UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K10-K/A

For the fiscal year ended March 31, 2010

OR

For the transition period from                    to                    .

Commission File Number 000-15071

ADAPTEC, INC.ADPT Corporation

(Exact name of Registrant as Specified in its Charter)

691 S. Milpitas Blvd.

Milpitas, California 95035

(Address of Principal Executive Offices, including Zip Code)

(408) 945-8600

(Registrant’s Telephone Number, including Area Code)

Adaptec, Inc.

(Former Name or Former Address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:None

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨    Accelerated filer x    Non-accelerated filer ¨

    (Do not check if a smaller reporting company)    Smaller reporting company ¨

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant was $301,782,484 based on the closing sale price of the Registrant’s common stock on The NASDAQ Global Market on the last business day of the Registrant’s most recently completed second fiscal quarter. Shares of the Registrant’s common stock beneficially owned by each executive officer and director of the Registrant and by each person known by the Registrant to beneficially own 10% or more of its outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

At May 12, 2010, the Registrant had 120,396,971 shares of common stock outstanding, $.001 par value per share.

DOCUMENTS INCORPORATED BY REFERENCE None.

Portions

Explanatory Note

ADPT Corporation (the “Company,” “ADPT,” “we,” “us” or “our”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to our Annual Report on Form 10-K for the year ended March 31, 2010, originally filed on May 27, 2010 (the “Original Filing”). We are filing this Amendment solely to include the information required under Items 10, 11, 12, 13 and 14 of Part III of Form 10-K and to update the exhibits to include new Certifications of our Interim Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Except as specified above, the Original Filing continues to speak as of the Registrant’s Proxy Statement, todate of the Original Filing.

This Amendment should be filedread in conjunction with the Original Filing and the Company’s other filings made with the Securities and Exchange Commission within 120 days after(“SEC”) subsequent to the endfiling of the fiscal year covered by this Annual Report on Form 10-K for its 2010 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K.Original Filing.

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Table of Contents

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. The statements contained in this document that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are statements regarding future events or our future performance, and include statements regarding projected operating results. These forward-looking statements are based on current expectations, beliefs, intentions strategies, forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks include, but are not limited to: completion of the transaction with PMC-Sierra discussed elsewhere in this Annual Report on Form 10-K; the ability of our operations to maximize the value of our RAID technology business and non-core patents; our ability to deploy our capital in a manner that maximizes stockholder value; general economic conditions; revenue received from our current operations; declines in consumer spending; failure to achieve our operational objectives; ability to reduce our operating costs; support from the contract manufacturers to which we have outsourced manufacturing, assembly and packaging of our products; our ability to launch new products and potential failure of anticipated long-term benefits from new products to materialize; difficulty in forecasting the volume and timing of customer orders; reduced demand in the server, network storage and desktop computer markets; our target markets’ failure to accept, or delay in accepting, network storage and other advanced storage solutions, including our MaxIQ SSD Cache Performance Solution, SCSI, SAS, SATA and iSCSI lines of products; the performance of our products; decline in consumer acceptance of our current products; the timing and volume of orders by OEM customers for storage products; our ability to control and manage costs associated with the delivery of new products; and the adverse effects of the intense competition we face in our business. We may identify these statements by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and other similar expressions. All forward-looking statements included in this document are based on information available to us on the date of this Annual Report on Form 10-K, and we assume no obligation to update any such forward-looking statements, except as may otherwise be required by law.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the “Risk Factors” section in Part I, Item 1A of this Annual Report on Form 10-K and elsewhere in this document. In evaluating our business, current and prospective investors should consider carefully these factors in addition to the other information set forth in this document.

PART I

Item 1.Business

For your convenience, we have included, in Note 22 to the Consolidated Financial Statements, included in “Item 8: Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, a Glossary that contains a brief description of a few key acronyms commonly used in our industry and a few accounting acronyms, including accounting regulatory bodies, that are also referred to herein. These acronyms are listed in alphabetical order.

Description

We currently provide innovative data center I/O solutions that protect, accelerate, optimize, and condition data in today’s most demanding data center environments. Our products are used in IT environments ranging from traditional enterprise environments to fast growing, on-demand cloud computing data centers. Our products enable data center managers, channel partners and OEMs to deploy best-in-class storage solutions to meet their customers’ evolving IT and business requirements. Around the world, leading corporations, government organizations, and medium and small businesses trust Adaptec technology. Our software and hardware products include ASICs, HBAs, RAID controllers, Adaptec RAID software, storage management software, storage virtualization software and other solutions that span SCSI, SAS, SATA and iSCSI interface technologies,

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including both hard disk and solid state drives. System integrators and white box suppliers build server and storage solutions based on Adaptec technology to deliver products with superior price and performance, data protection and interoperability to their clients and customers.

General Information

We were incorporated in 1981 in California and completed our initial public offering in 1986. In March 1998, we reincorporated in Delaware. Our shares of common stock are included in the S&P Small Cap 600 Index. Our principal executive offices are located at 691 South Milpitas Boulevard, Milpitas, California 95035 and our telephone number at that location is (408) 945-8600. We also maintain our website atwww.adaptec.com. Information found on or accessible through our website is not part of and is not incorporated into, this Annual Report on Form 10-K.

Business Outlook

In December 2009, we announced the retention of Blackstone Advisory Partners L.P. to serve as our exclusive financial advisor relating to a potential sale or disposition of certain of our assets or business operations. On May 8, 2010, subsequent to our fiscal year-end, we entered into an Asset Purchase Agreement with PMC-Sierra, Inc., or PMC-Sierra for the sale of certain assets and for PMC-Sierra to assume certain liabilities related to our business of providing data storage hardware and software solutions and products including ASICs, HBAs, RAID controllers, Adaptec RAID software, Adaptec RAID code, or ARC, storage management software including Adaptec Storage Manager or ASM, option ROM BIOS, command line interface or CLI, storage virtualization software, and other solutions that span SCSI, SAS, and SATA interface technologies, and that optimize the performance of both hard disk and solid state drives, for a purchase price of approximately $34 million. In this Annual Report on Form 10-K, we refer to the transactions contemplated by the Asset Purchase Agreement with PMC-Sierra as the PMC Transaction. Assuming satisfaction of the closing conditions in the Asset Purchase Agreement with PMC-Sierra, we anticipate that the PMC Transaction will be consummated in June 2010. As we continue to proceed with certain specific and other customary closing conditions necessary to consummate the PMC Transaction, we remain committed to providing service and support for our existing customers and end-users. Whether or not the PMC Transaction is consummated, our revenues may be negatively impacted during this pre-closing period as the transaction creates uncertainty in the marketplace for our existing customers and end-users, who may be less likely to place orders with us as a result of this uncertainty.

Assuming the PMC Transaction is consummated, we intend to explore all strategic alternatives to maximize stockholder value going forward, including deploying the proceeds of the PMC Transaction and our other assets in seeking business acquisition opportunities and other actions to redeploy our capital. Additionally, we will, as previously announced, continue to consider our options related to those products and technology obtained from our acquisition of Aristos Logic Corporation, or Aristos, which we refer to in this Annual Report on Form 10-K as our Aristos products, as well as our other remaining operating assets, including non-core patents and real estate holdings. With respect to our Aristos products, options that we may consider include (i) ceasing to invest additional funds in our Aristos products, winding-down the sale of our Aristos products and fulfilling our remaining contractual obligations with our existing customers, which we would expect to be completed in six months, or by September 2010, or (ii) seeking to sell the assets related to our Aristos products to a third party. We will also explore alternatives for maximizing the value of our non-core patent portfolio and remaining real estate assets. Following and assuming the consummation of the PMC Transaction, we remain committed to providing value to all of our stockholders and will aggressively pursue opportunities to deploy the significant cash and liquid assets on hand to create value for our stockholders, including exploring opportunities to deploy this cash and liquid assets to make acquisitions of businesses that will maximize stockholder value and/or engaging in stock buybacks and cash dividends. Going forward our business is expected to consist of capital redeployment and identification of new, profitable business operations in which we can utilize our existing working capital and maximize the use of our net operating losses, or NOLs.

If we consummate the PMC Transaction discussed above, we may incur significant charges in the future, which charges include, but are not limited to, increased amortization or depreciation of our long-lived assets due to potential changes to the expected remaining useful lives, potential impairment of our long-lived assets,

restructuring charges, acceleration of compensation expense related to unvested stock-based awards, potential cash bonus payments and potential accelerated payments of certain of our contractual obligations, which may impact our results of operations and financial condition. The aggregate of these amounts cannot be quantified at this time. Further subsequent event disclosures related to expected changes to the remaining useful lives of our long-lived assets, stock-based activity and associated compensation expense, and restructuring charges are discussed in Note 7, 9 and 11, respectively, to the Consolidated Financial Statements.

Except where noted, the discussion regarding our business in this Annual Report on Form 10-K is as of March 31, 2010. As of the date of this Annual Report on Form 10-K, the PMC Transaction has not been consummated. The PMC Transaction may not be consummated.

Products Overview

We operate in one segment. For an analysis of financial information about our geographic areas, see “Note 19—Segment, Geographic and Significant Customer Information” to the Consolidated Financial Statements included in “Item 8: Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

We currently provide data protection storage products and sell a broad range of storage technologies, including ASICs, board-level I/O and RAID controllers and software. We sell these products directly to OEMs, ODMs that supply OEMs, system integrators, VARs and end users through our network of distribution and reseller channels. We consider all our products to be similar in nature and function.

Components.

RAID Controllers and HBAs.    We offer a wide range of HBAs and RAID controllers for use with SATA, SAS and Parallel SCSI drives, including our line of Unified Serial^® cards, which can be used with both SATA and SAS drives, including Solid State Drives. The SATA and SAS technologies are offered in our Series 1, Series 2, Series 3, Series 5 and Series 5Z families. Our SATA products provide a flexible solution for cost effective, high capacity drives. Unified Serial RAID Controllers support both SATA and SAS disk drives with the same architecture to meet the need for maximum performance, reliability, scalability, and flexibility for enterprise-class applications, including NAS, online transaction processing, web, digital surveillance, and streaming applications. Our family of products is designed to meet evolving storage needs by providing high performance, reliable storage management tools, hardware and software compatibility and high levels of support. Our Series 5Z products, which were introduced in fiscal 2010, reduce the cost of data center maintenance by eliminating the need to monitor battery charge levels, service battery modules or power down servers for battery replacement. While we have used our own ASICs in these products in the past, our latest generation of products uses ROC technology from Intel Corporation. Our controller cards include 4, 8, 16, 20 and 28-port designs, which help end users simplify the design of their solutions.

Host I/O.    Driven by market needs for capacity and data protection, the host I/O interfaces support various connectivity requirements between the central processor and internal and external peripherals, including external storage and tape devices. Our host I/O products provide customers with high-speed PCI-X, PCIe, SCSI, SAS or SATA connectivity. These technologies can be applied to a variety of applications, including storage of email, medical records, digital images, and records of financial transactions.

RSP.RSPs, which are related to our Aristos products, are ASIC devices incorporating a collection of hardware engines that fully automate the operation of the data path and eliminate the performance bottlenecks found in other silicon-based software RAID solutions. Our RSP products provide our customers with cost- and energy-efficiencies in data protection without compromising performance. Our primary markets include Blade Servers and External Storage applications where high performance and high availability features are required.

Data Center Data Conditioning Features.    Our Intelligent Power Management technology allows users to reduce their power consumption without impacting storage performance providing a green footprint to public and private cloud data centers. Our MaxIQ SSD Cache Performance Solution, introduced in fiscal 2010, maximizes performance while minimizing capital and operating costs by utilizing both solid state drives and hard disk drives, to create High-Performance Hybrid Arrays.

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Software.

Our products incorporate software that simplifies data management and protection for businesses of all sizes. We distribute the software through various methods.

Host RAID.    We license our host RAID technology, which allows our customers to leverage the I/O components already incorporated on their server chipsets to connect them with RAID-providing low cost data protection. Host RAID enables customers not only to protect their data drives but also to include protection for the boot drives.

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

RAID.    Our RAID technology reduces a customer’s dependence on the reliability of a single disk drive by encoding data across multiple drives. We apply our RAID technology independent of the disk drive interface to provide data protection on SCSI, SATA and SAS disk drives. This independence enables our RAID software, firmware and hardware to be available across the full spectrum of servers from entry to enterprise.

Adaptec Storage Manager.    Adaptec Storage Manager is a single storage management utility that enables customers and IT managers to easily manage storage across DAS environments, create storage solutions and protect data (RAID) from disk drive failure. Standard features that are included with our SATA or SAS RAID controllers allow our products to deliver a high level of data protection.

Other Software.    We provide software development kits and command line interface tools to help simplify storage management and provide manufacturing tools to simplify the integration of our products into customer solutions.

Sales, Marketing and Customers

We sell our products through our sales force directly to OEMs worldwide who market our products under their brands. We work closely with our OEM customers to design and integrate current and next generation products to meet the specific requirements of end users. Our OEM sales force focuses on developing relationships with OEM customers. The sales process involved in gaining major design wins can be complex, lengthy, and expensive. Sales to these OEM customers accounted for approximately 35% of our total net revenues in fiscal 2010. Our primary OEM customers in fiscal 2010, in alphabetical order, were Hewlett-Packard, IBM, Intel and Super Micro Computer, Inc. We expect net revenues obtained from our parallel SCSI products and our serial legacy products sold to OEM customers to continue to decline in future quarters as we believe the future growth opportunities for these products are limited due to the failure to secure certain design wins.

We also sell through our sales force to distribution channels worldwide, which market our products under the Adaptec brand; they, in turn, sell to VARs, system integrators and retail customers. We provide training and support for our distribution customers and to VARs. We also sell board-based products and provide technical support to end users worldwide through major computer-product retailers. Sales to distribution customers accounted for approximately 65% of our total net revenues in fiscal 2010. Our primary distributors in fiscal 2010, in alphabetical order, were Bell Microproducts, CPI Computer Partner Handels GmbH, Ingram Micro, Synnex and Tech Data.

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

A small number of our customers account for a substantial portion of our net revenues. In fiscal 2010, IBM, Bell Microproducts and Ingram Micro accounted for 17%, 16% and 15% of our total net revenues, respectively. In fiscal 2009, IBM accounted for 36% of our total net revenues. In fiscal 2008, IBM accounted for 40% of our total net revenues.

International

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

A summary of our net revenues and net property, plant and equipment by geographic area is set forth in Note 19 to the Consolidated Financial Statements included in “Item 8: Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. We generated approximately 66% of our overall revenues in fiscal 2010 from outside of the United States primarily from commercial customers. These sales include sales to foreign subsidiaries of U.S. companies.

Competition

The markets for all of our products are highly competitive and are characterized by rapid technological advances, frequent new product introductions, evolving industry and customer standards and competitive pricing pressures.

We believe the principal competitive factors in the markets for our products are product price versus performance, product features and functionality, reliability, technical service and support, scalability and interoperability and brand awareness. We compete primarily with controller and HBA product offerings from Areca Technology Corporation and LSI, and several smaller suppliers in addition to ASIC product offerings from LSI, Marvell and PMC-Sierra.

Backlog

We typically receive orders for our products within two weeks or less of the desired delivery date, and most orders are subject to rescheduling and/or cancellation with little or no penalty. We maintain remote inventory locations at some of our largest OEMs’ sites with product ordering and delivery occurring when the OEM customer accepts our product into their inventory. In light of industry practice and experience, we do not believe that backlog at any given time is a meaningful indicator of our ability to achieve any particular level of revenue or financial performance.

Manufacturing

We outsource the manufacturing of the majority of our products to Sanmina-SCI Corporation, or Sanmina-SCI. We entered into a manufacturing agreement with Sanmina-SCI in February 2009 that expires in the fourth quarter of fiscal 2012. However, this manufacturing agreement with Sanmina-SCI will be transferred to PMC-Sierra if the PMC Transaction is consummated. We believe that Sanmina-SCI will be able to meet our anticipated needs for both current and future technologies. Our final assembly and test operations for our ASIC products are performed by Amkor Technology and Advanced Semiconductor Engineering. Advanced Semiconductor Engineering also warehouses and ships our products on our behalf.

Intellectual Property

We seek to establish and maintain our proprietary rights in our technology and products through the use of patents, copyrights, trademarks and trade secret laws. As of March 31, 2010, we had 465 issued patents, expiring between February 2011 and October 2027, covering various aspects of our technologies. In addition, the Adaptec name and logo are trademarks or registered trademarks of ours in the United States and other countries. However, certain patents, as well as the Adaptec name and logo, will be transferred to PMC-Sierra if the PMC Transaction is consummated. If consummated, PMC-Sierra will also receive a non-exclusive license for the non-core patents that we will retain. We believe our patents and other intellectual property rights have value, but we do not consider any single patent to be essential to our business. We also seek to maintain our trade secrets and confidential information by non-disclosure policies and through the use of appropriate confidentiality agreements.

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Research and Development

The high technology industry is characterized by rapid technological innovation, evolving industry standards, changes in customer requirements and new product introductions and enhancements. Our future performance will depend in large part on our ability to maintain and enhance our current product line and to develop new products that achieve market acceptance, maintain competitiveness and meet an expanding range of customer requirements. To achieve these objectives, we may continue to leverage our technical expertise and product innovation capabilities to address storage-access products across a broad range of users and platforms. We may also enter into strategic alliances or partnerships where appropriate. We entered into a three-year strategic development agreement with HCL Technologies Limited, or HCL, to provide product development and engineering services for our product portfolio. However, the three-year strategic development agreement with HCL will be transferred to PMC-Sierra if the PMC Transaction is consummated.

Approximately 45% of our employees were engaged in research and development at March 31, 2010 as compared to 44% and 42% at March 31, 2009 and 2008, respectively. Our research and development expenses were $29.5 million, or 40% of total net revenues, $26.9 million, or 23% of total net revenues, and $34.0 million, or 23% of total net revenues, for fiscal years 2010, 2009 and 2008, respectively. Research and development expenses primarily consist of salaries and related costs of employees engaged in ongoing research, design and development activities and subcontracting costs.

Environmental Laws

Certain of our operations involve the use of substances regulated under various federal, state and international environmental laws. It is our policy to apply strict standards for environmental protection to sites inside and outside the United States, even if not subject to regulations imposed by local governments. The liability for environmental remediation and related costs is accrued when it is considered probable and the costs can be reasonably estimated. Environmental costs are presently not material to our operations or financial position.

Employees

As of March 31, 2010, we had a total of 187 employees, which excludes outsourced partners. Overall employee headcount declined by 19% in fiscal 2010 compared to fiscal 2009, and headcount declined by 41% in fiscal 2009 compared to fiscal 2008. We had a total of 232 and 391 employees at the end of fiscal 2009 and 2008, respectively. We expect our employee headcount to decline significantly if the PMC Transaction is consummated.

We believe that we currently have favorable employee relations. None of our employees are represented by a collective bargaining agreement, nor have we ever experienced work stoppages.

Available Information

We make available free of charge through our Internet website at http://www.adaptec.com the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission, or SEC: our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy, information statements and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. The SEC also maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information that we file electronically with the SEC and that may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Item 1A.Risk Factors

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

occur, our business, financial condition or results of operations could suffer, and the trading price of our common stock could decline. The risk factors outlined below include the risks associated with the consummation of the PMC Transaction, as well as our current operations.

Risks Related to Consummation of the PMC Transaction

If we do not complete the proposed sale of certain assets related to our business operations to PMC-Sierra, the continued operations of our business may result in losses from operations until an alternate course of action can be implemented.    On May 8, 2010, subsequent to our fiscal year-end, we entered into an Asset Purchase Agreement with PMC-Sierra for the sale of certain of our assets related to our business operations. Assuming satisfaction of the closing conditions contained in the Asset Purchase Agreement with PMC-Sierra, we anticipate consummating this transaction in June 2010. Until the consummation of the PMC Transaction, we intend to continue operating our business, subject to the consent of PMC-Sierra as required in certain circumstances pursuant to the Asset Purchase Agreement. This includes seeking growth opportunities beyond those presented by our existing product lines by entering into strategic alliances or partnerships to grow our business and increase our operating performance; however, we may not succeed in these efforts. The Asset Purchase Agreement with PMC–Sierra places a requirement of PMC-Sierra consent in certain specific circumstances with respect to our ability to operate, dispose of and maintain the assets subject to the PMC Transaction. The Asset Purchase Agreement with PMC-Sierra also includes closing conditions, which include among others (i) required regulatory approvals, (ii) absence of any law or order prohibiting closing, (iii) the absence of any change, development or event that would reasonably be expected to have a material adverse effect on the assets being purchased, (iv) certain third party consents, (v) the release of any non-excepted security interests in the assets being purchased, (vi) the absence of any proceedings which could reasonably challenge, restrain, prohibit or make illegal the PMC Transaction, (vii) the delivery of a legal opinion by our legal counsel in Delaware, (viii) the acceptance by certain employees of PMC-Sierra’s offers of employment, (ix) the accuracy of the representations and warranties of the parties, and (x) compliance by the parties with their obligations. If the PMC Transaction is not consummated, we may continue to incur operating losses until we can implement an alternate course of action, and we may also be adversely affected by negative market perceptions, which may have a material adverse effect on our financial results, including the loss of customers and employees. We may also be required to record impairment charges for our long-lived assets in the future.

If the PMC Transaction is not consummated, we will have incurred substantial costs that may adversely affect our business, financial condition and results of operations and the market price of our common stock.    We have incurred and will incur substantial transaction costs and expenses in connection with the PMC Transaction. These costs are primarily associated with the fees of our financial advisors and attorneys. Management resources may be diverted in an additional effort to consummate the PMC Transaction, and we are subject to obtaining PMC-Sierra consent in certain specific circumstances with regards to the conduct of our business prior to closing the PMC Transaction. Further, the closing of the PMC Transaction is subject to closing conditions contained in the Asset Purchase Agreement with PMC-Sierra on the conduct of our business. If the PMC Transaction is not consummated, we will have incurred significant costs for which we will have received little or no benefit. In addition, if the PMC Transaction is not consummated, we may experience negative reactions from the financial markets and our stockholders, potential investors, customers and employees. Each of these factors may also adversely affect the trading price of our common stock and our business, financial condition and results of operations.

The pending PMC Transaction may create uncertainty for our customers and employees.    While the PMC Transaction is pending, customers may delay or defer decisions to purchase our products and existing customers may experience uncertainty about our products. This may adversely affect our ability to gain new customers and retain existing customers, which could adversely affect our business, financial condition and results of operations. In addition, because of the uncertainty regarding our operations, customers may not order our products even if the PMC Transaction is not consummated. Even though we have implemented retention programs with our employees, current employees may experience uncertainty about their relationship with us, and key employees may depart because of issues relating to the uncertainty and difficulty involved in our continued operations. The loss of key employees could adversely affect our business, financial condition and results of operations.

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Risks Associated with Operations after Consummation of the PMC Transaction

If we are successful in consummating the PMC Transaction, our operating results and financial condition may be impacted by significant charges.    If the PMC Transaction is consummated, it is likely that we will incur significant charges, at such time. We believe our potential exposure may include, but is not limited to, the following:

Such charges, which we cannot quantify at this time, are likely to adversely impact our results of operations and financial condition.

We will likely incur significant restructuring expenses in the near future.    Subsequent to our fiscal year-end, we approved a restructuring plan to reduce our operating expenses. We expect to complete our actions by December 2010, which is primarily contingent upon the consummation of the PMC Transaction, including the expected transition services we are required to provide to PMC-Sierra. The restructuring charges to be incurred will primarily result in cash expenditures related to severance and related benefits, and to a lesser extent, exiting certain operating facilities and disposing excess assets. In an effort to continue saving operational costs subsequent to our fiscal year-end, we notified certain of our engineering employees and provided them one-time severance benefits of approximately $1.8 million, which is expected to be recorded in the first quarter of fiscal 2011, as we intend to outsource our ASIC and silicon needs. We cannot quantify the remaining impact of this restructuring plan to our Consolidated Statements of Operations at this time as the remaining restructuring actions are contingent upon the consummation of the PMC Transaction. Moreover, we could encounter delays in executing our restructuring plan, which could cause further disruption and additional unanticipated expense to our Consolidated Statements of Operations in the near future.

If the PMC Transaction is consummated, the NASDAQ Stock Market may determine that we are operating as a “public shell” and may decide to subject us to delisting proceedings or additional and more stringent continued listing criteria.    If the PMC Transaction is consummated, the NASDAQ Listings Qualification Panel may determine that after such sale we are a “public shell” company. While the NASDAQ Stock Market has no bright-line or qualitative test for determining whether a particular company is a “public shell,” the exchange has expressed the opinion that the securities of companies operating as “public shells” may be subject to market abuses or other volatile conduct that is detrimental to the interests of the investing public. The NASDAQ Stock Market has defined a public shell as a company with no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets. Should the PMC Transaction close, the NASDAQ Listing Qualifications Panel may perform a facts and circumstances analysis to determine whether they believe we are a “public shell.” Listed companies determined to be “public shells” by the NASDAQ Listings Qualification Panel may be subject to delisting proceedings or additional and more stringent continued listing criteria. If our common stock were delisted from the NASDAQ Global Market, liquidity in our shares and the trading prices of our shares could be negatively impacted.

Should the PMC Transaction be consummated and our other operating assets sold, written-off or disposed of, we may be considered a “shell company” under federal securities laws and may become subject to more stringent reporting requirements.    Under Rule 405 of the Securities Act and Exchange Act Rule 12b-2, a shell company is defined as an entity that has no or nominal operations and either (a) no or nominal assets; (b) assets consisting solely of cash and cash equivalents; or (c) assets consisting of any amount of cash and cash

equivalents and nominal other assets. Should the PMC Transaction be consummated, depending on our future activities and operations, we may be deemed a “shell company” under the federal securities laws and regulations. The Securities and Exchange Commission’s rules prohibit the use of Form S-8 for the registration of shares under equity incentive plans by a shell company and require a shell company to file a Form 8-K to report the same type of information that would be required if it were filing to register a class of securities under the Exchange Act whenever the shell company is reporting the event that caused it to cease being a shell company. Being a shell company may adversely impact our ability to offer our stock to officers, directors and consultants, and thereby make it more difficult to attract and retain qualified individuals to perform services for us, and will likely increase the costs of registration compliance following the completion of a business combination.

If the PMC Transaction is consummated and depending on our future activities and operations, we may be deemed an investment company, which could impose on us burdensome compliance requirements and restrict our activities, which may make it difficult for us to complete future business combinations or acquisitions.    The Investment Company Act of 1940, as amended, or the Investment Company Act, requires registration, as an investment company, of companies that are engaged primarily in the business of investing, reinvesting, owning, holding or trading securities. Generally, companies may be deemed investment companies under the Investment Company Act if they are viewed as engaging in the business of investing in securities or they own investment securities having a value exceeding 40% of certain assets. After the consummation of the PMC Transaction and depending on our future activities and operations, we may become subject to the Investment Company Act. While Rule 3a-2 of the Investment Company Act provides an exemption that allows companies that may be deemed investment companies but that have a bona fide intent to engage primarily in a business other than that of investing in securities up to one year to engage in such other business activity, we may not qualify for this or any other exemption under the Investment Company Act. If we are deemed to be an investment company under the Investment Company Act, we may be subject to certain restrictions that may make it difficult for us to complete a business combination, including:

In addition, we may have imposed upon us burdensome requirements, including:

If we become subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional costs and expenses. There can be no assurance that we will not be deemed to be an investment company, as defined under Sections 3(a)(1)(A) and (C) of the Investment Company Act or that we will qualify for the exemption under Rule 3a-2 of the Investment Company Act.

If the carrying value of our long-lived assets is not recoverable, an impairment loss must be recognized which would adversely affect our financial results.    Certain events or changes in circumstances would require us to assess the recoverability of the carrying value amount of our long-lived assets. With the announcement made by us in December 2009 that we initiated a process to pursue the potential sale or disposition of certain of our assets or business operations, we evaluated our long-lived assets to determine whether the carrying value would be recoverable. As we continued through this sale process on certain of our assets or business operations in the fourth quarter of fiscal 2010, we reevaluated the recoverability of our long-lived assets’ carrying value at March 31, 2010. Based on our analysis, our long-lived assets were not considered impaired in either the third or fourth quarters of fiscal 2010 as the sum of the expected undiscounted future cash flows exceeded the carrying value of our long-lived assets of $ $27.4 million at March 31, 2010. However, if the PMC Transaction is consummated, the carrying value of our remaining long-lived assets may not be recoverable in the future whether or not we decide to continue our efforts in the sale of the Aristos products or wind down or dispose of the Aristos products. As a result, if certain events or changes in circumstances arise, we may be required to record

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impairment charges for our long-lived assets in future periods or shorten the remaining useful life of our long-lived assets, which would require us to record higher amortization or depreciation expense in future periods.

If our common stock becomes subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.    Our common stock may become a “penny stock” pursuant to Rule 3a51-1 of the Exchange Act. Broker-dealer practices in connection with transactions in penny stocks are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are defined as equity securities with a price of less than $5.00 per share, with certain exemptions. The penny stock rules require a broker-dealer, prior to purchase or sale of a penny stock not otherwise exempt from the rules, to deliver to the customer a standardized risk disclosure document that provides information about penny stocks and the risks associated with the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer account. In addition, the penny stock rules generally require that, prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market of a stock that becomes subject to the penny stock rules.

If the PMC Transaction is consummated, failure to successfully identify and enter into a new line of business or identify possible acquisition candidates could cause our stock price to decline.    If the PMC Transaction is consummated, we expect to pursue actively a new line of business operations and to explore all strategic alternatives to maximize stockholder value going forward, including deploying the proceeds of the PMC Transaction and our other assets in seeking business acquisition opportunities and other actions to redeploy our capital, while we manage our remaining operations. In relation to pursuing such strategic alternatives and new business acquisition opportunities, our stock price may decline due to any or all of the following potential occurrences:

There can be no assurance that we will be able to identify suitable acquisition candidates or business and investment opportunities once the PMC Transaction is consummated.    We have incurred recurring operating losses related to our operations since 2001 (other than during 2004). If the PMC Transaction is consummated, we intend to explore strategic alternatives and identify new business acquisition opportunities in which we may utilize our NOLs. There is no guarantee that we will be able to identify such new business acquisition opportunities or strategic alternatives in which we may redeploy our assets and the proceeds of the PMC Transaction. If we are unable to identify new business opportunities or acquire suitable acquisition candidate(s), we may continue to incur operating losses and negative cash flows, and our results of operations and stock price may suffer.

Following the consummation of the PMC Transaction, our stockholders may be subject to the broad discretion of management.    Should the PMC Transaction be consummated, we will have limited operating assets, and our business strategy will involve identifying new business and investment opportunities. Our stockholders may not have an opportunity to evaluate the specific merits or risks of any such proposed transactions or investments. As a result, our stockholders may be dependent on the broad discretion and judgment

of management in connection with the application of our capital and the selection of acquisition or investment targets. There can be no assurance that determinations ultimately made by us will permit us to achieve profitable operations.

There may be risks associated with acquisitions and investments pursued after consummation of the PMC Transaction, including our decisions to sell, write-off or dispose of our remaining operating assets.    As part of our business strategy following consummation of the PMC Transaction, we may evaluate new acquisition and investment opportunities. Acquisitions involve numerous risks, including difficulties in the assimilation of the operations and products or services of the acquired companies, the expenses incurred in connection with the acquisition and subsequent integration of operations and products or services and the potential loss of key employees of the acquired company. There can be no assurance that we will successfully identify, complete or integrate any future acquisitions or investments or that completed acquisitions or investments will contribute favorably to our operations and future financial condition. In addition, we may be subject to certain risks and liabilities depending on our continued efforts to sell our Aristos products or other current operating assets or wind-down or dispose of our Aristos products or other current operating assets, including requirements under existing contracts with customers for our Aristos products, and possible disposition of our non-core patent portfolio and remaining real estate assets. There can be no assurance that we will be able to successfully wind-down or dispose of our Aristos products and fulfill all of our contractual obligations with customers of such products by September 2010, or successfully dispose of or redeploy our non-core patent portfolio and remaining real estate assets, which may result in an adverse effect on our financial condition and stock price.

We will incur significant costs in connection with our evaluation of new business opportunities and suitable acquisition candidates.    If the PMC Transaction is consummated, our management intends to identify, analyze and evaluate potential new business opportunities, including possible acquisition and merger candidates. We will incur significant costs, such as due diligence and legal and other professional fees and expenses, as part of these efforts. Notwithstanding these efforts and expenditures, we cannot give any assurance that we will identify an appropriate new business opportunity, or any acquisition opportunity, in the near term, or at all.

We will likely have no operating history in our new line of business, which is yet to be determined, and therefore we will be subject to the risks inherent in establishing a new business.    We have not identified what our new line or lines of business will be and, therefore, we cannot fully describe the specific risks presented by such business. It is likely that we will have had no operating history in the new line of business, and it is possible that any company we may acquire will have a limited operating history in its business. Accordingly, there can be no assurance that our future operations will generate operating or net income, and as such our success will be subject to the risks, expenses, problems and delays inherent in establishing a new line of business for us. The ultimate success of such new business cannot be assured.

We may be unable to realize the benefits of our NOLs.    NOLs may be carried forward to offset federal and state taxable income in future years and eliminate income taxes otherwise payable on such taxable income, subject to certain limits and adjustments. Based on current income tax rates, our NOLs and other carry-forwards could provide a benefit to us, if fully utilized, of significant future tax savings. However, our ability to use these tax benefits in future years will depend upon our ability to comply with the rules relating to the use of NOLs and the amount of our otherwise taxable income. If we do not have sufficient taxable income in future years to use the tax benefits before they expire, we will lose the benefit of these NOLs permanently. Consequently, our ability to use the tax benefits associated with our NOLs will depend significantly on our success in identifying suitable new business opportunities and acquisition candidates that maximize our NOLs, and once identified, successfully becoming established in this new business line or consummating such an acquisition.

Additionally, if we underwent an ownership change, the NOLs would be subject to an annual limit on the amount of the taxable income that may be offset by our NOLs generated prior to the ownership change. If an ownership change were to occur, we may be unable to use a significant portion of our NOLs to offset taxable income.

The amount of NOLs that we have claimed has not been audited or otherwise validated by the U.S. Internal Revenue Service, or the IRS. The IRS could challenge our calculation of the amount of our NOLs, and our

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determinations as to when a prior change in ownership occurred, and other provisions of the Internal Revenue Code, may limit our ability to carry forward our NOLs to offset taxable income in future years. If the IRS was successful with respect to any such challenge, the potential tax benefit of the NOLs to us could be substantially reduced.

We may issue a substantial amount of our common stock in the future which could cause dilution to our stockholders and otherwise adversely affect our stock price.    A key element of our business strategy will be to make acquisitions. While we may make acquisition(s) in whole or in part with cash, as part of such strategy, we may issue additional shares of common stock as consideration for such acquisitions. These issuances could be significant. To the extent that we make acquisitions and issue our shares of common stock as consideration, our existing stockholders’ equity interest may be diluted. Any such issuance will also increase the number of outstanding shares of common stock that will be eligible for sale in the future. Persons receiving shares of our common stock in connection with these acquisitions may be more likely to sell off their common stock, which may influence the price of our common stock. In addition, the potential issuance of additional shares in connection with anticipated acquisitions could lessen demand for our common stock and result in a lower price than might otherwise be obtained. We may issue common stock in the future for other purposes as well, including in connection with financings, for compensation purposes, in connection with strategic transactions or for other purposes.

We may face litigation from stockholders related to the consummation of the PMC Transaction.    With respect to the PMC Transaction, we may be subject to purported class action or derivative complaints that may be filed against us. The outcome of this potential future litigation is difficult to predict and quantify and the defense of such claims or actions can be costly. Such potential litigation would divert financial and management resources and result in general business disruption, regardless of whether the allegations are valid or whether we are ultimately held liable. A temporary or permanent injunction could delay or prevent completion of the PMC Transaction and such delay or failure could adversely affect us and cause adverse effects in our results of operations, cash flows and financial condition.

Risk Factors Related to Operations Should the PMC Transaction not be Consummated

As our revenue base continues to decline from our current operations, we may choose to exit or divest some or all of our current operations to focus on new opportunities.    Should the PMC Transaction not be consummated, our management team will continue to review and evaluate our product portfolio, operating structure, and markets to determine the future viability of our existing products and market positions, including any possible alternative transaction(s), and the possible future divestiture in an alternate transaction of certain of our assets or business operations, should it be determined that the infrastructure and expenses necessary to sustain our existing business or product offerings are greater than the potential contribution margin that will be obtainable in the future. As a result, we may determine that it is in our best interest to continue to explore transactions in which we seek to sell, exit or divest such business or product offering. For example, subsequent to our fiscal year-end, as previously announced, we continue to consider our options related to our Aristos products, which includes an effort to sell, wind-down or dispose of these products. There can be no assurance that we will be able to successfully wind-down or dispose of our products and technology obtained from our acquisition of Aristos and fulfill all of our contractual obligations with customers of such products, which may result in an adverse effect on our financial condition and results of operations. Should the PMC Transaction not be consummated and the sale or disposition process were continued, such process may create uncertainty in the marketplace with our customers and our suppliers, which could result in the following:

In the past, we have depended on a small number of large OEM customers for a significant portion of our revenues, and we may not be successful in obtaining new OEM designs wins, which may prevent us from sustaining or growing our revenues from OEM customers.We have evaluated the OEM portion of our business, and, should the PMC Transaction not be consummated, we are likely to focus many of our efforts on our channel business opportunities and selectively or opportunistically pursue future business from OEM customers with our current product portfolio, as we believe the future growth opportunities with OEMs for most of our current products are limited. While we gained some new OEM business and opportunities for products containing unified serial technologies as a result of the Aristos acquisition that have resulted in sales, we believe such sales are unlikely to offset the decline in OEM sales from our legacy products in the future as we continue to consider our options to sell, exit or divest our Aristos products.

We depend on a few key customers and the loss of any of them could significantly reduce our net revenues.    Historically, a small number of our customers have accounted for a significant portion of our net revenues. For example, in fiscal 2010, IBM, Bell Microproducts and Ingram Micro accounted for 17%, 16% and 15% of our total net revenues, respectively, and in fiscal years 2009 and 2008, IBM accounted for 36% and 40% of our total net revenues, respectively. We believe that our major customers continually evaluate whether or not to purchase products from alternate or additional sources. Additionally, our customers’ economic and market conditions frequently change, and many of our customers may be negatively impacted by the current global economic turmoil. Accordingly, we cannot assure you that one or more of our major customers will not reduce, delay or eliminate its purchases from us, which would likely cause our revenues to decline further. Our current customers may also reduce or eliminate their purchases from us due to the uncertainty of our future operations. While we have gained some new OEM business and opportunities for products containing unified serial technologies as a result of the Aristos acquisition that have resulted in sales, such sales are unlikely to offset the decline in OEM sales from our legacy products in the future; therefore, we will currently be increasingly dependent on our channel products and customers for future revenue growth. This is particularly critical because our sales are made by means of standard purchase orders rather than long-term contracts. As a result, we cannot assure you that our few key customers will continue to purchase quantities of our products at current levels, or at all.

If our design wins do not result in significant sales, our revenues will continue to decline.    A “design win” occurs when a customer or prospective customer notifies us that our product has been selected to be integrated within its product. The success that we ultimately experience from a design win is largely a factor of the success of the customer’s product into which our product has been integrated. We have virtually no control over, and sometimes have very little visibility, as to the success of our customer’s products, which is dependent upon a number of factors including current market conditions. If our design wins do not result in significant sales, our revenues will continue to decline which could adversely affect our business.

Our operations depend on the efforts of our workforce, particularly our executives, principal engineers and other key employees, the loss of whom could affect the growth and success of our business.    To be successful, we must retain and motivate our executives, our principal engineers and other key employees, including those in managerial, technical, marketing and information technology support positions. In particular, our product generation efforts depend on hiring and retaining qualified engineers. Competition for experienced management, technical, marketing and support personnel such as these remains intense. We must also continue to motivate all of our other employees and keep them focused on our strategies and goals, which may be particularly difficult due to morale challenges posed by the uncertainty of our future operations and their future employment with us. Each of our employees is an “at-will” employee, and, as a result, any of our employees could terminate their employment with us at any time without penalty. Due to the general uncertainty regarding the outlook of our company, we have implemented a retention plan in an effort to retain some of our key

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employees. The loss of any of our key employees as well as a high level of attrition from all our other employees could have a significant impact on our operations. In addition, should the PMC Transaction be consummated, we will be required to fulfill certain transition services to PMC-Sierra, and the loss of any of our employees that are key to such transition activities could have an adverse effect on, and increase the cost of, providing these transition services.

If we do not meet our expense reduction and cost containment goals, we may have to continue to implement additional restructuring plans to reduce our operating costs. This may cause us to incur additional material restructuring charges and result in adverse effects on our employee capacities.    We implemented several restructuring plans and recorded related restructuring charges of $1.6 million, $6.1 million and $6.3 million in fiscal years 2010, 2009 and 2008, respectively. These restructuring plans primarily involved the reduction of our workforce and the closure of certain facilities. The goals of our restructuring plans that were implemented were to bring our operational expenses to appropriate levels relative to our net revenues, while simultaneously implementing extensive company-wide expense-control programs. Subsequent to our fiscal year-end, we approved a restructuring plan to reduce our operating expenses. We expect to complete our actions by December 2010, which is primarily contingent upon the consummation of the PMC Transaction, including the expected transition services we are required to provide to PMC-Sierra. The restructuring charges to be incurred will primarily result in cash expenditures related to severance and related benefits, and to a lesser extent, exiting certain operating facilities and disposing excess assets. In an effort to continue saving operational costs subsequent to our fiscal year-end, we notified certain of our engineering employees and provided them one-time severance benefits of approximately $1.8 million, which is expected to be recorded in the first quarter of fiscal 2011, as we intend to outsource our ASIC and silicon needs. We cannot quantify the remaining impact of this restructuring plan to our Consolidated Statements of Operations at this time as the remaining restructuring actions are contingent upon the consummation of the PMC Transaction. Moreover, we could encounter delays in executing our restructuring plan, which could cause further disruption and additional unanticipated expense to our Consolidated Statements of Operations in the near future. Further, our restructuring plan could result in a potential adverse effect on employee capabilities that could harm our efficiency and our ability to act quickly and effectively.

Our operating results may be adversely affected by unfavorable economic and market conditions and the uncertain geopolitical environment.Economic conditions have deteriorated significantly in the past in many of the countries and regions in which we do business and may be depressed for the foreseeable future. Global economic conditions have also been challenged by worldwide liquidity and credit concerns and the related effects on economies around the world. While the liquidity crisis has passed and we have seen some improvement in global economic conditions, any adverse global economic conditions in our markets that may occur in the future would likely negatively impact our business, which could result in:

If the global economic crisis causes demand in the server and network storage markets to decline, demand for our products would also likely be negatively affected. Some of the factors that could influence demand in the server and network storage markets include continuing increases in fuel and other energy costs, labor costs, access to credit, consumer confidence and other macroeconomic factors affecting corporate spending behavior. It is difficult to predict future server sales growth, if any. If global economic conditions remain uncertain or deteriorate further, we may experience material adverse impacts on our business, operating results and financial condition.

We may sustain losses in our investment portfolio due to adverse changes in the global credit markets.    Global economic conditions have been challenged in the past by slowing growth and the sub-prime debt devaluation crisis, causing worldwide liquidity and credit concerns. While the liquidity and credit concerns have passed and we have seen some improvement in global economic conditions, any adverse change in global economic conditions may adversely impact our financial results. A substantial portion of our assets consists of investments in marketable securities that we hold as available-for-sale and mark to market. While there has been a decline in the trading values of certain of the securities in which we have invested, we have not recognized a material loss on our securities as the unrealized losses incurred were not deemed to be other-than-temporary. We expect to realize the full value of all our marketable securities upon maturity or sale, as we have the intent and ability to hold the securities until the full value is realized. However, we cannot provide any assurance that our invested cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require us to record an impairment charge that could adversely impact our financial results.

If our customers or financial institutions that maintain our cash, cash equivalents and marketable securities, experience financial difficulties, which is more likely in the current weakened state of the economy, our revenues, operating results or cash balances may be adversely impacted.    We do not carry credit insurance on our accounts receivables and any difficulty in collecting outstanding amounts due from our customers, particularly customers that place larger orders or experience financial difficulties, could adversely affect our revenues and our operating results. In addition, we maintain our cash, cash equivalents and marketable securities with certain financial institutions in which our balances exceed the limits that are insured by the Federal Deposit Insurance Corporation. If the underlying financial institutions fail or other adverse conditions occur in the financial markets, our cash balances may be impacted.

We depend on contract manufacturers and subcontractors, and if they fail to meet our manufacturing needs, it could delay shipments of our products and result in the loss of customers or revenues and increased manufacturing costs, which would have an adverse effect on our results.    We rely on contract manufacturers for manufacturing our products and subcontractors for the assembly and packaging of the integrated circuits included in our products. In February 2009, we entered into a three-year manufacturing agreement with Sanmina-SCI to manufacture a majority of our products. However, this three-year strategic manufacturing agreement with Sanmina-SCI will be transferred to PMC-Sierra assuming the PMC Transaction is consummated. We must work closely with Sanmina-SCI to ensure that products are delivered on a timely basis. In addition, we must ensure that Sanmina-SCI continues to provide quality products. However, with our intent to pursue the potential sale or disposition regarding certain of our assets or our business operations, we may encounter difficulties in obtaining products and/or services in a timely manner for competitive prices from our suppliers. If Sanmina-SCI is unwilling or unable to meet our supply needs, as was the case in the earlier stages of our contract with them, including timely delivery and adherence to standard quality, we could lose customers or revenues and incur increased manufacturing costs, which would have an adverse effect on our operating results.

Due to the nature of this relationship, and the continuous changes in the prices of components and parts, we are in ongoing negotiations with Sanmina-SCI concerning product pricing. Any adverse outcome of future negotiations concerning product pricing could adversely impact our gross margins. We have no long-term agreements with our assembly and packaging subcontractors. We also employ Amkor Technology and Advanced Semiconductor Engineering to final assemble and test operations related to our ASIC products. We cannot assure you that these subcontractors will continue to be able and willing to meet our requirements. Any significant disruption in supplies from or degradation in the quality of components or services supplied by these contract manufacturers and subcontractors could delay shipments and result in the loss of customers or revenues, which could have an adverse effect on our operating results.

The impact of industry technology transitions and market acceptance of our new products may cause our revenues to continue to decline.    We have experienced a significant decline in our revenues as the industry continues to transition from parallel to serial connectivity, as the revenues we generate from sales of our serial products has not grown at a fast enough rate to offset declines in sales of our parallel products. We expect this trend to continue in future periods. In addition, products that we may develop may not gain sufficient market

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acceptance to offset the decline in revenues from certain of our existing products or otherwise contribute significantly to revenues. These factors, individually or in the aggregate, could cause our revenues to continue to decline.

Our dependence on new products may cause our net revenues to fluctuate or decline.    If the PMC Transaction is not consummated, our future success may depend upon our completing and introducing enhanced and new products at competitive prices and performance levels in a timely manner. The success of new product introductions depends on several factors, including the following:

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

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

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

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

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

To be competitive, our current products must be enhanced and improved on a timely basis to keep pace with market demands. If we do not do so, or if our competition is more effective in developing products that meet the needs of our existing and potential customers, we may lose market share and not participate in the future growth of our target markets. Revenues for our SATA products sold to our OEM customers have declined and we expect these revenues to continue to decline, as our products are at the end of their life cycles and certain of our customers have moved to other suppliers to obtain next generation SATA technologies. We also expect a negative impact on our net revenues from a decline in sales of our serial legacy products sold to OEMs in future quarters as IBM notified us in the second quarter of fiscal 2008 that we did not receive design wins for their new serial products.

Our future revenue growth remains largely dependent on the success of our new products addressing unified serial technologies and growing our market share in the channel, and our future operating results will be influenced by our ability to participate in the development of the network storage market in which we face intense competition from other companies that are also focusing on networked storage products. In June 2009, we launched a new product in the unified serial RAID controller family, Series 5Z, which leverages solid state technology to eliminate the need to monitor battery charge levels or shut down servers for battery replacement. If we experience an incremental decline in our revenues beyond the declines anticipated, and we are unable to effectively manage our inventory levels, we may be required to record additional inventory-related charges, which would adversely impact our gross margins.

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

We depend on the efforts of our distributors, which if reduced, could result in a loss of sales of our products in favor of competitive offerings.    We derived approximately 65% of our total net revenues for fiscal 2010 from independent distributor and reseller channels. Our financial results could be adversely affected if our relationships with these distributors or resellers were to deteriorate or if the financial condition of these distributors or resellers were to decline. We continue to monitor and evaluate our distributors and may terminate distributor relationships to improve our product placement or improve distribution channels; however, the termination of a distributor may adversely affect our financial results in the short term.

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

We currently purchase all of the finished production silicon wafers, chips and other key components used in our products from suppliers, and if they fail to meet our manufacturing needs, it would delay our production and product shipments to customers and negatively affect our operations.    Independent foundries manufacture to our specifications all of the finished silicon wafers and chips used for our products. We currently

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purchase finished production silicon wafers used in our products from Taiwan Semiconductor Manufacturing Company, or TSMC, and purchase finished production chips from LSI Corporation. In addition, we purchase some of our key components used in our products from sole-source suppliers. The manufacture of semiconductor devices and other components are sensitive to a wide variety of factors, including the following:

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

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

If we fail to adequately forecast demand for our products, we may incur excess product inventory costs and our financial results will be adversely affected.As the sales of our products are completed through standard purchase orders rather than long-term contracts, we provide our contract manufacturer forecasts based on anticipated future demand from our customers. To the extent that our customers’ demands fall below their initial forecasts and we are unable to sell the product to another customer, and because our purchase commitment lead time to manufacture products with our contract manufacturer is longer than the lead time for a customer to cancel or reschedule an order, we may be exposed to excess product inventory costs and our financial results will be adversely affected.

Our operating results have fluctuated in the past, and are likely to continue to fluctuate, and if our future results are below the expectations of investors or securities analysts, the market price of our common stock would likely decline significantly.Our quarterly operating results have fluctuated in the past, and are likely to vary significantly in the future, based on a number of factors related to our industry and the markets for our products. Factors that are likely to cause our operating results to fluctuate include those discussed in this Risk

Factors section. For example, in fiscal 2009, our operating results were materially impacted by unusual charges, such as a goodwill impairment charge of $16.9 million.

Our operating expenses are largely based on anticipated revenues, and a large portion of our expenses, including facility costs and salaries, are fixed in the short term. As a result, lower than anticipated revenues for any reason could cause significant variations in our operating results from quarter to quarter.

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

We may be subject to a higher effective tax rate that could negatively affect our results of operations and financial position.    We are subject to income and other taxes in the United States and in the foreign taxing jurisdictions in which we operate. The determination of our worldwide provision for income taxes and current and deferred tax assets and liabilities requires judgment and estimation and is subject to audit and redetermination by the taxing authorities. Although we believe our tax estimates are reasonable, the following factors could cause our effective tax rate to be materially different than tax amounts recorded in our Consolidated Financial Statements:

The factors noted above may cause a higher effective tax rate that could materially affect our income tax provision, results of operations or cash flows in the period or periods for which such determination is made.

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

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

We are subject to various environmental laws and regulations that could impose substantial costs upon us and may adversely affect our business.    We may from time to time be subject to various state, federal, and international laws and regulations governing the environment, including laws regulating the manufacture and distribution of chemical substances and laws restricting the presence of certain substances in electronics products. Although not currently mandated by any laws and regulations, we experienced a delay in sales from some of our customers that required halogen-free products, which eliminated the use of environmentally sensitive materials, including certain “salt-formers.” If our products become non-compliant with the various environmental laws and regulations or no longer meet our customer specification for environmental products, we may suffer a loss of revenues, be unable to sell affected products in certain markets or countries and be at a competitive disadvantage. We could also incur substantial costs to comply our products to meet the environmental needs of our customers, laws and regulations, which could negatively affect our results of operations and financial position.

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

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

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

To execute our strategies, we may enter into strategic alliances with, or partner with companies with complementary or strategic products or technologies or make other structural changes to our business. Costs associated with these strategic alliances or partnerships may adversely affect our results of operations. This impact could be exacerbated if we are unable to integrate the products or technologies.    We may pursue strategic transactions or partnerships to scale our business as sales of our core parallel products continue to decline. These may include both strengthening our partnerships in silicon-based technology and broadening our silicon-based intellectual property to improve our business opportunities. To be successful in any strategic alliances or partnerships that we may enter into or make, we must:

The benefits of any strategic alliances or partnerships may prove to be less than anticipated and may not outweigh the costs reported in our financial statements, and we may not obtain the operational leverage or realize the improvements we intend or desire with the actions we take.

Completing any potential future strategic alliances or partnerships could cause significant diversions of management time and resources and divert focus from the activities of our current operations. In addition, we may be required to invest significant resources to perform under a strategic alliance or partnership, which could adversely affect our results of operations, at least in the short-term, even if we believe the strategic alliance or partnership will benefit us in the long-term.

If we are not successful in completing strategic alliances or partnerships with companies with complementary or strategic products or technologies, our future growth may be hindered.    To scale our operations relative to our cost basis, we may need to identify attractive strategic alliance or partnership candidates and complete a transaction with them. If we fail to identify and complete successful strategic alliances or partnerships, we expect that our revenues will continue to decline and we may be at a competitive disadvantage or we may be adversely affected by negative market perceptions, any of which may have a material adverse effect on our financial results.

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

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

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revenues and operate effectively. In addition, the operations of our remote locations are subject to management oversight and control. If our business practices and corporate controls are not adhered to worldwide, our business and financial results could be adversely affected.

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

If actual results or events differ materially from those contemplated by us in making estimates and assumptions, our reported financial condition and results of operations for future periods could be materially affected.    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. For example, we have identified key accounting estimates in our Critical Accounting Policies included in “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K, which include revenue recognition, cash, cash equivalents and marketable securities valuation, inventory, impairment of long-lived assets, stock-based compensation and income taxes. Furthermore, Note 1 to the Consolidated Financial Statements included in “Item 8: Financial Statements and Supplementary Data” of this Annual Report on Form 10-K describes the significant accounting policies essential to preparing our Consolidated Financial Statements. The preparation of these financial statements requires estimates and assumptions that affect the reported amounts and disclosures. Although we believe that our judgments and estimates are appropriate and correct, actual future results may differ materially from our estimates.

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

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

Third parties may assert infringement claims against us, which may be expensive to defend and could divert our resources.    From time to time, third parties assert exclusive patent, copyright and other intellectual property rights to our key technologies, and we expect to continue to receive such claims in the future. The risks of receiving additional claims from third parties may be increased in periods when we begin to offer product lines employing new technologies relative to our existing products.

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

We may be required to pay additional income taxes which could negatively affect our results of operations and financial position.    Our tax provision continues to reflect judgment and estimation regarding components of the settlement such as interest calculations and the application of the settlements to foreign, state and local taxing jurisdictions. Although we believe our tax estimates are reasonable, the ultimate tax outcome may materially differ from the tax amounts recorded in our Consolidated Financial Statements and may cause a higher effective tax rate that could materially affect our income tax provision, results of operations or cash flows in the period or periods for which such determination is made. In fiscal 2009, the IRS concluded its audit of our federal income tax returns for the fiscal 2004 through 2006 audit cycle. The IRS issued a No Change Report indicating no change to our tax liability; however, the IRS continues to have the ability to adjust tax attributes relating to these years in subsequent audits. We believe that we have provided sufficient tax provisions for these years and that the ultimate outcome of any future IRS audits that include the tax attributes will not have a material adverse impact on our financial position or results of operations in future periods. While the tax authorities in the foreign jurisdictions that we operate in continue to audit our tax returns for fiscal years subsequent to 1999, the potential outcome of these audits is uncertain and could result in material tax provisions or additional tax payments in future periods.

Future changes in financial accounting standards or practices or existing taxation rules or practices may cause adverse unexpected revenue fluctuations and affect our reported results of operations.    A change in accounting standards or practices or a change in existing taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements and taxation rules and varying interpretations of accounting pronouncements and taxation practices have occurred and may occur in the future.

We may be engaged in legal proceedings that could cause us to incur unforeseen expenses and could occupy a significant amount of our management’s time and attention.    From time to time we are subject to litigation or claims that could negatively affect our business operations and financial position. Such disputes could cause us to incur unforeseen expenses, could occupy a significant amount of our management’s time and attention, and could negatively affect our business operations and financial position.

We are exposed to fluctuations in foreign currency exchange rates.    Because a significant portion of our business is conducted outside the United States, we face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as business practices evolve and could have an adverse impact on our financial results and cash flows. Historically, our exposures have related to non-dollar-denominated operating expenses in Europe and Asia. We began Euro-denominated sales to our distribution customers in the European Union in the fourth quarter of fiscal 2003; however, we switched back to United States dollar-denominated sales to our distribution customers in the European Union in the fourth quarter of fiscal 2008. An increase in the value of the dollar could increase the real cost to our customers of our products in markets outside the United States where we sell in dollars, and a weakened dollar could increase the cost of local operating expenses and procurement.

We hold non-controlling interests in privately held venture funds, and if these venture funds face financial difficulties in their operations, our investments could be impaired.    We continue to hold non-controlling interest in privately held venture funds. At March 31, 2010, the carrying value of such investments aggregated $1.2 million. These investments are inherently risky because these venture funds invest in companies that may still be in the development stage or depend on third parties for financing to support their ongoing operations. In addition, the markets for the technologies or products of these companies are typically in the early stages and may never develop. If these companies do not have adequate cash funding to support their operations, or if they encounter difficulties developing their technologies or products, the venture funds’ investments in these companies may be impaired, which in turn, could result in impairment of our investment in these venture funds. For example, in fiscal 2009, the value of our non-controlling interest in privately held venture funds, declined resulting in a recorded charge of $0.4 million. The carrying value of these investments is based on quarterly statements we receive from the funds. The statements are generally received one quarter in arrears, as more timely valuations are not practical. The statements reflect the net asset value, which we use to determine the fair value for these investments, which (a) do not have a readily determinable fair value and

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(b) either have the attributes of an investment company or prepare their financial statements consistent with the measurement principles of an investment company. The assumptions we use due to lack of observable inputs may impact the fair value of these equity investments in future periods. While we have seen some improvement in global economic conditions, any adverse changes in equity investments and current market conditions may require us to record an impairment charge against all or a portion of the investments in the future. Such an action would adversely affect our financial results.

Changes in securities laws and regulations have increased and may continue to increase our costs.    Changes in the laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules promulgated by the SEC, have increased and may continue to increase our expenses as we devote resources to respond to their requirements. In particular, we incurred additional administrative expense to implement Section 404 of the Sarbanes-Oxley Act, which requires management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting.

In addition, the NASDAQ Global Market, on which our common stock is listed, has also adopted comprehensive rules and regulations relating to corporate governance. These laws, rules and regulations have increased and may continue to increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices. We also expect these developments may make it more difficult and more expensive for us to obtain director and officer liability insurance in the future, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.

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

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

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

Manmade problems such as computer viruses or terrorism may disrupt our operations and harm our operating results.    Despite our implementation of network security measures, our servers are vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems. Any such event could have an adverse effect on our business, operating results, and financial condition. In addition, the effects of war or acts of terrorism could have an adverse effect on our business, operating results, and financial condition. In addition, as a company with headquarters and significant operations located in the

United States, we may be impacted by actions against the United States. We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war.

We may experience significant fluctuations in our stock price.    Our stock has experienced substantial price volatility, particularly as a result of quarterly variations in our operating results, the published expectations of securities analysts and as a result of announcements by our competitors and us. In addition, the stock market has experienced significant price and volume fluctuations, particularly in recent months, that have affected the market price of many technology companies, in particular, and that have often been related to the extraordinary conditions in the broader macroeconomic and financial markets. These factors, either individually or in the aggregate, could result in significant variations in the price of our common stock during any given period of time.

Item 1B.Unresolved Staff Comments

Not applicable.

Item 2.Properties

As of March 31, 2010, we owned and leased various properties in the United States and in foreign countries totaling approximately 270,000 square feet, of which approximately 160,000 square feet were leased/subleased or available to lease/sublease to third parties. The building leases expire at varying dates through fiscal 2014 and include renewals at our option. During fiscal 2010, we reduced our owned and leased properties by approximately 13% from the 309,000 square feet we owned or leased at March 31, 2009. During fiscal 2009, we reduced our owned and leased properties by approximately 33% from the 462,000 square feet we owned or leased at March 31, 2008. During fiscal 2008, we reduced our owned and leased properties by approximately 34% from the 701,000 square feet we owned or leased at March 31, 2007. These consolidation efforts include having certain facilities, located in California, Minnesota, North Carolina and Washington, subleased or made available for sublease and closing or substantially downsizing operations in Florida, Bangalore, India, the United Kingdom and Ireland.

Our principal executive offices are located in Milpitas, California and include research and development, technical support, sales, marketing and administrative functions. In addition, we lease buildings in Foothill Ranch, California, and Orlando, Florida. We use these properties primarily for research and development, technical support, and sales and marketing functions. Internationally, we operate in Australia, England, Germany and Japan. We use these properties primarily for research and development, technical design, technical support, sales and administrative functions.

The table below is a summary of the facilities we owned and leased at March 31, 2010:

We operate in one segment; therefore, all of our facilities are managed at the corporate level. We believe our existing facilities and equipment are well maintained and in good operating condition, and we believe our facilities are sufficient to meet our needs for the foreseeable future. Our future facilities requirements will depend upon our business, and we believe additional space, if required, can be obtained on reasonable terms.

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As part of the PMC Transaction, PMC-Sierra has agreed to assume the obligations for certain of our leased facilities, primarily related to our international sites, if the transaction is consummated. There can be no guarantee the PMC Transaction will be consummated or that PMC-Sierra will assume such leases.

Item 3. Legal Proceedings

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

In connection with our acquisitions of Aristos, and Eurologic Systems Group Limited, or Eurologic, a portion of the respective purchase prices and other future payments totaling $4.3 million and $3.8 million, respectively, were held back, which we refer to collectively as the Holdbacks, to secure potential indemnification obligations of Aristos and Eurologic stockholders for unknown liabilities that may have existed as of each acquisition date. The Aristos Holdback of $4.3 million was paid in full in fiscal 2010. In fiscal 2009, we resolved the remaining disputed, outstanding claims against the Eurologic Holdback by entering into a deed of indemnity and a written settlement agreement with the representative of the Eurologic stockholders, which resulted in an additional payment of $1.3 million. Our initial payment of $2.3 million to the Eurologic stockholders was recorded in fiscal 2005. The remaining Eurologic Holdback balance of $0.2 million was retained by us and was recognized as a gain in fiscal 2009 in “Loss from discontinued operations, net of taxes” in the Consolidated Statements of Operations.

For an additional discussion of certain risks associated with legal proceedings, see “Item 1A: Risk Factors” of this Annual Report on Form 10-K.

Item 4.Removed and Reserved

PART II

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

Market Information for Common Stock

Our common stock is currently traded on the NASDAQ Global Market under the symbol “ADPT.” The following table sets forth the high and low sales prices of our common stock for the periods indicated as reported by the NASDAQ Global Market. The market price of our common stock has been volatile. For an additional discussion, see “Item 1A: Risk Factors” of this Annual Report on Form 10-K.

As of May 12, 2010, there were approximately 528 stockholders of record of our common stock.

Dividends

We have not declared or paid cash dividends on our common stock. However, we remain committed to providing value to all of our stockholders, which may include paying cash dividends in the future.

Issuer Purchases of Equity Securities

In July 2008, our Board of Directors authorized a stock repurchase program to purchase up to $40.0 million of our common stock. No common stock repurchases occurred during the fourth quarter of fiscal 2010. We have repurchased approximately $4.1 million in shares of our common stock in the open market through March 31, 2010. As of March 31, 2010, $35.9 million remained available for repurchase under the authorized stock repurchase program.

In the fourth quarter of fiscal 2010, we withheld less than 0.1 million shares to cover the applicable taxes, relating to the vesting of shares of restricted stock. The average price per share of the shares withheld was $3.36. The shares withheld for tax purposes are not considered common stock repurchases under our authorized plan.

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Stock Performance Graph

The following graph compares the cumulative total stockholder return of our common stock to the NASDAQ Composite Index and the NASDAQ Computer and Data Processing Index. The graph assumes that $100 was invested on March 31, 2005 and its relative performance was tracked through March 31, 2010 in our common stock and in each index, and that all dividends paid were reinvested. These indices, which reflect formulas for dividend reinvestment and weighting of individual stocks, do not necessarily reflect returns that could be achieved by an individual investor. Notwithstanding anything to the contrary set forth in any of our previous or future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 that might incorporate this Annual Report or future filings made by us under those statutes, the stock price performance graph is not considered “soliciting material,” is not deemed “filed” with the SEC and is not deemed to be incorporated by reference into any of those prior filings or into any future filings made by us under those statues.

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Item 6.Selected Financial Data

The following selected financial information has been derived from the Consolidated Financial Statements. The information set forth below is not necessarily indicative of results of future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K. We completed the sale to IBM of our IBM i/p Series RAID business in September 2005, sold the OEM block-based portion of our systems business to Sanmina-SCI and its wholly owned subsidiary, Sanmina-SCI USA, Inc. in January 2006 and sold the Snap Server NAS portion of our former SSG segment, or the Snap Server NAS business, to Overland Storage, Inc., or Overland, in June 2008. The information below has been reclassified to reflect the IBM i/p Series RAID business, the OEM block-based portion of our systems business and the Snap Server NAS business as discontinued operations.

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Notes:

The following actions affect the comparability of the data for the periods presented in the above table:

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

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section should be read in conjunction with the other sections of this Annual Report on Form 10-K, including “Item 1: Business”; “Item 6: Selected Financial Data”; and “Item 8: Financial Statements and Supplementary Data.” This section includes forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. Forward-looking statements such as “will,” “believe,” “are projected to be” and similar expressions are statements regarding future events or our future performance, and include statements regarding projected operating results. These forward-looking statements are based on current expectations, beliefs, intentions, strategies, forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks include, but are not limited to: completion of the PMC Transaction discussed elsewhere in this Annual Report on Form 10-K; the ability of our operations to maximize the value of our RAID technology business and non-core patents; our ability to deploy our capital in a manner that maximizes stockholder value; general economic conditions; revenue received from our current operations; declines in consumer spending; failure to achieve our operational objectives; ability to reduce our operating costs; support from the contract manufacturers to which we have outsourced manufacturing, assembly and packaging of our products; our ability to launch new products and potential failure of anticipated long-term benefits from new products to materialize; difficulty in forecasting the volume and timing of customer orders; reduced demand in the server, network storage and desktop computer markets; our target markets’ failure to accept, or delay in accepting, network storage and other advanced storage solutions, including our MaxIQ SSD Cache Performance Solution, SCSI, SAS, SATA and iSCSI lines of products; the performance of our products; decline in consumer acceptance of our current products; the timing and volume of orders by OEM customers for storage products; our ability to control and manage costs associated with the delivery of new products; and the adverse effects of the intense competition we face in our business. These forward-looking statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in the “Risk Factors” set forth in Part I, Item 1A of this Annual Report on Form 10-K. As a result, our actual results may differ materially from those anticipated in these forward-looking statements.

Basis of Presentation

In September 2008, we acquired Aristos, a provider of RAID technology to the data storage industry, pursuant to an agreement and plan of merger by and among Adaptec, Aristos, Ariel Acquisition Corp., a wholly owned subsidiary of ours, and TPG Ventures, L.P., solely in its capacity as the representative of stockholders of Aristos. We refer to the agreement and plan of merger with Aristos in this Annual Report on Form 10-K as the Merger Agreement. The Merger Agreement provided for our acquisition of Aristos through a merger in which Aristos became our wholly-owned subsidiary. The Aristos acquisition was accounted for as a purchase business combination and, accordingly, the results of Aristos have been included in our consolidated results of operation and financial position from the date of acquisition.

In June 2008, we sold the Snap Server NAS business to Overland. Accordingly, we reclassified the financial statements and related disclosures for all periods presented to reflect this business as discontinued operations. These reclassifications had no impact on net loss, total assets or total stockholders’ equity. Unless otherwise indicated, the following discussion pertains only to our continuing operations.

In addition, since the sale of our Snap Server NAS business in June 2008, we have operated in one segment. We currently provide data protection storage products and currently sell a broad range of our storage technologies, including ASICs, board-level I/O and RAID controllers, and software. We sell these products directly to OEMs, ODMs that supply OEMs, system integrators, VARs and end users through our network of distribution and reseller channels. We consider all of our products to be similar in nature and function.

Overview

In December 2009, we announced the retention of Blackstone Advisory Partners L.P. to serve as our exclusive financial advisor relating to a potential sale or disposition of certain of our assets or business

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operations. On May 8, 2010, subsequent to our fiscal year-end, we entered into an Asset Purchase Agreement with PMC-Sierra for the sale of certain assets and for PMC-Sierra to assume certain liabilities related to our business of providing data storage hardware and software solutions and products including ASICs, HBAs, RAID controllers, Adaptec RAID software, ARC, storage management software including ASM, option ROM BIOS, CLI, storage virtualization software, and other solutions that span SCSI, SAS, and SATA interface technologies, and that optimize the performance of both hard disk and solid state drives, for a purchase price of approximately $34 million. In this Annual Report on Form 10-K, we refer to the transactions contemplated by the Asset Purchase Agreement with PMC-Sierra as the PMC Transaction. We anticipate that the PMC Transaction will be consummated in June 2010. As we continue to proceed with certain specific and other customary closing conditions necessary to consummate the PMC Transaction, we remain committed to providing service and support for our existing customers and end-users. Whether or not the PMC Transaction is consummated, our revenues may be negatively impacted during this pre-closing period as the transaction creates uncertainty in the marketplace for our existing customers and end-users, who may be less likely to place orders with us as a result of this uncertainty.

Assuming the PMC Transaction is consummated, we intend to explore all strategic alternatives to maximize stockholder value going forward, including deploying the proceeds of the PMC Transaction and our other assets in seeking business acquisition opportunities and other actions to redeploy our capital. Additionally, we will, as previously announced, continue to consider our options related to our Aristos products, as well as our other remaining operating assets, including non-core patents and real estate holdings. With respect to our Aristos products, options that we may consider include (i) ceasing to invest additional funds in our Aristos products, winding-down the sale of our Aristos products and fulfilling our remaining contractual obligations with our existing customers, which we would expect to be completed in six months, or by September 2010, or (ii) seeking to sell the assets related to our Aristos products to a third party. We will also explore alternatives for maximizing the value of our non-core patent portfolio and remaining real estate assets. Following and assuming the consummation of the PMC Transaction, we remain committed to providing value to all of our stockholders and will aggressively pursue opportunities to deploy the significant cash and liquid assets on hand to create value for our stockholders, including exploring opportunities to deploy this cash and liquid assets to make acquisitions of businesses that will maximize stockholder value and/or engaging in stock buybacks and cash dividends. Going forward our business is expected to consist of capital redeployment and identification of new, profitable business operations in which we can utilize our existing working capital and maximize the use of our NOLs.

If we consummate the PMC Transaction discussed above, we may incur significant charges in the future, which charges include, but are not limited to, increased amortization or depreciation of our long-lived assets due to potential changes to the expected remaining useful lives, potential impairment of our long-lived assets, restructuring charges, acceleration of compensation expense related to unvested stock-based awards, potential cash bonus payments and potential accelerated payments of certain of our contractual obligations, which may impact our results of operations and financial condition. The aggregate of these amounts cannot be quantified at this time. Further subsequent event disclosures related to expected changes to the remaining useful lives of our long-lived assets, stock-based activity and associated compensation expense, and restructuring charges are discussed in Note 7, 9 and 11, respectively, to the Consolidated Financial Statements.

In fiscal 2010, our net revenues decreased 36% as compared to fiscal 2009 due to a decrease in revenues associated with our legacy products of $49.8 million, which included our parallel SCSI products and our serial legacy products sold primarily to OEM customers, offset by an increase in sales volumes of our newer serial products, including data center data conditioning features, of $8.7 million. We expect revenues from our parallel SCSI products and our serial legacy products sold to OEM customers to continue to decline in future quarters, regardless of whether the PMC Transaction is consummated. Our gross margin in fiscal 2010 improved to 45% compared to 43% in fiscal 2009, primarily due to improved standard product contributions due to favorable customer mixes and lower inventory-related charges, offset by our lower sales volume over which our fixed costs were distributed. Operating expenses decreased in fiscal 2010 as compared to fiscal 2009 primarily due to the impairment charge of $16.9 million to write-off goodwill in fiscal 2009, our continued cost reductions, including temporary reductions in employees’ compensation in fiscal 2010, reductions in outside service providers, and

restructuring efforts implemented in fiscal years 2010 and 2009. This was partially offset by certain employee retention obligations of $0.7 million and higher stock-based compensation expense of $2.6 million primarily due to the modification of certain stock-based awards of $1.6 million in fiscal 2010, which included modifications of $0.9 million related to the separation agreement with Subramanian Sundaresh, our former CEO, a fiscal 2010 expense related to guaranteed cash payments of $1.6 million associated with the execution of the separation and consulting service agreements with Mr. Sundaresh, professional fees of $1.2 million incurred in fiscal 2010 related to our response to the consent solicitation initiated by Steel Partners II, L.P., Steel Partners Holdings L.P., Steel Partners LLC, Steel Partners II GP LLC, Warren Lichtenstein, Jack L. Howard, and John J. Quicke, collectively referred to in this Annual Report on Form 10-K as the Steel Group, on September 4, 2009 seeking stockholder approval on three proposals relating to our bylaws and the composition of our Board of Directors and a charge recorded in fiscal 2010 for the reimbursement of $0.7 million related to professional fees that the Steel Group incurred for the consent solicitation.

Results of Operations

The following table sets forth the items in the Consolidated Statements of Operations as a percentage of net revenues:

Net Revenues.

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Net revenues decreased by $41.1 million in fiscal 2010 compared to fiscal 2009, due to a decline in sales volume of our legacy products, which primarily included our parallel SCSI products and our serial products sold to OEM customers, of $49.8 million, offset by an increase in sales volumes of our newer serial products, including data center data conditioning features, of $8.7 million.

Net revenues decreased by $30.7 million in fiscal 2009 compared to fiscal 2008, primarily due to a decline in sales volume of our parallel SCSI products of $27.5 million and an overall decline in sales volume of our serial products sold to OEM customers of $9.3 million. This was partially offset by an increase in average selling prices and sales volumes of our serial products sold to channel customers of $6.9 million, due to increased acceptance of these products.

The decline in sales volume of our parallel SCSI products was primarily attributable to the industry transition from parallel to serial products, in which we have a lower market share. The decline in sales volume of our serial legacy products sold to OEM customers was primarily attributable to the fact that certain OEM customers have moved to other suppliers to obtain the next generation serial technologies. We expect net revenues for our parallel SCSI products and our serial legacy products sold to OEM customers to continue to decline in future quarters, regardless of whether the PMC Transaction is consummated.

Geographical Revenues and Customer Concentration

Our Pacific Rim revenues decreased as a percentage of our total revenues by 6% in fiscal 2010 compared to fiscal 2009 primarily due to a decline in revenues from IBM, our largest customer, who purchased products primarily in this region. IBM revenues declined in fiscal 2010 compared to fiscal 2009, as we did not receive design wins for their current generation products. We expect our Pacific Rim revenues to decrease as a percentage of our total revenues in the future as we expect the revenues from IBM to continue to decline. Our North America revenues improved as a percentage of our total revenues by 5% in fiscal 2010 compared to fiscal 2009 primarily due to revenue declines from IBM in the Pacific Rim, combined with the recovery of macroeconomic conditions in North America.

Our North America revenues decreased as a percentage of our total revenues by 2% in fiscal 2009 compared to fiscal 2008 primarily due to a decline in product sales to our OEM customers and to our customers shifting their manufacturing locations from North America to international sites, and, to a lesser extent, increased sales and acceptance of our serial products sold to our channel customers at our international locations.

A small number of our customers account for a substantial portion of our net revenues. In fiscal 2010, IBM, Bell Microproducts and Ingram Micro accounted for 17%, 16% and 15% of our total net revenues, respectively. In fiscal 2009, IBM accounted for 36% of our total net revenues. In fiscal 2008, IBM accounted for 40% of our total net revenues.

Gross Margin.

Our gross margin is impacted by amounts recorded in cost of revenues, which primarily consists of direct product costs, manufacturing support costs, shipping and handling costs, warranty costs, inventory-related charges and amortization of acquisition-related intangible assets.

The improvement in gross margin in fiscal 2010 compared to fiscal 2009 was primarily due to improved standard product contributions due to a shift in revenue mix from OEM to channel customers, with channel customers having higher average margins and our end-to-end supply chain efficiencies, including a reduction to our inventory-related charges of $2.8 million. This was partially offset by an increase in the amortization of acquisition-related intangible assets of $1.2 million in fiscal 2010 compared to fiscal 2009 related to the purchased intangible assets for core and existing technologies and backlog from the acquisition of Aristos in September 2008. Although our fixed operating costs declined in fiscal 2010 compared to fiscal 2009, our gross margins were also impacted by these costs as they were distributed over lower sales volumes.

The improvement in gross margin in fiscal 2009 compared to fiscal 2008 was due to improved standard product contributions as a result of our end-to-end supply chain efficiencies and a reduction in our inventory-related charges of $3.8 million. In addition, the improvement in gross margins was also due to a shift in revenue mix from OEM to channel customers, with channel customers having higher average margins, and a favorable product mix in the channel. This was offset by the amortization of acquisition-related intangible assets of $2.5 million related to the purchased intangible assets for core and existing technologies and backlog from the acquisition of Aristos.

Research and Development Expense.

Research and development expenses primarily consist of salaries and related costs of employees engaged in ongoing research, design and development activities and subcontracting costs. Currently, our investment in research and development primarily focuses on developing new products for external storage, storage software and server storage markets. We also invest in research and development of new technologies, including iSCSI, SATA and SAS. A portion of our research and development expense fluctuates depending on the timing of major project costs such as prototype costs. We expect our research and development expense to decline in fiscal 2011 regardless of whether the PMC Transaction is consummated.

The increase in research and development expense in fiscal 2010 compared to fiscal 2009 was primarily due to the acquisition of the Aristos engineering team in September 2008 and the costs associated with the development of our technology to achieve new OEM design wins and to expand our channel offerings as well as engineering expenses related to certain chip design projects. We also recorded certain employee retention obligations of $0.4 million and higher stock-based compensation expense of $1.3 million primarily due to the impact from the true-up of actual forfeitures that occurred in fiscal 2009, which reduced our stock-based compensation expense during that period, and to a lesser extent, the modification of certain stock-based awards that increased stock-based compensation expense in fiscal 2010. This was partially offset by the temporary reductions in employees’ compensation, which began in the first quarter of fiscal 2010.

The decrease in research and development expense in fiscal 2009 compared to fiscal 2008 was primarily due to reduced headcount and related expenses as a result of restructuring programs implemented in fiscal 2008 and fiscal 2009, combined with additional attrition in our workforce, which was reflected by a 52% decrease in our direct headcount for employees engaged in research and development. A portion of this reduction in direct headcount includes the former employees that were transferred to HCL. The headcount reductions in research and development also resulted in lower stock-based compensation expense of $2.0 million in fiscal 2009 compared to fiscal 2008. This was partially offset by compensation expense of $0.9 million recorded in fiscal 2009, related to the management liquidation pool established for certain former employees of Aristos pursuant to the Merger Agreement. We also incurred costs with the development of our technology to achieve new OEM design wins and to expand our channel offerings.

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Selling, Marketing and Administrative Expense.

Our selling, marketing and administrative expense consists primarily of salaries, including commissions. We expect our selling, marketing and administrative expense to decline in fiscal 2011 based on the anticipated cost savings we expect to obtain from the reductions in workforce we implemented in fiscal 2010.

The decrease in selling, marketing and administrative expense in fiscal 2010 compared to fiscal 2009 was primarily a result of reductions in our workforce and infrastructure spending due to the restructuring plans we implemented in the third quarter of fiscal 2010 and in fiscal 2009, which resulted in a 30% decrease in our average headcount for employees engaged in selling, marketing and administrative functions, temporary reductions in employees’ compensation, which began in the first quarter of fiscal 2010, and reductions in outside service providers. This was partially offset by certain employee retention obligations of $0.3 million and higher stock-based compensation expense of $1.3 million primarily due to the modification of certain stock-based awards, a fiscal 2010 expense related to guaranteed cash payments of $1.6 million associated with the execution of the separation and consulting service agreements with our former CEO, professional fees of $1.2 million incurred in fiscal 2010 related to the consent solicitation initiated by the Steel Group and a charge recorded in fiscal 2010 for the reimbursement of $0.7 million related to professional fees that the Steel Group incurred with respect to the consent solicitation.

The decrease in selling, marketing and administrative expense in fiscal 2009 compared to fiscal 2008 was primarily a result of reductions in our workforce and infrastructure spending due to the restructuring plans we implemented in fiscal 2008 and fiscal 2009, which resulted in a 39% decrease in our average headcount for employees engaged in selling, marketing and administrative functions. The headcount reductions also resulted in lower stock-based compensation expense of $0.9 million in fiscal 2009 compared to fiscal 2008. This was partially offset by compensation expense of $1.1 million related to the management liquidation pool established for certain former employees of Aristos pursuant to the Merger Agreement.

Amortization of Acquisition-Related Intangible Assets.

Acquisition-related intangible assets include patents, core and existing technologies, customer relationships, trade names, and backlog. We amortize the acquisition-related intangible assets over periods which reflect the pattern in which the economic benefits of the assets are expected to be realized, which is primarily using the straight-line method over their estimated useful lives, ranging from three to sixty months. Subsequent to our fiscal year-end, as a result of the PMC Transaction and our intent to either continue to pursue the sale of the Aristos products or wind down the sale or dispose of our Aristos products within the next six months, or by September 2010, as well as our consideration of the disposition or redeployment of our remaining non-core patents and real estate assets, we are expected to change the remaining useful life of our intangible assets of $16.0 million related to our Aristos products, which in turn, we expect to change the amount amortized prospectively during each reporting period.

The increase in amortization of acquisition-related intangible assets in fiscal 2010 compared to fiscal 2009 was due to the amortization of purchased intangible assets from the Aristos acquisition in September 2008 for customer relationships of $0.5 million. The amortization of purchased intangible assets from the Aristos acquisition for the core and existing technologies and backlog were reflected in cost of revenues.

The decrease in amortization of acquisition-related intangible assets in fiscal 2009 compared to fiscal 2008 was primarily due to the fact that in the fourth quarter of fiscal 2008, we wrote off our intangible assets associated with our acquisition of Elipsan Limited, or Elipsan, due to a revision in our forecasts that resulted in expected negative long-term cash flows for these assets for the first time. This was offset by the amortization of purchased intangible assets from the Aristos acquisition for customer relationships of $0.8 million, which was recorded in fiscal 2009.

Restructuring Charges.

We implemented several restructuring plans during fiscal years 2010, 2009 and 2008. The goal of these plans was to bring our operational expenses to appropriate levels relative to our net revenues, while simultaneously implementing extensive company-wide expense-control programs.

The restructuring charges of $1.6 million recorded in fiscal 2010 primarily related to the restructuring plan implemented during the fiscal year with minimal adjustments related to prior fiscal years’ restructuring plans. Of the $6.1 million recorded in fiscal 2009, $5.9 million related to restructuring charges for plans implemented in fiscal 2009 and $0.2 million related to adjustments made for prior fiscal years’ restructuring plans due to additional lease costs for facilities previously consolidated. 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 related to adjustments made for prior fiscal years’ restructuring plans due to actual results being lower than anticipated. All expenses, including adjustments, associated with our restructuring plans are included in “Restructuring charges” in the Consolidated Statements of Operations and are managed at the corporate level. For further discussion of our restructuring plans, please refer to Note 11 to the Consolidated Financial Statements. The restructuring plans are discussed in detail below.

Fiscal 2010 Restructuring Plan

In the third quarter of fiscal 2010, we committed to a new restructuring plan to better align our operating costs with the continued decline in our net revenues, resulting in a restructuring charge of $1.6 million in fiscal 2010. We reduced our workforce primarily in the general administrative functions and provided severance and related benefits of $1.4 million. We also consolidated our facilities further and incurred a net estimated loss of $0.2 million for vacating the premises.

We began to achieve reductions in our annual operating expenses by approximately $3.1 million as a result of the actions taken in the third quarter of fiscal 2010 related to this plan. Approximately 13%, 8% and 79% of the restructuring cost savings were reflected as a reduction in cost of revenues, research and development expense, and selling, marketing and administrative expense, respectively, beginning primarily in the fourth quarter of fiscal 2010.

Fiscal 2009 Restructuring Plans

We recorded a total of $5.9 million in restructuring charges for plans implemented in fiscal 2009, of which $5.1 million related to severance and benefits for employee reductions worldwide and $0.8 million related to vacating certain facilities and disposing of duplicative assets.

In the first quarter of fiscal 2009, we approved and initiated a restructuring plan to (1) reduce our operating expenses due to a declining revenue base, (2) streamline our operations and (3) better align our resources with our strategic business objectives, resulting in a restructuring charge of $3.8 million in fiscal 2009. This restructuring plan included workforce reductions in all functions of the organization worldwide and consolidation of our facilities, which resulted in restructuring charges of $3.0 million and $0.8 million, respectively. Of the $3.8 million recorded in fiscal 2009 related to this restructuring plan, $0.3 million was recorded in the fourth

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quarter of fiscal 2009, related to accrual adjustments for the additional estimated loss on our facilities and disposing of duplicative assets.

In the third quarter of fiscal 2009, we initiated additional actions to reduce expenses as our business began to be impacted by the deterioration of macroeconomic conditions, resulting in a restructuring charge of $2.1 million in fiscal 2009 related to severance and benefits for employee reductions primarily in sales, marketing and administrative functions.

Fiscal 2008 Restructuring Plans

We recorded restructuring charges of $6.7 million for plans implemented in fiscal 2008, of which $5.4 million related to severance and benefits for employee reductions worldwide and $1.3 million related to vacating redundant facilities and contract termination costs. Additional adjustments of $0.2 million were recorded in fiscal 2009 related to plans implemented in fiscal 2008 for facility costs.

In the first quarter of fiscal 2008, we approved and initiated a plan to restructure our operations to reduce our 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, we initiated additional actions in an effort to better align cost structure with our anticipated OEM revenue stream and to improve our results of operations and cash flows, resulting in a restructuring charge of $5.2 million in fiscal 2008. This restructuring plan included workforce reductions and consolidation of our facilities, which resulted in restructuring charges of $3.9 million and $1.3 million, respectively. During fiscal 2009, we recorded adjustments to the fiscal 2008 restructuring plan accrual of $0.2 million related to the additional estimated loss on our facilities.

Previous Restructuring Plans

In addition, we recorded provision adjustments of $(0.4) million in fiscal 2008 related to our restructuring plans that were implemented prior to fiscal 2008, including our previous Acquisition-Related Restructuring Plan accrual (see Note 11 to the Consolidated Financial Statements), primarily related to the reduction of lease costs related to the estimated loss on our facilities.

Goodwill Impairment.

Goodwill is not amortized, but instead is reviewed for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. During the fourth quarter of fiscal 2009, we experienced a significant and continued decline in the market value of our common stock, which resulted in our market capitalization falling below our net book value. Based on our annual review of goodwill in the fourth quarter of fiscal 2009, we recorded an impairment charge of $16.9 million to write-off goodwill primarily due to net book value exceeding the implied fair value. For further discussion of our goodwill impairment, please refer to Note 7 to the Consolidated Financial Statements.

Other Gains, Net.

Other gains, net primarily consisted of a gain from the sale of long-lived assets, partially offset by asset impairment charges related to certain properties or assets.

Impairment of Other Intangible Assets

We performed our regular review of long-lived assets and determined that an indicator was present in fiscal 2008 in which the carrying value was not recoverable. We recorded an impairment charge of $2.2 million in fiscal 2008 to write-off intangible assets related to the Elipsan acquisition due to a revision in our forecasts that resulted in expected negative long-term cash flows for the first time, within “Other gains, net” in the Consolidated Statements of Operations. See Notes 7 and 12 to the Consolidated Financial Statements for further discussions regarding the impairment of other intangible assets.

Gain on Sale of Buildings

In fiscal 2007, we decided to consolidate our properties in Milpitas, California to better align our business needs with existing operations and to provide more efficient use of our facilities. In May 2007, we completed the sale of certain of these properties that were previously classified as held for sale, with proceeds aggregating $19.9 million, exceeding our carrying value of $12.5 million. Net of selling costs, we recorded a gain of $6.7 million on the sale of the properties in fiscal 2008 within “Other gains, net” in the Consolidated Statements of Operations.

Other

In fiscal 2008, we recorded a charge of $0.8 million related to costs incurred to evaluate strategic options. These charges were recorded within “Other gains, net” in the Consolidated Statements of Operations. See Note 12 to the Consolidated Financial Statements for further details.

Interest and Other Income, Net.

Interest income reflects interest earned on our cash, cash equivalents and marketable securities’ balances and realized gains and losses on marketable securities. Other income, net, is primarily attributable to realized gains on marketable equity securities and investments, gains from the repurchase of certain portions of our 3/4% Notes, and fluctuations in foreign currency gains or losses, and to a lesser extent, includes recorded changes in values not deemed to be other-than-temporary on non-controlling interest on certain investments as well as gains and losses on the dispositions of property and equipment. We expect that our interest and other income, net, will continue to decline in future periods primarily due to lower interest rates earned on our cash, cash equivalents and marketable securities’ balances.

The decrease in interest and other income, net, in fiscal 2010 compared to fiscal 2009 was primarily due to a decrease in interest earned on lower average cash balances as we used cash for the repurchase of certain portions of our 3/4% Notes and for the acquisition of Aristos in fiscal 2009, combined with lower interest rates. This was

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partially offset by the receipt of $0.9 million from Micron Technology, Inc. as part of a class action settlement regarding DRAM antitrust matters and a gain of $0.4 million from the sale of an investment in a non-controlling interest of a non-public company.

The decrease in interest and other income, net, in fiscal 2009 compared to fiscal 2008 was primarily due to lower interest rates combined with interest earned on lower average cash balances. In addition, in fiscal 2009, we experienced realized losses on our foreign currency transactions as compared to realized gains in fiscal 2008 due to a weaker Euro and Pound compared to United States Dollar, which was applied to our foreign currency entities. This was partially offset by a recorded gain, net of selling costs, of $2.3 million on the sale of marketable equity securities of a publicly traded company, and a gain on extinguishment of debt of $1.7 million (net of unamortized debt issuance costs) on the repurchase of our 3/4% Notes on the open market in fiscal 2009.

Interest Expense.

Interest expense is primarily associated with our 3/4% Notes issued in December 2003. The decrease in interest expense in fiscal 2010 compared to fiscal 2009 and fiscal 2009 compared to fiscal 2008 were primarily due to the reduction in the outstanding principal amount plus premium of the 3/4% Notes of $225.0 million, which was paid throughout fiscal 2009. We have repurchased all but $0.3 million of our 3/4% Notes as of March 31, 2010 and will not incur significant interest expense from these notes in future periods.

Benefit From (Provision For) Income Taxes.

For fiscal years 2010 and 2009, we recorded income tax benefits of $2.5 million and $2.6 million on pre-tax losses from continuing operations of $21.1 million and $16.6 million, respectively. For fiscal 2008, we recorded an income tax provision of $25,000 on a pre-tax loss from continuing operations of $5.3 million. Our effective tax rates include foreign losses in jurisdictions where no tax benefit is derived, foreign taxes in jurisdictions where tax rates differ from U.S. tax rates, changes in the valuation allowance on deferred tax assets, certain state minimum taxes, discrete tax benefits associated with settling certain tax disputes primarily with the United States, Singapore and German taxing authorities, releases of our Irish withholding taxes, and included changes in judgment related to uncertain tax positions in both the United States and foreign jurisdictions based on new information received and new uncertain tax positions that were identified. Interest is accrued on prior years’ tax disputes and refund claims as a discrete item each period.

In fiscal 2010, our tax benefit included discrete tax benefits of $1.3 million related to additional tax refunds that became available to us during fiscal 2010 due to the enactment of the Worker, Homeownership and Business Act of 2009, which allowed for an extension of the net operating loss carryback period from two to five years for United States federal tax purposes. We also recorded discrete tax benefits of $4.4 million in fiscal 2010 primarily due to reaching final settlement with the German Tax Authorities for fiscal years 2001 through 2004 and the Singapore Tax Authorities for fiscal year 2001, reflecting the reversal of previously accrued liabilities and refunded tax amounts. This was partially offset by discrete tax expense of $3.6 million in fiscal 2010 primarily due to the on-going audits in our foreign jurisdictions.

In fiscal 2009, we recorded a net tax benefit of $1.4 million, which included the reversal of previously accrued liabilities related to reaching final settlement with the Singapore Tax Authorities for fiscal years 1998 through 2000 and the lapsing of the statute of limitations on a pre-acquisition tax issue related to Eurologic. This was offset by

changes in judgment related to on-going audits in our foreign jurisdictions and new foreign tax issues that were identified, which included our tax exposures that pre-date our acquisition of ICP vortex Computersysteme GmbH, or ICP vortex, resulting in increases in our liabilities for uncertain tax positions. Changes to the liabilities for uncertain tax benefits related to the Eurologic and ICP vortex items were recorded as part of the tax provision as opposed to adjusting amounts to purchase accounting as no goodwill or related intangible assets existed at March 31, 2009, due to impairments or the full amortization of intangible assets in previous fiscal years. In fiscal 2009, we also recorded a favorable tax impact due from the state of California, including accrued and unpaid interest, of approximately $1.6 million due to notices received from the California Franchise Tax Board in January 2009 as a result of their review of our amended fiscal years 1994 through 2003 tax returns. These notices indicated that certain adjustments were to be made in conjunction with adjustments made on our amended Federal tax returns for those fiscal years, due to reaching resolutions with the United States taxing authorities on all outstanding audit issues, as further discussed in Note 14 to the Consolidated Financial Statements.

We have concluded our negotiations with the IRS taxing authorities with regard to our tax disputes for our fiscal years 1994 through 2006, as discussed in Note 14 to the Consolidated Financial Statements. In fiscal 2009, the IRS issued a No Change Report indicating no change to our tax liability; however, the IRS continues to have the ability to adjust tax attributes relating to these years in subsequent audits. We believe that we have provided sufficient tax provisions for these years and that the ultimate outcome of any future IRS audits that include the tax attributes will not have a material adverse impact on our financial position or results of operations in future periods. The tax authorities in the foreign jurisdictions that we operate in continue to audit our tax returns for fiscal years subsequent to 1999. The potential outcome of these audits is uncertain and could result in material tax provisions or benefits in future periods. However, we cannot predict with certainty how these matters will be resolved and whether we will be required to make additional tax payments and believe that we have provided sufficient tax provisions for the tax exposures in our foreign jurisdictions.

As of March 31, 2010, our total gross unrecognized tax benefits were $23.9 million, of which $4.4 million, if recognized, would affect the effective tax rate. There was an overall decrease of $3.9 million in our gross unrecognized tax benefits from fiscal 2009 to fiscal 2010 due to benefits from the Singapore and Germany audit settlements noted above, offset by changes in judgment related to foreign audits during fiscal 2010.

We are subject to U.S. federal income tax as well as income taxes in many U.S. states and foreign jurisdictions. As of March 31, 2010, fiscal years 2004 onward remained open to examination by the U.S. taxing authorities and fiscal years 1999 onward remained open to examination in various foreign jurisdictions. U.S. tax attributes generated in fiscal years 2004 onward also remain subject to adjustment in subsequent audits when they are utilized.

The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. Management regularly assesses our tax positions in light of legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which we do business. Management believes that it is not reasonably possible that the gross unrecognized tax benefits will change significantly within the next 12 months.

We had a valuation allowance for deferred tax assets of $81.2 million and $75.9 million at March 31, 2010 and 2009, respectively, as we determined that it was more likely than not that all of our net U.S. deferred tax assets will not be realized. This resulted in an increase to the valuation allowance by $5.3 million and $31.4 million during the years ended March 31, 2010 and 2009, respectively. Factors that led to this conclusion included, but were not limited to, our past operating results, cumulative tax losses in the United States and uncertain future income on a jurisdiction by jurisdiction basis. We continuously monitor the circumstances impacting the expected realization of our deferred tax assets on a jurisdiction by jurisdiction basis.

Income (Loss) From Discontinued Operations, Net of Taxes.

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The change in discontinued operations in fiscal 2010 compared to fiscal 2009 was attributable to the release of the $1.2 million related to the amended promissory note agreement with Overland, in which Overland was allowed to pay us the remaining $1.2 million receivable plus accrued interest by March 31, 2010. We released the reserve on the receivable as cash was collected due to the continued concern of Overland’s ability to pay us.

The change in discontinued operations in fiscal 2009 compared to fiscal 2008 was primarily driven by the sale of the Snap Server NAS business to Overland in June 2008. We recorded a gain of $4.6 million on the disposal of the Snap Server NAS business in fiscal 2009 in “Gain on disposal of discontinued operations, net of taxes,” which included a $1.2 million reserve on the receivable that was due to us 12 months after the closing of the transaction due to the financial difficulties Overland has reported, and incurred a “Loss from discontinued operations, net of taxes” of $0.9 million in the Consolidated Statements of Operations.

Liquidity and Capital Resources

Key Components of Cash Flow

Working Capital:    Our principal source of liquidity is cash on hand. We focus on managing the critical components of working capital, which include receivables, inventory, payables and short-term debt. Our working capital at March 31, 2010, 2009 and 2008 was $377.0 million, $385.2 million and $424.7 million, respectively.

The decrease in working capital at March 31, 2010 compared to March 31, 2009 of $8.2 million was attributable to (1) a decrease in prepaid expenses and other current assets of $3.4 million primarily due to a tax refund received from the State of California and other foreign jurisdictions; (2) a decrease in accounts receivable of $4.2 million primarily due to lower revenue levels and our improved collection efforts; and (3) a decrease in inventory of $1.8 million due to improved efficiencies in our inventory and operations management. This was offset by decreases in accounts payables and accrued liabilities of $2.3 million as we have improved our payment turns.

The decrease in working capital at March 31, 2009 compared to March 31, 2008 of $39.4 million was attributable to (1) a decrease in total current assets of $272.0 primarily driven by the utilization of $222.9 million to repurchase our 3/4% Notes and, to a lesser extent, $38.0 million of cash used to acquire Aristos; (2) a decrease in accounts receivable of $11.5 million primarily due to lower revenue levels and our improved collection efforts; (3) a decrease in inventory of $5.8 million due to improved efficiencies in our inventory and operations management; and (4) decreases in the combined balances of prepaid expenses and other current assets of $3.4 million as well as accounts payables and accrued liabilities of $7.7 as we operate on a smaller business scale, which included reducing and streamlining our operating expenses. These decreases were offset by our positive cash flows from operations.

Operating activities:    Operating cash activities consist of loss from continuing operations, net of taxes, adjusted for certain non-cash items and changes in assets and liabilities. Non-cash items primarily consist of the non-cash effect of impairment charges, gain on sale of long-lived assets, gain on the repurchase of the 3/4% Notes, depreciation and amortization of intangible assets, property and equipment, marketable securities and 3/4% Notes, and stock-based compensation expense. Net cash provided by operating activities was $3.4 million, $13.7 million and $22.8 million in fiscal years 2010, 2009 and 2008, respectively.

The decline in cash provided by operating activities was primarily due to an increase in loss from continuing operations, net of taxes of $4.7 million, a non-cash charge related to a gain on extinguishment of debt of $1.7 million recorded in fiscal 2009 and a decrease in inventory-related charges of $2.8 million. This was offset by changes in working capital assets and liabilities that decreased cash provided by operations by $4.6 million, an increase in non-cash charges related to depreciation and amortization of $2.3 million primarily due to the amortization of purchased intangible assets from the Aristos acquisition in September 2008 and an increase in stock-based compensation of $2.7 million due primarily to the modification of certain stock-based awards in fiscal 2010 and the impact caused by the true-up of actual forfeitures in fiscal 2009, which reduced our stock-based compensation expense during that period. In fiscal 2010, cash received from customers totaled $77.9 million and cash paid to suppliers and employees for payroll totaled $96.3 million. In fiscal 2010, income from continuing operations, net of taxes, included interest income of $8.5 million.

The decline in cash provided by operating activities in fiscal 2009 compared to fiscal 2008 was primarily due to changes in working capital assets and liabilities that decreased cash provided by operations by $9.3 million, an increase in loss from continuing operations, net of taxes by $8.6 million and a decrease in inventory-related charges of $3.8 million. This was offset by a non-cash charge due to the impairment of goodwill of $16.9 million recorded in fiscal 2009. In fiscal 2009, cash received from customers totaled $126.2 million and cash paid to suppliers and employees for payroll totaled $138.7 million. In fiscal 2009, loss from continuing operations, net of taxes, included interest income of $16.9 million.

Investing activities:    Investing cash activities primarily consist of purchases, sales and maturities of restricted marketable securities and marketable securities, net cash used for acquisitions, proceeds from the sale of long-lived assets, and purchases of property and equipment. Net cash used in investing activities was $50.4 million in fiscal 2010 compared to net cash provided by investing activities of $85.4 million and $115.1 million in fiscal years 2009 and 2008, respectively. In fiscal 2010, we entered into a software license agreement with Synopsys for $1.8 million, of which $0.7 million was paid in fiscal 2010 and the remaining $1.1 million will be paid through March 2011. In fiscal 2009, we acquired Aristos for $38.0 million. In fiscal 2008, we received proceeds from the sale of long-lived assets of $19.9 million. In fiscal 2010, we utilized cash for the net purchases of marketable securities of $48.9 million and we received cash proceeds from the net sales and maturities of our marketable securities of $123.2 million and $96.8 million in fiscal years 2009 and 2008, respectively. We continue to manage our cash through interest-bearing accounts. We also minimized our purchasing of property and equipment from fiscal 2008 to fiscal 2009 as we continued to focus on cost control programs; however, we increased our purchasing of property and equipment from fiscal 2009 to fiscal 2010 primarily due to our investment in research and development of new technologies.

Financing activities:    Financing cash activities primarily consist of repurchases of long-term debt and our common stock under the repurchase program, and employee stock option exercises. Net cash used in financing activities in fiscal years 2010 and 2009 was $1.4 million and $223.6 million, respectively, compared to cash provided by financing activities of $3.2 million in fiscal 2008. In fiscal years 2010 and 2009, we repurchased $0.1 million and $224.5 million, respectively, in principal amount of our 3/4% Notes for an aggregate price of $0.1 million and $222.9 million, respectively. In fiscal years 2010 and 2009, we also repurchased $1.7 million and $2.4 million, respectively, of our common stock in connection with our authorized stock repurchase program. We continue to experience a decline in the issuance of common stock under our equity compensation programs from fiscal 2008 to fiscal 2009 and from fiscal 2009 to fiscal 2010, which was attributable to a large number of options held by our employees whose exercise prices were substantially above the current market value of our common stock combined with a reduction in our headcount.

Common Stock Repurchase Program

In July 2008, our Board of Directors authorized a stock repurchase program to purchase up to $40 million of our common stock. During fiscal 2010, we purchased approximately 0.7 million shares of our common stock at an average price of $2.46 for an aggregate purchase price of $1.7 million, excluding brokerage commissions. During fiscal 2009, we purchased approximately 1.0 million shares of our common stock at an average price of $2.29 for an aggregate purchase price of $2.4 million, excluding brokerage commissions. We have accounted for these treasury shares, which have not been retired or reissued, under the treasury method. All purchases made under the program were made in the open market. As of March 31, 2010, $35.9 million remained available for repurchase under the authorized stock repurchase program.

Liquidity and Capital Resource Requirements

At March 31, 2010, we had $375.3 million in cash, cash equivalents and marketable securities, of which approximately $4.1 million was held by our foreign subsidiaries whose functional currency is the local currency. Our available-for-sale securities included short-term deposits, corporate obligations, commercial paper, municipal bonds, United States government securities, government agencies, and other debt securities related to mortgage-back and asset-backed securities, and were recorded on our Consolidated Balance Sheets at fair market value, with their related unrealized gain or loss reflected as a component of “Accumulated other comprehensive income, net of taxes” in the Consolidated Statements of Stockholders’ Equity.

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Our investment policy focuses on three objectives: to preserve capital, to meet liquidity requirements and to maximize total return. Our investment policy establishes minimum ratings for each classification of investments when purchased and investment concentration is limited to minimize risk. The policy also limits the final maturity on any investment and the overall duration of the portfolio. Given the overall market conditions, we regularly review our investment portfolio to ensure adherence to our investment policy and to monitor individual investments for risk analysis and proper valuation.

In fiscal years 2010 and 2009, we did not recognize a material loss on our securities as the unrealized losses incurred were not deemed to be other-than-temporary. We hold our marketable securities as available-for-sale and mark to market. We expect to realize the full value of all our marketable securities upon maturity or sale, as we have the intent and ability to hold the securities until the full value is realized. However, we cannot provide any assurance that our invested cash, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets, which may require us to record an impairment charge that could adversely impact our financial results.

In addition, we maintain our cash, cash equivalents and marketable securities with certain financial institutions, in which our balances exceed the limits that are insured by the Federal Deposit Insurance Corporation. If the underlying financial institutions fail or other adverse conditions occur in the financial markets, our cash balances may be impacted.

In the fourth quarter of fiscal 2005, we repatriated $360.6 million of undistributed earnings from Singapore to the United States and incurred a tax liability of $17.6 million. The repatriated amounts were used to fund a qualified Domestic Reinvestment Plan, as required by the American Jobs Creation Act of 2004. We believe we have met the total spending requirements of the Domestic Reinvestment Plan based on our actual spending through fiscal 2009; therefore, no further tax liabilities are expected to be incurred related to this distribution. However, fiscal years 2004 onward remain open to examination by the U.S. taxing authorities. As a result, we may incur additional tax liabilities related to this distribution until fiscal years 2004 through 2009 are closed by the U.S. taxing authorities.

If the PMC Transaction is not consummated, we may enter into strategic alliances or partnerships that will enable us to better scale our operations relative to our cost basis. If we are successful in identifying attractive strategic alliances or partnerships, we may be required to use a significant portion of our available cash balances.

After taking into consideration the PMC Transaction, we expect capital expenditures of approximately $0.2 million during fiscal 2011, without taking into account identifying and acquiring new, profitable business operations.

We have invested in technology companies through two venture capital funds, Pacven Walden Venture V Funds and APV Technology Partners II, L.P. At March 31, 2010 and 2009, the carrying value of such investments aggregated $1.2 million for each period, which were based on quarterly statements we receive from each of the funds. The statements are generally received one quarter in arrears, as more timely valuations are not practical. The statements reflect the net asset value, which we use to determine the fair value for these investments, which (a) do not have a readily determinable fair value and (b) either have the attributes of an investment company or prepare their financial statements consistent with the measurement principles of an investment company. The assumptions we use due to lack of observable inputs may impact the fair value of these equity investments in future periods. We recorded a charge of $0.4 million in fiscal 2009 to the Statements of Operations due to a decline in the values of these investments. While we have seen some improvement in global economic conditions, any adverse changes in equity investments and current market conditions may require us to record an impairment charge against all or a portion of the investments in the future.

We believe that our cash balances and the expected cash flows generated by operations and available sources of equity will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. The consummation of the PMC Transaction may materially change our operations, including our anticipated cash needs as we intend to explore strategic alternatives to maximize stockholder value going forward, including deploying the proceeds of the PMC Transaction and our other assets

in seeking business acquisition opportunities and other actions to redeploy our capital. In addition, should prevailing economic conditions and/or financial, business and other factors beyond our control adversely affect our estimates of our future cash requirements, we would be required to fund our cash requirements by alternative financing. In these instances, we may seek to raise such additional funds through public or private equity or debt financings or from other sources. We may not be able to obtain adequate or favorable financing at that time. Any equity financing we obtain may dilute existing ownership interests, and any debt financing could contain covenants that impose limitations on the conduct of our business. There can be no assurance that additional financing, if needed, would be available on terms acceptable to us or at all.

Commitments and Contingencies

Legal Proceedings

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

Risks and Uncertainties

In December 2009, we announced that we initiated a process to pursue the potential sale or disposition of certain of our assets or business operations. On May 8, 2010, subsequent to our fiscal year-end, we entered into an agreement relating to the PMC Transaction and we anticipate that the PMC Transaction will be consummated in June 2010. Whether or not the PMC Transaction is consummated, our revenues may be negatively impacted during the pre-closing period as it creates uncertainty in the marketplace for our existing customers and end-users, who may be less likely to place orders as a result of this uncertainty. If we consummate the PMC Transaction, it may incur significant charges in the future, which charges include, but are not limited to, increased amortization or depreciation of our long-lived assets due to potential changes to the expected remaining useful lives, a potential impairment of our long-lived assets, restructuring charges, acceleration of compensation expense related to unvested stock-based awards, potential cash bonus payments and potential accelerated payments of certain of our contractual obligations, which may impact our results of operations and financial condition. The aggregate of these amounts cannot be quantified at this time. Further subsequent event disclosures related to expected changes to the remaining useful lives of our long-lived assets, stock-based activity and associated compensation expense, and restructuring charges are discussed in Note 7, 9 and 11, respectively, to the Consolidated Financial Statements.

Convertible Subordinated Notes

In fiscal 2009, we repurchased a total of $191.0 million in principal amount of our 3/4% Notes on the open market for an aggregate price of $188.9 million, resulting in a gain on extinguishment of debt of $1.7 million (net of unamortized debt issuance costs of $0.4 million), which was recorded within “Interest and other income, net” in the Consolidated Statements of Operations. In addition, the majority of the remaining holders of the 3/4% Notes exercised their put option in December 2008 and January 2009, which required us to purchase our 3/4% Notes at a price equal to 100.25% of the principal of the 3/4% Notes, resulting in the redemption of the 3/4% Notes for an aggregate cost of $34.0 million, plus accrued and unpaid interest. In fiscal 2010, we repurchased a total of $0.1 million at a price equal to 100% of the principal amount of the 3/4% Notes. At March 31, 2010, we had a remaining liability of $0.3 million of aggregate principal amount related to our 3/4% Notes that are due in December 2023. Each remaining holder of the 3/4% Notes may require us to purchase all or a portion of our 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 and we 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

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excluding, the redemption date. We may seek to make open market repurchases of the remaining balance of our 3/4% Notes within the next twelve months (See Note 8 to the Consolidated Financial Statements for a detailed discussion of our debt and equity transactions).

Intellectual Property and Other Indemnification Obligations

We have entered into agreements with customers and suppliers that include intellectual property indemnification obligations. These indemnification obligations generally require us to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. In each of these circumstances, payment by us is conditional on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow us to challenge the other party’s claims. Further, our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments made by it under these agreements. In addition, we have agreements whereby we indemnify our directors and certain of our officers for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. These indemnification agreements are not subject to a maximum loss clause; however, we maintain a director and officer insurance policy which may cover all or a portion of the liabilities arising from our obligation to indemnify our directors and officers. It is not possible to make a reasonable estimate of the maximum potential amount of future payments under these or similar agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, we have not incurred significant costs to defend lawsuits or settle claims related to such agreements and no amount has been accrued in the accompanying Consolidated Financial Statements with respect to these indemnification guarantees.

Contractual Obligations

Our contractual obligations at March 31, 2010 are as follows:

fulfilled by our vendors within short time horizons. The expected timing of payment of the obligations discussed above was estimated based on information available to us as of March 31, 2010. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

Critical Accounting Policies and Estimates

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

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

Revenue Recognition:    We recognize revenue from the majority of our product sales, including sales to OEMs, distributors and retailers, upon shipment from us, provided that title has passed, persuasive evidence of an arrangement exists, the price is fixed or determinable and collectibility is reasonably assured. Revenue from sales where software is essential to the functionality is recognized when passage of title and risk of ownership is transferred to customers, persuasive evidence of an arrangement exists, which is typically upon sale of product by our customer, the price is fixed or determinable and collectibility is probable. We consider many different criteria for evaluating revenue recognition on sales transactions. The application of the appropriate accounting principle to our revenue is dependent upon specific transactions or combinations of transactions. Significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period.

Our channel arrangements provide for certain product rotation rights. Additionally, we permit the return of products subject to certain conditions. We establish allowances for expected product returns. We also establish allowances for rebate payments under certain marketing programs entered into by our channel partners. These

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allowances are recorded as direct reductions of revenue and accounts receivable. We make estimates of future returns and rebates based primarily on our past experience as well as the volume of products in the channel, trends in channel inventory, economic trends that might impact customer demand for our products (including the competitive environment), the economic value of the rebates being offered and other factors. In the past, actual returns and rebates have not been significantly different from our estimates, however, actual returns and rebates in any future period could differ from our estimates, which could impact the net revenue we report.

We maintain an allowance for doubtful accounts for losses that we estimate will arise from our customers’ inability to make required payments. We make estimates of the collectibility of our accounts receivable by considering factors such as historical bad debt experience, specific customer creditworthiness, the age of the accounts receivable balances and current economic trends that may affect a customer’s ability to pay. If the financial condition of our customers deteriorates or if economic conditions worsen, increases in the allowance for doubtful accounts may be required in the future. We cannot predict future changes in the financial stability of our customers, and there can be no assurance that our allowance for doubtful accounts will be adequate.

Cash, Cash Equivalents and Marketable Securities Valuation:    Our marketable securities are classified as available-for-sale and are reported at fair market value, inclusive of unrealized gains and losses, as of the respective balance sheet date. Marketable securities consist of corporate obligations, commercial paper, municipal bonds, United States government securities, government agencies, and other debt securities related to mortgage-back and asset-backed securities Our Consolidated Balance Sheet is updated at each reporting period to reflect the change in the fair value of our marketable securities that have declined below or risen above their original cost. Our Statements of Operations reflects a charge in the period in which a determination is made that the decline in fair value is considered other-than-temporary. We do not hold our securities for trading or speculative purposes.

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

Income Taxes:    We account for income taxes for uncertain tax positions 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 our 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. In addition, we continued to recognize interest and/or penalties related to uncertain tax positions as income tax expense in our Consolidated Statements of Operations.

We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets, tax credits, benefits, deductions and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to those uncertain tax positions. Significant changes to these estimates may result in an increase or decrease to our tax provision in subsequent periods.

We must assess the likelihood that we will be able to recover our deferred tax assets. We consider historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If recovery is not likely, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be recoverable.

In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes and related interest will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

Impairment of Long-Lived Assets:    Long-lived assets primarily relate to our intangible assets and property and equipment. Intangible assets are amortized over their estimated useful lives ranging from three months to five years, reflecting the pattern in which the economic benefits of the assets are expected to be realized. Property and equipment are stated at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the assets.

We regularly perform reviews to determine if facts or circumstances are present, either internal or external, which would indicate that the carrying values of our long-lived assets may not be recoverable. Indicators include, but are not limited to, a significant decline in the market price of a long-lived asset, an expectation that more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life and a current period operating or cash flow loss combined with a historical or projected operating or cash flow loss.

The recoverability of the carrying value of the long-lived assets, other than goodwill, is based on the estimated future undiscounted cash flows derived from the use of the asset. If a long-lived asset is determined to be impaired, the loss is measured based on the difference between the long-lived asset’s fair value and its carrying value. The estimate of fair value of long-lived assets is based on a discounted estimated future cash flows method and applying a discount rate commensurate with the risks inherent in our current business model. Our current business model contains management’s subjective estimates and judgments; however, actual results may be materially different than the assumptions made by management.

Impairment Review

In December 2009, we announced that we initiated a process to pursue the potential sale or disposition of certain of our assets or business operations. As a result of this announcement, we evaluated our long-lived assets to determine whether the carrying value would be recoverable in the third quarter of fiscal 2010. As we continued through this sale process on certain of our assets or business operations in the fourth quarter of fiscal 2010, we reevaluated the recoverability of our long-lived assets’ carrying value at March 31, 2010. Based on our analysis, our long-lived assets were not considered impaired in either the third and fourth quarters of fiscal 2010 as the sum of the expected undiscounted future cash flows exceeded the carrying value of our long-lived assets of $27.4 million at March 31, 2010. The sum of the expected undiscounted future cash flows was weighted to take into consideration the possible outcomes of whether the long-lived assets, which were considered as one asset group based on the lowest level of independent cash flows generated, would be retained and utilized as opposed to sold or disposed. Subsequent to our fiscal year-end, as a result of the PMC Transaction and our intent to either continue to pursue the sale of our Aristos products or wind down the sale or dispose of our Aristos products within the next six months, or by September 2010, as well as our consideration of the disposition or redeployment of our remaining non-core patents and real estate assets, we are expected to change the remaining useful life of our intangible assets of $16.0 million related to our Aristos products, which in turn, we expect to change the amount amortized prospectively during each reporting period. However, if the PMC Transaction is not consummated, we may not be able to realize our expected undiscounted future cash flows based on foreseen negative market perceptions. This may lead us to exit or divest in some additional or all of our current operations to focus on new opportunities. As a result, we will continue to reevaluate and reassess whether we may be required to record impairment charges for our long-lived assets in future periods.

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Acquisitions

On September 3, 2008, we completed the acquisition of Aristos, a provider of RAID technology to the data storage industry. The Merger Agreement provided for our acquisition of Aristos through a merger in which Aristos became our wholly-owned subsidiary. The acquisition of Aristos was to allow us to expand into adjacent RAID markets that we believed would provide us with growth opportunities, including blade servers, enterprise-class external storage systems and performance desktops, and would provide us with a strong ASIC roadmap. In addition, this acquisition enabled us to pursue new OEM opportunities and expand our channel product offerings containing unified serial technologies.

We acquired Aristos for a purchase price of approximately $38.9 million, which consisted of: (i) approximately $28.7 million that was paid to certain Aristos senior preferred stockholders and warrant holders; (ii) approximately $3.2 million under a management liquidation pool established by Aristos prior to completion of the merger, which was immediately paid upon closing of the transaction; (iii) approximately $6.2 million to retire and satisfy certain commercial obligations and payables of Aristos; and (iv) $0.8 million accrued in direct transaction fees, including legal, valuation and accounting fees.

Aristos Holdback:    A portion of the Aristos acquisition price totaling $4.3 million referred to herein as the Aristos Holdback, was held in an escrow account to secure potential indemnification obligations of Aristos stockholders for unknown liabilities that may have existed as of the acquisition date. The Aristos Holdback was to be paid in two installments to the former Aristos stockholders during the twelfth and eighteenth months after the acquisition closing date, except for funds necessary to provide for any pending claims. The Aristos Holdback of $4.3 million was paid in full in fiscal 2010.

Management Liquidation Pool:    As part of the Merger Agreement, we agreed to pay certain former employees of Aristos a total of $5.6 million through a management liquidation pool established by Aristos prior to the completion of the merger. Of the $5.6 million, $3.2 million was immediately paid upon closing of the transaction and was included in the purchase price allocation of the cost to acquire Aristos. The remaining $2.4 million was payable over time, not to exceed twelve months, contingent upon the continued employment of certain employees with us, and was expensed to the Consolidated Statements of Operations as earned. In fiscal years 2010 and 2009, we recorded expense of $0.1 million and $2.3 million, respectively in the Consolidated Statements of Operations related to the management liquidation pool.

The Aristos acquisition was accounted for as a business combination and, accordingly, the results of Aristos have been included in our consolidated results of operations and financial position from the date of acquisition. The allocation of the Aristos purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed was based on valuation techniques such as the discounted cash flows and weighted average cost methods used in the high technology industry using assumptions and estimates from management to calculate fair value.

Dispositions

On June 27, 2008, we entered into an asset purchase agreement with Overland for the sale of the Snap Server NAS business for $3.3 million, of which $2.1 million was received by us upon the closing of the transaction and the remaining $1.2 million was to be received on the twelve-month anniversary of the closing of the transaction. In fiscal 2009, we established a reserve for the remaining $1.2 million of this receivable as a result of the financial difficulties Overland had reported. In fiscal 2010, we amended the promissory note agreement with Overland, which allowed Overland to pay us the remaining $1.2 million receivable plus accrued interest by March 31, 2010. Due to our continued concern regarding Overland’s ability to pay us, we released the reserve on the receivable as cash was collected. Under the terms of the agreement, Overland granted us a nonexclusive license to certain intellectual property and we provided Overland limited support services to help ensure a smooth transition. Expenses incurred in the transaction primarily include approximately $0.5 million for broker, legal and accounting fees. In addition, we accrued $0.1 million for lease obligations. We recorded a gain of $1.2 million and $4.6 million on the disposal of the Snap Server NAS business in fiscal years 2010 and 2009, respectively, in “Gain on disposal of discontinued operations, net of taxes,” in the Consolidated Statements of

Operations. The gain recorded in fiscal 2010 was based on the cash received in connection with the amended promissory note agreement with Overland. To date, we have recorded a cumulative gain of $5.8 million through fiscal 2010 on the disposal of the Snap Server NAS business in “Gain on disposal of discontinued operations, net of taxes,” in the Consolidated Statements of Operations.

Recent Accounting Pronouncements

For a discussion of the impact of recently issued accounting pronouncements, see “Recent Accounting Pronouncements” in “Note 1—Summary of Significant Accounting Policies” to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

Item 7A.Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

We are exposed to interest rate risk related to our investment portfolio and debt issuances. As of March 31, 2010, our available-for-sale debt investments, excluding those classified as cash equivalents, totaled $311.4 million (see Note 4 to the Consolidated Financial Statements) and included corporate obligations, other debt securities, municipal bonds and United States government securities, all of which are of high investment grade as specified by our investment policy. Our investment policy also limits investment concentration, the final maturity on any investment and the overall duration of the portfolio to preserve capital, to meet liquidity requirements and to maximize total return. These investments are generally classified as available-for-sale and, consequently, are recorded on our balance sheet at fair market value with their related unrealized gain or loss reflected as a component of “Accumulated other comprehensive income, net of taxes.” Given the overall market conditions, we regularly review our investment portfolio to ensure adherence to our investment policy and to monitor individual investments for risk analysis and proper valuation. If the yield-to-maturity on our current available-for-sale investments declines by 10%, our “Interest and other income, net” in the Consolidated Statements of Operations would be negatively impacted by approximately $0.6 million.

Equity Price Risk

We consider our direct exposure to equity price risk to be minimal. We have invested in technology companies through two venture capital funds. As of March 31, 2010, the carrying value of such investments aggregated $1.2 million (see Note 5 to the Consolidated Financial Statements). We monitor our equity investments on a periodic basis, by recording these investments based on quarterly statements we receive from the funds. The statements are generally received one quarter in arrears, as more timely valuations are not practical. In the event that the carrying value of our equity investments exceeds their fair value, or the decline in value is determined to be other-than-temporary, the carrying value is reduced to its current fair value. While we have seen some improvement in global economic conditions, any adverse changes in equity investments and current market conditions may require us to record an impairment charge against all or a portion of the investments in the future. Such an action would adversely affect our financial results.

Foreign Currency Risk

We translate foreign currencies into U.S Dollars for reporting purposes and currency fluctuations can have an impact on our results. For fiscal years 2010, 2009 and 2008, there was no material currency exchange impact from our intercompany transactions. The amount of local currency obligations settled in any period is not significant to our cash flows or results of operations, although we continuously monitor the amount and timing of those obligations. A 10% change in foreign currency exchange rates for our cash, cash equivalents and marketable securities that are denominated in foreign currencies would negatively impact our annual financial results by approximately 0.4 million.

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Item 8.Financial Statements and Supplementary Data

See the index appearing under Item 15(a)(1) on page 57 of this Annual Report on Form 10-K for the Consolidated Financial Statements at March 31, 2010 and 2009 and for each of the three years in the period ended March 31, 2010, as well as the Report of Independent Registered Public Accounting Firm.

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

Not applicable.

Item 9A.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of fiscal 2010, which ended on March 31, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is 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.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework set forth in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of March 31, 2010.

The effectiveness of our internal control over financial reporting as of March 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 15(a) of this Annual Report on Form 10-K.

Inherent Limitations on Effectiveness of Controls

A control system, no matter how well conceived and operated, can only provide reasonable assurance that the objectives of the control system are met. Because of these inherent limitations, no evaluation of our disclosure controls and procedures or our internal control over financial reporting will provide absolute assurance that misstatements due to error or fraud will not occur.

Item 9B.Other Information

None.

PART III

Item 10.Directors, Executive Officers and Corporate Governance

Executive Officers and Directors

Information with respect to our directors required by this Item is incorporated in this Annual Report on Form 10-K by reference to the information under the caption “Proposal No. 1—ElectionThe name and age of Directors”each of our Proxy Statement for our Annual Meeting of Stockholders to be held in 2010.

Information with respect to our executive officers includingand directors and their name, age, respective positionsprincipal occupations with Adaptec and biographical informationADPT as of May 12, 2010, are set forth below. Additional biographical information concerning each of our executive officers and directors follows the table.

Executive Officers

John J. Quicke has served as a member of our Board of Directors since 2007. In January 2010, Mr. Quicke was appointed to serve as our Interim President and Chief Executive Officer. Mr. Quicke is a Managing Director and operating partner of Steel Partners LLC. He has been associated with Steel Partners LLC and its affiliates since September 2005. Mr. Quicke has also served as President and Chief Executive Officer of Del Global Technologies Corp., a company that is engaged in developing, manufacturing and marketing medical and dental imaging systems, and power conversationconversion subsystems and components worldwide, since AugustSeptember 1, 2009 and as a director of Del Global since September 2009. He has served as a director of Rowan Companies, Inc., a contract drilling company, since January 2009. Mr. Quicke served as a director of Angelica Corporation, a provider of health care linen management services, from August 2006 to July 2008. 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 served as a director of Layne Christensen Company, a provider of products and services for the water, mineral, construction and energy markets, from October 2006 to June 2007. He has served as a director of WHX Corporation since July 2005 and as a Vice President since October 2005. 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 a consultant to Steel Partners and explored other business opportunities.

The Board of Directors has determined that Mr. Quicke’s extensive experience, including board service on eight public companies over 15 years, over 20 years of significant operating experience (in each case including participation in acquisition and disposition transactions), as well as his financial and accounting expertise, allow him to effectively lead the management of the Company, including the planned redeployment of capital and acquisition strategy of the Company.

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Mary L. Dotz has served as our Chief Financial Officer since March 31, 2008. Prior to joining Adaptec,ADPT Corporation, Ms. Dotz served as Chief Financial Officer forof 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 management positions in 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.

Directors

Jon S. Castor has served as a member of our Board of Directors since 2006. From August 2003 to June 2004, Mr. Castor was a senior executive with Zoran Corporation, a provider of digital solutions for applications in the digital entertainment and digital imaging markets, including service as 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 as a director from November 2000 to October 2002, when it was acquired by Oak Technology. Mr. Castor previously served on the Board of Directors of California Micro Devices Corporation from July 2009 until its acquisition by ON Semiconductor in January 2010 and on the Board of Directors of Genesis Microchip from November 2004 until its acquisition by ST Microelectronics in January 2008. Mr. Castor also currently serves on the Board of Directors of two private companies.

The Board of Directors has determined that Mr. Castor’s thirty-plus years of experience, including as a CEO, Chairman, director of public and private companies, executive officer, entrepreneur, and strategy consultant, enable him to assist in the effective management of the Company, including the planned redeployment of capital and acquisition strategy of the Company.

Jack L. Howard has served as a member of our Board of Directors since 2007. Mr. Howard is the President of Steel Partners LLC, a global management firm, and has been associated with Steel Partners LLC and its affiliates since 1993. Mr. Howard has been the President of Steel Partners Holdings L.P., a global diversified holding company that engages or has interests in a variety of operating businesses through its subsidiary companies (“SPH”), since January 2009. Mr. Howard co-founded Steel Partners II, L.P., a private investment partnership, in 1993. He has been a registered principal of Mutual Securities, Inc., a FINRA registered broker-dealer, since 1989. 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, from June 2007 to October 2009 and has served as its Secretary from February 2007 to October 2009. 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 been a director of WHX Corporation, a diversified industrial products manufacturing company, since July 2005. Mr. Howard served as Chairman of the Board of a predecessor entity of SPH from June 2005 to December 2008, as a director from 1996 to December 2008 and its Vice President from 1997 to December 2008. From 1997 to May 2000, he also served as Secretary, Treasurer and Chief Financial Officer of SPH’s predecessor entity. Mr. Howard has served as a director of NOVT Corporation, a former developer of advanced medical treatments for coronary and vascular disease, since April 2006 and as the Treasurer of NOVT since September 2007. He has served as a director of CoSine Communications, Inc., a former global telecommunications equipment supplier, since July 2005. He served as Chairman of the Board and Chief Executive Officer of Gateway Industries, Inc., a provider of database development and web site design and development services, from February 2004 to April 2007, and as Vice President from December 2001 to April 2007.

The Board of Directors has determined that Mr. Howard’s managerial and investing experience in a broad range of businesses over the past 26 years, service on the Board of Directors and committees of both public and private companies, enable him to assist in the effective management of the Company, including the planned redeployment of capital and acquisition strategy of the Company.

John Mutch has served as a member of our Board of Directors since 2007. Mr. Mutch is the President and Chief Executive Officer of BeyondTrust Software, a privately held security software company focused on privilege identity management solutions sold into the Global 2000 IT infrastructure market. In addition, Mr. Mutch is the founder and managing partner of MV Advisors LLC, a strategic block investment firm which provides focused investment and strategic guidance to small and mid-cap technology companies. Prior to founding MV Advisors, in March of 2003 Mr. Mutch was appointed by the U.S. Bankruptcy court to the Board of Directors of Peregrine Systems. He assisted that company in a bankruptcy work out proceeding and was named President and CEO in July of 2003. Mr. Mutch ran Peregrine Systems operating the company under an SEC consent decree and successfully restructured the company culminating in a sale to Hewlett-Packard Company in December of 2005. Previous to running Peregrine Systems, Mr. Mutch served as President, CEO and a Director of HNC Software, an enterprise analytics software provider. Before HNC Software, Mr. Mutch spent seven years at Microsoft Corporation in a variety of executive sales and marketing positions. Mr. Mutch previously served on the boards of Phoenix Technology, Edgar Online, Aspyra, Overland Storage and Brio Software. He is currently a Director at Agilysys, Inc.

The Board of Directors has determined that Mr. Mutch’s extensive experience in restructuring and building public technology companies enable him to assist in the effective management of the Company, including the planned redeployment of capital and acquisition strategy of the company. His background as a Chief Executive Officer also provides him with experience and knowledge in financial reporting matters, which are also valuable in managing the Company.

Lawrence J. Ruisi has served as a member of our Board of Directors since 2008. Mr. Ruisi is a private investor/consultant and also serves on the Board of Governors of Sound Shore Medical Center where he was Chairman from 2002 to 2006. Mr. Ruisi was Chief Executive Officer and President of Loews Cineplex Entertainment from 1998 to 2002, Executive Vice President of Sony Pictures Entertainment from 1991 to 1998, Senior Vice President of Columbia Pictures Entertainment from 1987 to 1990 and Senior Vice President Finance and Vice President and Controller of Tri-Star Pictures from 1983 to 1987. Mr. Ruisi started his career in public accounting and worked for Price Waterhouse & Co. from 1970 to 1983. He also serves on the boards of directors of Hughes Communications, Inc., a provider of broadband satellite network services and systems, and Innkeepers USA, a privately held hotel real estate investment trust. In the past five years Mr. Ruisi has also served on the Board of Directors of Wyndham International Inc., an upscale hotel/resort chain and Rowan Companies Inc., an oil and gas drilling company.

The Board of Directors has determined that Mr. Ruisi’s broad range of business knowledge, experience as an executive officer, director and investor, and extensive financial expertise enable him to assist in the effective management of the Company, including the planned redeployment of capital and acquisition strategy of the Company. Additionally, his background as Chief Executive Officer and accounting experience is also valuable in managing the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Information with respect to compliance bySection 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires our directors executiveand certain of our officers, and persons who own more than 10% or greater stockholdersof 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 Exchange Actcopies of the forms furnished to us and written representations from our officers who are required by this Item is incorporated in this Annual Report on Form 10-K by reference to the information under the caption “Sectionfile Section 16(a) Beneficial Ownership Reporting Compliance” offorms and our Proxy Statement for our Annual Meeting of Stockholders to be held indirectors, we believe that all Section 16(a) filing requirements were met during fiscal 2010.

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Audit Committee

Information regardingThe current members of the Audit Committee are John Mutch (Chair), Jon S. Castor and Lawrence J. Ruisi. Each of the members of our Audit Committee is “independent” as defined by the rules of the NASDAQ and meet the financial literacy requirements of NASDAQ. Each of the current members served on our Audit Committee during our fiscal 2010.Our Board of Directors has determined that Mr. Ruisi qualifies as an “audit committee financial expert,” as defined under Item 407(d)(5) of Regulation S-K and 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 given his experience in public accounting and his professional experience as a controller and chief financial officer. Stockholders should understand that this designation is a disclosure requirement of the SEC related to Mr. Ruisi’s experience and understanding with respect to certain accounting and auditing matters. The designation does not impose upon Mr. Ruisi any duties, obligations or liabilities that are greater than are generally imposed on him as a member of the Audit Committee and the Board of Directors, and his designation as an audit committee financial expert pursuant to this SEC requirement does not affect the duties, obligations or liabilities of any other member of our Audit Committee or the Board of Directors.

The Audit Committee assists the full Board of Directors in its general oversight of our financial expertreporting, internal controls and audit functions, and is incorporateddirectly responsible for the appointment, compensation and retention of our independent registered public accounting firm, which reports to the Audit Committee. In addition, any related-person 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 reference from the information under the caption: “Proposal No. 1—Election of Directors”Audit Committee or another independent body of the Proxy Statement for our Annual MeetingBoard of Stockholders to be held in 2010.Directors.

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Code of Conduct

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-relatedADPT-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 SEC and other public communications. In addition, it incorporates our 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 our website under Corporate Governance at http://investor.adaptec.com.investor.adptco.com. We will post any amendments to the Code of Business Conduct, Ethics, and Compliance, as well as any waivers that are required to be disclosed by the rules of either the SEC or The NASDAQ Stock Market, on our website.

Stockholder Nominations of Directors

During fiscal 2010, we did not make any materialThere have been no changes to the procedures by which our security holders may recommend nominees to our Board of Directors.Directors since the filing of our Definitive Proxy Statement on March 17, 2010 for our fiscal 2009 annual meeting of stockholders, which was held on March 31, 2010.

Item 11.Executive Compensation

Information with respect toCompensation Discussion and Analysis

This Compensation Discussion and Analysis section discusses our executive compensation requiredphilosophy, decisions and practices for fiscal 2010, and places in perspective the earnings of our “named executive officers” during our fiscal 2010. As set forth in the Summary Compensation Table below, our named executive officers for fiscal 2010 were John J. Quicke, our Interim President and CEO, Subramanian “Sundi” Sundaresh, our former President and CEO, Mary L. Dotz, our Vice President and CFO, Marcus D. Lowe, our former Vice President of

Marketing and Business Development, and John Noellert, our former Vice President of World Wide Sales. Mr. Sundaresh’s employment with us was terminated effective January 4, 2010. Effective January 5, 2010, Mr. Sundaresh became a consultant for us. Mr. Quicke was appointed to serve as our Interim President and CEO effective January 4, 2010. Messrs. Noellert’s and Lowe’s employment with us was terminated effective November 20, 2009 and March 5, 2010, respectively.

Compensation Philosophy and Overview

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 named executive officers have three principal elements which are developed in part by this Itemreferencing the 50th percentile of our comparable market: a base salary, cash incentive bonuses linked to achievement of financial and corporate goals, and equity-based incentive compensation. The base salary is incorporateddesigned to serve as a fixed portion of compensation; the cash incentive bonus serves as an incentive for our executives to drive short-term corporate financial and non-financial goals without excessive risk-taking; and the equity-based incentive compensation is designed to drive our longer-term performance, retain executives through longer-term vesting and align the interests of our executive officers with the interests of our stockholders by providing a performance-based ownership stake in us. In addition, we provide our executive officers benefits that in most cases are available generally to all of our salaried employees. As further discussed below, we largely view these primary components of our compensation as distinct in that we seek to provide salary, bonus and equity awards that are each competitive at appropriate levels with our peer companies.

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 ADPT and our stock price perform well over time. We believe that our executive officers should have a larger portion of their equity incentive awards at risk compared with our other employees. Specifically, we 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 restricted stock, as the economic value of stock options and performance-contingent stock is more aligned with the objectives of our stockholders.

Fiscal 2010.    In addition to the factors that the Committee normally considers in formulating our compensation program in fiscal 2010, the Committee also took account of several specific factors that impacted our business: (1) a change in the composition of the Board of Directors (“Board”) effective November 6, 2009, as a result of which fewer than a majority of our Directors were previously Incumbent Directors, as defined in certain of our compensation plans and agreements; (2) a change in executive leadership effective January 4, 2010 with the termination of Mr. Sundaresh, our former CEO, and the appointment of John J. Quicke as Interim President and CEO, effective January 5, 2010; (3) aggressive cost cutting initiatives; and (4) a planned transaction to sell certain of our operations and assets (“Sale of Operations”). As used in this Annual Report on Form 10-K10-K/A for the year ended March 31, 2010, the term “Sale of Operations” means a sale of substantially all of operating assets of the Company, excluding cash, real property and intellectual property not sold in the transaction.

Because of these circumstances, the Committee did not make significant changes to base salaries, except for our CFO. The Committee kept base salaries generally at the prior year’s level due to the Committee’s desire to contain costs and the Committee’s belief that an overall increase in base pay was not required to keep the Company reasonably competitive with the base pay of our peers. Additionally, the Committee reverted back to an annual measurement as opposed to two six-month bonus periods when evaluating the financial goal attainment for cash bonus incentives, as our prior fiscal year had two distinct events which included the divestiture of the Snap Server NAS business which occurred in the first half of fiscal 2009 and our acquisition of Aristos Logic in the second half of fiscal 2009. The Committee continued to measure non-financial goal attainment in two six-month bonus periods (instead of an annual measurement), which is consistent with our prior fiscal year. The financial measurement goal for fiscal 2010 was based upon meeting a specified level of pro-forma operating

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profit (loss) before income taxes (“OPBT”). The OPBT differs from generally accepted accounting principles (“GAAP”) operating profit (loss) in that OPBT primarily excludes stock-based compensation expense, expense associated with our management liquidation pool, restructuring charges and impairment charges of long-lived assets.

Equity compensation granted to executive officers included two elements: stock options and performance-contingent stock. The stock options and performance-contingent stock shows our intent to increasingly utilize equity awards where the ultimate value of the award is more closely linked to our performance and growth in stockholder value.

Role of the Compensation Committee

The current members of the Committee are Jon S. Castor, who is the Chair of the Committee, Jack L. Howard and John Mutch. Robert J. Loarie served on the Committee during fiscal 2010 until he ceased serving on our Board effective October 30, 2009. He was replaced by Mr. Howard in November 2009. During fiscal 2010, Mr. Quicke also served as a member of the Compensation Committee. He was replaced by Mr. Mutch in December 2009. Mr. Castor served on the Committee for all of fiscal 2010.

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 CEO’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.

In fiscal 2010, all Committee members attended all Committee meetings, except for one meeting. Typically, Committee meetings are also attended by our CEO, CFO and our Vice President of Human Resources, for all appropriate portions of such meetings.

Review of Executive Officers and their Compensation

The Committee and our Board are responsible for the review of our CEO’s performance. In the beginning of fiscal 2010, the Chairman of the Committee led a formal review that included a self-evaluation by the CEO and input from each member of the Board. The results were shared with the CEO, members of the Committee and all members of the Board.

Our CEO annually reviews the performance of each of our other executive officers. As part of this process, each executive officer also completes a self assessment of his/her performance.

Our CEO rates the performance of his direct staff and the Committee rates the performance of our CEO in consultation with the other non-executive directors of the Board.

Our CEO’s recommendations based on his reviews of executives reporting to him, peer compensation surveys and other relevant information, including with respect to continued employment, salary adjustments, incentive awards and equity award amounts, are presented to the Committee. The Committee thoughtfully considers the CEO’s recommendations when exercising its own judgment in making compensation decisions and awards to our executive officers who report to the CEO.

Survey Analysis

In fiscal 2010, 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 compensation practices for executives 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 of Human Resources, which enables Human Resources to remain current on total compensation trends for the broader population and for executive officers. This information is shared with the Committee. Our Vice President of Human Resources also reviews the Radford Total Company Results survey comprised of data for executives from approximately 125 technology companies with $50 million to $200 million in annual revenues. In addition to this information, which is shared with the Committee, the Committee also considers other reference points in reviewing compensation data. In particular, the Committee reviews the Radford Total Custom Company Results survey provided by Radford that compares executive compensation information for a peer group of high technology companies or their divisions, with $100 million to $500 million in annual revenues. The peer group is primarily in the storage, computer peripherals, and semiconductor components businesses with which we compete for executive and technical employees. The list of peer companies, their industry classification and revenue ranges is as follows:

External Advisors

The Committee has the authority to engage the services of outside advisors, and does so as needed. In fiscal 2010, the Committee selectively engaged the services of Compensia as an independent advisor to assist the Committee in its review of fiscal 2010 Board compensation and composition, and review of retention programs related to a change of control. In the projects that the Committee assigned to Compensia, there were no restrictions placed on the scope of Compensia’s review of our compensation arrangements with our executive officers and in its review of Board compensation. During fiscal 2010, the Committee selectively engaged the services of compensation legal specialists with Fenwick & West LLP, Cooley Godward Kronish LLP and Bryan Cave LLP for legal advice in connection with compensation related matters.

Accounting and Tax Implications of Our Compensation Policies

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

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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 CEO 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 annual incentive plan, executive stock options and our performance-based restricted stock awards are intended to qualify as “performance-based,” so that compensation attributable to these forms of equity incentives is fully tax deductible. However, time-based restricted stock units (“RSUs”), awarded by us in 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 2010. In future years, payment of cash or settlement of restricted stock or RSU amounts may be non-deductible because they are not performance-based under Section 162(m). The Committee has determined that it is important to retain flexibility and competitiveness in its compensation program, and that while it is also important to be mindful of the $1 million limit, compensation in excess of the $1 million limit may not always qualify as “performance-based” within the meaning of Section 162(m).

Fiscal 2010 Executive Compensation Program

Components of our Compensation Program

Base Salary.    Base salaries serve as the fixed cash portion of executive compensation. In fiscal 2010, we generally maintained the base salary for each of the persons who were named executive officers at the same level as the fiscal 2009 salaries. The Committee’s goal in fiscal 2010 was to benchmark salaries at or near the middle (50th percentile) of the market based on the survey information discussed above under “Survey Analysis,” input from Compensia, and the Committee determined that salary increases were not necessary to achieve this level of compensation. We believe the officers should be paid competitively and generally not above or below the market data unless their experience, capabilities, and/or responsibilities warrant either a higher or lower placement compared to market. The base salaries of our executive officers reflect their relative positions and responsibilities.

Mr. Quicke, our Interim President and CEO, receives a cash payment of $30,000 per month for his service in such capacity, which is in addition to his compensation as a non-executive member of our Board. Mr. Quicke does not participate in the benefit programs generally available to all salaried employees of the Company. Although Mr. Quicke has received a discretionary bonus upon recommendation of the Committee and approval of the Board, in recognition of his leadership in the successful Sale of the Company’s DPS Business to PMC Sierra (as described below in “Actions Taken After the Completion of Fiscal 2010”), Mr. Quicke is not eligible to participate in the AIP (as described below). In addition, Mr. Quicke received no Equity-Based Long Term Incentive Compensation for his role as Interim President and CEO, but does receive equity awards for his services as a Board member on the same basis as all non-executive Board members. The Board, upon the recommendation of the Committee, determined to compensate Mr. Quicke as described above based upon the fact that Mr. Quicke would be spending substantially all of his business time working in the capacity as the Interim President and CEO of the Company, but that such amount was below the amount that our former CEO was paid, as well as the 50^th percentile of the Radford surveys described above under the heading “Survey Analysis.” Additionally, in light of the fact that Mr. Quicke’s status as an officer of the Company was only on an interim basis, the Board, upon the recommendation of the Committee, determined to continue to grant Mr. Quicke compensation for his service on our Board on the same basis as all non-executive Board members, and not to award Mr. Quicke any other benefits (including those described in the preceding paragraph) that our executive officers have historically been provided.

In fiscal 2010, the Committee agreed, based on the recommendation by management, to temporarily reduce annual base salaries for our employees, including each of our named executive officers, by 10% from April 1, 2009 to December 31, 2009. The annual base salary of Mr. Sundaresh, our former CEO, was $450,000, and was

temporarily reduced to $405,000 from April 1, 2009 to December 31, 2009. Mr. Sundaresh’s annual base salary had not changed since April 1, 2006 primarily due to our determination to be consistent with lower revenue companies in the Radford Total Company Results ($100 million – $200 million Revenue) and the Radford Total Custom Company Results ($100 million – $500 million Revenue) surveys for CEO base salaries. The annual base salary of Ms. Dotz, our Vice President and CFO, was $265,000, and was temporarily reduced to $238,500 from April 1, 2009 to December 15, 2009. In fiscal 2010, effective December 16, 2009, Ms. Dotz annual base salary was increased to $325,000; however, she continued to receive the temporary annual base reduction of 10% of such amount, or $292,500 on an annualized basis, from December 16, 2009 to December 31, 2009. Ms. Dotz’s annual base salary was set at the 75^th percentile of the Radford Total Custom Company Results instead of the 50^th percentile to reflect the additional responsibilities requested of her by the Board in relation to the Sale of Operations. Prior to the increase in her annual base salary that was effective December 16, 2009, the annual base salary of Ms. Dotz remained the same since she joined us on March 31, 2008. The annual base salary of Mr. Lowe, our former Vice President of Marketing, was $240,000, effective April 6, 2009, and was temporarily reduced to $216,000 from April 1, 2009 to December 31, 2009. His annual base salary was based on his title change, which was determined largely by benchmarking to peers at the 50th percentile of the Radford Total Custom Company Results. Prior to the reduction in his annual base salary that was effective April 6, 2009, Mr. Lowe served as the Vice President of Business Development and earned an annual base salary of $260,000. The target annual earnings of Mr. Noellert, our former Vice President of Worldwide Sales, who was a named executive officer for fiscal 2009, was $310,000, and was temporarily reduced to $279,000 from April 1, 2009 to November 20, 2009, his termination date. Mr. Noellert’s target annual earnings included both annual base salary of $217,000 and annual target incentives for revenue-related achievements of $93,000, which had not changed since August 20, 2007. Mr. Noellert’s target annual earnings were determined largely by benchmarking to peers at the 50th percentile of the Radford Total Custom Company Results. At the beginning of each fiscal year, the CEO and the Committee established the performance targets that served as the basis for awarding Mr. Noellert his incentive pay. In fiscal 2010, from April 1, 2010 to November 20, 2010, his termination date, Mr. Noellert earned commissions of $49,440, which represented 22.8% of his annual base salary. Prior to the increase in his annual target earnings on August 20, 2007, Mr. Noellert’s earned a target annual earnings was $291,500 in his prior role as Vice President of Sales for North America.

Executive Bonus Incentive Program.    We maintained the ADPT Incentive Plan (the “AIP”) through fiscal 2010. The AIP is a cash incentive program for our employees, including those identified as our named executive officers. In fiscal 2010, the AIP consisted of two components: financial goals and non-financial corporate goals, each of which is approved by the Committee. The Committee placed greater emphasis on the financial goals as we sought to drive our performance primarily through specific objective financial metrics. As a result, 75% of the funding of the AIP incentive pool (the “AIP Pool”) was tied to financial goals and 25% of the funding of the AIP Pool was tied to non-financial corporate goals. The financial goals’ component was based upon us achieving a minimum threshold of OPBT for fiscal 2010, which was measured during the first fiscal quarter of the following fiscal year. The Committee determined the specific non-financial corporate goals to be met and applied a weight for each goal in consultation with management. Achievement of the non-financial corporate goals was measured in two six-month bonus periods. The cash bonus incentive amounts for the first half of fiscal 2010 were determined at the beginning of the third fiscal quarter of the current fiscal year while the cash bonus incentive amounts for the second half of fiscal 2010 were determinate at the beginning of the first fiscal quarter of the following fiscal year.

The individual target bonus for each of our named executive officers was established when the named executive officer was hired to his or her position and is based upon a percent of his or her salary. Each year, the Committee validates that the target bonus remains appropriate for the officer’s role based on market data. An executive officer can earn between 0% and 200% of his or her target incentive. The Committee referenced the same Radford survey data discussed above for each position held by an executive officer to assist us in determining cash bonus incentive targets as a percentage of base salary. As with other elements of compensation, the Committee focused principally on the 50th percentile of market. The bonus levels awarded to our executive officers were based on our achievement levels with respect to the financial and non-financial corporate goals, and on the basis of their individual performance. The differences in target bonuses among our named executive

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officers were based on their relative positions and responsibilities within our company and were based on the relative target bonus amounts reflected in the survey data. For fiscal 2010, the target bonus payment for Mr. Sundaresh was 85% of his annual base salary, and 50% of Mr. Lowe’s and Ms. Dotz’s respective annual base salaries. Mr. Noellert was not eligible to participate in our AIP, as his target bonus payment was tied to sales achievement. Mr. Quicke was also not eligible to participate in our AIP. Based upon this structure, Mr. Sundaresh could have received an actual bonus of between 0% and 170% of his annual base salary for the fiscal year. The annual target bonus was 85% of his annual base salary, or $382,500.

The non-financial corporate goals as discussed below are typically proposed by the CEO to the Committee, refined in response to the Committee’s guidance, and ultimately determined by the Committee. The performance factors utilized by the Committee and the CEO in the case of the named executive officers were: 1) performance to their individual and organizational goals; 2) contributions to achievement of the corporate goals; 3) contributions to achievement of the financial goals; and 4) subjective evaluation of their leadership. These goals have been intended to be difficult but achievable. Individual performance for executive officers, other than our CEO, is based on an evaluation by our CEO and the Committee, and the Committee determines the level of our CEO’s achievement of his individual goals and discusses this with the Board. The Committee also discusses with the Board our performance with respect to financial and non-financial goals, based on management’s assessment and recommendations to the Committee, after referring to the relevant performance data, including in some cases preliminary unaudited financials, as provided to the Committee by management. The Committee reserves the right to adjust upward or downward based on the final audited financials.

The financial goal achievement for fiscal 2010 was not attained as we incurred a negative OPBT during the fiscal year. In order to reach a minimum payment level for the financial goal, the AIP required the achievement of an OPBT above $0. The non-financial corporate goals achievement was at 55% (on a weighted average basis) for the first half of fiscal 2010 and 87.5% (on a weighted average basis) for the second half of fiscal 2010. The non-financial corporate goals included specific engineering milestones, the successful launch and design wins of the MaxIQ product line and other targeted ADPT products within large datacenter accounts, partnership agreements relating to compression and encryption, Intellectual Property sale transactions and a reduction of operating expenses. The Committee established these goals as stretch goals and believed that, taken as a whole, they were achievable, but challenging to accomplish. As a result of the level of achievement, the Committee approved a funding budget for the AIP Pool of 35.625% for the fiscal year. The funding budget was determined by the following weighted average calculation: (55% x 25% corporate goals for the first half of fiscal 2010, or 13.75%) plus (87.5% x 25% corporate goals for the second half of fiscal 2010, or 21.875%) plus (0% x 75% financial goals, or 0%) = 35.625%. Using its discretion, the Committee recommended, and the Board adopted, a zero cash bonus incentive award for Mr. Sundaresh for the non-financial corporate goals achieved in the first half of fiscal 2010. Mr. Sundaresh was not eligible for the non-financial corporate goal attainment award for the second half of fiscal 2010 due to his termination on January 4, 2010. Ms. Dotz’s budgeted target was $132,500 for the first half of fiscal 2010 and $162,500 for the second half of fiscal 2010; the Committee approved an actual non-financial corporate goal attainment award of $16,000 for the first half of fiscal 2010 and $18,000 for the second half of fiscal 2010. The amounts were determined after taking into account Ms. Dotz’s leadership, fiscal management, and participation in the Sale of Operations. Mr. Lowe’s budgeted target was $120,000; the Committee approved an actual corporate goal attainment award of $12,000 for the first half of fiscal 2010. Mr. Lowe was not eligible for the corporate goal attainment award for the second half of fiscal 2010 as he was terminated on March 5, 2010. The amount was determined after taking into account Mr. Lowe’s project management of the launch of SSD Cache products in datacenters and the project management of the patent clusters. Messrs. Noellert and Quicke were not eligible to participate in our AIP.

The following table provides information with respect to the cash bonus incentives earned under the AIP in fiscal 2010, which for each named executive officer was significantly less than his or her annual target.

Equity-Based Long Term Incentive Compensation.    The Committee prefers to use stock options and performance-contingent stock awards to ensure that our executive officers have a continuing stake in our long-term success and to better align their interests with the interests of our stockholders. The Committee continued the past practice of granting options with a three-year vesting schedule to promote stockholder value growth, and introduced performance-contingent stock as a substitute for some of what would have been, in the past, time-based restricted stock grants. Vesting of the performance-contingent stock is tied to us achieving positive OPBT of 10% of revenue and a return on net assets of 20%. Stock options were also granted in August 2009. Additionally, Ms. Dotz was granted shares of restricted stock contingent upon receiving consideration in the Sale of Operations in an amount greater than $20 million. Ms. Dotz received this grant in December 2009 as an incentive to retain her and due to her increased responsibilities in assisting with the Sale of Operations. The Committee believes that performance-contingent stock and stock options provide management with an incentive to improve financial performance for the benefit of stockholders while also minimizing potential dilution and compensation expense.

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The 50th percentile of the Radford surveys noted above was generally used as a reference point in setting the level of executive officers’ equity awards. The Committee evaluated the value of awards to determine a recommended range for each of our executive officers based on their relative positions and responsibilities. Mr. Sundaresh’s equity compensation was evaluated by reference to the CEO position; Ms. Dotz to the CFO/Senior Financial Executive position; Mr. Lowe to the Senior Business Development Executive and/or the Senior Marketing Executive position; and Mr. Noellert to the Senior Worldwide Sales Executive position. The Committee granted options covering a larger number of shares subject to three-year vesting and a larger number of shares of three year performance-contingent stock rather than two-year time-based restricted stock due to its desire to emphasize longer term financial performance with the goal of benefiting our stockholders. The lower number of shares subject to awards granted to Mr. Lowe reflects the more limited nature of his business development role compared to the financial and sales roles held by Ms. Dotz and Mr. Noellert, respectively. The cumulative value of the awards were determined by calculating the stock option award value using a Black-Scholes methodology, and the time-based and performance-contingent restricted stock awards using their full-value at date of grant. The results were then compared to the 50th percentile of equity grants noted in the Radford surveys above.

The following table provides information of all equity awards granted to our named executive officers during fiscal 2010.

The “Grants of Plan-Based Awards” table below further describes the stock option grants and performance-contingent stock awards made to the executive officers during the fiscal year.

All equity-based awards have been reflected in our Consolidated Financial Statements. 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 and Board meetings. The exercise prices of options are determined based on the closing price of our common stock on the date that the grants are approved.

Perquisites.    Our executive officers are eligible for the same health and welfare programs and benefits as other ADPT employees. In addition, all vice president level executives, 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, and

survivor benefit management services up to a maximum of $3,000. Mr. Quicke is not eligible to participate in any of the aforementioned perquisites.

Employment Contracts

As of March 31, 2010, we had entered into written employment agreements with each of our executive officers, except for Mr. Quicke, our Interim President and CEO, based on an assessment of competitive market terms and a determination of what is needed to attract and retain the executive officers. These employment agreements 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 our 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 or her termination; (2) a one-time payment equal to 12 months of base salary for Mr. Sundaresh, and nine months of base salary for Ms. Dotz, and Messrs. Lowe and Noellert, plus an additional week of base salary for each year of service beyond three years of service with the Company; (3) outplacement services in an amount not to exceed $10,000 for Messrs. Sundaresh and Lowe or $5,000 for Ms. Dotz and Mr. Noellert; and (4) reimbursement for coverage for the executive officer and his or her dependents under ADPT’s health, vision and dental insurance plans pursuant to COBRA for a 12-month period for Mr. Sundaresh, and a nine-month period for Ms. Dotz and Messrs. Lowe and Noellert following the termination of employment. The Committee (including its predecessors) selected these amounts at the time these executives were hired by us (or promoted to an executive position) based on its reasoned judgment, including considering prior practice within ADPT, information gathered from outplacement companies and, for agreements entered into after the Committee retained Compensia in January 2007, severance data provided by Compensia.

Employment agreements for Ms. Dotz and Mr. Noellert had a three-year term. Employment agreements for Messrs. Sundaresh and Lowe did not have a term limit because they were given prior to term limit implementation by the Committee. Each of the employment agreements of Messrs. Sundaresh, Lowe and Noellert and Ms. Dotz also allow for the granting of stock options and stock awards under the captions “Executive2004 Equity Incentive Plan as deemed appropriate by ADPT’s CEO and/or the Board. In addition, the employment agreement for Ms. Dotz provides for: (i) the payment of a $25,000 retention bonus on each of October 1, 2008 and April 1, 2009 if she is an active employee of us on those dates, (ii) an option to purchase 125,000 shares of our common stock at a price equal to the fair market value of our common stock on the date of grant, vesting with respect to 25% of the underlying shares on the first anniversary of Ms. Dotz’s hire date and with respect to the balance of the shares in equal quarterly installments over the following 36 months of service and (iii) a restricted stock award of 50,000 shares, 50% of which will vest on the first anniversary of her hire date and the remaining 50% of which will vest on the second anniversary of her hire date.

Mr. Sundaresh’s employment with us was terminated effective as of January 4, 2010. In connection with his termination, the Company and Mr. Sundaresh agreed upon the following severance arrangement in consideration of Mr. Sundaresh signing a general release in favor of us (collectively, the “Separation Agreement”): (1) a lump-sum severance payment equal to $460,000, less applicable taxes and withholdings; (2) reimbursement of COBRA premium benefit payments for up to one year or until January 31, 2011; (3) acceleration of 398,334 unvested stock options, which became immediately vested and exercisable on January 4, 2010; (4) the exercisability of all vested stock options on January 4, 2010 will be extended to the later of six months after a closing of a Sale of Operations or September 30, 2010, unless the term of the option expires prior to any of those dates; (5) acceleration of 50,000 unvested restricted stock awards on January 4, 2010; (6) cancellation of 175,000 unvested restricted stock units on January 4, 2010; and (7) reimbursement up to $10,000 for legal fees incurred in connection with negotiating the Separation Agreement.

In addition, Mr. Sundaresh entered into a Consulting Service Agreement with us dated as of December 21, 2009 (“Consulting Agreement”). The Consulting Agreement provides that Mr. Sundaresh will receive $500 per hour for services provided through December 31, 2010, and will also be reimbursed for reasonable expenses incurred in accordance with our policies and practices. The Consulting Agreement also provides for Mr. Sundaresh to receive

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additional compensation based on the achievement of specified objectives, including objectives related to the potential sale or other disposition of certain of our assets and business operations. The Separation Agreement and Consulting Agreement supersede all prior agreements, negotiations and discussions between the parties.

Mr. Noellert’s employment with us was terminated effective November 20, 2009. In connection with his termination, Mr. Noellert received: (1) a lump-sum payment equal to twelve months of his target annual earnings, less applicable taxes and withholdings; (2) a lump-sum payment equal to $12,000, less applicable taxes and withholdings; (3) reimbursement of COBRA benefit payments until November 30, 2010; (4) outplacement services valued at up to $5,000 and (5) reimbursement of $6,539 for legal fees incurred in connection with the termination.

Mr. Lowe’s employment with us was terminated effective March 5, 2010. In connection with his termination, Mr. Lowe received: (1) a lump-sum severance payment equal to $260,000, less applicable taxes and withholdings; (2) a targeted bonus payment equal to $130,000, less applicable taxes and withholdings; (3) reimbursement of COBRA benefit payments until March 31, 2011; and (4) outplacement services valued at up to $10,000.

Change of Control

As of March 31, 2010, the change of control arrangements of our executive officers, except for Mr. Quicke, our Interim President and CEO, with whom we do not have a change of control arrangement or agreement, are set forth in their employment agreements, and 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 our successor after a change of control to assume his or her employment agreement, (3) his or her employment is terminated without cause by our 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 for Messrs. Lowe and Noellert (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 for Messrs. Sundaresh, Lowe and Noellert (nine months in the case of Ms. Dotz), (d) outplacement services not to exceed $10,000 for Messrs. Sundaresh and Lowe ($5,000 in the case of Ms. Dotz and Mr. Noellert), and (e) accelerated vesting of his or her stock options and restricted stock awards as provided for under the 2004 Equity Incentive Plan. The Agreements do not provide for any tax gross-ups.

Under our 1990 Stock Plan, 1999 Stock Plan and our 2004 Equity Incentive Plan, in the event of a change of control, any awards outstanding upon the date of such change of control will have “single trigger” vesting accelerated as of the date of such change of 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. As discussed more fully below, the Committee determined during fiscal 2009, effective for awards made on or after October 23, 2008, to no longer make awards that provide for “single trigger” acceleration. However, the Committee left unchanged a provision in our 2004 Equity Incentive Plan providing that, if within 12 months following a change of control, an employee is terminated for any reason other than cause (a “double trigger”), such employee’s awards outstanding upon such change of control that are unexercisable and unvested on such date shall become 100% vested and exercisable. As discussed above, as a result of the change in the composition of the Board, a “change of control”, as defined in our 2004 Equity Incentive Plan, occurred for awards granted prior to October 23, 2008. As a result, (i) 25% of a participant’s unvested pre-October 23, 2008 awards vested and (ii) if an equity award recipient is involuntarily terminated prior to November 5, 2010, all remaining then unvested pre-October 23, 2008 awards will accelerate and be 100% vested and exercisable on such employee’s termination date. No “change of control” has occurred for awards granted on or after October 23, 2008.

The Committee eliminated the “single trigger” acceleration of vesting upon a change of control described above, effective for all awards on or after October 23, 2008. With this change and the three-year term limit, we believe our future executive severance and change of control practices are now more 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 who could have other job alternatives that may appear to them to be less risky absent these arrangements. Except for the acceleration of a portion of the grants previously given to our executive officers as described above, our change of control arrangements for our executive officers are “double trigger,” meaning that acceleration of vesting does not occur 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 the appropriate balance between executive recruitment and retention, the needs of potential acquiring companies, who often place significant value on retaining an executive team, and our desire to contain the cost of any change of control to our stockholders.

Nonqualified Deferred Compensation

The ADPT Deferred Compensation Plan was terminated in fiscal 2008 resulting in the distributions of funds held under the plan during fiscal 2008 to the named executive officers who participated in the plan.

Compensation Risk Assessment

The Committee reviewed our employee compensation policies and practices and determined that such policies and practices, taken as a whole, are not likely to have a material adverse effect on us. The Committee review included all elements of employee compensation, with particular attention paid to our AIP and equity grants, which the Committee believes would be the elements of our compensation that would be most likely to lead to excessive risk taking. The Committee does not believe that the AIP has led to excessive risk taking for participating employees based in part upon the fact that maximum payments under such program are capped and non-financial corporate goals are also utilized to determine cash incentive payments. The Committee does not believe that equity grants to employees in the form of stock options subject to three-year vesting and three-year performance contingent stock have led to excessive risk taking primarily because such grants are designed to align recipient employees’ interests with the longer term financial performance of the Company, although the Committee regularly reviews these incentive instruments to ensure that their structure and terms continue to provide the proper incentives to management.

Consistent with the emerging trend to defer certain types of bonus payments to help ensure that a material portion of executive bonus compensation is dependent on subsequent events that confirm that the bonus was well founded, effectively tying these type of rewards more closely to the actual outcomes that stockholders experience, when the Committee recommended and the Board approved on June 17, 2010 a discretionary bonus for Mr. Quicke, our Interim President and CEO, 50% of the bonus award was deferred to December 31, 2010. Payment of the deferred portion of the bonus is subject to the Committee’s and the Board’s determination that the benefits expected from the sale of the DPS Business have been substantially realized by the Company. In light of the sale of the DPS Business (described under “Actions Taken After the Completion of Fiscal 2010”) and other changes to our operations, the Committee will be re-evaluating our compensation policies and procedures going forward. As part of this re-evaluation, the Committee also plans to consider the potential merits of early implementation of a clawback policy, consistent with the provisions in the recently signed Dodd-Frank Wall Street Reform and Consumer Protection Act.

Actions Taken After the Completion of Fiscal 2010

On May 18, 2010, the Committee approved a 4% increase to the annual base salary or annual target incentives for employees providing transitional services after the sale of our business of providing data storage hardware and software solutions and products (“DPS Business”) to PMC-Sierra, Inc., including the salary of Ms. Dotz, our CFO, retroactive to April 1, 2010. Effective April 1, 2010, Ms. Dotz annual base salary was $338,000.

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On May 18, 2010, the Committee also agreed to modify and accelerate substantially all employee unvested stock-based awards, including those related to Ms. Dotz, our CFO. The acceleration of the stock-based awards occurred the earlier of (1) June 8, 2010, the date the Company consummated the Asset Purchase Agreement with PMC-Sierra, Inc. for the sale of certain assets and for PMC-Sierra to assume certain liabilities related to the DPS Business or (2) the date in which an employee was involuntarily terminated (other than for cause) as part of the actions we took related to its sale of the DPS Business. In addition, the Committee approved cash bonuses of approximately $2.8 million in lieu of certain unvested-stock-based awards that were not accelerated for all employees, including Ms. Dotz, our CFO, for which Ms. Dotz received a cash bonus of $0.1 million. The actions approved by the Committee did not impact stock-based awards previously granted to Mr. Quicke, our Interim President and CEO, in his capacity as a member of our Board.

In June 2010, Ms. Dotz also received $0.1 million bonus due to the amount of consideration received for the consummation of the sale of the DPS Business to PMC-Sierra on June 8, 2010 in relation to the awards granted to her in December 2009, in which the achievement of a Sale of Operations occurred in an amount greater than $20 million. As a result of the bonus payment, the awards granted in December 2009 were cancelled.

On June 17, 2010, the Board, upon the recommendation of the Committee, approved a discretionary cash bonus of $500,000 to Mr. Quicke, our Interim President and CEO, in connection with his successful efforts to consummate the sale of the DPS Business to PMC-Sierra. Of the $500,000 cash bonus, $250,000 was paid in July, and the remaining $250,000 is payable on December 31, 2010, upon the Company substantially realizing the benefit from the sale of the DPS Business and an effective transition following the disposition of the DPS Business.

Ms. Dotz employment with us will terminate effective September 30, 2010. In connection with her termination, Ms. Dotz will receive: (1) a lump-sum severance payment equal to nine months of her base pay, less applicable taxes and withholdings; (2) a targeted bonus payment equal to $169,000, less applicable taxes and withholdings; (3) reimbursement of COBRA benefit payments until June 30, 2011; and (4) outplacement services valued at up to $5,000. These terms are consistent with Ms. Dotz’s employment agreement and were offered in consideration of Ms. Dotz’s agreement to execute a release in favor of ADPT. In addition, on June 9, 2010, the Committee agreed to provide a service-based retention award of $75,000 to Ms. Dotz to ensure a smooth transition, contingent on Ms. Dotz continuing as our employee through September 30, 2010.

Executive Compensation Tables

Summary Compensation Table

The following table provides information with respect to the compensation earned during fiscal years 2008, 2009 and 2010 by our former CEO, our CFO, and our two other highest paid executive officers who were serving as executive officers during fiscal 2010. The table also includes information regarding the compensation paid to our Interim President and CEO during fiscal 2010 for serving in such capacity. We refer to these five executive officers as our “named executive officers.”

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Grants of Plan-Based Awards

The following table provides certain information with respect to grants of awards made to the named executive officers during fiscal 2010. The table also provides information with regard to cash bonuses for fiscal 2010 under our performance-based, non-equity incentive plan to the named executive officers.