other than the U.S tax rate                   -- %       (15.0)%        (8.7)%
Foreign losses not benefited                                             46.0 %        12.3 %        16.9 %
Changes in tax reserves                                                  (4.1)%      (148.9)%         0.5 %
OID Interest                                                            (25.2)%       (11.8)%        (3.2)%
Stock-based compensation                                                   -- %        (6.1)%          -- %
Change in valuation allowance                                           (34.8)%        29.4 %        16.4 %
Distributions from foreign subsidiaries                                  30.2 %          -- %          -- %
Other permanent difference                                                1.1 %        12.3 %        -1.3 %
Acquisition related impairment charges                                     -- %          -- %        17.0 %
Research and development credits                                           -- %          -- %        (2.5)%
Foreign repatriation                                                       -- %          -- %        (0.1)%
                                                                  ------------  ------------  ------------
Effective income tax rate                                               (21.1)%      (163.9)%         1.2 %
                                                                  ============  ============  ============

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

On October 22, 2004, the American Jobs Creation Act of 2004 (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, the Company repatriated $360.6 million of undistributed earnings from Singapore to the United States and incurred a tax liability of $17.6 million. The one-time deduction was allowed to the extent that the repatriated amounts were 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 significant components of the Company's deferred tax assets and liabilities at March 31, 2008 and 2007 were as follows:

                                                                         March 31,
                                                                   ------------------------
                                                                      2008         2007
                                                                   -----------  -----------
                                                                       (in thousands)                          
Deferred tax assets:
    Intangible assets                                             $    41,214  $    45,957
    Research and development tax credits                               25,782       34,854
    Net operating loss carryover                                       31,422       15,435
    Capitalized research and development                                3,504        4,779
    Compensatory and other accruals                                     8,890        5,743
    Restructuring charges                                               1,010        1,162
    Foreign tax credits                                                21,719       13,609
    Deferred revenue                                                    1,455        1,874
    Inventory reserves                                                  3,091        3,500
    Uniform capitalization adjustment                                     363        1,010
    Other, net                                                          1,806        1,611
                                                                   -----------  -----------
Gross deferred tax assets                                             140,256      129,534
                                                                   -----------  -----------

Deferred tax liabilities:
    Acquisition-related charges                                          (336)      (3,553)
    Fixed assets accrual                                               (1,014)      (1,782)
    Unremitted earnings                                               (93,831)          --
    Unrealized loss on investments                                     (1,365)          --
                                                                   -----------  -----------
Gross deferred tax liability                                          (96,546)      (5,335)
                                                                   -----------  -----------
Valuation allowance                                                   (44,591)    (124,070)
                                                                   -----------  -----------
Net deferred tax assets (liabilities)                             $      (881) $       129
                                                                   ===========  ===========

The Company continuously monitors the circumstances impacting the expected realization of its deferred tax assets on a jurisdiction by jurisdiction basis. At March 31, 2008 and 2007, the Company's analysis of its deferred tax assets demonstrated that it was more likely than not that substantially all of its net U.S. deferred tax assets would not be realized, resulting in a valuation allowance for deferred tax assets of $44.6 million and $124.1 million, respectively. Factors that led to this conclusion included, but were not limited to, the Company's past operating results, cumulative tax losses in the United States, and uncertain future income on a jurisdiction by jurisdiction basis.

As of March 31, 2008, the Company had net operating loss carryforwards of $85.1 million for federal and $121.7 million for state purposes that expire in various years beginning in 2019 for federal and 2016 for state purposes. The Company had research and development credits of $19.6 million for federal purposes that expire in various years beginning in 2019 and $9.5 million credits for state purposes that carry forward indefinitely until fully exhausted. The Company had foreign tax credits of $14.4 million that expire in various years beginning in 2009. Of the federal net operating loss carryforwards, $9.9 million were related to stock option deductions, the tax benefit of which will be credited to additional paid-in capital when realized.

On April 1, 2007, the Company adopted FIN 48, which clarifies the accounting for uncertainties in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109. As a result of implementing FIN 48 on April 1, 2007, the Company recognized a cumulative effect adjustment of $1.3 million as a reduction to the beginning balance of "Retained earnings" on its Consolidated Balance Sheets. At adoption, the Company had gross unrecognized tax benefits of $20.3 million, of which $6.3 million would impact the effective tax rate if recognized.

Following the adoption of FIN 48, the Company elected to recognize interest and/or penalties related to uncertain tax positions within "provision for (benefit from) income taxes" in the Company's Consolidated Statements of Operations, which is consistent with the Company's treatment of tax related interest and penalties prior to its adoption of FIN 48.

To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. The amount of interest and penalties accrued at April 1, 2007, upon the adoption of FIN 48, was immaterial. In addition, no material amount was accrued during fiscal 2008.

The following table summarizes the activity related to the Company's gross unrecognized tax benefits during the fiscal year:

                                                        (In Millions)

Balance at April 1, 2007 (date of implementation)     $         20.3
Increases related to prior year tax positions                      2
Decreases related to prior year tax positions                   (0.9)
Increases related to current year tax positions                  1.2
Decreases related to settlement with taxing authority           (1.1)
--------------------------------------------------      -------------
Balance at March 31, 2008                                       21.5
                                                        =============

As of March 31, 2008, total unrecognized tax benefits in the amount of $4.4 million, if recognized, would impact the effective tax rate.

The Company is subject to U.S. federal income tax as well as income taxes in many U.S. states and foreign jurisdictions. As of March 31, 2008, tax years 2004 through 2008 remained open to examination by the U.S. federal taxing authorities, tax years 1994 through 2008 remained open to examined by U.S. state taxing authorities,  tax years 1998 through 2008 remained open to examination in Singapore and tax years 2001 through 2008 remained open to examination in various foreign jurisdictions. As a result of the IRS's stated intent to close the fiscal 2004 through 2006 audit cycle as a "no change," it is reasonably possible that the Company's total gross unrecognized tax benefits will decrease by $3.3 million during the next twelve months, none of which is expected to impact the Company's effective tax rate. The unrecognized tax benefits relate to the Company's US tax treatment of Original Issue Discount interest and cost shared equity compensation. Other than these amounts, the Company does not anticipate any significant change to its total unrecognized tax benefits during the next twelve months.

At March 31, 2008, the Company had a long term tax receivable balance of $2.8 million and a short term receivable of $4.6 million, primarily comprised of income taxes receivable from the IRS and foreign tax authorities. The Company's FIN 48 tax liability at March 31, 2008 was $4.4 million and is included within "Other long-term liabilities." In addition, the Company had short term deferred tax assets of $9.0 million, which was included within "Other current assets" and long-term deferred tax liabilities of $9.9 million. The net change in the Company's tax related assets and liabilities during fiscal 2008 were primarily the result of U.S. tax refunds received. Tax related liabilities are primarily composed of the accrual and release 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 tax related assets and liabilities were 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.

During the quarter ended March 31, 2008, the Company changed its assertion such that foreign earnings are no longer intended to be permanently reinvested. As a result, the Company recorded a deferred tax liability of $93.8 million related to the foreign undistributed earnings, which was offset by a reduction in the Company's valuation allowance against its deferred tax assets. There was no significant impact of the change in assertion on "provision for (benefit from) income taxes" in the Consolidated Statements of Operations.

                                                                              Years Ended March 31,
                                                                  ----------------------------------------
                                                                      2008          2007          2006
                                                                  ------------  ------------  ------------
                                                                  (in thousands, except per share amounts)
Numerator:                                                                                                
Income (loss) from continuing operations - basic                 $    (10,094) $     24,846  $   (135,832)
Income (loss) from discontinued operations - basic                        479         5,997       (12,600)
                                                                  ------------  ------------  ------------
Net income (loss) - basic                                        $     (9,615) $     30,843      (148,432)
                                                                  ------------  ------------  ------------
Adjustment:                                                                                               
Adjustment for interest expense on 3/4% Notes, net of taxes      $         --  $      3,062  $         --
                                                                  ------------  ------------  ------------

Adjusted income (loss) from continuing operations - diluted      $    (10,094) $     27,908  $   (135,832)
Adjusted income (loss) from discontinued operations - diluted             479         5,997       (12,600)
                                                                  ------------  ------------  ------------
Adjusted net income (loss) - diluted                             $     (9,615) $     33,905  $   (148,432)
                                                                  ============  ============  ============

Denominator:
Weighted average shares outstanding - basic                           118,613       116,602       113,405
Effect of dilutive securities:
    Employee stock options and other                                       --           864            --
    3/4% Notes                                                             --        19,224            --
                                                                  ------------  ------------  ------------
Weighted average shares and potentially dilutive common shares
outstanding - diluted                                                 118,613       136,690       113,405
                                                                  ============  ============  ============

Income (loss) per share:
    Basic:
        Continuing operations                                    $      (0.09) $       0.21  $      (1.20)
        Discontinued operations                                  $       0.00  $       0.05  $      (0.11)
        Net income (loss)                                        $      (0.08) $       0.26  $      (1.31)
    Diluted:
        Continuing operations                                    $      (0.09) $       0.20  $      (1.20)
        Discontinued operations                                  $       0.00  $       0.04  $      (0.11)
        Net income (loss)                                        $      (0.08) $       0.25  $      (1.31)

Diluted loss per share from continuing operations, discontinued operations and net loss for fiscal years 2008 and 2006 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 2007 because their inclusion would have been anti-dilutive. The items excluded for fiscal years 2008, 2007 and 2006 were as follows:

                                                                              Years Ended March 31,
                                                                  ----------------------------------------
                                                                      2008          2007          2006
                                                                  ------------  ------------  ------------
                                                                                (in thousands)            
Outstanding stock options                                              11,262        11,745        15,934
Outstanding restricted stock awards and units                           1,730             2            --
Warrants (1)                                                           19,724        19,871        19,874
3/4% Notes                                                             19,224            --        19,224
3% Notes                                                                   --           646           950

________________________

(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 7 to the Consolidated Financial Statements for further details.

                                                                         Years Ended March 31,
                                                                   ---------------------------------
                                                                      2008         2007       2006
                                                                   -----------  ----------- --------
                                                                                 (in thousands)                
Balance at beginning of period                                    $       950  $     2,051 $  2,084
Warranties provided                                                     2,389        3,770    5,028
Actual costs incurred                                                  (2,598)      (4,871)  (5,061)
                                                                   -----------  ----------- --------
Balance at end of period                                          $       741  $       950 $  2,051
                                                                   ===========  =========== ========

                               DPS        SSG       Other      Total
                            ---------  ---------  ---------  ---------
                                                 (in thousands)       
Fiscal 2008:
Net revenues               $ 145,082  $  22,318  $      --  $ 167,400
Segment income (loss)         26,635     (6,337)        --     20,298
Fiscal 2007:
Net revenues               $ 214,522  $  28,060  $  12,626  $ 255,208
Segment income (loss)         36,894     (7,022)      (922)    28,950
Fiscal 2006:
Net revenues               $ 283,066  $  33,997  $  27,079  $ 344,142
Segment income (loss)         63,244     (4,949)    (5,261)    53,034

                                                                              Years Ended March 31,
                                                                  ----------------------------------------
                                                                      2008          2007          2006
                                                                  ------------  ------------  ------------
                                                                                (in thousands)            
Total segment income                                             $     20,298  $     28,950  $     53,034
Unallocated corporate expenses, net (1)                               (57,873)      (71,610) $    (88,930)
Restructuring charges                                                  (6,273)       (3,711)      (10,430)
Goodwill impairment                                                        --            --       (90,602)
Other (charges) gains                                                   3,371       (14,700)      (11,603)
Interest and other income                                              31,335        25,618        17,621
Interest expense                                                       (3,646)       (3,405)       (3,314)
                                                                  ------------  ------------  ------------
    Loss from continuing operations before income taxes          $    (12,788) $    (38,858) $   (134,224)
                                                                  ============  ============  ============

                                                                              Years Ended March 31,
                                                                  ----------------------------------------
                                                                      2008          2007          2006
                                                                  ------------  ------------  ------------
                                                                                (in thousands)            
United States                                                    $     73,182  $    115,064  $    139,335
Singapore                                                                  --        91,562       204,807
Ireland                                                                94,218        48,582            --
                                                                  ------------  ------------  ------------
    Net revenues                                                 $    167,400  $    255,208  $    344,142
                                                                  ============  ============  ============

                                                                         March 31,
                                                                   ------------------------
                                                                      2008         2007
                                                                   -----------  -----------
                                                                       (in thousands)                          
United States                                                     $    12,682  $    14,803
Singapore                                                                  80          254
Other countries                                                           522          795
                                                                   -----------  -----------
    Property and equipment, net                                   $    13,284  $    15,852
                                                                   ===========  ===========

                                                                                       Years Ended March 31,
                                                                               -------------------------------
                                                                                 2008       2007       2006
                                                                               ---------  ---------  ---------
                                                                                          (in thousands)      
Interest paid                                                                 $   3,556  $   4,150  $   3,301
Income taxes paid                                                                 3,879      1,369     15,856
Income tax refund received                                                       16,214      2,563         64
Non-cash investing and financial activities:
Adjustment for deferred stock-based compensation                                     --       (319)      (444)
Unrealized gains (losses) on available-for-sale securities                        2,749      3,792     (2,687)

                                                        Quarters
                                     ------------------------------------------
                                       First     Second      Third     Fourth      Year
                                     ---------  ---------  ---------  ---------  ---------
                                              (in thousands, except per share amounts)
Fiscal 2008:                                                                              
Net revenues                        $  42,387  $  43,974  $  41,162  $  39,877  $ 167,400
Gross profit                           13,997     15,378     16,169     16,929     62,473
Income (loss) from continuing
    operations, net of taxes           (3,635)    (7,488)     1,108        (79)   (10,094)
Loss from discontinued operations,
    net of taxes                           --       (144)        --        623        479
Net income (loss)                      (3,635)    (7,632)     1,108        544     (9,615)
Income (loss) per share:
    Basic
        Continuing operations       $   (0.03) $   (0.06) $    0.01  $   (0.00) $   (0.09)
        Discontinued operations     $      --  $   (0.00) $      --  $    0.01  $    0.00
        Net income (loss)           $   (0.03) $   (0.06) $    0.01  $    0.00  $   (0.08)
    Diluted
        Continuing operations       $   (0.03) $   (0.06) $    0.01  $   (0.00) $   (0.09)
        Discontinued operations     $      --  $   (0.00) $      --  $    0.01  $    0.00
        Net income (loss)           $   (0.03) $   (0.06) $    0.01  $    0.00  $   (0.08)
Shares used in computing income
    (loss) per share:
    Basic                             117,897    118,405    118,987    119,163    118,613
    Diluted                           117,897    118,405    119,622    119,163    118,613
                                                                                          
Fiscal 2007:                                                                              
Net revenues                        $  69,071  $  73,553  $  60,650  $  51,934  $ 255,208
Gross profit                           22,270     26,543     14,843     17,578     81,234
Income (loss) from continuing
    operations, net of taxes          (24,824)    48,757      5,077     (4,164)    24,846
Income from discontinued operations,
    net of taxes                        1,554      2,308      1,301        834      5,997
Net income (loss)                     (23,270)    51,065      6,378     (3,330)    30,843
Income (loss) per share:
    Basic
        Continuing operations       $   (0.21) $    0.42  $    0.04  $   (0.04) $    0.21
        Discontinued operations     $    0.01  $    0.02  $    0.01  $    0.01  $    0.05
        Net income (loss)           $   (0.20) $    0.44  $    0.05  $   (0.03) $    0.26
    Diluted
        Continuing operations       $   (0.21) $    0.36  $    0.04  $   (0.04) $    0.20
        Discontinued operations     $    0.01  $    0.02  $    0.01  $    0.01  $    0.04
        Net income (loss)           $   (0.20) $    0.38  $    0.05  $   (0.03) $    0.25
Shares used in computing income
    (loss) per share:
    Basic                             115,609    116,325    116,959    117,516    116,602
    Diluted                           115,609    136,735    137,330    117,516    136,690

                                                    Balance at                          Balance at
                                                    Beginning   Charges to the           End of
                                                    of Period      P&L      Deductions    Period
                                                    ----------  ----------  ----------  ----------
                                                                    (in thousands)                            
Year ended March 31, 2008
    Allowance for doubtful accounts(1)             $      519  $       65  $      326  $      258
    Sales reserves(1)                                   2,399       8,020       8,144       2,275
    Allowances(1)                                       3,303      10,506      11,754       2,055
    Valuation allowance for deferred tax a            124,070          --      79,479      44,591
                                                                                     --
Year ended March 31, 2007
    Allowance for doubtful accounts(1)             $      814  $       67  $      362  $      519
    Sales returns(1)                                    4,743       9,393      11,737       2,399
    Allowances(1)                                       6,067      10,241      13,005       3,303
    Valuation allowance for deferred tax a             91,476      32,594          --     124,070

Year ended March 31, 2006
    Allowance for doubtful accounts(1)             $    1,029  $        5  $      220  $      814
    Sales returns(1)                                    4,199      12,445      11,901       4,743
    Allowances(1)                                      10,090      14,350      18,373       6,067
    Valuation allowance for deferred tax a             67,167      24,309          --      91,476